Leaving the EU: Legal Services

Debate between Jonathan Djanogly and Robert Neill

Wednesday 21st November 2018 Westminster Hall

[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.

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

My hon. Friend talks of the reputation of the sector. It is also about hard cash. At the end of the day, the legal services sector makes a contribution of about £25.7 billion per annum to the economy. It is really significant for our economic wellbeing.

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[Mr Djanogly]

I will be making the case that the hon. Lady has just put.

On labour mobility, the legal services sector has profited from the ability to attract talent from across the globe and the ability to work in the European Union. Frankly, many people going into the offices of a City law firm would be staggered by the number of nationalities and the depth of EU and world legal experience that we have in the UK. For instance, an American client would quite commonly run its European company acquisition strategy from London—because we speak English, yes, but also because they trust our jurisdiction and courts, and because we have European expertise here in London. We do not want to lose that. It is very important that a labour mobility framework that guarantees those abilities post-Brexit is put in place.

The legal services sector requires legal certainty throughout the UK’s withdrawal from the European Union. Law firms and their clients are already, sadly, beginning to implement contingency plans and move business elsewhere. We now have a draft of a detailed transition agreement, and the sector believes, as I do, that that agreement must be confirmed as soon as possible to ensure the sector has the legal certainty that it requires.

[Robert Neill]

Does my hon. Friend agree that having a swift and clear transition agreement is important not just, as he rightly says, to give law firms the certainty they need to continue their operations, but to ensure for their clients contractual continuity and, above all, the enforceability of contracts and judgments in commercial matters and a whole range of other matters?

[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.

Courts and Tribunals Fees

Debate between Jonathan Djanogly and Robert Neill

Monday 4th July 2016 Commons Chamber

[Mr Djanogly]

The hon. Lady talks about unfair advantage, but I am not sure how she defines it, particularly if it is a single employer. Most of the FSB’s membership are two-person companies. If the hon. Lady is saying that it is unfair if it is one employer against one employee, I would say it was not. The answer to her question is that it would depend on the circumstances.

There grew a culture of settling claims, even weak claims, so that they would simply go away. The fact remains that there is more to business confidence than statistics. If the indirect impact of fees has been to change this perception among business owners, which I feel it has, fees have made a significant contribution to an economy that is delivering the creation of the highest level of employment the UK has ever enjoyed. We should be cautious about meddling with that.

The big change from when I was a Minister in the Ministry of Justice is the use of ACAS conciliation. I should be interested to hear more from the Minister, but the figure of 83,000 claims being dealt with by ACAS at an early stage sounds very promising indeed. It was the policy of the last Labour Government and then of the coalition Government and this Government that alternative dispute resolution should be promoted as a cheaper, quicker, more consensual and less stressful form of sorting out problems, including employment disputes. I shall be interested to hear whether the Minister has plans to extend the use of ADR further still.

I note that, on access to justice, the Justice Committee’s report is rather limited to looking at the status quo—fees versus remissions, which seems to have a feeling of trade union influence.

[Robert Neill]

Will my hon. Friend comment on our specific proposal that there should be an uprating of the remission threshold to take account of inflation? Otherwise, there will be a risk of fiscal drag. That is one of a number of specific points we make about remission.

[Mr Djanogly]

It is useful to look at that, perhaps along with a wider review of the way in which remissions are working. A new system has been put in place, and I accept that such things need review.

The report totally overlooks the changing nature of the funding of legal claims now and possibly in the future—for instance, the use of loans to fund claims, or the use of no-win, no-fee agreements and insurance to fund claims. It assumes that the burden of risk is simply to be shared between claimant and defendant, which is unreflective of reality. What about the risk of claims being shared between insurers, lenders, lawyers—and, yes, even trade unions? For instance, should we not investigate what level of risk they should all take on board, before the taxpayer has to step in? Neither Opposition party statements so far, nor the Justice Committee report seems to be looking at the broader issues in an area where we need innovative ideas and an assessment of the wider marketplace. I would therefore be grateful to hear the Government’s views.

Small Business, Enterprise and Employment Bill

Debate between Jonathan Djanogly and Robert Neill

Wednesday 19th November 2014 Commons Chamber

[Mr Jonathan Djanogly (Huntingdon) (Con)]

I declare my interests as they appear in the Register of Members’ Financial Interests.

On Second Reading I raised my concerns about the provisions in clause 75 and part 7, and related issues in part 8 and schedule 3, to set up a register of people with significant control—in effect, a register of beneficial ownership. I questioned whether they would have benefit in terms of countering illegal activity or investigating tax evasion, even if this was at the triple cost of loss of privacy, increasing the regulatory burden on companies and threatening investment in British companies. Since that time, my concerns that we are doing the wrong thing have increased, not reduced.

I am sorry not to have been given time to speak to my tabled amendments. It is of concern also that the issue of privacy was not raised by any amendments tabled in Committee, with the honourable exception of the wise remarks made by my hon. Friend the Member for Newark (Robert Jenrick) in the stand part debate. He raised the key question: how many of the 22.5 million English companies is it actually suspected may be subject to some wrongdoing that could be tackled by these proposals? This question has yet to be answered by the Minister or anyone else. I respectfully suggest that this is not the proper process for encouraging investment or portraying this Government as business-friendly.

The Under-Secretary of State for Business, Innovation and Skills, the hon. Member for East Dunbartonshire (Jo Swinson), replied in Committee that the impact assessments undertaken indicated that

“our proposed measures are lawful, necessary and proportionate”––[Official Report, Small Business, Enterprise and Employment Public Bill Committee, 30 October 2014; c. 423.]

So I went through the impact assessment, and I cannot find such justification at all. In fact, it is by some way the weakest case I have ever read in an impact assessment. For instance, the impact assessment makes it clear that there exists little or no data or academic literature quantifying the proposition that a reduction in crime will follow as a result of a register of people with significant control.

My prediction is that these part 7, clause 75 and schedule 3 provisions will not work. In many instances there will be confusion as to who or what is a shareholder with significant control—for instance, in terms of family holdings, let alone complicated trusts, with expensive advice then required. The proposed data collection method is based on self-reporting, with no verification mechanism, which could make it easy, especially for non-resident shareholders, to misreport or simply to give the shares to someone else to hold.

For the purpose of this debate, let us take as our starting point the G8 agreement that companies should know who their shareholders are. I repeat: companies—not commercial competitors, NGOs, direct marketers, spammers or providers of financial services looking for clients, let alone criminals, fraudsters and all the others who could use or misuse information provided under these provisions.

Now we have the further G20 communiqué proposing a crackdown on secret shell companies. However, this was not accompanied by a call for share registers to be made public. So how did we get from the narrow G8 and G20 proposals to what we have in the Bill?

[Robert Neill]

My hon. Friend is making a powerful case and I very much agree with him. Is it not significant that on the back of the G7 discussions these proposals might be extended to the British overseas territories and Crown dependencies, many of which are already well in advance of most other jurisdictions on transparency on an international scale?

[Mr Djanogly]

That may be the case, but it has not been said in public.

There is a hint in the impact assessment that, amazingly, provides only two alternatives—do nothing and rely on voluntary campaigns, or jump all the way to the Bill provisions and propose company registers, with companies reporting annually to Companies House. But why does the impact assessment not review more focused registration regimes? That will now need to be addressed in the other place.

This is not an academic issue. In particular, there seems to have been a wholesale disregard for the material impact that these provisions will have on privacy. People can buy assets privately unless the asset is public, such as a listed stock. They may not want other people to know what they own; they may have cultural, security or even religious-based concerns about people knowing that they own part of a company. What evidence do the Government offer in the impact assessment to justify destroying this right of privacy? Very little.

As for the increase in the regulatory burden, the impact assessment talks of implementation costs on companies and ongoing costs. It also says that the costs to people who need to register their interests cannot be ascertained, and those are the same people who may have to take expensive advice.

Investment in British companies is also threatened. The impact assessment methodology is again flawed, because it looks at the quantity of companies affected, not the quality. In other words, one lost huge Chinese investor deciding not to use or invest in an English company could be very damaging to UK plc, even if a thousand single-owner tiny companies say that this measure will not impact upon them. Again, the impact assessment does not support the Government’s contention that they remain convinced that this reform will be good for business and the UK business environment. What the IA actually says is:

“There is a risk that we have not accurately accounted for this potential impact on overseas investment in the UK and UK competitiveness . . . particularly since the UK will likely be a ‘first mover.’”

One has to ask why we should be the first mover, with associated risks as we claw ourselves away from recession.

And here’s the rub: foreign companies will not have to keep this register, which means that British people who legitimately wish to retain their privacy will be forced not to use English companies, but to use, say, Irish or British Virgin Islands ones instead. As always, it will be the relatively small, unsophisticated businessman who bears the weight of regulation aimed at catching drug smugglers, which I suggest these proposals will fail to do anyway.

Looking at this Bill as it goes to the other place, I would consider abolishing the need for companies to file annual returns of their PSCs—that is, returns that will be outdated within five minutes of being filed. Accepting that the company PSC register is instigated to comply with the G8 and G20 requirements, if the company does not wish to release the PSC register voluntarily, the applicant should have to ask the court for access. I suggest that the proper purpose grounds for access should be restricted to national security, personal safety issues and tax investigations.

In this way Government crime and tax agencies would be able to make their inquiries, but the registers would still protect privacy for those companies that wished to respect this right. At the same time, the unjustified costs and regulation of keeping the central register would be abolished and foreign investors would not be put off investing in the UK. Finally, investors, especially British investors, would be saved the irrationality of having to trade through UK branches of foreign companies in order to retain their privacy rights. There is time for the other place to review these provisions, and I hope it does so.