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Comment: Singapore swing – HSF’s Leydecker on the island state’s threat to the dominance of English law

English lawyers have long had an edge over their US and continental colleagues. English law was established early as the law of trade, business and increasingly projects – a throwback to the days of the Empire. This was a major driver of growth for UK-based firms in recent decades, but it is well known that New York law has become a rival to English law, especially in banking and finance, as corporates tap into the deep US debt markets.

However, more recently, we are seeing another trend that threatens the dominance of English law in Asia and further afield. Singapore law is increasingly becoming the go-to choice of governing law for Asia-Pacific cross-border deals and a strong choice for global deals.

There are a number of reasons for this, some of it the result of long-term and careful planning by the Singapore authorities to support its law. Already benefiting from a mature judiciary, the Singapore courts continue to look to English and other common law precedents for guidance, while forging their own autonomous approach to many areas of the law. This makes the legal regime feel familiar to western multinational corporations and, at the same time, closer to home for corporates from South-East Asian jurisdictions than English law.

Singapore is also keen to be seen as a neutral political player. An example is its approach to sanctions, where it adopts UN standards, rather than following the lead of the US and EU. This has led to a growing preference for Russian deals to be governed by Singapore law.

Other drivers have been the large increase in foreign direct investment (FDI) into the region in recent years. There is now more FDI into South-East Asia – specifically the five ASEAN countries: Indonesia, Malaysia, Philippines, Singapore and Thailand – than into China. Much of this investment is from China itself.

In 2001, China adopted a policy of going global and outbound FDI grew rapidly. By 2011, China was the sixth-largest foreign investor in the world, spurred on by the requirement for Chinese state-owned enterprises to hold 30% of their assets outside China. China’s ‘One Belt, One Road’ programme and the launch of the Asian Infrastructure Investment Bank have encouraged investment in infrastructure development in South-East Asia by Chinese investors. At the same time they are designed to cement regional connections.

Singapore actively encourages FDI and is seeking to reinforce its position as a regional hub by offering favourable investment terms and tax incentives for businesses to relocate. This is intended to capture the significant growth in trade within (and beyond) the South-East Asian region as those countries look to internationalise and their economies gradually open up.

The recent Trans-Pacific Partnership and other free-trade agreements between Singapore, the US and the European Union demonstrate there is an increasing global interest in the ASEAN economies. These agreements have significant potential to help lower tariffs and open markets. As a regional and international hub and a leading player in ASEAN, Singapore will benefit from this.

Against that backdrop, South-East Asian jurisdictions are becoming economically stronger and more confident. This is also driving a reduced willingness to be dictated to on matters such as the choice of law for contracts and there is less appetite to use the law of former colonial powers.

In the Singapore Academy of Law’s recently published survey of 500 lawyers and in-house counsel working on cross-border deals, 25% of respondents expressed a preference for Singapore law, compared to 48% for English law, 12% for New York law and 3% for Hong Kong law, with the remaining 12% split between others. I expect that, within ten years, Singapore law will overtake English law in this same survey.

At the same time, Hong Kong seems to be losing ground to Singapore as a dispute resolution centre and as a go-to choice of law. Some of this is about perceptions of neutrality or political influence over Hong Kong, although it is not clear how justified those are in reality.

But perceptions aside, it is clear that Singapore law is a real challenger to English law in the region and beyond. International firms have responded by securing Singapore law capability through government-recognised routes. Herbert Smith Freehills, for example, has recently established a foreign law alliance with Singapore law firm Prolegis.

Looking ahead to the next decade, Singapore will continue to develop as a regional hub for business, particularly legal business, in the Asia-Pacific region. The popularity of Singapore law will, no doubt, follow suit. I would suggest we can learn a lot from the Singapore authorities’ success in promoting its law. Maybe it is time for a concerted effort to remind clients of the advantages of English law.

Sonya Leydecker (pictured) is joint chief executive officer at Herbert Smith Freehills.