Leigh Crestohl examines how London could become Europe's arbitration hub post-Brexit in Law360

March 17 2021

This article was originally published in Law360 and can be accessed here

Leigh Crestohl, Partner

How London could become Europe's arbitration hub

During the transition period which followed the UK’s withdrawal from the EU, considerable speculation emerged about what might result from a “no deal” Brexit. Some optimists looked to Singapore, suggesting a potential future for the City of London as an offshore or mid-shore European financial services hub.

The notable exclusion of financial services from the UK-EU Agreement [fn]Trade and Cooperation Agreement Between the European Union and the European Atomic Energy Community, of the One Part, and the United Kingdom of Great Britain and Northern Ireland, of the Other Part, 24 December 2020 (“UK-EU Brexit Agreement”) [/fn] may provoke renewed interest in that idea. But the Singapore model might be more immediately relevant for arbitration users and practitioners across Europe.

Although criminal matters are subject to reciprocal law enforcement and judicial cooperation, [fn]UK-EU Agreement, Part 3[/fn] no similar cooperation is anticipated for civil and commercial matters. In summary, on 31 December 2020, the Brussels Regulation Recast [fn]Regulation (EU) 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters [/fn] and the body of rules regarding service, [fn]As to service, see Regulation (EC) No 1393/2007 of the European Parliament and of the Council of 13 November 2007 on the service in the Member States of judicial and extrajudicial documents in civil or commercial matters (service of documents)[/fn] jurisdiction, and reciprocal enforcement and regulation of court judgements (“Brussels Regulation system”), ceased to apply between the UK and EU member states. 

The decision may have been deliberate. Thanks to the political narrative around sovereignty, retaining the Brussels Regulation system without acknowledging some role for the European Court of Justice (ECJ) may have been simply impossible to achieve. For commercial dispute resolution, the outcome has, nevertheless, had the same practical effect as a “no deal” scenario.   Of course, there are international conventions that replicate features of the previous Brussels Regulation system. [fn] E.g., Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters signed 15 November 1965 [/fn]. But characterised by uncertainty, lacunae, and cumbersome procedures, they are an imperfect substitute, with corresponding increases in delay, costs and risk.  A detailed analysis of those issues falls beyond the scope of this article, but a helpful summary is available in guidance notes prepared by the Law Society of England and Wales. [fn] See the series of individual links under the heading “Civil Judicial Cooperation” here [/fn].

Because of omissions in the UK-EU Agreement, parties face considerable uncertainty in relation to potential disputes. This further serves to highlight the important role that commercial arbitration can play: offering parties most advantages of the previous Brussels Regulation system, but without reliance upon national courts, except for those matters outside the scope of the previous system in any event (arbitration being generally excluded in the Brussels Regulation Recast) such as curial supervision in support of arbitration or enforcement under the New York Convention

It is also pertinent to look at the trajectory of Singapore, which has gone from strength to strength over the past two decades as a regional hub for resolving Asian disputes. In a post-Brexit world, London now has a similar opportunity to strengthen its position as the leading “arbitration friendly” jurisdiction in the region, and to become the regional hub for European parties in dispute. 

London has long been a pre-eminent seat for resolving international commercial disputes through arbitration.  Several factors are likely to contribute to this.

First, there is the end of the Brussels Regulation system in the UK, which creates uncertainties and risks in resolving commercial disputes that have a cross-border European dimension. This suggests that there will be a burgeoning market in arbitration services, fuelled by UK parties as well as by multinational companies which have traditionally used London as a gateway to Europe.  Commercial parties that may in the past have relied upon English forum selection agreements, may explore arbitration as a more certain strategy in the current climate.  Accordingly, we are likely to see an increase in demand.

Another driver is trade. As the EU continues to expand its trading relationships, primarily through trade deals, such as the Comprehensive Economic and Trade Agreement (CETA) with Canada and its free-trade agreement with Singapore, the number of disputes involving non-European parties is also projected to increase. Because of history, common legal systems and language, several of the EU’s most significant trading partners (e.g., USA) have stronger affinities with the UK compared to other European arbitration seats.  This is further reflected by the continuing preference for commercial contracts to be drafted in English and being subject to English law.

London also has a highly sophisticated and mature legal ecosystem.  Having been at the epicentre of the Industrial Revolution in the eighteenth century, and more recently, the big bang of financial services in the 1980s, English lawyers have long been at the forefront of creating legal solutions that accommodate commercial, scientific and technical developments.  Notwithstanding Brexit, London has retained a very deep pool of experienced practitioners, both in EU law, and across a wide array of other legal and technical areas of expertise. 

Geography also plays its part. Transport links - between London and Europe, and the rest of the world - are abundant and well-developed. The UK is only one hour behind Central European Time and five hours ahead of North America’s key financial centres in North America.  Moreover, the UK’s legal system, underpinned by the quality of its judges, enjoys a widespread reputation for integrity, honesty and neutrality. 

In a post-Brexit environment, there is no doubt that commercial arbitration represents a practical means of navigating the uncertainties and risks involved in complex dispute resolution. Given the anticipated increase in demand and a future of even greater global trade involving Europe, London now has an unparalleled opportunity to position itself as the natural hub for arbitrating European commercial disputes.

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