Roundtable: Brexit

A low-pitch siren sounds and a voice intones through fixed speakers: ‘For reasons beyond our control, it has become necessary to evacuate… please leave…’ When the Law Society’s pre-recorded bomb alert, which interrupts this roundtable, ends, all lawyers at the Gazette’s post-EU referendum discussion are still in their seats.

The alert is a scheduled test – its only effect a hiatus in the conversation. But is this an apt metaphor for the impact on the legal sector of the Brexit vote? When the alarms fall silent, will the legal community still be sitting pretty much where it was?

The roundtable follows a highly controversial High Court judgment which determined that only parliament can trigger article 50. This placed lawyers, the legal system and especially judges at the centre of a media firestorm. The government’s appeal is headed for the Supreme Court today. But those present at this roundtable late last month were already looking beyond the trigger-point. As 39 Essex Chambers’ Dr Timothy Lyons QC puts it: ‘I’m sure we shan’t spend the rest of our lives worried about article 50.’

One key imperative for solicitors is supporting and influencing government amid the uncertainty. ‘Government is hugely in need of expert advice,’ Lyons notes, relating his experience of seminars delivered for civil servants in various departments. Of particular relevance for the legal profession is establishing ‘what practice is going to look like under a third country status’. Third countries are defined as those outside the EU – third country businesses are incorporated outside the EU.

Lyons is qualified in Ireland, a fact that has not escaped his fellow barristers at 39 Essex Chambers, not least as ‘there is a certain amount of work [already] moving elsewhere in the European Union’.

Hogan Lovells partner Charles Brasted spent two years heavily involved in his own firm’s Brexit scenario planning. Time well spent, he reflects: ‘As a business, and like all of our clients, we do have a plan. [But] almost anything at the moment is speculative, and one of our key messages is that there is little point in speculating about what the “end state” of all this is going to be. It’s some way off and we don’t know.

‘What you can know is what your business needs are, and what the immediate needs of business and the economy are. Then you can think about how to articulate those needs and develop solutions.’

The immediate task for Brasted is to identify areas where the government is open to influence: ‘They are more open to ideas from the private sector than I’ve ever know them to be in the entirety of my career … [There’s] a real opportunity to engage with them now.’

Brasted adds: ‘The reality of the world we’re in is [that suggested solutions] have to be credible legally, commercially and politically. That’s a difficult game, but that is the only game in town at the moment.’

As a representative body, the Law Society is engaging with a range of government departments, not just the Ministry of Justice. Chancery Lane’s director of strategic relationships Stephen Denyer says: ‘Government is very much in listening mode… in relation to particular sectors. So rather than simply address the legal services market, which would be the easiest thing for the Law Society to do, what we’ve sought to do is to address a whole series of different industry sectors where the legal component is significant.’

In discussion with government, Denyer notes, in-house and private practice ‘reinforce each other’. He explains: ‘We’re able to draw out the connection between the law and the future success of different industrial and business sectors.’

This approach has ‘gained a lot of traction’.

In terms of law firms’ own business planning, preparation encompasses a number of scenarios. At global firm DLA Piper, Mike Pretty is tasked with ensuring the firm can accept and complete instructions post-Brexit.

Planning is ‘driven by three things’, he explains: ‘whether there is access to the [single market]; whether our professional qualifications are still recognised for various purposes in Europe; and finally what [clients] do that will drive whether we need to move work out of London into some of our European offices. For example, do we need a location in Ireland to support our clients?’

Some of DLA Piper’s competition lawyers have already pursued dual qualification in other EU jurisdictions. But scenario planning goes much further than that, Pretty adds, because ‘when you actually examine the criteria for rights of access to some [European institutions], it’s not just registration with an EU member state’s bar that is required.

‘In some cases you need to have an establishment there so they can get an order in place for business for that person, and they [may] also need to be nationals.’

Peri Cheal reports similar considerations at magic circle firm Clifford Chance, where she is partnership counsel. As a global firm, she adds, Clifford Chance is ‘interested in the attitudes of foreign bars, once the [relevant EU] directives no longer apply’ to UK lawyers.

‘It was so long ago that the directives forced continental Europe and markets to open up to English solicitors, and attitudes have changed so much in the meantime. It’s hard to understand what their position will be without the directives,’ Cheal says. She hopes that the attitude of those bars will be ‘more open than it was [before] the directives, because so many of them have come to operate in an international world and benefit from it, with a number of them having domestically qualified lawyers practising in London’.

Pretty’s recent experience shows that protectionist instincts linger. When DLA Piper moved to make the firm a distinct LLP in France 18 months ago, he recalls, there was resistance to the move from the Paris bar. The relevant EU directive was ‘the facilitator’ for the firm being able to carry out its plans. ‘I do question what will come out of [Brexit when] they haven’t got the directive squeezing their arm up behind their back,’ he concludes.

‘I’m a bit more optimistic,’ interjects Denyer. ‘We do have excellent relationships with all of the European bars and I think that, overall, most of them recognise the value of the cross-border nature of legal practice. We’ve got more than 200 foreign law firms established in London, over 40 of which come from within the European Union.’

Mickaël Laurans, head of the Society’s Brussels office, underlines the importance of a satisfactory outcome here: ‘If we’re to lose access to the directives, essentially we’re moving from a uniform set of [rules], albeit it with some minor national differences… to 27 different models, each of them with different rules in terms of market access.’

Laurans reports that several EU bars have initiated dialogue with the Law Society. One was the Paris bar: ‘A third of newly qualified French lawyers in Paris are trained in, what they call, Anglo-Saxon law firms, which tend to be English or American.’

The awkward predicament in which in-house lawyers find themselves across the EU’s member states – uniform rules do not apply in-house – provides a contemporary illustration of the problems that lie ahead for legal practice if protectionism re-emerges in foreign bars. Brexit could also compromise a long-term goal to get in-house legal advice recognised as attracting legal professional privilege, which is lacking at EU level.

The professional recognition and rights of lawyers are not the only headaches law firms face as they consider the impact of Brexit on fee-earners and staff. The immigration status of these people is a major preoccupation.

Lewis Silkin partner Karen Baxter explains: ‘A lot of our law firm clients are looking at their EU workforce based in the UK, because there is a lot of uncertainty about to what extent those people will be able to stay.’ As firms wait for a clear definition of ‘Brexit’, Baxter says: ‘That’s actually one of the few things that we’re able to do something about, without needing to wait… We’ve been able to look at who already qualifies to be able to stay, [and] who, if they just didn’t travel very much over the course of the next year, might be able to stay in a year’s time. As employers, law firms have been quite keen to be able to show their EU workforce that they’re doing something and that they’re thinking about this.’

But what of London’s longer-term future in law firm business plans? Baxter alludes not only to international firms expanding other offices at London’s expense, but economic uncertainty bringing forward plans to move legal and back-office work to lower-cost locations within the UK (so-called ‘north-shoring’).

‘In terms of planning for the future, I think many firms have been toying for quite a long time with presences outside London but within the UK,’ she explains. ‘I think this is now to the fore… while we don’t know what’s going to happen, there are certain things that we can do to protect and cushion ourselves.’ That means ‘having fewer people in London and more people in cheaper areas of the country’.

Laura Devine, principal of immigration law firm Laura Devine Solicitors, notes that in the modern business world immigration difficulties can arise from saying definitively where an individual lawyer is ‘based’.

‘It’s not ideal, certainly not,’ she says. ‘There are lots of European lawyers who live in the UK who may have difficulty with the residence card because lots of them work here for three days and then they go back “home” for four days of the week.’

It is unhelpful for the purposes of business planning, she notes, that ‘the government doesn’t seem to know’ what its desired outcome is.

All present are closely monitoring Devine’s specialist area as they prepare for Brexit. She believes she knows enough about the government’s intentions to rule out the most benign of outcomes. There are three immigration scenarios, she suggests.

‘The status quo – free movement for European nationals, Norwegian-style – is unlikely in this political climate, because there’s no control over immigration and it won’t reduce the number of immigrants in the UK,’ Devine explains. ‘Theresa May’s mantra was to reduce net migration from hundreds of thousands to tens of thousands.’

In the second scenario, there is ‘special treatment for EU nationals, perhaps under the points-based system, or just general preferential treatment’.

Even if this is not the long-term outcome, she says, ‘there may well be a transitional period for EU nationals’.

The third scenario involves ‘incorporating the EU nationals under our immigration rules and regulations, so that would mean the lawyers and law firms would have to be sponsored under Tier 2 [a non-EU national immigration route requiring a sponsoring employer], which we know is not particularly easy.’

Numerical caps on the number of non-EU citizens who can enter the UK to work via Tier 2 – a cap regularly reached mid-way through each month – are shaping up as a central battleground for businesses, including law firms, who want the UK to remain a ‘jurisdiction of choice’. As Devine comments: ‘I never understand why the government caps the number of highly skilled and skilled people coming into the UK.’

‘I think it comes back to the point about promoting the jurisdiction as a global legal centre,’ Denyer continues. A particular concern of his is the role international law students play in maintaining the UK’s status as a global legal centre. Students currently enter through ‘Tier 5’ if they are from outside the EU.

‘One key feature is bringing in people for training purposes,’ he points out. ‘Having the great firms based here’ is conditional on those firms being ‘able to get people from their own firms and relationship firms in and out’.

Denyer is also concerned about the effect of restrictions on movement on London’s position as a centre for international dispute resolution. ‘You can’t be a global leadership hub without people being able to get in and out of the jurisdiction. It can’t all be done virtually – even in a digital age,’ he warns.

So how is the future shaping up for ‘English law’ per se? Sophie Gould, an in-house expert at LexisNexis, says: ‘In-house teams are creating Brexit committees and starting an audit of their contracts and their key risks. They are talking about [reviewing the] jurisdictions they’ve got in their contract, or [their] arbitration clauses.’

Game over for England and Wales law? That is not the view of this group.

Although civil law jurisdictions have used the EU referendum result as an opportunity to trumpet the merits of their own legal systems, Thomas Murphy, general counsel at Travelport, believes the primacy of common law for international business will not change. ‘We have done quite a lot of thinking about what we might change,’ he says. ‘I’ve operated in Anglo-Saxon businesses for a long time and the default choices have been either New York or English law. Broadly, there’s no real desire to change.’

New York and English law, he says, are simply ‘the language of business’.

Brasted agrees: ‘The reason most people choose English law and the English core system is not because of EU law. Why, if you’re in Singapore or Japan, do you choose English law? It’s for a whole range of reasons that are nothing to do with EU law.’

Some of that reputational heft is physically linked to London as a disputes and business centre, as Brasted acknowledges: ‘It’s partly about the nature of English law, and partly about the nature of the infrastructure we have here. It’s the same for financial services in the City. The setup, the people, the infrastructure, the experience – all located in one place. That is what people are choosing.’

He sounds a confident note here: ‘That’s simply not going to change.’

Are the significant uncertainties around Brexit affecting the conduct of business? The impact at present, attendees report, is highly uneven. Baxter says: ‘We’ve definitely seen an impact. Some deals just fell away completely after the referendum result. Interestingly, there are some [areas] where it benefited firms, because where a job had been quoted in sterling for a US-based client, [it] suddenly seemed like the bargain of the century.’

Murphy cites more flexibility in dealmaking: ‘When you’re making investment decisions, or entering into contracts, you’re thinking about additional flexibility that you can build into that that you wouldn’t have done a year ago, to deal with whatever changes might happen.’

As the roundtable heads towards its conclusion, some attendees reflect on the best- and worst-case Brexit scenarios reflected in their own planning and analysis.

Pretty shares his first: ‘My best case from my selfish perspective is that we maintain the rights of access that we’ve got as a profession to the European market.’ The worst, he says, ‘is that we don’t… Ultimately business will still go on and we’ll still find solutions to these things, it’ll just be much more challenging’.

The worst scenario, Denyer believes, is ‘going back to the days before the directives. We would like the freedom of establishment, because it is a big advantage for our sector, but more importantly it’s an advantage for the clients whose businesses have really benefited from that.’

Law firms, as he knows from personal experience as a former partner at Allen & Overy, established foreign offices before the directives. ‘It’s certainly possible,’ he says, ‘[but] the functions dealing with these things within large law firms would need to expand.’ He also wants to see a redoubling of efforts to add signatories to the Hague Convention on the recognition of foreign judgments.

For Baxter, the worst-case scenario would be ‘large-scale redundancies’. Her ideal outcome? ‘There will be lots more opportunities coming with different businesses deciding that they will come to the UK, want to set up and need us to help them to do that. There’ll also be law firms finding new and exciting areas of trade law that they have never practised before, and that need to expand and grow their teams [to handle].’

Lyons urges lawyers not to underestimate the impact of competition from other jurisdictions. In the case of Ireland, he says, the response of some to the referendum result has been to say: ‘We’ve always thought we had too little EU litigation, and now we’ve got a real opportunity to go for it.’

But, Lyons adds, new areas of practice will emerge or grow. ‘This whole process is going to put a premium on what for me is a newish kind of work,’ he argues. ‘A lot of businesses who didn’t think that they needed to know a great deal about EU law are going to have to know it in spades.’

While noting that ‘lawyers are well-placed’ to play a key role in the challenges businesses face, Murphy warns: ‘The EU has not got an incentive to be helpful… So government should be preparing for the worst-case scenario, because anything better than that is a [bonus].’

That worst case, he adds, is a ‘position of no access, no ability to do anything as you used to do it’. It is not wrong to think along such negative lines, he insists: ‘One of the concerns I have is that it’s a pretty easy reaction for business generally to just [say], “well, we’ll wait and see”.’

As those present leave to lobby, wait and plan, they may reflect on advice given over the Law Society’s speaker system: ‘there are no further tests planned’. The next alarm they hear will be real and it will require action.

• Information on the implications for legal services of the UK leaving the EU is available on the Law Society’s website, which is regularly updated.