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Brexit

Under a ‘no-deal’ Brexit — report indicates long-term decline in work for UK law firms and a ‘windfall’ for European firms

Download your free copy of our report ‘How Brexit will impact law firms: Catalyst or Catastrophe?’ below.

It is now less than one year until the end of the Article 50 notice period for the UK to withdraw from the European Union (EU). Despite the near daily rhetoric about the process, there are many aspects of Brexit which remain uncertain.

The EU (Withdrawal) Bill has now reached The House of Lords, but there is much to be considered in the Bill and it will likely be a protracted process. There was also an announcement, in March this year, that a transition agreement has been reached, but this only represents part of the arrangements for the UK’s exit to be an orderly one. The EU’s Chief Brexit Negotiator Michel Barnier noted the legal text is a ‘decisive step’, but not ‘the end of the road’.

There are sections of the transition agreement which require further clarification and other sections are noted in which there are ‘divergences or differences’ in ongoing discussions. Unless the significant issues, such as the Irish border, are resolved to reach a complete plan for the UK’s departure from the EU, a ‘no-deal’ Brexit scenario remains a possible outcome – leaving a hard, ‘cliff-edge’ departure in March 2019.

Amidst the inherent uncertainty created by Brexit, there is much debate around the future of the legal and commercial landscape for UK and European businesses, and whether it might result in changes to market practice. As the government continues to grapple with EU leaders over the terms in which the UK will leave the EU, it has highlighted a plethora of questions that continue to ominously hang over the business sector. For example, will ‘passporting’ arrangements continue so that UK financial services can sell across Europe? Meanwhile, to what extent will UK manufacturers face barriers when exporting to the EU? Moreover, what will be the impact on the law firms advising businesses?

The impact on law firms

A new report, ‘How Brexit will impact law firms: Catalyst or Catastrophe?,’ by Thomson Reuters Legal UK and Ireland, in collaboration with The Lawyer Research Service (a division of The Lawyer), surveyed over 300 law firm partners in the UK and Europe asking participants to consider the impact of a worse case ‘no deal’ Brexit scenario when answering forward looking questions, given the continued uncertainty.

According to the report, primarily UK law firms said that they expect to see a long-term decline in work if Brexit negotiations between the UK and the EU end up in a ‘no-deal’ scenario. The report offers a broad insight into the range of potential challenges and opportunities that law firm partners may face.

“The survey data highlight how UK law firms face different challenges and opportunities compared with their counterparts in the rest of Europe,” said Jim Leason, Head of Strategy at the UK & Ireland Legal business of Thomson Reuters. “While UK firms are bracing themselves for a new and complex regulatory environment, and looking to expand their businesses into new geographies to hedge an expected downturn in demand for their services over the long-term, European firms are preparing to meet an expected long-term increase in demand for their services”.

The results of the survey indicate that 46 percent of UK firms expect a short-term increase in work from a ‘no-deal’ scenario, but 34 percent of UK partners anticipate a decline in the long-term. Overall, European firms are quite optimistic with 72 percent of the respondents envisage a pre-Brexit increase in workload, and forecast a ‘windfall’ over the longer term. German respondents are quite positive and anticipate the greatest surge in workload and forecast an 88 percent increase, for the short-term, and predict a long-term increase of 79 percent.

The short-term uptick in workload in the UK and Europe is primarily because firms are spending significant amounts of time helping clients to undertake Brexit impact assessments, and, when ready, implementing plans to help clients best prepare.

The report notes the specific impact on workload is somewhat dependent upon practice area. For example, real estate practitioners don’t expect their workload to be directly affected by Brexit. The opinion remains divided for corporate M&A lawyers in the UK and Europe, and private client lawyers are getting more inquiries about the impact of Brexit due to current political uncertainties.

Employment or IP lawyers in Spain and Italy express a pessimistic view for attracting more work – compared to banking and finance lawyers in Frankfurt and Paris who are much more buoyant about their prospects for attracting work. A hard Brexit scenario and no ‘passporting’ provisions for financial services companies would likely result in banks relocating or establishing subsidiaries in Europe.

According to Jerome Sutour, Partner and Head of Financial Services at CMS (Paris), “Banks and financial services companies will increasingly locate people in Paris instead of London as Brexit continues. We have had many questions from clients that have lots of experience of the UK regulatory regime and want to know the regulatory impact of losing the passport and whether they can fall back on France if Brexit is implemented in a particular way”.

Which Court?

When examining litigation and dispute resolution, there is debate on the potentially significant impact of Brexit on London as the global litigation hub. According to BLP’s Head of International Arbitration, George Burns, “People buy legal services in London because of the range of options available, including court litigation. Everyone in the sector, including arbitration practitioners, will suffer if court litigation is undermined in some way, which is likely to be in a hard Brexit scenario”.

Currently, judgements from UK Courts are automatically enforceable in Europe. After Brexit, an agreed enforcement regime must be reached – and there is no way to predict how long that will take or how the arrangement will look. Through this type of uncertainty, it is natural that a debate about jurisdiction and court preference is topical. Rather than the costly approach of litigating in the UK, a claimant could choose to litigate in Europe.

Moreover, France has decided to make an historical change and permit commercial law hearings in English. The justice ministry opened an international appeal chamber in Paris – where litigants will be able to speak English, rather than French, and judgements will be bilingual. The court will be prepared to take English law into account as well. Courts in The Netherlands, Frankfurt and Belgium are also following suit, and English will be a permitted language in some courts for commercial law proceedings. None of these developments promise a diversion from London maintaining its position as a ‘global litigation hub’, but the tide could turn, especially if prominent retired English judges decide to return to the court room, as some did in Hong Kong, making other venues equally or more attractive.

Moving forward

Brexit is already having an impact on many firms, according to the survey data. How much more of an impact remains to be seen, since the terms upon which the UK will exit EU remains uncertain. From the survey data, it appears evident that UK law firms should be bracing for significant changes if the Brexit negotiations end in a ‘no deal’ scenario.

A majority of law firms in Europe, an average of 68 percent overall, and 92 percent in Germany, have already taken steps to prepare for Brexit. The UK is close behind the firms in Europe, with the data showing that 67 percent of law firms have taken some action to prepare for Brexit. Despite the lack of certainty, preparing and planning for Brexit is an on-going task. Until a complete agreement is reached and ratified, the possibility of a ‘cliff-edge’ Brexit on 29 March 2019 remains a possibility.

How will firms on both sides of Brexit respond to the challenges or opportunities of a ‘cliff-edge’ Brexit scenario, if it materialises?

To download and read your free copy of our report ‘How Brexit will impact law firms: Catalyst or Catastrophe’ in full, click here.

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