City lawyers scorn government contract sanctions plan

City of London: fear regime would damage capital as dispute resolution centre

City solicitors have joined outspoken criticism of government proposals to make commercial deals with rogue states unenforceable in UK courts, arguing it will simply move overseas disputes to courts other than in London.

The City of London Law Society (CLLS) last week echoed complaints that a ‘contract sanctions’ regime would damage the capital as a forum for dispute resolution, made by the Bar Council in response to a recent Foreign Office consultation.

The consultation said the objective of the sanctions would be to deter deals with regimes that were beyond the scope of EU/UN sanctions, “further reducing [their] ability… to sustain themselves”. It would be implemented through the UN, the EU, or through UK primary legislation, “preferably in conjunction with additional states in major centres of contract law”.

If a contract sanctions regime was implemented, courts and tribunals would be prevented from enforcing contracts entered into with the targeted regime. In seeking responses, the consultation did entertain the possibility that it would harm the UK as a jurisdiction and simply displace work elsewhere.

It asked: “Should the UK become a less attractive place to settle contractual disputes, is there a long-term risk that some international businesses might move away from London towards emerging financial centres in jurisdictions where contract sanctions have not yet and might never be declared?”

Simon James, chair of the CLLS’s litigation committee, observed the consultation paper failed to cite any examples of English courts having enforced contracts that would be prevented by the proposed sanctions regime, raising doubts that it addressed any “gaps” in the current system.

He continued: “The reason there is no real gap is that, in practice, no one selling goods to a regime already subject to sanctions in the UK would agree in the contract to the English courts having jurisdiction over disputes arising from the contract… As a result, there will be no effect on the behaviour of those the proposal seeks to influence.”

He went on: “Even if the above is wrong, the UK should not act alone in imposing contract sanctions because that would have no real effect on those they are targeting, but it would drive business away from the UK to other jurisdictions. Better to act in concert with all major economies.”

Alasdair Douglas, chairman of the CLLS, predicted it was unlikely the government would risk upsetting the UK’s £25bn legal services market: “The government is acutely aware of the benefits to our economy of the use of English courts and arbitration in England by foreign litigants – I think it unlikely that they would wish to do anything to prejudice this position.”

In its response, the Bar Council took a similar line to the CLLS, saying: “The most likely result is that targeted regimes – or indeed the private sector – would simply avoid jurisdiction or arbitration clauses in favour of London. There are a number of other jurisdictions who either have already established themselves as a significant international dispute resolution [centre] or who are trying to do so [and] who, if they did not implement the same sanctions, would most likely promote themselves as offering an alternative jurisdiction to London courts and arbitration.”

There was a real risk to London, it said: “It is our view that the perception of an inability to litigate and/or enforce in this jurisdiction could have a very detrimental effect on the standing of London as a leading centre for international dispute resolution.”


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