Brexit and the English legal profession: an impending disaster?

January 2021 | SPOTLIGHT | LITIGATION & DISPUTE RESOLUTION

Financier Worldwide Magazine

January 2021 Issue

English lawyers have become accustomed to easily working across the European Union (EU), meeting with clients and others, attending arbitrations and proceedings and doing due diligence. Until now, we have been entitled to European legal privilege and able to provide advice on European law. The judgments of our courts have been easily enforced throughout the EU. We have marketed our laws and courts to one and all and we believe we have been very successful at encouraging parties to select them.

However, while there is substantial anecdotal evidence in support of the notion that England is a preferred jurisdiction for disputes, there is less empirical evidence to support this view than many believe. In 2017, researchers found that while 43 percent of lawyers rated England’s judicial system as the most attractive in the EU, it was only selected as the preferred forum for a dispute by 17 percent of respondents, and by only 14 percent when required to pick a jurisdiction other than their own. Thirty-eight percent of respondents believed that English courts were the most popular for multijurisdictional agreements. Clearly, the respondents thought that others chose English courts for their disputes far more than they actually did. As noted by Erlis Thermeli in his impressive doctoral thesis, The Great Race of Courts: Civil Justice Competition in the European Union published in 2018, reflecting on this distinction between the respondents’ own views and their perception of the market, “lawyers overestimated the attractiveness of English courts [to the market]” and it would seem they overestimated their attractiveness substantially.

Nevertheless, the London Commercial Court has become a court primarily for foreign litigants. Since 2010, almost 80 percent of Commercial Court cases involved a foreign litigant and in nearly 50 percent of the cases all the parties were foreign.

This situation has already changed dramatically in the past two years and the pace of change is increasing. There are at least two substantial challenges to the current position that took effect at the end of the Brexit transition period at the end of 2020: the loss of privilege for English solicitors in the EU and the lack of clarity in respect of the enforceability of English judgments in Europe. These changes represent a fundamental challenge to the UK legal professions.

Privilege

Lawyers qualified in an EU jurisdiction (and English lawyers until the end of 2020) enjoy EU legal professional privilege in respect of the advice they give to their clients. Controversially, lawyers from third countries, including the US, do not enjoy this privilege. The justification for the refusal to extend privilege to third-party lawyers was articulated and accepted in the Akzo Nobel case: “[There is] no adequate basis for the mutual recognition of legal qualifications and professional ethical obligations to which lawyers are subject in the exercise of their profession. In many cases, it would not even be possible to ensure that the third country in question has a sufficiently established rule-of-law tradition which would enable lawyers to exercise their profession in the independent manner required and thus to perform their role as collaborators in the administration of justice.”

UK-qualified lawyers (who are not qualified to practice in an EU country), whether practising in England or the EU, became third-country lawyers at the end of 2020.

Nevertheless, third-country lawyers may enjoy legal professional privilege under the national laws of EU member states.

The position under the member states’ national laws is not reassuring. In 2018, the German Supreme Court ruled in the Volkswagen litigation that third-country lawyers and law firms do not enjoy privilege. Furthermore, the Law Society of England and Wales recently published a list of EU countries where it remains unclear whether UK lawyers will enjoy privilege under their national law. Those countries were Bulgaria, Croatia, Denmark, France, Greece, Hungary, Italy, Latvia, Lithuania, Luxembourg, Slovakia, Slovenia, Sweden and Switzerland.

Even in those countries where there is clarity in respect of third-country privilege, this may be contingent on registration with a local authority. Indeed, merely meeting with clients to advise on UK law while in the EU may require registration in some jurisdictions including France, Germany and Greece. Certainly, UK lawyers should not advise on EU law in any member state as this will likely be unlawful.

The situation is not entirely dire. There are practical steps that UK lawyers can take, duplicating how US-qualified lawyers currently operate in Europe. These steps include meeting with clients only in the presence of an EU lawyer, opening the matter in an EU jurisdiction and structuring the retainer so that the third-country advice is supplementary to advice from an EU lawyer. These steps may be difficult for some UK firms to accommodate and they will certainly be more expensive.

Going forward it would be prudent for UK lawyers to take local advice before working while in any EU state.

Enforceability of English judgments

The position on the enforceability of judgments post-Brexit has received considerably more press than the issue of continuing legal professional privilege. However, the recent passing of the time frame with which to secure the continuous operation of the Lugano Convention, which most clearly mirrors the current state of play, has largely, though not universally, gone unnoticed.

Before 2021, English judgments were enforceable throughout the EU under the Brussels (Recast) Regulation. The Regulation permits the easy enforcement directly of UK judgments for monetary and non-monetary relief across the EU. The Regulation only applies to EU member states and the UK during the transition period; it ceased applying to UK judgments for proceedings commenced after the end of 2020.

Many, including the UK government, hoped that the UK might obtain admission to the Lugano Convention 2007. Membership in the Lugano Convention (which applies currently to the EEA states and the EU) would have maintained most of the benefits of the Regulation (though, unlike the Regulation, the Lugano Convention permits the so-called Italian Torpedo whereby proceedings before the courts first seized of a matter must be concluded before proceedings elsewhere may be pursued). In order for the UK to join the Lugano Convention, it must apply (which it has done) and the EU and other signatories must accede to the request (which they have not done), following which there is a three month waiting period for objections. The deadline for accession to the UK’s admission to the Convention effective by 1 January 2021 was 1 October and so (as at the time of writing) continuous membership is now likely no longer possible.

The remaining treaty for the enforcement of UK judgments in the EU is the Hague Convention. Unlike the Lugano Convention, the UK government can unilaterally join the Hague Convention and will do so. The Hague Convention has two deficits over the current position: it only applies to contractual exclusive jurisdiction clauses and it only applies to contracts concluded after its entry into force for the relevant state. The current members to the Hague Convention are the EU, Singapore, Montenegro and Mexico.

Exclusive jurisdiction clauses are clauses that grant one state’s courts jurisdiction to the exclusion of all others. The prevailing view is that asymmetric jurisdiction clauses, which are a common feature of English financing agreements, are not exclusive jurisdiction clauses. Furthermore, trusts are not contracts as a matter of English law.

Additionally, it is thought that the Hague Convention will run from the date that the UK joins in its own right (1 January 2021) and not the date the EU joined, though the matter is contentious. Accordingly, any judgment of a UK court arising from any UK contracts concluded before then likely cannot be enforced under the Hague Convention.

Again, national laws may also permit for the enforcement of UK judgments in any individual member state. In some jurisdictions, the national law will permit the enforcement of foreign judgments through exequatur proceedings, a well-trodden if cumbersome path, but in others, including Germany, whether the national laws will permit enforcement of a UK judgment remains unknown.

Many solicitors concerned about the impending issues of enforceability had stopped using English court clauses some time ago. They relied on either arbitration clauses or the courts of other jurisdictions.

The declining popularity of English courts may already be well past the point of no return. In 2020, the Law Gazette reported in May 2020 that there had been nearly a 10 percent decline in Commercial Court cases heard between April 2019 and March 2020 on the year prior (prior to any COVID-19 issues affecting hearings). From March 2020 onward, this substantial decline has increased markedly with new filings in the Commercial Court and Chancery Division down roughly 60 percent initially and then 50 percent thereafter on the prior year.

Some of this most recent decline is probably caused by COVID-19 and the response to it. After all, there have been substantial declines in litigation in North America as a result of the pandemic. However, there are substantial differences in civil procedure between North American jurisdictions and England that make litigation in North America substantially more exposed to a COVID-19 decline. Many, if not all, North American jurisdictions require personal service to commence proceedings and have extended limitation periods or the running of appeal periods during COVID-19 or lockdown (neither is so in England). The effect of COVID-19 and the responses to it will have directly affected North American litigation in a way that they cannot have done for English proceedings.

The Law Gazette reported that between April 2019 and March 2020 only 13.5 percent of litigants were from the EU, a decline of nearly 20 percent on the year prior. One might be tempted to think the damage from Brexit to the appeal of English court and law has already been realised. This is unlikely. Many people have been ignorant of the issues arising from Brexit in respect of the enforceability of judgments and loss of privilege. Many non-EU litigants, including many in the UK, select the English Commercial Court with an expectation that their judgments will be enforceable across Europe or at least blissfully unaware that they may not be. They wrongly analogise the position of the London Commercial Court in Europe to the position of the New York courts in the US; however, European courts do not owe English courts any obligation of “full faith and credit”.

A rude awakening is on the immediate horizon. Imagine a litigant’s displeasure when they realise that not only may their expensively obtained English judgments not be enforceable but their potentially prejudicial communications with their English lawyers may not be subject to privilege in any European proceedings.

Nicholas Holland is a partner at McDermott Will & Emery UK LLP. He can be contacted on +44 (0)20 7570 1406 or by email: niholland@mwe.com.

Nicholas Holland

McDermott Will & Emery UK LLP