City partners fear a shock referendum result which saw Britain vote to leave the European Union may see businesses relocate and make it harder to UK law firms to invest abroad. Meanwhile City litigators are confident London will maintain its status as a leading disputes hub.
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Simmons & Simmons senior partner Colin Passmore told Legal Business: ‘I went to bed reasonably confident and woke up shell shocked.’
‘I’m extremely surprised and extremely disappointed. It’s extremely important we don’t panic. We’ve got to work out what the business consequences of this are for our clients. It’s important we take stock over the next few days. It’s important everyone stays calm and measured. Everyone is very focused on the implications for business for clients and for ourselves.’
He added: ‘The immediate concerns are the currency markets and the volatility and concerns for those that haven’t put in hedging policies and most people probably have. I would expect that the vast majority of financial institutions have been planning for today for some time. As of 11.30 am the volatility isn’t over but it has calmed a little bit. The FTSE is still above 6,000. It’s not great but we’ve got to sit tight and ride this out with the hope that some semblance of normality will return.’
Passmore (pictured) said while a drop in the pound may be good for exports, it will weaken the ability of UK firms to invest abroad.
‘We hear talk of some of the European markets looking to grab a slice of the business in the City of London. While there are concerns about businesses moving, we’re not going to lose it overnight. But this may incentivise some of the financial services centres in Europe to have a go at beefing up. There is no room for complacency.’
‘We’re living through history. It’s an honour to do that in some ways, and that’s fine, unless you’re in charge of a business and everyone is looking to you and saying “we’re going to take our lead from you!”‘
Freshfields Bruckhaus Deringer head of corporate Simon Marchant (pictured) said: ‘We’re in advanced talks with a number of clients who will inevitably have an impact on their businesses and others it will have less of an impact on. Now it’s a reality, clearly they’re taking a keener interest.’
He said that while there will be a bit of a pause, while people take stock, he expects people to come back when they see where the opportunities are.
Marchant added: ‘There’s not an alternative financial centre [in Europe]. London has got such a depth in terms of people and skills. It’s quite hard to see another city which competes across the waterfront in all areas. You would expect to see some relocation of business I suspect, but it’s hard to tell.’
‘We’re confident. Whenever you have major events there is some sort of pause in activity as things get recalibrated but we are confident that there are as many opportunities as there are challenges.’
Norton Rose Fulbright global competition head Martin Coleman told Legal Business: ‘Clients are mapping risk and thinking about the alternatives. You’ve got the immediate issue today of the markets, but the longer term scenario is going to likely take more than two years to play out.
Coleman added that some of the change may be good for clients, and everyone is going to have to engage in the process.
‘The irony is the Leave campaign said get us out of the EU and reduce regulation but this is going to give rise to the biggest legislative and regulatory programme that this country has ever seen.
‘This is a period of profound change, a lot of this is legal and regulatory change, one view is this will lead to fewer transactions but with the depreciation of sterling this could give rise to transactional opportunities,’ Coleman added.
White & Case London executive partner Oliver Brettle (pictured) said: ‘In common with most businesses in London, we were surprised by the result.’
‘When asked what effect the leave vote will have on the legal market, Brettle added: ‘You probably need to divide the answer to that question into three, linked slices of time. The first the immediate aftermath through until October, the second after the Article 50 notice is served and the third when the UK has left the EU.
‘So looking at the first slice of time, the combination of this vote followed by the prime minister’s resignation earlier today will mean there will be a period of uncertainty and as we all know markets don’t like uncertainty. If the markets are uncertain and deals aren’t being done then that obviously has a knock-on impact for law firms seeking to advise on those deals. That said, on the other hand, there will be an upsurge in client queries and questions into what this means and (potentially) deal opportunities for those who seek deal opportunities created by the uncertainty. You can imagine dispute-orientated work may increase alongside regulatory.
‘Looking at the third period, London is a massive financial centre and European business is obviously important to London, it remains to be seen whether or not that European business will be affected by being outside the EU in the longer term. There’s an awful lot of non-EU related business done in London whether that’s UK work or that’s work everywhere else outside the EU and I’m sure that will continue. The simple fact is that London has the representative offices of more financial institutions than anywhere else in the world. That won’t change overnight, the concentration of expertise which you find in London will not change overnight and it remains to be seen whether or not there is a prolonged negative impact for the City caused by being outside the EU. We don’t know the answer because no EU country has ever done this before, so it’s the land of the unknown.
Pinsent Masons partner Guy Lougher said: ‘Already we are advising our clients on the review of business-critical contracts. Agreements which specifically reference the EU as the territory governed by the contract may lack clarity. There may also be ambiguity around how the impact of tariffs will be shared. The sooner amendments can be agreed or terms negotiated, the more businesses can increase their sense of certainty’
‘Deals which have been on ice or contain Brexit clauses may be renegotiated or even pulled and raising new finance in such an uncertain environment will be more challenging.’
Quinn Emanuel Urquhart & Sullivan London co-managing partner Richard East said: ‘In the short term, nothing really changes. Treaties will still be binding legally and everyone will continue to conduct themselves on the basis that they are still legally binding until such time as it isn’t. The British government have got lot to do now because there’s 40 years of history and legislation to effectively renegotiate and unwind.’
He added: ‘The things that I’m concerned about are some of the very basic laws that we’ve come to take completely for granted. For example the European regulation on jurisdiction and judgments is a very significant regulation for the purposes of litigation as is the European regulation on insolvency – some of these basic regulations which are very much entwined in our legal system.’
While one prominent private equity partner at a City firm told Legal Business in the run up to the vote that a small number of clients were considering pursuing a potential challenge through judicial review, Hogan Lovells disputes partner Charles Brasted, however, explains the courts would be hesitant to ‘interfere’ with reviewing the vote for Brexit.
He said: ‘The real question is what are your grounds and on what basis are you seeking this? It’s difficult as the court would be wary of entertaining the prospect – there’s a fair margin between the Leave and Remain vote. Also, judicial review is discretionary… it would be very difficult to see a court interfere in the democratic process… it’s already led to the prime minister’s resignation. You can’t unravel that.’
On litigation-related consequences, Brasted added: ‘There may be legal issues and litigation surrounding any Brexit clauses in contracts. From my perspective, this whole Brexit process plays into the question about our future of human rights protection. Then at some point there’s the usual litigation associated with economic shock which we have seen overnight.’
As for London’s status as a leading disputes hub, the mood from litigators suggests its reputation should remain fully intact.
Quinn Emanuel Urquhart & Sullivan partner Ted Greeno told Legal Business: ‘I don’t see any reason why things should change greatly for London as a dispute resolution centre. The attractions of London and what we have to offer are not dependent on membership with the EU. Everyone is still in shock but it doesn’t affect ongoing cases. We’re not likely to come out of the EU for several years…’
Greeno added however that the Brexit vote may not be the final outcome. ‘Whilst it is a minority view, I wouldn’t rule out this resulting in a root and branch review of the EU of the direction its going in, some changes, and a new EU emerging which would be put back to the British public. That’s a common sense thing to do and it’s possible. It would be close in a lot of countries… there’s dissatisfaction with the way the EU has operated. It’s assumed a lot of power but it’s not very good at using it because of its bureaucratic nature…it shouldn’t have assumed that without managing it properly. People are frustrated. Around Europe, there’s scepticism. The leaders in the EU should be thinking do we need to respond to this and rethink what we should be doing. If they decide they should that is something which might result in us having a new vote.’
Bar chairman Chantal-Aimée Doerries QC said the long-term effect of Brexit on the legal services sector’s contribution to the UK economy will depend ‘significantly on the nature and terms of the post-Brexit relationship with the EU’ and in spite of the turbulence there is confidence that London will remain a leading centre for international dispute resolution.
Noerr London managing partner Thomas Schulz said from a German perspective, the industrial areas will be affected, and any matters of immigration and labour law will be affected because one of the freedoms of the EU is the freedom of the movement of people. ‘The production industry will need to understand any importance the changes will have to tariffs, and any regulations which cover the import/export areas and the financial industry will be affected as financial regulations will need to be understood.’
‘For us, I don’t think there’s going to be a big change here. I think London will retain the ability to be a premier banking capital and Europe and of the world, but obviously as we go along and as events unfold, like Cameron stepping down, this adds to a level of uncertainty. There will be a lot of questions that need to be asked but when the dust has settled and the EU reacts to the news, this should become clearer.’
‘There will be questions on movements of companies, movements of asset managers, the passport issue will be discussed very seriously and there will definitely be ramifications. As a European law firm with a German footprint, we see ourselves in a place to have our clients that have issues with this, but this begins a long term process.’
Predicting what will happen next has been a challenge for politicians and law firms alike, with partners are already weighing up what the decision means in particular practice areas. Dentons data protection partner Nick Graham said: ‘We live in a globalised world for data – if companies are based here then they provide services here across Europe – they will have to comply with the equivalent of EU law – we could be in a situation where the same law applies now but the UK adopts new data protection regulations.’
Graham added that while data is mostly governed by European law, most of what is in place across the EU is based on European data protection directive, ‘so the position right now, is nothing changes yet, the future will depend on the UK’s status – there is going to be a lot of pressure and incentive.’
For more analysis see: ‘The profession reels as shock Brexit vote sends UK crashing out of EU… and into years of uncertainty’
Read Slaughter and May corporate heavyweight Nigel Boardman’s view here.
You can click here and here to see our two-part Insight special on Brexit.
