January 22, 2020 Feature

Brexit Could Bring Massive Change to Legal Profession

By Helen W. Gunnarsson

This is an expanded version of an article that appeared in the ABA/Bloomberg Law Lawyers’ Manual on Professional Conduct in October 2019.

CHICAGO—Brexit is “the most complex deal in history,” said panelist Ros Kellaway during a program at the Aon Law Firm Symposium in Chicago on October 18, 2019. The panel, made up of lawyers from both sides of the Atlantic, convened to discuss how doing business and practicing law is about to change in the United Kingdom—unless the U.K. government changes course and decides “never mind,” as panelist Ellen Hayes put it.

The program was moderated by Jane Hunter, executive director and senior vice president of Aon Professional Services in London and took place as U.K. Prime Minister Boris Johnson was attempting to obtain parliamentary approval of a deal between the U.K. and the European Union by the EU-imposed October 31 deadline.

Hunter asked Kellaway to provide the mostly North American audience with some Brexit background. Kellaway is a partner with Eversheds Sutherland in London.

Amid Britain’s Conservative Party’s increasing concerns about rising immigration, a perception that perhaps the U.K. could do better if it could conclude its own trade deals around the world, a general disenchantment with integration into the European Union, and the rise of other political parties with a “Eurosceptic” view, Kellaway said, Britain held a referendum in 2016 asking voters to opine whether the United Kingdom should opt to exit the European Union. A 51.9% majority voted to leave. Since then, the U.K. and the EU have been negotiating the terms of the U.K.’s disengagement in an attempt to avoid a “hard Brexit,” that is, leaving the EU without any sort of agreement to ease the way out.

Disagreements regarding whether and how the U.K. may leave the EU customs union and civil market have since delayed Brexit, Kellaway said.

“If you are in the [EU] customs union, you give up the ability to conclude your own trade deals” because members have delegated that power to the EU, Kellaway explained. But the EU civil market provides member nations with the valuable and significant benefit of free movement of goods, services, capital, and people across member nation borders. While the U.K. might prefer to retain some of those benefits, “the EU says those four are indivisible. You can’t pick and choose and be part of the civil market but not accept the free movement of people,” Kellaway explained.

The border between Ireland, an EU member nation, and Northern Ireland, a part of the U.K., has made resolution of those disagreements especially difficult, Kellaway said.

The Irish border, Kellaway pointed out, “goes through people’s houses” and has been a longstanding political flashpoint. A key provision of the Good Friday Agreement reached in the 1990s, she said, was eliminating the “hard border” between Ireland and Northern Ireland. But if the U.K. leaves the EU, she continued, that border will reappear. The admittedly cumbersome solution in the currently proposed agreement, she said, is for the U.K. to staff a border in the Irish Sea, all around Ireland, and collect customs duties for goods flowing in and out, with businesses to apply for rebates as needed.

Hunter asked panelist Angela Pearson to tell the audience what Brexit’s most significant implications are for global law firms. Pearson is a partner and global general counsel of Ashurst LLP.

Each EU member nation, Pearson said, has its own legal regulations, but each also recognizes every other member’s legal regulations. That, she explained, means a U.K. lawyer currently may travel to any other EU country and advise a client on English law, European law, or the law of any other EU jurisdiction, a practice known as “fly in and fly out” [FIFO]. As long as the U.K. remains a member of the EU, U.K. lawyers may have their qualifications recognized “with relative ease” in any other EU member nation, may open offices there and employ local lawyers, and may represent clients in the European Court of Justice. Lawyers may also register trademarks in the U.K. that will be recognized in the EU and have any disputes adjudicated by the European Court of Justice.

Once Brexit occurs, absent an agreement of mutual recognition between the U.K. and the EU, U.K. lawyers will lose these privileges. “We’re not going to be able to move our people as freely as we could [as an EU member nation] in order to meet our clients’ needs, or fly easily in and out to advise our clients on the law, or provide our lawyers with the opportunities that we had,” Pearson said.

“FIFO affects all practices,” commented Hunter, yet “a solution hasn’t been forthcoming.” She asked panelist Ellen Hayes, who is of counsel to Risk Americas, Linklaters LLP in New York, to provide more detail.

In the absence of an agreement with the EU, Hayes said, whether U.K. and other foreign lawyers may enter EU countries to advise their clients without running afoul of statutes prohibiting the unauthorized practice of law will be governed by local law, “which may be complicated and obscure,” difficult to ascertain, and will differ from country to country. “In Belgium it may not be a problem, but in Luxembourg it may be a crime,” she said. And in other countries FIFO may be a “technical violation” but, as a practice, overlooked by the authorities “because the bar knows its citizens need advice from English lawyers.” She also noted “there may be laws requiring a national law firm, or a firm based in an EU state, to handle certain matters.” Spain, for example, prohibits local lawyers from partnering with lawyers outside the EU, she said.

A serious obstacle to obtaining a free trade agreement with an agreement of mutual recognition for lawyers with the EU, Pearson said, is that other countries’ free trade agreements contain “most favored nation” clauses, so that the EU would have to give the lawyers of all of those countries the same recognition and privileges. Pearson suggested an agreement with the World Trade Organization might provide a “partial possible solution.”

Pearson noted predictions that the U.K., now the second largest market for legal services (behind the U.S.), will lose several billion dollars in annual legal services revenue and thousands of jobs. But on the bright side, she added, “clients are going to reach for their lawyers” to help them navigate Brexit’s tricky turns.

Until recently, Hayes said, “we all thought that admission to the [Law Society of Ireland] solved the problem” and many English solicitors did, accordingly, obtain admission. But Ireland recently “doused” those hopes, she said, by imposing strict additional limitations on non-EU lawyers who wish to apply to practice in Ireland. For example, she said, a law firm’s presence in Ireland must be in an unincorporated structure under Irish law and may not be a branch of a U.K. LLP. Post-Brexit, she said, without an Irish office or an Irish certificate of admission, “probably the best way for English lawyers to practice is to associate with an Irish lawyer in EU matters.”

Hunter asked Pearson to tell the audience how aspects of civil justice may be expected to change post-Brexit.

“Because we have a strong independent judiciary in the U.K,” Pearson responded, many clients choose to have U.K. courts adjudicate disputes under U.K. law. But whether EU states or courts will respect a party’s choice of U.K. law and the jurisdiction of U.K. courts with respect to contracts executed, and whether European law will be incorporated into English law after Brexit, are not clear, she said. A withdrawal agreement would provide some additional time in which to negotiate those points, she said, “but they’re going to have to work quite hard, because about a thousand statutory instruments,” including those impacting environment and consumer health and safety, will have to be amended before the U.K. leaves the EU “in order to keep the lights on.” Pearson suggested an agreement with the EU similar to the Lugano Convention, which applies to Norway, Switzerland, and Iceland, might be one attractive option and that including arbitration clauses in contracts should also be discussed with clients.

Hayes expects a decline in clients preferring English law in their contracts and thinks clients may begin expressing preferences for their own law. Some Israeli clients, she said, have introduced contracts that are to be interpreted using French law. “If only five or ten percent of clients use clauses like that, it will have an enormous impact on our firm’s practice,” she said.

Kellaway noted that Brexit poses additional “critical business risks,” including its uncertain effect on laws respecting data. Up-to-date contractual clauses regarding the treatment of personal data, she said, are essential, but, “although we [in the U.K.] recognize the EU rules on the protection of data, they do not reciprocate in recognizing ours.”

Pearson said businesses have been preparing for Brexit in a number of ways. Banks, for example, have been “building up their presence in Frankfurt and Paris, but the key decisionmakers are still based in London.” She said, “Anglo-American clients still want their financial advisers in London to advise them” and the financial advisers, in turn, want to continue receiving legal services in London. But she predicted that in the long term, global law firms that have hedged their positions by cultivating business and opening offices in other regions, including the U.S., Asia, and Australia, will be better positioned to weather Brexit. “The best people are being snapped up and will be much more expensive.”

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By Helen W. Gunnarsson

Helen Gunnarson is Associate Counsel at the American Bar Association, Chicago.