Brexit: law firms set for the great EU demerger
One constituency was bound to do well whichever way the Brexit vote of June 23 went: lawyers.
The profession is gearing up for a bonanza advising clients and the UK government on issues arising from leaving the EU. These will range from immigration to trade treaties, in what Andrew Ballheimer, global managing partner at Allen & Overy, has dubbed “the largest demerger in history”.
The UK profession contributed £25.7bn to the country’s economy in 2015, employs 314,000 people and accounts for about 10 per cent of global legal services fee revenue.
In the short term, law firms are braced for a spike in Brexit advisory work.
The Bar Council, which represents barristers, said before the referendum that the “legal uncertainty would likely keep the profession busy for several years” but also that it would be a finite “bulge”, focused largely on specialist EU and regulatory lawyers.
For the legal profession some of the uncertainty ahead of Brexit is linked to the economic outlook. A UK downturn could hit law firm revenues, particularly at smaller practices that are more exposed to the economy and to sectors such as property, which may be particularly affected.
Some hiring freezes and job losses at law firms have already emerged. Simmons & Simmons blamed Brexit when it made a small number of people redundant recently; BLP froze pay and bonuses for four months.
Since nobody knows the government’s plans for a post-Brexit UK, it is unclear how legislation will be affected. Ben Lasserson, a partner at Pinsent Masons, points to concern about how easily an English judgment might be enforced in EU states, which could affect the appetite of clients to bring disputes in the English courts. Currently the UK’s EU membership means reciprocal recognition and enforcement is a smooth process. “Clients are asking about the enforcement of a ruling and the value of that judgment,” he says.
One possibility is that lawyers could instead use the Lugano Convention, which applies to the enforcement of judgments between EU states and Iceland, Norway and Switzerland, as a way of enforcing English court rulings. However, there are no government guidelines yet as to how this would work in practice.
There are also concerns among lawyers about the potential impact of Brexit on the City’s financial services sector.. Law firm revenues will suffer if the sector shrinks after Brexit and there is less client work.
Similarly, some fear that US law firms that have hired aggressively in their London offices and use the city as a bridgehead into Europe will scale back or transfer more work to their EU offices. However, says one lawyer at a UK law firm, “for those who focus on litigation or regulatory work there will still be a need for them to be here”.
Firms are being proactive in areas such as competition law. They are ramping up their operations in Ireland and registering their lawyers there so they can practise EU and UK law and appear before the European Court of Justice in Luxembourg. Freshfields, Hogan Lovells, Slaughter and May, and Allen & Overy are among firms to have put forward applicants to join the roll of solicitors in Ireland.
In the longer term, though, lawyers are optimistic about London remaining a leading global centre because of the popularity of English common law in business contracts and the high reputation of the English courts. Some 27 per cent of the world’s 320 legal jurisdictions use English common law and it underpins the legal system of important economies such as India, Singapore, Australia and Hong Kong.
“You need to separate out the short and long term,” says Chris Bryant, a competition law partner at Berwin Leighton Paisner and a member of the Lawyers — In for Britain group, which campaigned for the UK to stay in the EU. “People are relaxed about the longer term because London has lots of advantages as a legal centre, with its court system, and because English law is so well regarded.”
Many business disputes coming before the High Court involve international parties where neither is from the UK or even the EU. In 2015 nearly 1,100 claims were issued in the Commercial Court, of which more than two-thirds involved at least one non-UK party.
“London was a legal centre for hundreds of years before we joined the EU,” says Susan Bright, regional managing partner for UK and Africa at Hogan Lovells. “We are not complacent but English law and the English courts will continue to be used.”
Eduardo Leite, global chairman of Baker & McKenzie, one of the world’s biggest law firms, has said he is “not that pessimistic” about Brexit and believes London will continue to be significant because of the expertise available.
Many of the larger law firms, including the elite “magic circle” headquartered in London, are also sanguine because so much of their revenue now comes from outside the UK.
Nor is London’s valuable position as a centre for arbitration — settling legal disputes privately and confidentially outside the public court system — likely to be hurt.
Many businesses prefer London as an arbitration centre because of the legal expertise and availability of specialist arbitrators and experts in sectors from finance to shipping. Arbitration rulings and awards are recognised in 150 countries.
The ease with which arbitration awards can be enforced will remain after Brexit. In fact, some lawyers predict arbitration will be one of the winners because more companies will opt for it in the run-up to Brexit in order to have some certainty about future enforceability of legal rulings.