4.2: English law provides significant value to the UK economy
To illustrate the value of internationally mobile transactions governed by English law, we use four examples from a range of sectors in the UK economy. In particular, we focus on the maritime sector (section 4.2.1), commodity trading (4.2.2), swaps and derivatives (4.2.3), and insurance markets (4.2.4). As we discuss in section 3.3.1 above, English law serves as a market standard, contributing to the UK’s position as a leading location for these internationally mobile transactions.
Besides English law, there are other factors that contribute to the UK’s position as a global centre for professional activities. We do not attempt to disentangle these factors, and instead look at the value of internationally mobile transactions governed by English law in prominent UK sectors as an illustration of the global significance of English law and its value for the UK. The four examples discussed are only a subset of the types of internationally mobile transactions that are governed by English law globally. Stakeholder engagement highlighted many other examples including in the construction industry, energy power purchase agreements (PPAs), insolvency and bond issuance, among other markets and sectors. Therefore, while the value highlighted through the examples in this section is significant, it will represent only a small portion of the overall value of English law for the UK economy. It is also important to note that while the UK gains the most economic value from these business activities if some parts of the transactions are governed by English law and physically located within the UK borders, there is also value from transactions under English law taking place elsewhere, as discussed in section 3.
Where international changes may pose a risk to English law’s status as a global standard for internationally mobile transactions, there is value at risk for the UK economy associated with the mechanisms discussed in section 3. A reduction in internationally mobile transactions governed by English law could reduce the volume of precedent derived from international cases decided under English law and the building of expertise throughout the legal system. If English law were no longer a global standard for internationally mobile transactions, the benefit gained by users would decrease as the number of users falls through negative network effects and it might be more difficult to attract lost activity back to the UK.
If English law were no longer a global standard for transacting internationally, UK businesses may be required to transact internationally under a governing law other than English law more often, increasing transaction costs. As explained in Box 3.1, transaction costs serve only to make transacting more costly and time-consuming, reducing the volume of transactions that businesses undertake. English law’s position as a global standard to govern many internationally mobile transactions affords UK businesses a comparative advantage through their familiarity with the law. This reduces transaction costs for UK businesses as they are less likely to need to use legal services advising on laws other than English law and may be able to use standard contracts for many of their transactions. Risks to the use of English law to govern internationally mobile transactions may lead to an increase in transaction costs.