Dubai Judgement Could Serve to Hold Banking Business in London
London’s role in the legal underpinning of financial markets is a point often forgotten amid all the Brexit talk about relocation, says Times business commentator Harry Wilson, and when something goes wrong there is about a 40 per cent chance that a case will end up in an English court.
Non-British companies and investors trade together safe in the knowledge that should a dispute arise they can fall back on common law to decide the matter, and a survey in 2015 found that 47 per cent of arbitrators chose London as their preferred place of resolution, against only 12 per cent opting for New York.
And while rival trading centres have set up their own courts to provide English legal oversight – the Dubai International Financial Centre is one example – Mr Wilson concludes that ‘there is nothing like the real thing’. Because while the use of English law had provided comfort to foreign banks and companies with operations in Dubai that they could rely on a solid legal framework, a recent ruling has made clear that may no longer be so after a judgement that lawyers Herbert Smith Freehills describe as a “damaging setback” for Dubai. Certainly financial services firms will be more wary about writing contracts under the DIFC courts and are likely to push for clauses specifying that any dispute must be decided by an English court, not a Dubai court using English law.
Even if Brexit leads to the growth of another European financial centre, former regulator Vaughan Edwards, now MD of independent regulatory consultancy MediusUK.com, says it is unlikely that English law will be dislodged from its central role in international finance. The Chartered Institute of Arbitrators puts the cost of taking legal action in other European countries at about a fifth higher than in the UK, giving a significant incentive to keep writing business under English law.
And for the City the prevalence of the English legal code in the financial markets could act as another magnet holding business here that otherwise might have left.