PARIS (Reuters) - France is considering creating a special court that would handle disputes over financial contracts governed by English law after Britain leaves the European Union, a move designed in part to help lure banks to Paris from the City of London.
Banks in Britain and throughout the European Union generally place their loan and derivatives contracts under English law, but under EU reciprocity rules any judgement is instantly enforceable in any EU jurisdiction.
A British exit from the EU’s single market would also mean leaving the so-called Brussels convention that requires recognition and enforcement of foreign judgements in all EU states.
The vast majority of derivatives and the contracts that underpin them are now handled in London, where an average of 885 billion euros of euro-denominated derivative trades are cleared every day, according to figures from the Bank of International Settlements.
Banks are already examining reworking contracts so their EU entities would be named as the involved bank not their UK ones.
That task would become more complicated if they had to change the law they were written under or find a workaround so they could still be enforced in the EU but arbitrated in London.
France’s financial markets law committee has sent a proposal to the Justice Ministry suggesting the establishment of special courts which would rule on matters under English common law and in English. Under EU codes, rulings would be enforceable instantly across the EU.
“We would need to recruit judges that have experience in common law,” Christian Noyer, a former Bank of France chief now tasked with winning business from London, told Reuters.
Banks have been developing plans for how to cope with a “hard” Brexit, which would see Britain leave the single market and customs union, and have considered varying degrees of upheaval to their British-bases businesses.
The Brexit process may have been complicated by May’s botched election gamble, which has led to calls in her party for a more business-friendly and softer tack to Britain’s departure.
“The enforcement of judgements rendered in the UK will not be as swift, cost-free and automatic as it is today unless new rules are agreed between the UK and the EU,” said Valentin Autret, a litigation counsel at Skadden, based in Paris.
“Companies will consider strongly bringing action before courts in EU member states in order to benefit from EU rules on the recognition and enforcement of judgements,” Autret added.
In the race to win new business after Britain’s exist, Paris faces competition from European financial centres such as Frankfurt, Amsterdam and Dublin.
“A bank needs to know that if it submits a case to a judge, the decision will be implemented as soon as possible,” said Gérard Gardella, secretary general of France’s financial markets law committee.
The Justice Ministry did not respond to emails and calls for comment.
The committee proposes creating an international court within the Paris Commercial Court and a parallel court at the Paris Appeals court. Hearings, the examination of evidence, the exchange of papers and debates would all take place in English.
Some lawyers have, however, expressed scepticism.
“Any new French system is likely to rely on French judges only,” said Erwan Poisson at law firm Allen Overy.
“Resorting to foreign judges can obviously pose a problem in terms of sovereignty. But not doing so could make the new system less popular,” he said.
Other options are available to companies. The Netherlands is launching an international commercial court this year which would settle Dutch legal proceedings in the English language.
Depending on the assets involved and the cost of litigation, banks could also opt to seek arbitration.
Additional reporting by Olivia Oran in New York, Huw Jones and Anjuli Davies in London; Editing by Richard Lough and Edmund Blair