Why English Law Is Frequently Chosen to Govern International Trade Contracts?

Why English law is frequently chosen to govern international trade contracts

English law was developed as “common law” system derived mainly from the law imposed by the King in medieval times which was “common” to the whole land and was short on statute law and heavily reliant on case law: the decision of judges.
In contrast, “civil law” systems in Europe are founded on interpretations of the codification of Roman law given by the Emperor Justinian (AD 530). A defining feature of civil law system is that the law and guiding principles are set out in codified statutes and interpreted on a case by case basis by the judges and precedent is far less important than in the common law.
A general principle of English law is that parties are free to contract on their own terms and this is main attraction for the parties of international trade choosing applicable law to their contract.
There is lack of mandatory regulations and remedies in English law and the parties could certainly expect that their rights and obligations will not be subject to undiscovered rules of mandatory law.

Lord Stein in his article mentioned that “The commercial advantage of the English approach is that it promotes certainty and predictability in the resolution of contractual disputes. And, as a matter of principle, it is not unfair to impute to contracting parties the intention that in the event of a dispute a neutral judge should decide the case applying an objective standard of reasonableness. That is then the context in which in English law one should interpret the proposition that effect must be given to the reasonable expectations of honest men.”

Simply to say - the law must respect the reasonable expectations of the contracting parties.

The expectations that will be protected are those that are, in an objective sense, common to both parties. The law of contract is generally not concerned with the subjective expectations of a party. The law does not protect unreasonable expectations.

The English law protects only expectations which satisfy an objective criterion of reasonableness.

Determining of what is objectively reasonable is the field where to somewhat extent “judicial activism” might be exercised where courts use policy considerations when determining commercial cases.

One of the most prominent example is the case Hong Kong Fir Shipping such term was the obligation of seaworthiness (which the shipowner had breached). But CA concluded that notwithstanding that this is an obligation that will be implied if it is not expressly incorporated, the obligation was innominate term. This gives the court the opportunity to decide whether or not the breach of the term/obligation was in the circumstances such that the injured party may repudiate.

This case clearly show that in international trade type contracts the courts are absolutely disinclined to allow a claimant to repudiate if courts are of the view that the real reason for the claimant whishing to repudiate is because the market rate has changed. The concept of innominate term gives enormous power to the courts to regulate the machinations of commercial contracts.
Approach invented in the case allow courts to determine whether or not a claimant should be able to repudiate in response to the defendant’s breach of contract… the courts are not unaware of the volatility of the shipping markets, and have striven to develop the law so as to prevent “sharp practice”. So the courts have by a purposive approach to the law (applying the law with other considerations as to what one wants from the end result, rather than just applying the rules, which is what we call a “black letter” approach) allowed by the back door the doctrine of good faith which English law does not allow through the front door.

This case and a number of other cases are demonstrating how judiciary develops existing law in order to be in compliance with recognized commercial expectations of participants of trade.

The commercial environment is changing day by day and therefore commercial expectations of participants of trade are subject to evolution subsequently. The statutory acts are fulfill the function of the “skeleton” of law which cannot change rapidly while judiciary is able to respond demands of developing commercial environment and to apply statutory law according to current policy considerations by means of relevant interpretation of statutory law and of filling gaps where statutes are silent about certain circumstances, exercising this power with focus on the honest commercial men reasonable expectations.

Bearing in mind the fact that particular expectation of particular commercial men could be different from mentioned above external “reasonable expectations of the honest men” nevertheless English law remains most attractive domestic law on which parties of international transactions may rely doing their business.
Yury Chernienko

Used Publications:

1. Johan Steyn “Contract law: fulfilling the reasonable expectations of honest men”. Law Quarterly Review. 1997 2. Learning Module “MBA4701 Shipping Business Environment and International Trade”. Section 3.