So far, in this section, we have drawn upon economic theory to discuss the market failure in the ‘provision’ of English law. By ‘provision’, we mean growing the international user base with innovative offerings in new sectors (e.g. fintech and ESG as discussed in section 4.4), increasing market share in existing sectors, and promoting the use of English law for internationally mobile transactions more generally. This can range from raising awareness of the advantages of using English law to investing in and maintaining the already high quality of UK dispute resolution, judges and the judicial system in general, and support for UK-seated arbitration. Indeed, it is important to note that a cornerstone of the provision of English law is the function of an independent judiciary who apply, interpret and create the law. Managing the ‘provision’ of the law therefore means ensuring that the UK best takes advantage of the opportunities associated with this national asset.
There are two key considerations relating to the management of the ‘provision’ of English law.
First, promoting the use of English law is particularly important because English law exhibits a notable network effect—i.e. the benefit gained by English law users grows with the total number of users.
As more internationally mobile transactions in a specific sector are written under English law, English law then becomes a standard for contracts in that sector. Thus, there is greater incentive for users of that contract to use English law instead of deviating to a different governing law. A standardised contract can increase predictability and confidence between the parties involved and help lower transaction costs.The benefits of ‘standard setting’ have been discussed thoroughly in the context of the role of regulation within the economic literature. An example of this is the mandatory EU technical … Continue reading This in turn leads to an increase in the number of transactions, compared to the counterfactual without a standardised contract where parties have to choose a suitable governing law, draft and review each contract for every transaction they make.This is called the ‘market-creating’ and ‘market-growing’ benefits from standard setting. Ibid.
As a consequence of this dynamic, many sectors with internationally mobile transactions have a tendency to ‘tip’ in the sense that one governing law takes it all or dominates these transactions, due to the benefit from standard setting. As a result, this means that there is a significant incentive for competing governing laws to position themselves as an alternative to English law and to win the market (as we discuss in section 4.3, there is already some competitive pressure to win certain sectors and markets from English law).