English law is a popular choice of governing law for many types of internationally mobile transactions. Many sectors of the UK economy account for large volumes of internationally mobile transactions governed by English law. For instance, English Law was selected as the most frequently used governing law by 43% of 600 survey respondents, and was often used in transactions with little or no other link to the UK.[1]Singapore Academy of Law (2019), ‘Study on governing law & jurisdictional choices in cross-border transactions’, April. Similarly, it is estimated that English law comprises 40% of all governing law in global corporate arbitrations. [2]TheCityUK (2020), ‘Legal excellence, Internationally renowned UK legal services 2020’, November.
- Global trade tensions may pose a risk to the use of English law internationally. We use four examples to illustrate a portion of the value of internationally mobile transactions governed by English law and the potential value to be gained or at risk from competition. In each case, stylised calculations demonstrate the scale of internationally mobile value.
- Maritime sector. English law governs the majority of global commercial maritime contracts. The UK maritime sector as a whole has been estimated to contribute up to £17bn annually to the UK economy. A 30% reduction in maritime-related business services transactions governed by English law could lead to a loss to the UK GDP of approximately £1.2bn. A 5% growth in this market could lead to a gain to the UK economy of approximately £200m per year.
- Commodity trading. In 2020, English law likely governed at least $11.6tn of global trading in metals (besides other commodities such as oils, fats, and grains). A 30% movement elsewhere of transactions on the London Metal Exchange would entail a reduction in trading value of $3.5tn. A 4% growth in global non-ferrous metals trading could represent an additional $464bn in annual trading value.
- ISDA swaps and derivatives. English law likely governed at least €661.5tn of global OTC derivatives trading in 2018. Impacts from Brexit have led to a reduction in average UK daily turnover of OTC euro interest rate swaps from $367bn in July 2020 to $92bn in January 2021 (corresponding to a decrease in market share from 40% to 10% for the UK in euro interest rate swaps). If 50% of lost euro denominated interest rate swaps transactions were to relocate back to the UK, average daily turnover would increase by $137.5bn.
- Insurance. English law governs many insurance and reinsurance contracts globally, and governs the majority of the £80bn of gross written premium in the London Market. If 30% of insurance activity currently in the UK market were to move elsewhere, this could represent a loss of £24bn in gross written premium and an impact on GDP of approximately £7.5bn per year. If there were to be a 5% increase in activity in the UK market, this could represent a benefit to the UK economy of over £1bn.
- The use of English law has been one of the drivers of the position of the UK as a location for internationally mobile transactions, including in these four examples. These examples serve to illustrate the value of internationally mobile transactions underpinned by English law in those sectors. In addition, there are many other examples where English law governs internationally mobile transactions with significant value—for instance, the total value of global mergers and acquisitions (M&A) deals governed by English law was approximately £250bn in 2019.[3]Oxera analysis based on data provided by Allen & Overy, and Dealogic (2020), ‘Value of merger and acquisition deals worldwide in 2019, by region’. Other examples include the construction sector, energy contracts, and bond issuance. A ‘true’ value of English law would include some of the value from each of these varied sectors. Indeed, the value of English law to the UK economy is likely to be far greater than the sum of these individual parts, due to agglomeration and network effects (as discussed in section 3) that we have not attempted to quantify for this report.
- Many opportunities exist for the use of English law to expand in existing and new addressable markets, and to play an important role in market developments such as the emergence of cryptoassets, fintech and sustainable investing. In these emerging fields, there is likely to be great value in providing a leading business platform and global market standard—i.e. the first-mover advantage.
