With odds shortening for a ‘fudged’ or no-deal Brexit, law firms are being advised to hope for the best but prepare for the worst, as the clock ticks down to March 2019. Grania Langdon-Down investigates
The UK’s legal services sector makes up 20 per cent of the total European legal market. However, recent economic forecasts by the Law Society and Thomson Reuters estimate that almost £3bn could be stripped from legal sector turnover and thousands of jobs could be lost by 2025 if the UK crashes out of the EU without a deal.
The original aim was for the withdrawal agreement to be finalised and agreed by the European Council (EC) meeting on 18 October. But Dr Helena Raulus, head of the Law Society’s Brussels office, says there is no expectation of concluding any negotiation by then, given the red lines on both sides of Northern Ireland, freedom of movement and the Court of Justice of the EU (CJEU).
‘The current plan is for an extraordinary European Council meeting in November,’ she says. ‘It is possible that a speedy political compromise is made on the Irish border question to ensure that the deal is sealed in time.’
However, this is likely to be a ‘fudge’, she warns. Constitutionally, a deal could still be done in March, with Article 50 extended to get the ratifications done.
But with the UK government releasing documents setting out ‘no-deal’ scenarios, including in civil justice, family, VAT and data protection, Raulus says the consequences of a rushed or no-deal ‘Pandora’s box’ exit are potentially so severe that all law firms should be looking at their risk management.
So what do law firms and sector commentators see the future holding, and how are they preparing for the uncertain times ahead?
The impact on firms
Firms with strong European ties have been looking at how exposed they and their clients may be. Many have had Brexit teams in place for months looking at potential risks around both the external challenges of advising clients when so much is still uncertain, and internal issues, such as possible changes in their staff’s employment status, the status of their EU offices, pension rights, and double taxation.
Other issues include how firms hold and process data; controls on cross-border banking arrangements; the need for extensive training on any new agreements and conventions; and the professional indemnity implications for getting advice wrong.
In the short term, the profession might prosper because of all the uncertainties. But in the longer term, that uncertainty could have an effect on the UK as a global jurisdiction of choice
‘All our staff in Brussels are EU27 nationals,’ says Raulus, who is from Finland. ‘But we may have trainees from the UK on secondment, and I may have to consider whether I have to send them back if their status here is unclear. The Law Society in London is very much aware that it has a lot of EU27 nationals working in Chancery Lane.’
Tony Williams, principal of Jomati Consultants, says most firms with strong European ties or employing a number of EU27 nationals have taken three key steps:
- encouraged lawyers who are entitled to either an EU27 or a UK passport to obtain one
- admitted some lawyers in another EU jurisdiction to keep practice rights in the EU courts and legal professional privilege if mutual recognition goes
- reviewed the legal structure of their offices across Europe to see what changes they may have to make.
But it is not just international firms that need to prepare.
Ann Harrison is chair of the Law Society’s Law Management Section committee. As chair of top-150 law firm Stephensons Solicitors, she is responsible for strategy, as well as risk and compliance.
‘All our work is within our own borders, so our focus is on preparing for what may happen to the UK’s economy post-Brexit,’ she says. ‘We are trying to make sure we are as watertight as possible for the potentially stormy waters ahead.’
She suspects that smaller firms which deal with local matters or high street firms may not think Brexit will hit them.
‘We may not know anything for certain until we get to the 11th hour, but it is vital not to be caught unawares,’ she says. ‘Everyone should be keeping on top of their housekeeping. Make sure your bills are done on time, your debts are collected, you aren’t carrying any fat, and you have the right people in place.’
Virginia Farquharson is director of management at London firm, Payne Hicks Beach. An accountant by training, she is a member of the Solicitors’ Financial Management Group.
While most of the firm’s international client base is from the Middle and Far East and the US, she says a general loss of business confidence over a bad deal or no deal could result in a temporary reduction in work for all firms.
‘From our perspective, it is very important to be a prudently managed firm, with a financial cushion if times get tougher,’ she says. ‘But while some firms may suffer, there will also be opportunities for well-managed firms. Clients are wanting advice about Brexit, and our immigration department has seen significant growth. The key thing is to make sure you don’t just survive if there is a downturn, but flourish.’
One issue likely to affect all firms – and individual solicitors – in one way or another is around employment law.
The government initially said EU workplace protections would be kept and there was no carve-out for employment law in the EU (Withdrawal) Act 2018. But, with the prospect of no deal, everything seems to be up for grabs.
Max Winthrop is a partner with Newcastle-based commercial practice Short Richardson & Forth and chair of the Society’s Employment Law Committee. ‘The broad thrust initially was to keep everything in place – the transfer of undertakings, working time, discrimination, and part-time workers’ protections,’ he says. ‘If you detect a note of hesitation, that is because I have some doubts how this will work in practice and how long it will be before people try and chip away at what is meant by European law.
‘Firms need to think about where their workers are coming from. How reliant are you on filling gaps with EU workers without having to worry about tier-2 applications? If you use graduates from Estonia to do your document recovery work as part of a disclosure centre outside London, you may have to change how you structure your recruitment.’
Your clients aren’t paying you to be a passive spectator and to tell them they got it wrong after the event
Max Winthrop, Short Richardson & Forth
Meanwhile, a report on the UK legal market by the lobby group TheCityUK, which includes top City law firms, points out that the UK has committed to remaining open to the 200 foreign law firms, from around 40 jurisdictions, including EU member states, which are based here and employ 10,000 people.
But without a reciprocal agreement, the position could be very different for the 1,300-plus solicitors who practise in one of the EU27 member states. And what of UK law firms which have set up offices in the 31 EU / European Free Trade Association (EFTA) countries – numbering some 290 offices across 26 countries?
Gary Campkin is TheCityUK’s managing director, external relations and strategic issues. He stresses the importance of professional qualifications and appearance rights being mutually recognised in any agreement – a key lobbying point for the Law Society – and says that the continuing ambiguity over the issue is down to the EU’s political objections, rather than any technical barriers.
There are also broader issues to be resolved under the immigration banner, he says, about the need for professionals to ‘fly in, fly out’ and bring in teams of experts as needed.
The Law Society’s international team has carried out a country-by-country analysis to highlight the most important restrictions and requirements that could be imposed by EU and EFTA countries on third-country lawyers and law firms.
If there are no alternative or transitional arrangements in place and the UK falls back on World Trade Organisation arrangements, it warns that law firms may have to restructure their EU offices, because a UK LLP may not be recognised as a business entity.
The Law Society has been talking to EU bars and law societies at a bi-lateral level to see whether there is a regulatory way to bridge the gap, so that UK solicitors can keep their current practice rights, and local offices aren’t forced to restructure.
Smaller firms with no EU27 employees might think they are immune, but Harrison says she is already seeing issues around recruitment: the bigger firms are soaking up more UK-based lawyers, creating a ripple effect down to the smaller firms.
Meanwhile, nearly 1,700 practitioners have registered in Ireland since 2016, with 300 from the magic circle firms. Before the referendum, the number in any given year was around 100.
The cost is €300, though 586 of those registering since 2016 have taken the further step of taking out an Irish practising certificate at an annual cost of €2,385.
There have been questions raised whether registering as an EU lawyer should include a residency requirement. However, the Law Society of Ireland says it has no plans to introduce such a requirement.
Competition from other countries
Unsurprisingly, other jurisdictions, and law firms working in them, have recognised the competitive opportunity presented to them by the continued ambiguity over reciprocal agreements.
Williams says that firms outside the EU are using the uncertainty around Brexit to encourage clients to drop English law and jurisdiction clauses from their contracts. However, he says it isn’t clear how much traction that is achieving, given the well-established strength of the UK courts in relation to cross-border disputes.
It is over a year since the then-Lord Chief Justice Lord Thomas made the bold statement that: ‘Rumour may insinuate that English law is no longer certain; that London is no longer a safe forum to bring disputes. Such rumours are wrong and unequivocally so.’
However, Malcolm Dowden, legal director of transatlantic firm Womble Bond Dickinson, says that those international courts which are actively competing for legal business are having a ‘relatively easy run’ at the moment.
‘There can be no blithe assumption that the UK’s historical reputation will continue to guarantee status as a default choice for international parties,’ he declares. ‘That requires clarity and commitment from government, continued modernisation and streamlining of court procedures and recognition by UK-based law firms that legal business must be pursued around the world, rather than hoping that it will continue to land here as a matter of course.’
However, where the UK’s role could be strengthened is in global arbitration, which is covered by the New York Convention on Arbitral Awards. Practitioners have flagged up that, post-Brexit, the UK could gain a competitive advantage as an arbitration centre, as the courts will be able to issue anti-suit injunctions to restrain proceedings started in EU member state courts, in breach of an arbitration agreement. This power was curtailed by the CJEU in 2009.
Meanwhile, Raulus has started to see the issue of practice rights having an impact on instructions to UK lawyers. ‘We have a lot of US lawyers in Brussels. Every time a client brings up an issue where they need professional privilege, they have to bring an EU lawyer into the discussion to seal it. Up until the referendum result, that was usually a UK lawyer, but that is changing.’
The impact on key practice areas
With so many mixed messages coming out of the Brexit mêlée, what are practitioners working in key sectors such as family, commercial, crime, and employment doing to prepare for March 2019?
The Law Society is lobbying for continued civil and family justice co-operation, including mutual recognition and enforcement of judgments and respect for choice of jurisdiction clauses.
The MoJ has been talking to the EU and EFTA states of Switzerland, Liechtenstein, Iceland and Norway about the UK re-joining the 2007 Lugano Convention in its own right, rather than as an EU member state. The convention provides for the recognition and enforcement of judgments in civil and commercial matters between EU and EFTA states. While this includes maintenance judgments, it does not include other family judgments.
But questions remain as to how seamlessly this can be done in a no-deal scenario. Raulus points out that the UK can only negotiate on ratifying the Lugano Convention once it has left the EU, and it will need the unanimous consent of the other contracting countries to rejoin.
The main convention covering family law would be the 2005 Hague Convention rather than Brussels ll. Both the UK and the EU have shown themselves keen to come to an agreement on family law, because of the potential damage to cross-border families.
But the UK government has also made it clear that if there isn’t an arrangement with the EU27 on future civil justice co-operation, including in family cases, it will consider how ongoing co-operation in this area could be ‘wound down’.
Daniel Eames is the chair of family lawyers group Resolution’s international committee and leads its Brexit work. He specialises in international cases at Clarke Willmott, which has offices in London, Manchester and the south west.
It is very difficult for family lawyers to advise clients at the moment, he says. ‘My understanding is that, up to Brexit day, all existing proceedings and orders will be recognised, and that will be extended if there is a transitional period.
‘But if there aren’t reciprocal arrangements in place after that, we may well be in a state of flux, so there may be a mad rush to issue proceedings before March 2019, and our courts will be very clogged up with jurisdictional battles.’
Uncertainty means lawyers may have to advise clients to issue earlier than they might have, to protect their position. While it will drive more work for lawyers, Eames says ‘that isn’t an attractive position to be in’.
For commercial lawyers, a key issue will be monitoring contract continuity, with the potential loss of passporting rights. According to the Bank of England, approximately six million UK insurance policyholders, 30 million EEA insurance policyholders, and around £26trn of outstanding uncleared derivatives contracts could potentially be affected.
I don’t think Brexit will make any real difference at all on the commercial litigation side
Keith Oliver, Peters & Peters
The CityUK’s Campkin says: ‘If you strip away the politics, this is about clients’ businesses, as well as individuals and everyday life. It would be hugely irresponsible if the negotiators don’t find a way to grandfather them through a withdrawal agreement in a similar way to the introduction of the Euro.’
Keith Oliver is head of international at London-based Peters & Peters, which specialises in business crime, commercial litigation, civil fraud, and asset-tracing and recovery.
‘This may sound a rather unusual response, but I don’t think Brexit will make any real difference at all on the commercial litigation side,’ he says.
‘Our French colleagues have got very excited about having an English court in Paris, and the Dutch are setting up an English-speaking commercial court. But I don’t think any of my contemporaries in those jurisdictions, or indeed in London, see clients rushing headlong into those jurisdictions to pursue cases.’
For fraud-related litigation, London is ‘still the best place bar none’ for tracing and recovering stolen or misappropriated assets, he maintains. ‘We have very established jurisprudence which goes back hundreds of years. The UK is an attractive place to have cases at least anchored as a starting point, irrespective of whether you ultimately retain jurisdiction, and I can’t see that Brexit will make any difference to that.’
Despite some ‘scaremongering’ in the legal and national press, Oliver is ‘not a believer that it is the end of days and that you are going to see large numbers of litigators flogging their CVs around the community, having been made redundant. We thrive where there are disputes. That is a cynical perspective, but a reality.’
The Law Society is lobbying for continued collaboration in policing, security and criminal justice.
Without it, the future for white collar crime lawyers could be challenging, according to Anna Bradshaw, a partner specialising in business crime at Peters & Peters.
‘One immediate impact of Brexit may be on the ability of UK practitioners to bring financial sanction cases in the CJEU,’ she explains. ‘That would mean instructing an EU-qualified lawyer separately, which removes some of the added value of instructing a UK lawyer.’
She hopes the vital importance of criminal justice co-operation will overcome political expediency. The new mechanisms that are being developed in the EU will be groundbreaking in terms of fighting crime, she says, adding: ‘My fear, which I hope is misplaced, is that, in the longer term, we could see criminal investigations and prosecutions, particularly in high-profile, large-scale, cross-border offending, being driven by EU member states rather than by the UK.
‘At the moment, the UK is the trailblazer, particularly in relation to bribery and corruption enforcement. But if these types of cases are dealt with more successfully and more aggressively in the EU27 member states, it would be bad news for a UK-based criminal lawyer.’
Intellectual property (IP)
The UK Patent Court has been groundbreaking in its work, setting international standards. The Chequers White Paper recognised the importance of continued close co-operation with the EU, including participation in the new Unified Patent Court (UPC) and unitary patent system. However, its proposals were short on detail.
Mark Anderson is managing partner of Anderson Law, an Oxfordshire-based firm specialising in transactional IP work. He is former chair of the Law Society’s Intellectual Property Law Committee.
‘One of the UK’s selling points to non-EU clients is that we are a gateway to Europe,’ he says, ‘and that is being put at risk by Brexit.’
The ‘absolute best case’, he says, ‘is that a way is found for us to participate in the EU trademark, EU registered design and unregistered design right, perhaps through some version of EFTA.
It is vital not to be caught unawares. Make sure your bills are done on time and you have the right people in place
Ann Harrison, Stephensons Solicitors
‘The worst case scenario is we have completely different sets of IP laws and the UK is no longer so attractive for international business as a European base. When I first heard the referendum result, I thought we would all be 15 per cent poorer, but I think it could be worse than that.’
When it comes to IP litigation, London firm Bristows, with 40 partners and 200 practitioners, has taken steps to hedge its bets against possibly damaging outcomes of Brexit, such as losing practice rights in the new UPC.
So far, 33 of its lawyers have registered as Irish lawyers, putting it eighth in the top 10 by number of solicitors admitted to the Irish Roll since 2016, ahead of Linklaters and Clifford Chance.
Joint managing partner Liz Cohen was one of them. ‘I was surprised the firm was so high on the list, but it was one of the two biggest steps we have taken in relation to Brexit, along with opening an office in Brussels to give us a footprint in Europe.’
The office is staffed on a rotating basis by lawyers from the competition team in London who are registered with the Brussels bar.
‘We have no plans to hire local lawyers,’ Cohen explains, ‘and we won’t be advising on Belgian law or competing with Belgian lawyers. It’s a belts-and-braces approach, with so much uncertainty.’
Bristows has grown up from an IP boutique into a more full-service firm. ‘That gives us comfort against the peaks and troughs of litigation,’ says Cohen. ‘The most important thing is that we run our firm conservatively and take prudent decisions.’
The problem remains that law firms need to prepare for a future which remains almost entirely uncertain and unpredictable.
This affects how lawyers can advise clients, says Winthrop. ‘It is a risky position to be in. If you have a transnational contract involving an EU state that straddles Brexit, do you gamble on what the law is now? Or do you speculate what it might be, with the risk that you might advise a client on a course of action that could give them a headache in the future when they try to resolve a dispute?’
Firms could be open to negligence claims – though he says negligence is based on reasonable knowledge, and part of the problem is the deep degree of uncertainty at the moment.
‘This is potentially the most major legislative change outside of a wartime situation,’ he says, ‘and we are now only a few months away. This could be a very pessimistic view on my part – people have been drawing analogies with the millenium bug, which came to nothing.
There is no ‘magic formula, so there is no point worrying about things you can’t control. Sensible businesses will be thinking about how they can best protect their interests.
Liz Cohen, Bristows
‘But your clients aren’t paying you to be a passive spectator and to tell them they got it wrong after the event. They are paying for preventative medicine, and you have to be anticipating the best and worst case scenarios and advising on steps they might have to take.’
Ironically, Brexit-related work has been one of the factors – along with steady demand from UK businesses, and an increase in business from non-UK clients taking advantage of the weaker pound – that has kept the UK legal services relatively buoyant through 2017-18.
David Greene, managing partner of London commercial firm Edwin Coe and deputy vice-president of the Law Society, says: ‘I think, in the short term, the profession might prosper because of all the uncertainties. But in the longer term, that uncertainty could have an effect on the UK, and particularly London, as a global jurisdiction of choice.’
While the uncertainty has created some work, it may, conversely, have a dampening effect on the volume of transactions, Williams explains. ‘By and large, law firms can find opportunities to make money whether the markets are doing well or badly,’ he says. ‘They do, however, rely on a level of business activity, so if the current uncertainty prevails, there is a risk that clients will delay potential transactions, and this could be damaging to law firms.’
Cohen has a more sanguine take. There is no ‘magic formula,’ she says, ‘so there is no point worrying about things you can’t control. Sensible businesses will be thinking about how they can best protect their interests. But, for us, business is good, we are getting lots of instructions, clients aren’t holding off. Life goes on.’