How Scotland’s law firms as weathering against the Brexit storm

It was the seminal legal moment of 2019. Some four million people watched online as Lady Hale, President of the UK Supreme Court, ruled that Boris Johnson's  prorogation of parliament was unlawful – and it was a moment very much made in Scotland.

Picture: PA
Picture: PA

The case started with a group of petitioners led by Joanna Cherry QC, MP for Edinburgh South West, instructing Balfour+Manson, a legal firm rooted in the heart of Edinburgh’s New Town, to bring the action at the Court of Session.

Elaine Motion, executive chairman of Balfour+Manson, worked alongside Scottish advocate Aidan O’Neill QC, who argued in the Supreme Court that Boris Johnson’s prorogation meant: “The Mother of Parliaments has been shut down by the Father of Lies.”

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Motion and O’Neill had already handled one landmark Brexit case, going all the way to the European Court of Justice (ECJ) with a group of petitioners led by another Scottish politician, Green MSP Andy Wightman. Again, the arguments ultimately prevailed, with the ECJ ruling that the UK had the right to overturn Article 50 unilaterally, without the agreement of the 27 other EU members.

As Motion wrote in The Scotsman recently, even she was shocked by the scale of interest in the Supreme Court judgment. “The delivery by Lady Hale was extraordinarily powerful,” Motion wrote. “This was hugely complex law but she explained it with incredible clarity and simplicity – to the court and the four million people watching online.

“I was intimately involved in the case – as the solicitor instructed by the 70-plus petitioners – yet even I never imagined the level of interest as Lady Hale delivered the judgment.”

Lorna Jack, chief executive of the Law Society of Scotland, says that the Brexit cases have had a very positive impact on the country’s global legal reputation: “Scotland and its courts and lawyers have played a huge role in these big constitutional conversations and I have had a lot of comments from colleagues around the world.

“It has been a great opportunity for people to see Scottish solicitors, advocates and courts in action, showing that it is a separate jurisdiction. It has been a very important showcase for Scotland and its reputation for legal excellence.”

Jack says that the legal sector in Scotland is in generally good shape, although she does admit to having concerns about 2020.

She says: “We have 12,000 members, with the largest number ever employed and the lowest-ever level of unemployment. Traineeships are at a level not seen since pre-financial crash and that reflects the need for more staff to do more work.”

However, Jack recognises the sector has some serious challenges: “Small high street firms and those doing legal aid have tough years every year – and the corporate sector relies on certainty and we need to keep an eye on the Brexit effect.”

Jack feels that there is no real evidence – despite the demise of Morisons in 2019 – to suggest that there is a “squeezed middle” in the Scottish legal sector, with the largest legal firms doing well and the smallest local firms still managing, but mid-size, full-service firms toiling.

“Some mid-sized firms are doing really well. Those doing well have a clarity of strategy, the ability to invest, and they manage change well and are always thinking ahead,” Jack observes.

Investing in tech is another crucial success factor, she adds, saying the Law Society is driving that agenda – with its Law and Technology conference this year being by far the busiest of its kind to date, and a new specialism of legal technologist.

Some of Scotland’s largest legal firms reinforce the significance of technology in both how firms operate themselves and in the work they carry out.

Peter Lawson, chairman of Burness Paull, Scotland’s second-largest independent law firm, says: “Technology is becoming an increasingly powerful enabler in legal services, with benefits in terms of speed, accuracy and cost. By smart investment in better technology paired with the best people, we can pass those benefits on to our clients.”

And Andrew Blain, chief executive of Shepherd+Wedderburn, the largest Scottish-headquartered law firm which also has a substantial London presence, says: “We are seeing our commitment to – and strength in – the technology and fintech sectors pay dividends.”

The firm (which saw profits rise 3.6 per cent to £22.8 million in the year to 30 April, 2019) has advised on fintech deals with an aggregate value in excess of £650m over a year, including the sale of insurance technology group Qdos Holdings; Clydesdale Bank’s joint venture with fintech platform Salary Finance to provide innovative lending products; and investment wrap platform Nucleus Financial Group’s £140m initial public offering (IPO).

Blain says the energy sector has also been very strong for his firm, while Nick Scott, managing partner of Scotland’s largest independent legal firm, Brodies, says all practice areas have been strong for his company in 2019.

“The North East saw growing activity in the energy sector, M&A activity continued, and a lot of real estate development took place,” says Scott, who now leads a firm with a headcount of more than 700, with the number of partners exceeding 100 for the first time.

“Tax divergence is an increasing theme, and private clients continued to plan for their, and their families’ futures,” he continues. “Their resilience gives us the confidence to continue to invest in our own business.”

Despite the headwinds of Brexit, the legal leaders say clients are generally coping well. “An awful lot of clients [in 2019] simply got on with living their lives, investing in their businesses and supporting their public services, despite the daily reports of political developments,” says Scott.

Lawson agrees, although he conceded that “economic and political uncertainty had a tangible impact on two of the firm’s biggest markets” – oil and gas and commercial property – when the firm announced a drop in profits to £22m in the year to 31 July.

Yet Burness Paull’s corporate team had a record year, topping the Scottish legal deals table for the fourth consecutive year. Lawson believes this shows that his firm’s clients have been bullish in responding to changes in their markets by continuing to invest.

“Clients have adjusted to uncertainty being the new norm,” he adds. “Even with the backdrop of Brexit and the medium-term risk of Scottish independence, Scotland is a very attractive place for long-term strategic investments.

“Key sectors are technology, food and drink, and the gradual uptick in activity in the North Sea is flowing into investment and transactional work.”

However, across the whole Scottish legal sector, Lawson concedes that there is “a mixed picture”.

He explains: “Anecdotally it seems most larger firms are doing quite well, while some smaller ones are finding it more difficult. Part of that may be due to the increasing investment required to meet demands relating to compliance and technology.”

Nick Scott, whose first year as managing partner at Brodies - a UK top 50 law firm in the latest Legal Business analysis - saw profits rise by 14 per cent in the year to 30 April, believes there are still “plenty of opportunities for well-run independent law firms”. Brodies is the largest law firm in Scotland measured by income, directory rankings, and lawyer numbers.

He explains: “Recent news reports record the continued investments made by firms as they develop the services needed by their clients.

“And clients, and their professional advisors, have as always lots to contend with,” Scott continues. “Whether it be political factors like Brexit, the dynamics of their own markets, or changes in their own organisations or personal circumstances.

“But, we have always taken the view that there are opportunities for law firms focused on providing services relevant to the Scots economy and to our clients.”

Landmark laws

Scotland made history – and headlines – when it became the first part of the UK to ban smacking in October.

The Children (Equal Protection from Assault) (Scotland) Act made it a criminal offence for parents or carers to use physical punishment against a child, replacing “reasonable” physical force.

Also, the Age of Criminal Responsibility (Scotland) Act passed in May, raising the age of criminal responsibility from 8 to 12. These were two “significant pieces of legislation, making both real practical advances to children’s rights and Scotland’s compliance with international standards”, according to the Law Society of Scotland’s director of Law Reform, Michael Clancy.

They also raised the profile and public discussion of human rights and, in particular, children’s rights in Scotland.

Other major legislation included the Planning (Scotland) Act 2019, designed to streamline the planning system and support community engagement in the planning process; and the Prescription (Scotland) Act 2018, a Scottish Law Commission bill which modernised the law about the impact of the passage of time in various rights.

Lorna Jack, chief executive of the Law Society of Scotland, said the society would continue to utilise the “expertise and excellence of members, across a range of areas at Scottish and UK level, to ensure law is workable and can be used effectively once it is passed”.