Why English Law Governs Global Deals.
US Supreme Court building
Governs Global Deals
Let us consider the following case.
In September 2011, a Chinese shipyard, Shanghai Shipyard Co Ltd, agreed to build an offshore drillship (a specialised ship designed to detect and extract oil or gas in deep ocean waters) for a Hong Kong conglomerate, Reignwood International Investment (Group) Company Ltd, which had no experience in offshore drilling. So, it was rather unsurprising when Reignwood later handed the contract to a Singapore subsidiary. Still, it had to be guaranteed that if the subsidiary failed to pay the yard, Reignwood would.[1]
The subsidiary refused to pay the $170 million that fell due on delivery, claiming that the drillship was not in a condition to be transported, and the shipyard turned to Reignwood for the money. Then, a number of questions came up – as they often do when substantial sums are involved: Had Reignwood agreed to pay as soon as a demand was made, leaving any points of dispute about the vessel (such as about potential defects) to be resolved at a later point? Or did it have to pay only after the subsidiary’s underlying liability had been established?[2]
What is more unusual, however, is that these questions were not raised anywhere in Shanghai, Hong Kong, or Singapore. In fact, they were to be discussed in London – first, before the Commercial Court, and then by the Court of Appeal, which in 2021 held that the guarantee was a demand guarantee and resolved the preliminary issues in favour of the shipyard.[3]
So, why in London? Neither party was British, nor did the transaction or the project itself have any relation to England. Yet, Clause 7.1 of their “Shipbuilding Contract” from 2011 provided that it be governed by English law and that the disputes were to be arbitrated in London.[4]
This case serves to demonstrate the point of inquiry this article is set to explore – namely, why international commercial parties choose English law as governing law for their contracts, and what is so special about English law that puts it on a pedestal.
English law is one of the two legal systems, alongside New York law, most frequently selected for international commercial contracts.[5] It is estimated that English law governs around 40% of the world’s cross-border business and financial transactions.[6] The International Chamber of Commerce’s most recent statistics provide even more concrete statistics: out of the 95% of cases registered in 2025, in which a choice-of-law clause appeared, English law was the single most frequently selected governing law, appearing in 13%.[7]
This seems to suggest that legal systems participate in something resembling a market for law. Stefan Vogenauer, a former professor of Comparative Law in the University of Oxford, describes this market as one in which States offer contract laws and dispute-resolution mechanisms to commercial parties, who can choose the system they consider most attractive.[8] It may sound convincing, but he also gives an important warning: the existence of such a choice does not necessarily prove that lawmakers are engaged in actual regulatory competition or that businesses conduct meticulous comparisons between the qualities of different laws before every single deal.[9] The market may be real in practice, but it cannot be said that it is perfectly competitive or perfectly transparent or perfectly rational (though it is debatable whether any market is such).
This article seeks to explore English law’s position in that market through its core principles, outlined by Lord Hodge, then Deputy President of the UK Supreme Court, in a 2025 speech on commercial law and economic prosperity: freedom of contract, party autonomy, certainty, and flexibility.[10] It should be noted that he describes freedom of contract as one of the key principles, with party autonomy one of its dimensions, but this article considers party autonomy separately, due to its distinct role in international commerce – namely, the mechanism that allows foreign parties to choose English law in the first place.
Together, these core principles help explain English law’s current position, but to an extent. In fact, English law’s success is also reinforced by precedent, specialist courts and arbitral institutions, experienced lawyers, and decades of familiarity. Businesses choose English law partly because of what it offers and partly because the world of commerce already knows how to use it.
Lord Hodge describes English commercial law in a interesting way - as a product of both history and deliberate legal development, which neatly highlights the idea that as commercial practices evolved, the common law developed, too, in order to accommodate the changing commercial reality. [11] Today, we have a system built around four principles: freedom of contract, party autonomy, certainty, and flexibility. It is not just the principles by themselves, but more so the attraction of English law lies in the interaction between them. These principles are very closely connected, but not interchangeable, because ach answers a different question. What can the parties agree upon? Which legal system may they choose to govern their agreement? How confidently can they predict the results of said agreement? And can that legal system accommodates potential changes in the circumstances? To answer these questions, a comprehensive investigation of each principle is due.
Freedom of contract constitutes the parties’ ability to decide the substance of their agreement. In other words, they can determine all intricacies regarding their bargain, such as what is to be supplied, how payment will be calculated, when does it become due, which risks each side will bear, which losses will be recoverable, and what will happen if something goes wrong.
Freedom of contract is especially valuable because a contract is not simply a piece of paper, solidifying their cooperation. It is a mechanism for allocatinng commercial risk. And commercial risk is a powerful force in the commercial world. It is considered to constitute the potential for financial loss or business failure, which may arise from everyday trade activities, non-payment of the customer, poor contracts, or changing market conditions. Clauses allocating commercial risk between the parties in agreement matter most precisely when significant hurdles present themselves, and respecting them allows the parties to decide in advance who carries which risks. As Lord Hodge puts it simply: parties tend to get what they bargained for and are held to their bargains. [12]
Yet, freedom of contract is not absolute. It exists alongside statutory controls and doctrines dealing with key issues like illegality, misrepresentation, duress, unfair terms and penalties. [13] The point is not that courts enforce everything written in the contract, but rather that negotiations usually begin from the assumption that parties’ allocation of commercial risk will be taken seriously.
And this exact assumption leads directly to the next question: how can two foreign businesses choose English law to govern that bargain at all?
In private international law, party autonomy refers to the principle that contracting parties are free to select the law governing their contractual relationship.[14] As previously mentioned, freedom of contract and party autonomy are related but also very distinct: the former allows parties to decide the substance of their agreement and the latter allows them to select the legal system that will govern said agreement.
Law is typically territorial, meaning that a person or a business cannot (usually) opt out of the criminal, tax, or regulatory law of the State in which they reside. International contract law is an exception. Article 3(1) of the Rome I Regulation sets out this exception: “A contract shall be governed by the law chosen by the parties.” Article 2 then introduces the universal application of the rule: the designated law applies “whether or not it is the law of a Member State.”[15] The United Kingdom retained the relevant Rome I framework in its domestic law following Brexit.[16]Meanwhile, courts in EU Member States continue to recognise choices of English law since the rule permits the selection of non-EU law as well.[17]
The Hague Principles on Choice of Law in International Commercial Contracts frame this provision even more precisely: Article 2(4) sates that “no connection is required between the law chosen and the parties or their transaction.”[18] The Hague Conference on Private International Law (HCCH) also explains that party autonomy is intended to increase predictability and legal certainty in cross-border trade. Thus, parties may select a legal system because it is neutral between them or because it is particularly developed in certain areas, for example banking, insurance, or maritime trade.[19]
So, how is the principle of party autonomy the device that creates the market for contract law? First, without it, English law would by and large only govern English transactions. Second, with it, England can supply its legal framework to parties with which it has no other connection to or claim to authority. For the parties themselves, this is a form of “buying” a method for allocating and managing their commercial risk.
Party autonomy also explains why governing law, jurisdiction, and arbitral seat must not be confused with each other. A contract may be governed by English law, while disputes are presented to an arbitral tribunal seated outside of England. Conversely, an English court may sometimes apply foreign law. The parties are choosing separate elements of the legal ecosystem for their agreement.
Again, it should be noted that this freedom is not unlimited. Overriding mandatory provisions and public policy may restrict the effect of a choice-of-law clause.[20] Nevertheless, in transactions between commercial parties, the governing-law clause is in itself treated as an important commercial decision. States are therefore placed in an unusual position. Their contract laws can be chosen or ignored by international parties. So, English law’s global position begins with a surprisingly simple fact: commercial parties are legally permitted to choose it.
Legal certainty in contract law is the extent to which parties can identify their rights and obligations in advance. Thereby, reasonably predict how a court will interpret and enforce their agreement. [21] For international businesses, this is far from an legal virtue. Certainty in the context of commercial law is what allows uncertainty to be converted into predictable commercial risk. However, complete certainty is impossible – language is imperfect, facts are always disputed, and litigation itself involves judgement.
Few cases illustrate both the attraction and the severity of this principle better than Arnold v Britton.
This infamous case concerns long-term leases of holiday chalets in a leisure park in the South of Wales. Under these leases, the tenants (Britton and others) had to pay an initial annual service charge, starting at £90 and increasing by 10% every year on a compound basis. In simple words, each year’s increase had to be calculated on the already increased amount from the previous year. It is quite evident how such a formula can produce enormous future charges. For example, on a lease granted in 1980, a charge that began at £90 had grown beyond £2,500 pounds by 2015 and is projected to exceed £550,000 pounds by 2072.
The tenants argued that this commercially disastrous outcome is not what the parties had intended.[22] So, they asked the court to interpret the clause differently: instead of the automatic 10% increase every year, the 10% figure should be read as an upper limit to the proportion of Paddy Arnold’s (the landlord) actual costs that they had to pay.
The UK Supreme Court rejected that argument and dismissed the appeal. Lord Neuberger, who was then President of the Supreme Court, stressed that commercial common sense should not be used to “undervalue the importance of the language” the parties had initially chosen.[23] The results in the future may have proven to be severe, and yet the underlying message of the court’s decision was quite unforgiving: it would be against the principle of legal certainty to replace clear contractual language only because the consequences it imposes in the future are unjust.
These tensions are precisely why Arnold v Britton is a well-known contract law case. If analysed retrospectively, the judicial restraint may look unforgiving, but analysed from the moment the commercial contract was being made, the same restraint has economic value, and one that cannot be ignored in the future. Therefore, it can be said that certainty in the context of commercial law does not promise a just bargain. What it does promise is that the bargain will remain comparatively recognisable, and especially when things go south.
Certainty alone cannot explain the attraction commercial parties find in English law, as there needs to be balance. With this notion in mind, the third principle in Lord Hodge’s account of English law is flexibility – the capacity of the law to accommodate the ever changing commercial reality and the just as unpredictable needs of market participants.[24] Flexibility does not imply that decisions will be made for each case according to whatever appears fair in the specific circumstances, because that would undermine the certainty businesses need in place. Rather, it means applying stable principles in a context-sensitive way and allowing the common law to gradually develop as new agreements reach the courts.
Wood v Capita Insurance Services Ltd shows precisely how English law tries to achieve such balance.
Capita purchased the insurance broker Sureterm Direct Ltd under a detailed share purchase agreement for ca. £7.68 million. Shortly after the acquisition, employees raised concerns that customers had been misled during earlier insurance sales. Capita and the company reported the matter to the Financial Services Authority and eventually put a compensation scheme into place. Capita then sought approximately £2.43 million from the sellers under indemnity in the purchase agreement. The problem was that the indemnity referred to losses arising from “claims or complaints” relating to the mis-selling. Furthermore, the compensation process had not been triggered by customer claims or complaints: the company itself had reported the problem to the regulator.[25]
Therefore, the Court had to decide whether the indemnity nevertheless covered Capita’s losses. Here, Lord Hodge explains that contractual interpretation is not a choice between literal wording and commercial context. The court seeks the objective meaning of the language the parties chose, considering both the contract as a whole and the relevant background. But the weight given to each depends partly on the nature and quality of the drafting. He clarifies: “Textualism and contextualism are not conflicting paradigms.”[26]
The Supreme Court dismissed Capita’s appeal on the grounds that the indemnity was not triggered simply because losses arose from the underlying mis-selling.[27] The significance of this case is not that context defeats text, because it did not. It is that English contractual interpretation is capable using both. Context helps the court understand the commercial agreement, but it does not give the court a license to substitute the agreement it considers more sensible.
It is interesting how Arnold v Brittan and Wood v Capita can be better understood together. The former shows why contractual language cannot be displaced simply because its consequences later appear rigid or unjust. The latter shows why respect for contractual language does not require reading it in isolation from the transaction. That is precisely the relationship between certainty and flexibility: flexibility operates inside, rather than instead of, the bargain.
English law’s success cannot be understood comprehensively, if we only look at its own merits.
Its position in the market for law becomes more meaningful when compared with a serious civil-law alternative, such as Swiss law. First, it is crucial to note that the distinction should not be reduced to common law being flexible and civil law being concrete and codified, because Swiss private law also protects contractual autonomy and relies on case law and doctrine alongside its legal codes.[28] The difference lies more in the general legal architecture. English commercial law develops heavily through precedent and interprets contracts objectively, asking what the parties’ words would mean in their commercial contexts. Swiss law, on the other hand, begins more visibly from codified principles: Article 2 of the Swiss Civil Code requires good faith, while Article 18 of the Code of Obligations gives priority to the parties’ true and common intention, and where that cannot be established, Swiss courts move to an objective interpretation based on good faith.[29] All in all, both systems offer sophisticated and predictable frameworks, but they organise the contractual uncertainty in different ways.
The ICC’s 2025 statistics mentioned in previous sections reflect that competition: English law governed 113 newly registered cases compared to 50 governed by Swiss law.[30] This comparison suggests that English law’s attraction cannot simply be explained by the superiority of the common law tradition over that of civil law. Its advantage lies rather in the particular combination of precedent, contractual certainty and flexibility, and the wider legal ecosystem surrounding it.
Another comparison of particular significance for this article’s argument is that of English law against New York law. Strictly speaking, there is no single “US contract law”, since contract law is largely governed by individual states, but New York is its most important international commercial competitor. Both systems strongly protect bargains negotiated between sophisticated parties: the New York Court of Appeals has described freedom of contract as a "deeply rooted” public policy and linked to enforcement of commercial agreements with certainty and predictability.[31]
One notable difference is that New York law implies a covenant of good faith and fair dealing into every contract, whereas English law has traditionally resisted adopting one general overriding doctrine of good faith and has instead developed more specific rules.[32] There is also a practical difference in concentrations. In the 2025 registered ICC cases, the laws of all US states combined appeared in as many cases as English law, but New York accounted for only 64 of them.[33] Therefore, it can be concluded that English law does not dominate because New York offers an inferior alternative. Rather, it does because it benefits from combining comparable commercial sophistication with a more highly recognisable and internationally familiar body of law.
Thus, the comparison of English law with Swiss law and New York law shows why it would be misleading to claim that English law is universally superior. Competing systems can offer autonomy, predictability, and high-level dispute resolution mechanisms as well.
Although such comparisons are useful to understanding English law’s position as leader in the market for contract laws in the commercial world, it is important to continue going beyond the doctrine of English law itself, which is why we turn now to the fact that commercial parties do not experience law simply as a collection of rules.
A governing law becomes especially attractive when institutions can apply it effectively. English law benefits greatly from specialist courts, arbitral tribunals, internationally active law firms, and a large community of experts who are very familiar with complex commercial agreements.
The London Court of International Arbitration’s 2024 caseload was by large very international: 95% of its cases involved at least one international party, drawn from 101 jurisdictions. London was selected as the arbitral seat in 89% of its arbitrations, while the law of England and Wales governed 78%.[34] The 2025 Queen Mary University of London and White & Case survey ranked London in first among the world’s preferred arbitral seats, including Singapore, Hong Kong, Beijing, and Paris.[35] Lord Hodge similarly reported for the English Commercial Court that at least one international party appeared in approximately 64% of its cases in 2023.[36] More broadly, the common law underpins roughly 27% of the world’s 320 jurisdictions, and in specific fields such as maritime law more than 80% of the world’s maritime arbitrations are estimated to be seated in London.[37]
As noted previously, governing law, arbitral seat and jurisdiction remain legally distinct. While governing law dictates the substantive legal rules used to interpret the contracts, the arbitral seat decides which the supervising court of arbitration is, and, finally, jurisdiction establish the broader legal doctrine overseeing the dispute resolution. Nevertheless, their establish together a shared infrastructure of immense power. Businesses do not simply choose a set of rules to govern their contract, because with them they also obtain access to judges, arbitrators, and lawyers who have repeatedly applied those legal rules to a number of areas in the field of law and other complex markets such as shipping, finance, insurance, and energy.
What international businesses choose is therefore not only the English law, but rather an entire interpretive ecosystem.
because it already is
There is also another supporting explanation that is less flattering for English law but still claims legal superiority: it benefits greatly from its own popularity.
Its historic use in shipping, finance, insurance, and commodities have produced standardized contracts, legal expertise, and established expectations for centuries. Lord Hodge also describes history as an important advantage for English law: many rules of international commerce that remain useful today were formulated when the UK was unrivalled in its influence in world trade.[38]
Once a system is widely used, familiarity becomes of great commercial value itself. Law firms already have long-standing and reliable English-law templates. And they are not the only ones who have developed standardized practices, as, for example, banks have internal policies constructed around them, insurers have experience pricing relevant risks, courts and tribunals have interpreted many similar clauses. Changing the governing law could therefore easily require introducing new methods, retraining legal experts, redrafting established templates, and great uncertainty even where another system offers an equally sophisticated legal base.
This is where Stefan Vogenauer’s caution aforementioned is particularly relevant: he claims that the popularity of a certain legal system does not necessarily prove that businesses have compared every available law in the details such a legal system would require, and selected the objectively best one. It is more probable that it reflects familiarity and other non-substantive considerations.[39] His further research challenges the assumption that meaningful regulatory competition between contract laws can be confidently established from choice-of-law data alone.
It would not be implausible to claim that English law may be attractive partly because of what its rules establish and partly because other market participants are already very familiar with them.
A definitive answer is not amongst the objectives of this article but there are a few points that can be considered when thinking of conducting a comparative answer.
First, precedent can generate complexity, but also certainty. The existence of hundreds of relevant judgments may improve predictable outcomes for parties, especially those who are able to afford specialist advice.
Second, English law’s caution toward broad standards invoked by other legal systems. For example, as good faith has an important trade-off. A legal system with a stronger general duty of good faith may be better equipped to respond to opportunistic behavior that avoids the literal wording of the contract. As seen in Arnold v Britton, English law protects the predetermined allocation of commercial risk, but that may sometimes come at the expense of justice.
Third, apparent preference may also represent inertia. Lawyers may recommend English law because earlier agreements used it, not because it is uniquely suited to the one at hand.
The ICC’s 2025 figures also prove that English law does not govern the international market alone. It competes with New York law and with the ever more advancing systems in Asia.[40]
A more defensible claim than English law being universally superior would be that it is particularly well positioned for agreements in which parties value the freedom to allocate commercial risk, detailed precedent, predictable enforcement, and responsive institutions.
English law’s current position is undeniably strong, but not necessarily guaranteed. Lord Hodge identifies the common law’s ability to respond quickly to new conditions while preserving stability as one of its greatest attributes. Digital assets, artificial intelligence, and new forms of financial technology will definitely test that ability in the foreseeable future. Lord Hodge argues that the common law’s ability to respond gradually can complement state regulation where fast-moving commercial realities develop significantly more quickly than legislation. [41]
It should be also noted that the same features that made English law successful can also be developed elsewhere – specialist commercial courts can be established in competing jurisdictions and arbitration as well as legal expertise are mobile. English-language judgments and common-law methods have not been exclusive to London for a while now.
Therefore, the future depends on whether English law can remain flexible without sacrificing the certainty it provides. The advantage that English law has is durable, but maybe not permanent. It has to be continuously reinforced with caution and flexibility.
If we go back to Shanghai Shipyard v Reignwood, it is more clear that the parties did not choose English law because England had the closest connection to their agreement or because of some other sentiment. Nor it was chosen because they expected it to produce the fairest possible results. So, a more convincing explanation would be that English law offered a familiar way to make the consequences of their agreement comparatively predictable.
In addition to that, freedom of contract allowed them to allocate their risks. Party autonomy allowed them to place those risks under English law. Certainty made the legal consequences easier to assess. As seen in Arnold v Britton the value (and occasional severity) of certainty is invaluable to contract law, and in Wood v Capita it does not require rigid literalism to work effectively. Furthermore, flexibility allowed the court to interpret the agreement within its commercial setting. And it is worth mentioning that precedent and specialist institutions then gave those four characteristics practical force.