Leaving the EU: Legal Services

John Howell Excerpts

Wednesday 21st November 2018 Westminster Hall

[Mr Jonathan Djanogly (Huntingdon) (Con)]

I beg to move,

That this House has considered the provision of legal services after the UK leaves the EU.

I am pleased to have secured this timely Brexit debate on the provision of legal services. This is a key moment for our country’s wellbeing and direction, and the implication for the provision of legal services is significant. I introduce myself as a non-practising solicitor and as chair of the all-party parliamentary group on legal and constitutional affairs, which produced a report in October that noted serious issues that merit further debate. I take this opportunity to thank the APPG’s secretariat from the Law Society for its assistance with the report.

Before I launch into Brexit issues, let me explain why the legal services sector is so important to our economy. The legal services sector is a great UK success story. The UK has the second largest legal services market in the world and the largest legal services sector in the EU. In 2017, it contributed more than £26 billion to the economy—equivalent to 1.5% of GDP—and was responsible for net trade of some £4 billion. It employs and trains over 380,000 people.

The jurisdiction of England and Wales is recognised as a global centre for legal services, particularly for international, commercial and corporate transactions, and dispute resolution and arbitration. In 2015, more than 22,000 commercial and civil disputes were resolved through arbitration, mediation and adjudication in the UK. In the commercial court, which is housed in its new, modern building, nearly 1,100 claims were issued, of which two thirds involved at least one party whose address was outside England and Wales.

Our legal services sector is a great international success story, but we have no natural right to retain that business. Indeed, over the past 10 years several jurisdictions have sought to compete with England and Wales. We keep the work because of the excellence of our professional lawyers and judges and because of foreign parties’ trust in our rule of law and our reputation for judicial efficiency and fairness.

[John Howell (Henley) (Con)]

My hon. Friend makes a very valid point. Surely one of the biggest threats to the UK comes from Singapore, which is developing a good range of courts to tackle commercial issues. I have raised the subject on several occasions, but there does not appear to be a united Government front to see off the threat from Singapore.

[Mr Djanogly]

My hon. Friend makes a very important point. Other jurisdictions are also mounting challenges. We must avoid doing anything that might impair the reputation of the sector.

--- Later in debate ---

[Mr Djanogly]

As ever, my hon. Friend makes a pertinent point. Avoiding a no-deal scenario and securing the right future relationship with the European Union is of the utmost importance. The APPG supports the view of the legal services sector that a no-deal scenario would be devastating to the sector and should be avoided at all costs. Of course, there have been significant recent developments. Last week, on 14 November, the Cabinet collectively agreed to the draft withdrawal agreement and the political statement on the future relationship. Following a special European Council meeting on 25 November, the Government intend to lay a final version of the agreement before Parliament for debate.

It needs to be recognised that the draft withdrawal agreement contains a number of positive elements for the legal services sector, including provisions on mutual recognition of professional qualifications and on lawyers continuing to obtain qualifications throughout the transition period, and clarity on continued recognition and enforcement of judgments and orders throughout that period. Lawyers will continue to have the right to represent a party in proceedings before the CJEU in all stages of proceedings where a case can be brought by or against the UK. The automatic transfer of an EU intellectual property right into an equivalent UK right before the end of the transition period is very welcome.

The non-legally binding declaration, however, is a work in progress. To be frank, it is worryingly brief and it is vague on services, especially legal services. The relevant part of the political declaration explains that the goal is to secure

“Ambitious, comprehensive and balanced arrangements on trade in services and investment, delivering a level of liberalisation in trade in services well beyond the Parties’ WTO commitments”.

It says that the Government will put in place

“Appropriate arrangements on professional qualifications.”

I have to say that this is pretty sketchy stuff, and so we continue to have concerns about the lack of detail contained within the political declaration between the UK and the EU.

First, it is pretty unambitious for the UK-EU agreement to say only that it will go “well beyond” the parties’ World Trade Organisation commitments, and it is likely to lead to significantly less market access for services. Secondly, like with the Government’s White Paper, there are concerns about the continued focus on regulatory flexibility, as I mentioned before. The preservation of the present system, whereby lawyers from EU member states, EEA states and Switzerland can practise freely across the continent, should be prioritised instead. Thirdly, it is good to see a reference to professional qualifications, but that only goes some way towards giving lawyers the ability to practise in the EU, and generally it is not their preferred route.

Fourthly, it is disappointing not to see a reference either to civil or commercial co-operation, unlike in the Government’s White Paper. The UK and the EU currently enjoy the gold standard in civil and judicial co-operation, which should continue. Fifthly, without an agreement on judicial co-operation, judgments made in UK courts might be unenforceable in EU countries in the cross-border settlement of trade disputes, which might result, for instance, in debts owed by EU entities to UK businesses not being recovered. It follows that uncertainty about whether judgments from UK courts would be enforced could make the UK less appealing as a jurisdiction of choice for contracts and dispute resolution, which would lead to the growth of competing jurisdictions.

[John Howell]

My hon. Friend is being very generous with his time. I am not sure that I heard him mention the family courts in his list of things that we need to establish good relationships over. The family courts are very important, because sadly the amount of work that they undertake—on both sides of the channel—is growing. There is enormous mutual responsibility for them.

[Mr Djanogly]

I agree with my hon. Friend, who makes an important point. The Brussels II regulation is a single legal instrument that helps families resolve disputes about divorce and the custody of children where they involve parties in more than one EU state. Under the regulation, EU courts automatically recognise judgments on matrimonial and parental responsibility that are delivered in other states. That will no longer apply to the UK when we have left the EU. Similarly, the maintenance regulation, which helps to ensure the payment of maintenance in cross-border situations, will no longer apply.

In a no-deal scenario, the UK and EU27’s trading relationships in legal services would be governed by the general agreement on trade in services, or GATS, which falls far short of replicating the current EU framework. UK lawyers would be subject to myriad rules and regulations in each of the 31 European Free Trade Association states rather than to a single legal framework. UK judgments are automatically recognised and enforced across the EU27, but they will not be in a no-deal scenario, unless the UK unilaterally signs The Hague convention.

At the moment, clients can receive UK law advice from UK lawyers however and wherever they want in the EU; in a no-deal scenario, clients in some jurisdictions might be limited in how they can receive UK legal advice from UK lawyers. Currently UK lawyers have the automatic right to set up practices in an EU host state with minimal bureaucracy; in a no-deal scenario, UK lawyers’ ability to set up practices in an EU27 jurisdiction will depend on local laws and regulations. If establishment is possible, permitted activities still might be limited.

Currently UK lawyers have the right to advise clients who are based in the EU27 on EU law, because their legal professional qualifications are automatically recognised. In a no-deal scenario, clients based in EU27 jurisdictions might no longer be able to receive EU law advice from UK lawyers, as UK legal professional qualifications might not be recognised. Now, law firms can set up in one EU member state and export their services across the EU by establishing branches of the same structure in other member states. In a no-deal scenario, legal entities would lose the automatic right to use their preferred business structures in certain EU27 countries, and the UK corporate form of limited liability partnerships might no longer be accepted in some jurisdictions. As can be seen, we must avoid a no-deal scenario.

Growing concern that the UK could exit the EU without a deal has led the Law Society to publish a series of papers that give solicitors guidance on how to take steps to mitigate some of the risks. Law cuts across every area of life, and often UK and EU lawyers work across borders and enforce and litigate on family, data or business disputes. The first tranche of Law Society papers gives advice on some of the potential rule changes where a deal between a business here and in the EU goes wrong, what happens in family law if a couple splits up, and how we should approach data sharing should we quit the EU without an agreement. There is another paper on providing legal services in the EU, and I understand that further papers are in production. Perhaps the Minister could take this opportunity to explain how her Department is preparing itself and the legal services sector for a no-deal scenario.

It is fair to say that services, including legal services, have not been given the same attention in the Brexit process as manufactured goods have. The sector wants a bespoke agreement that comprehensively covers legal services and is based on mutual market access, mutual recognition of regulatory frameworks, regulatory co-operation and continued mutual access to talent. I have high regard for the Minister, her understanding of this sector and her ability. I hope that she takes the opportunity provided by this debate to set out how she will champion the English legal services sector in negotiations on the future relationship with the EU, with the intention that legal services are not left behind and will be given the tools to maintain their world-leading reputation for excellence after Brexit.

[John Howell (Henley) (Con)]

It is a great pleasure to serve under your chairmanship, Sir Christopher. I will not speak for very long, but I want to raise an important point about international arbitration while wearing my hat as the chair of the all-party parliamentary group on alternative dispute resolution, which looks at arbitration, mediation and other forms of dispute resolution.

I was pleased to see that the withdrawal agreement commits us to international arbitration to resolve any disputes between us and the European Union as we exit it. That is a very positive step forward and a good compromise to have received from the European Union. I pay tribute to the authors of the withdrawal agreement for getting the EU to agree to that. I put so much emphasis on international arbitration because it is arguably a cheaper and much quicker way of resolving disputes. As we have heard, we are a leading centre for arbitration, as the number of people who come to us from around the world indicates. They do that because of our distinguished judges and arbitrators, and because English law is admired around the world.

I raised that issue with the Lord Chief Justice this week, and I asked him how secure he is in believing that we will be able to continue with this regime after Brexit. He said, first, that it is difficult to see it continuing unless we do something about the fact that the number of judges is so diminished at the moment. That is a very important point. Arbitration is not solely based on judges, but we need judges with a great deal of experience.

The second thing he said—I made this point in an intervention—is that we need to be more aware of the alternative centres that are emerging around the world to deal with arbitration. I mentioned Singapore, which has put tremendous effort into developing a commercial solution. I hope that in the summer recess—assuming we still have one—I will be able to go out to Singapore to see for myself how its arbitration courts work and what sort of cases they deal with. We should be concentrating on those important things.

My hon. Friend the Member for Huntingdon (Mr Djanogly) said that legal services make an enormous contribution to the UK’s economic activity. I will not repeat what he said about them, other than to underline their phenomenal contribution.

I want much more emphasis to be put on tying up the elements that I have mentioned. We should not take for granted our legal position as the pre-eminent jurisdiction for arbitration. Our officials need some fight to ensure that we keep our jurisdiction and our reputation so that we can continue with that.

I stress the importance of ensuring that we have some sort of reciprocal arrangement for the family courts. My hon. Friend mentioned Brussels II and the maintenance regulations that apply to it. It is not the ideal form of governance of the situation with the European Union, but it is undoubtedly better than what preceded it, and we should be very careful about throwing it out.

I was disappointed not to see more in the withdrawal agreement about the protection of legal services. There is a gap there. It would have been nice to see more about how they will operate in the new environment and about how qualifications will continue to be recognised beyond the transition period. Those points have already been made, but I am happy to make them again because they are important and we need an answer.

[Robert Neill (Bromley and Chislehurst) (Con)]

It is a pleasure to serve under your chairmanship, Sir Christopher. I warmly congratulate my hon. Friend the Member for Huntingdon (Mr Djanogly) on securing the debate. I congratulate the all-party group on legal and constitutional affairs on its excellent report, which mirrors the Justice Committee’s conclusions in our report in the 2016-17 Session on the implications of Brexit for the justice system, especially in the areas that relate to co-operation in civil and commercial law. Our report, of course, went further and stressed the importance of continuing co-operation on criminal law and law enforcement, but our conclusions on the civil front are exactly in line with those of the all-party group. That is not surprising, because the evidence is entirely consistent.

My hon. Friend the Member for Henley (John Howell), who serves on the Committee with me, stressed the other issue that we want to raise: family law. This is not just about the clients of big commercial firms. The ability to enforce judgments makes a difference to parents who are seeking to get maintenance from a partner in another EU jurisdiction. At the moment they can enforce their maintenance agreement without any difficulty, but they would be at a grave disadvantage if they were not able to do so.

Many of us will remember the problems that arose in the past with the growth of what is called parallel litigation in family cases, in relation to divorce, financial arrangements and child custody arrangements. The last thing we want is a crash-out arrangement. In theory, that would mean that, as of 1 April next year, a parent in the UK and one in another EU jurisdiction would be capable of commencing parallel proceedings in family matters.

[John Howell]

My hon. Friend is stressing the role of the family courts, but he might also want to mention the ability to handle child abduction equally on both sides.

[Robert Neill]

That is entirely right. Some of the worst examples, before we developed the mutual enforceability of judgments, related to child abduction. In cases involving non-EU states, in which we are a third country, the parent here—frequently the mother—was at a significant legal disadvantage and did not have the protections that we have under the current arrangements, particularly the recast Brussels arrangements. I am glad that my hon. Friend has raised that issue.

I want to make two other points very briefly. First, I support my hon. Friend’s point about English law. Those of us who have practised know that, because of the reputation of our system, it is almost the norm to find English law clauses in international contracts. We want that to continue, but it is concerning that the Bar Council and the Law Society have been reporting evidence—so far anecdotal, but strong—that the uncertainty and the risk of a crash-out arrangement without contractual continuity is leading some firms to advise their clients to have clauses excluding English law from contracts. It would be extremely troubling if that were to persist. The longer the uncertainty, the greater the risk.

Simmons & Simmons, a leading law firm, conducted a survey of clients in Germany, France, Italy, Spain and the Netherlands to look at what the courts in those countries might adopt if we were a third country and could not rely on the current arrangements. It reported that 88% of clients—people abroad buying British services—thought that the Government needed to make an early public statement to remove uncertainty, and 50% said that, without that, they would be inclined to move away from choosing English law or jurisdiction clauses. The situation is urgent, so I will back the withdrawal agreement because it will get us into a transitional arrangement, which will give continuity for that period. More importantly, contracts will run beyond the date on which we leave, and significant commercial litigation will almost certainly take more than two years to work its way through. I hope that those issues will also be taken on board.

Will the Minister consider a couple of suggestions by the City of London Corporation and TheCityUK, to which I am grateful, about failsafe devices—I do not like to use the word “backstop”, because it has certain controversial associations—that we could have in parallel with seeking to get the withdrawal agreement through and get into the transition period? It has been suggested that it would be reasonable to look at a means of copying the text of the Rome I and Rome II regulations into our own private international law. Those regulations, of course, determine the applicable law for contractual obligations. As well as seeking the transition, many lawyers think it would be advisable to copy those texts—in parallel, I suggest, as a belt and braces operation—which are much superior to anything that went before, into our law. It is also important that we consider re-signing The Hague convention as an independent party. That would be a failsafe, not my preferred objective, but we need to have those eventualities in mind. That would assist with certainty.

In her Mansion House speech, the Prime Minister talked about the Lugano convention. I think that most people would concede that Lugano, in its original form, is nothing like as good or effective as Brussels I and II in their recast form. They are the gold standard that my hon. Friend the Member for Huntingdon referred to. Will the Minister take away the idea that, to get us anything like as good as we have under Brussels, any Lugano would have to be a Lugano plus plus plus?