Collateral Damage: Brexit’s Negative Effects on Regulatory Competition and Legal Innovation in Private Law

In a recent article I attempt to assess the consequences of Brexit for English and European private law. More specifically, I am interested in how the level of legal innovation in private law will be influenced by Brexit. I argue that Brexit will reduce the level of efficiency-enhancing legal innovation in Member States’ and European private law.

My analysis is based on the premise that regulatory competition between the EU Member States is, in principle, beneficial because it initiates a “discovery process” for new and, hopefully, more efficient legal products. It is based on the further premise that Brexit will reduce the level of regulatory competition in the EU. This is so because choosing UK legal products will likely be more difficult in the future—Member States will not be obliged to respect such choices to the same degree as under the current legal regime. As a consequence, Member States will be under less competitive pressure in the future to take note of popular UK, and in particular English, legal products and to improve their own laws as they currently stand. At the same time, reduced choice opportunities and choice certainty for private parties will also reduce the incentives for the UK to innovate—it will no longer be able to export its legal products to continental Europe as easily as under the existing legal regime. In essence, Brexit will eliminate a highly innovative competitor on the European market for new legal products in private law, reducing the beneficial effects of such competition.

There is another reason why we can expect the level of legal innovation in private law to decline after Brexit. In the past, the UK has not only been quite successful in developing and exporting private law products to other Member States: it has also made significant contributions to innovative private law-making on the European level. With Brexit, this is set to go. Private law-making on the European level will no longer benefit from the UK’s influence and contributions. Debates will be impoverished and the quality of outcomes might suffer.

I substantiate and illustrate the main thesis of this article with examples taken mostly from contract law and dispute resolution, company law and insolvency law.

Horst Eidenmueller is the Freshfields Professor of Commercial Law at the University of Oxford.