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September 05, 2018

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Hard Brexit - How does it impact the lawyers?


- Anamitra Mukhopadhyay, Litigation Assistant [ Kennedys LLP, London ]

Anamitra Mukhopadhyay

While many people may not have previously taken the prospect of a no deal seriously, they are inclined to do so following Prime Minister Theresa May’s recent warning to the British public to prepare for the UK exiting the European Union (EU) without a deal in place...

Moreover, in August 2018, Dominic Raab, Secretary of State for Exiting the European Union, set out what he called a “practical and proportionate” advice in case of a no deal scenario, which further emphasises that a no deal may well be a real possibility.

While there have been speculations regarding how businesses and investment may be affected by a potential hard Brexit, it is also important to consider if hard Brexit will have a detrimental impact on the legal profession. Following the outcome of Brexit, the Law Society of England and Wales identified the following key priorities amongst others to ensure that the UK remains a global legal hub:

  • Continued mutual access for solicitors to practise law and base themselves in the UK and EU member states.
  • Ensuring that the government works effectively with the legal services sector to continue to promote England and Wales as the governing law of contracts, jurisdiction of choice, and London as the preferred seat of arbitration.

However, if the UK did exit from the EU without a deal, what would be the potential implications of this verdict? And more importantly, how do legal professionals in the UK feel about a hard Brexit, in particular a no deal scenario? This article aims to explore the answers to all these questions.

What is the legal world saying?

According to new economic forecasts released by the Law Society, almost £3bn could be stripped from the legal sector turnover by 2025 in the event the UK leaves the EU without securing a proper deal. The study warns against the potentially “significant negative effects” on the legal sector caused by hard Brexit. The Law Society’s econometric model predicts 2.2% average annual growth from 2019-2025 with a soft Brexit, 1.5% with “harder” Brexit options such as Canadian style free trade agreement and 1.1% a year if the UK had to fall back on World Trade Organisation Rules in a no deal scenario. According to Law Society president Christine Blacklaws, “a hard Brexit could have a significant impact on employment in the sector, with lower growth and less investment in UK firms leading to lower productivity growth in the sector.” Ms Blacklaws analysis is valid to some extent as many talented legal professionals may decide to qualify elsewhere in Europe where there are more opportunities, thus leaving a void in the UK legal sector. In fact a no-deal Brexit, the Law Society forecasts, would result in 12,000 job losses from the sector in 10 years.

Like Ms Blacklaws, Slaughter and May partner Jeff Twentyman also shares his concerns of the negative impact of a hard Brexit on London by stating the following: “At best, Brexit will continue to cause disruption and uncertainty for the foreseeable future. Whatever happens in the short term, in the longer term, say over five years and further, London will not always be the easiest and most obvious choice it once was.” Mr Twentyman is not unjustified in harbouring such apprehensions. According to an article in the Legal Week, city firms have in recent years have prepared themselves for a potential no-deal scenario by registering their lawyers in Belfast, with 1,644 England and Wales solicitors registering since 2016. Moreover, a survey conducted by Legal Week found three out of four City partners in favour of a second Brexit referendum thus highlighting strong concerns amongst lawyers over the impact of a no deal scenario on the legal sector.

Short term gain but long term pain?

Thomson Reuters interviewed over 300 law firm partners in the UK and Europe asking participants to consider a no deal scenario. According to the report, UK law firms stated that they expect to a long term decline in work in the event that Brexit negotiations between the UK and EU end up in a no deal scenario, with 46% of UK firms expecting short term increase in work and 34% of partners anticipating a decline in the long term. This survey is partially in line with Christine Blacklaws’ view that “UK legal services look to have been relatively buoyant through 2017-2018, thanks to Brexit related work, steady demand from UK businesses and on uptick in business from non UK clients taking advantage of the depreciation of the pound.” Let us take a recent example to analyse Ms Blacklaws’ point. Recently the Royal Bank of Scotland (RBS) announced that 150 of its staff have been deployed to Amsterdan to set up a new operation serving the bank's European customers ahead of a no-deal scenario. RBS may engage a UK based law firm to assist with this process hence bringing in short term work. However, if more and more businesses fly the nest and look to move operations outside the UK, this will no doubt result in decline in future work for UK firms. To further delve into this point it is worth looking at Brexit’s impact on the real estate sector. While the real estate sector benefitted in the short term due to plunging property prices attracting more buyers, this outlook is changing rapidly amidst fears of a no Brexit deal. Tony Williams, boss of property consultancy Building Value, recently informed Reuters that "Central London is tanking because the traditional international buyers are staying away - and the quantum of buyers is falling.” Mr Williams’ statement gives a clear example of potential negative long term economic and commercial implications of a hard Brexit deal. Jim Leason, Head of Strategy at the UK and Ireland legal business of Thomson Reuters, succinctly explains the position by suggesting that “while UK firms are bracing themselves for a new complex regulator environment, and looking to expand their businesses into new geographies, European firms are preparing to meet an unexpected long term increase in demand for their services.”

Brexit White Paper – deal a good idea?

Now that we have delved into the effects of a no deal on the legal profession, it may be worth considering the kind of deal which more would appropriate for the legal profession. In July 2018, the UK government published its White Paper on Brexit exploring the future relationship between the UK and European Union following the UK’s departure from the EU. The White Paper focuses on issues such as goods, customs, services and freedom of movement and aims to ensuring trade co-operation, with no hard border for Northern Ireland, and global trade deals for the UK.

The White Paper was given a cautious welcome by the Law Society. According to Law Society president Christine Blacklaws, the “Brexit White Paper has some of the right ingredients and is pointing in the right direction” but “the government will be judged on the outcome”. Ms Blacklaws welcomes some of the points raised in the White Paper such as the “importance of clear rules to resolve disputes and that the future relationship with the EU should protect that and ‘weaker parties’ in disputes involving employees and consumers.” The Law Society acknowledges the importance of an integrated legal world by stating: “Mutual recognition of professional qualifications has helped law firms in the EU27 and in the UK so has the ability to fly in-fly out to advise on deals; and the ability to recruit the best talent from around the world is fundamental to the global competitiveness.”

The Law Society’s appreciation of the White Paper no doubt implies that it is keen to see a continued relationship between the UK and EU. However, the White Paper at the time of its publication was met with disapproval from many notable Brexiteers such as Jacob Rees-Mogg, Iain Duncan Smith and US President Donald Trump, which somewhat gives an indication that in the eyes of many Brexiteers, the Paper does not fully reflect a “hard Brexit”. The clash of opinion between the Law Society and the Brexiteers suggest that while former would ideally like to stay as close to the current status quo as possible, the latter would like to fully deviate from the EU. It will be interesting to see whether the government will take steps, as Christine Blacklaws suggests, “to mitigate harm to the professional and business”, or whether it will go down the route of a hard Brexit due to peer pressure.

Disclaimer – The views expressed in this article are the personal views of the author and are purely informative in nature.

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