Making international disputes domestic: the adoption of English language in national commercial courts

June 2023  |  SPECIAL REPORT: INTERNATIONAL DISPUTE RESOLUTION

Financier Worldwide Magazine

June 2023 Issue

Whether it be a share purchase agreement, joint venture agreement, shareholders’ agreement or non-disclosure agreement, cross-border transactions are very often governed by contracts written in the English language. The common language for international commercial transactions and a preferred language for a large proportion of international companies, such is the international nature of the English language that parties who are not nationals of, or domiciled in, the UK or the US (or any other country where English is not an official language) often elect to document their commercial transactions in English.

Perhaps unsurprisingly, therefore, such broad use of the English language in commercial transactions and contracts often results in: (i) English or US laws being applicable to those contracts; and (ii) jurisdiction being afforded to the courts or a forum in England and Wales or the US to resolve any disputes. Coupled with the fact that English law and the laws of various states in the US (for example, the laws of the state of New York) have long been regarded as offering parties entering into commercial transactions frameworks which provide predictability on the one hand and flexibility on the other, the domestic courts of both jurisdictions have developed a somewhat unrivalled experience and body of case law as regards resolving complex commercial disputes across jurisdictions and sectors.

According to ‘TheCityUK’s Legal Services Report 2022’, the US and the UK are respectively the leading legal services markets in the world, with both jurisdictions’ legal systems being the primary choice for parties when electing the governing law of their commercial contracts. As an example, the report estimates that approximately 80 percent of international financial contracts and long-term trade agreements contain provisions in favour of English or New York governing law.

Both jurisdictions have long-established and world-renowned international commercial courts dealing with a high volume of international disputes – in England and Wales, the Commercial Court, and in the US (as an example) the Commercial Division of the New York Supreme Court. Most recently, in 2022 the Commercial Court in England and Wales reported that 74 percent of cases it determined were international in nature – meaning either the subject matter of the dispute between the parties was not related to property or events situated within the UK or the parties were not based in the UK. In the 2021 International Arbitration Survey, London was the preferred seat globally (along with Singapore) for arbitration among survey respondents.

It is not only the domestic courts or forums in England and Wales and the US which have benefitted from the dominance of the English language in cross-border commercial transactions, but also international commercial arbitration institutions including the International Chamber of Commerce (ICC), London Court of International Arbitration (LCIA), American Arbitration Association (AAA), Singapore International Arbitration Centre (SIAC) and Stockholm Chamber of Commerce (SCC) – all of which offer services to parties seeking to conduct proceedings in the English language. The ICC’s 2020 Dispute Resolution Statistics confirm that despite the laws of 127 different nations, states, provinces and territories being selected as governing the relevant contracts, 80 percent of all ICC awards are issued in English. As a further example, the SCC reported that 48 percent of all cases registered by it in 2022 were administered in English, despite only three having their seat in London.

The legal services sector is taken to play a pivotal role by states in the operation of financial markets and in the wider economy more generally. KPMG’s 2018 report on the contribution of the UK legal services sector to the UK economy determined that the legal services sector generated approximately £60bn of economic activity (both direct and indirect gross value added (GVA)) in the UK in 2018. As recently as 2021, total revenue from legal activities alone in the UK was valued at approximately £41bn.

Notably, arbitration-related proceedings made up around 25 percent of the English Commercial Court’s work, with parties making a range of applications in support of the arbitral process, including for the appointment of arbitrators, the enforcement of awards and injunctions in support of proceedings generally. Clearly, however, the benefits of strong domestic commercial courts go well beyond simple financial metrics – benefits include access to justice and the development of a publicly accessible body of jurisprudence or case law in relation to the types of disputes that come before them or before arbitral institutions.

Against such a backdrop, it is unsurprising that the last 10 to 15 years have seen several initiatives and projects in jurisdictions outside the UK and the US, seeking to challenge the principle that the language to be used in courts is the national language (or one of them) of that particular state. The logic of offering to progress proceedings through the English language is that linguistic complications would no longer be a motive for parties to avoid those domestic courts.

Most recently in 2023, we have seen domestic courts taking more concrete actions, including in Germany and the United Arab Emirates (UAE), as outlined below.

Firstly, in January 2023 the German Federal Ministry of Justice unveiled new proposals to facilitate an all-English-language court. As it currently stands, while the German courts are able to provide interpreters, all legal pleadings and awards must be presented or issued in German. By contrast, where there is an objective reason for them to do so and where the parties agree that should be the case, the Ministry’s proposals would enable select district courts to determine that certain commercial disputes be conducted entirely in English, with any subsequent appeals on procedure or merits also conducted in English. The proposals further envisage the introduction of commercial courts to determine larger value disputes (currently recommended as encompassing disputes with a value in excess of €1m) with specialist judges appointed with “very good [English] language skills”. Decisions of the “English language courts” would be published in both English and German, and under the proposals, virtual hearings would continue to be made more accessible.

Secondly, in the UAE, new language rules (which formed part of the Civil Procedure Law (Federal Law No. 42 of 2022)) were issued on 2 January 2023 as part of a drive to make the UAE domestic courts a more desirable place to resolve international legal disputes. Article 5 of the UAE new Civil Procedure Law provides the president of the Federal Judicial Counsel or the head of the local judicial authority with discretion to: (i) set English as the official language of proceedings; and (ii) decide parties’ requests that a trial be conducted in English with all pleadings, submissions, judgments and decisions also in English. These new rules bring the local UAE ‘onshore’ courts more in step with the courts of the country’s two freezones: the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) – both of which have operated in English for some time.

These initiatives are in their early stages. The extent to which commercial disputes will be redirected from English and US courts and international arbitration proceedings is therefore somewhat of an exercise in crystal ball gazing. Nonetheless, in the context of corporate law, the state of Delaware provides an example of how taking active steps to attract business can be immensely successful. Delaware has been deliberate and active in offering companies an attractive and substantive body of corporate law and developing a dispute resolution system specifically adapted for corporate cases, with the aim of promoting business and the legal profession in the state itself.

The measures taken by the Delaware legislature have, over time, resulted in it being considered the leading state for the incorporation of US companies, with – according to the Delaware Division of Corporations 2021 Annual Report – more than 90 percent of US companies going public in 2021 being incorporated there. While attracting legal disputes outside the realm of corporate litigation plays little or no role in the actions or aims of the Delaware legislature, the fact that other US states have long tried to imitate its success is testament to the success such policies can have when implemented effectively.

The world will watch with interest to see whether the new UAE law or proposed German reforms will successfully convince parties operating under English language instruments to move away from the English and US courts or international arbitration, and instead refer disputes to national courts operating in the English language.

 

Sarah Walker is a partner and Liam Petch is an associate at King & Spalding. Ms Walker can be contacted on +44 (0)20 7551 2132 or by email: swalker@kslaw.com. Mr Petch can be contacted on +44 (0)20 7551 7542 or by email: lpetch@kslaw.com.

© Financier Worldwide

BY

Sarah Walker and Liam Petch

King & Spalding

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