London should remain arbitration centre after Brexit

London is a well-established seat for international arbitration. This reflects London’s historical role in the development of commodities trading, insurance and shipping and the City’s status as a major international financial centre.

Around these industries have developed the infrastructure of international dispute resolution – courts, legal services and the legal framework for private dispute resolution by way of arbitration. 

As with many sectors, however, Brexit has given pause for thought as to what its effect will be on London’s role as a centre for dispute resolution in general, and international arbitration in particular. With Brexit (still) on the horizon, we ask whether London’s popularity as an arbitral seat will last and what it means for insurers?

All opinions on Brexit are, to some extent, crystal ball gazing and there remain many unknowns. We do know, however, that the Brexit date (for now) is October 31, 2019.

We also know that various corporations have been ‘Brexit proofing’ and reconsidering their structures, establishing companies under EU law and offices in Europe. HMRC has issued instructions to businesses on how to prepare for a no-deal Brexit. Commercially speaking, the global perception of the UK as a commercial hub may suffer as a result.

There are also concerns on a legal plane. Chief of these concerns is the enforcement of civil judgments. By virtue of its EU membership, the UK currently has a highly regulated structure for enforcement. The Recast Brussels Regulation allows for the reciprocal enforcement of judgments between member states. There are concerns as to what will be in place post-Brexit.

London’s strengths as an international arbitration centre include the enforcement of judgments that are principally relevant in the context of litigation. The New York Convention 1958, which deals with the cross-border recognition of arbitral awards, will continue to apply irrespective of the UK’s position within the EU.

There are currently 159 signatories to the New York Convention, including all EU member states. Accordingly, Brexit will not affect the enforcement of arbitral awards.

Attraction remains

English law remains a prominent choice for commercial parties, particularly in the insurance context. While there may be suggestions in some quarters that insurers relocating to the continent will be more likely to write a continental European law into their policies, this is unlikely to lead to a fundamental shift in practice.

English insurance law retains its attractions as a developed system of law. If insurers continue to share this view, then the choice of London arbitration makes sense; having London arbitrators decide English law cases.

With the Arbitration Act 1996 and the common law, England has a developed system of arbitration law and practice. The emphasis is on allowing the parties to get on with resolving the dispute in the way they decide and – subject to a few mandatory rules in certain aspects of the arbitral process – there being minimal scope for interference by the courts.

One of the key advantages of the English approach to arbitration is a strong presumption in favour of confidentiality of the process. Keeping the arbitral process ‘behind closed doors’ can be of particular concern to insurers. The English regime is stronger than that in many continental European jurisdictions.

While in theory, the Commercial Court in London and other courts with supervisory jurisdiction, are competitors of arbitration, they are nevertheless supportive of the resolution of disputes by private arbitration. The parties’ choice of arbitration is respected by the courts. 

The UK courts boast a reputation for neutrality and internationalism. In particular, the pro-arbitral attitude of the Commercial Court has historically driven parties to arbitrate in London. Combined with the tried and tested Arbitration Act 1996, London-seated arbitration is and remains an attractive option.

London has intrinsic merits as a dispute resolution centre. As these strengths are not contingent on EU membership, Brexit is unlikely to pose an existential threat to London-seated arbitration.

This is exemplified by the London Court of International Arbitration (LCIA) statistics, which clearly depict that London’s popularity as a seat of arbitration grows year on year, with an additional 32 LCIA arbitrations between 2017 and 2018. Further, 79% of arbitral parties in 2018 were international.

The picture may not be completely clear for some time, as current disputes may arise out of contracts containing arbitration clauses that were entered into before the referendum of 2016. However, as matters stand, there do not appear to be any particular signs that there has been a wholesale change of practice in the use of London arbitration clauses post-referendum.

Moreover, there may well be potential benefits for London as a seat of arbitration as a result of Brexit. When one door closes, a window opens. The European Court of Justice, in the West Tankers case determined that cross-border European anti-suit injunctions were incompatible with EU law.

Free from the constraints of the EU, the UK courts may once again make use of this valuable weapon for international disputes. This proactive supervisory role could be another factor giving London a competitive edge over EU arbitration centres.

The main risks to London as a seat of arbitration may not be connected with the EU or Brexit at all. There are plenty of other cities that are prominent arbitration centres in their own right and with their own focuses.

In particular, the growth of regional arbitration centres such as Dubai, Hong Kong and Singapore could take some business away from London. This fact, together with the relatively high cost of legal services in London, means the UK market for international arbitration cannot afford to be complacent.

While the future is never certain, on balance, London ought to be able to retain its position as a leading arbitration centre in spite of Brexit. Indeed, there could even be payoffs, such as a greater supporting role for the court in the use of anti-suit injunctions.

Who is to say that Brexit won’t even give arbitration in the UK a further boost of dynamism? There are, therefore, good reasons to think that London arbitration will continue to be a reliable venue for insurance disputes.

This article was first published by Insurance Day on 31 July 2019