Legal review: Green shoots looking forwards

In great political and economic uncertainty, both in the UK and globally, it is difficult to predict what will happen over the next 12 months.

This lack of clarity affects most business sectors, and the legal profession seems to be no exception. Just as the world was emerging from Covid-19, conflict in Ukraine began, and this has particularly affected energy supply and security.

Law firms expect the current economic climate of high inflation and interest rates, with the looming threat of recession, to influence them and their clients over the next year. Meanwhile, the lasting legacy of the pandemic is expected to still be felt in the coming months.

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Among other trends, the journey to net-zero will provide opportunities for law firms when it comes to such areas as green energy and clean technology. Finding and recruiting the right people will remain a challenge, and firms will need to focus on their diversity and inclusion efforts, according to lawyers.

Clean energy will be increasingly important to the Scottish legal sector. Image: Adobe StockClean energy will be increasingly important to the Scottish legal sector. Image: Adobe Stock
Clean energy will be increasingly important to the Scottish legal sector. Image: Adobe Stock

Martin Darroch, chief executive of Harper Macleod, says: “The next 12 months will undoubtedly be challenging, not just for the legal sector, but for the economy as a whole. That doesn’t change our focus – to provide the best possible service and value to our clients, and to help them create as much certainty as possible.”

He adds: “Just at the point when everyone was looking for a degree of certainty and to work through the post-Covid recovery period, the conflict in Ukraine has been a contributing factor to a set of challenges many people will have never faced before.

“There will be a generation of young people, including colleagues, who have never faced the inflationary pressures and rising interest rates we are currently seeing.

“It’s very difficult to predict what that means, other than the continued pressure on household finances and an inevitable squeeze on budgets in the coming year.”

Claire ArmstrongClaire Armstrong
Claire Armstrong

Peter Lawson, chairman of Burness Paull, says: “There’s no doubt that the short-term economic outlook is challenging. However, we focus on what we can control and our strategy and recent results have put the firm in a strong position. While not complacent, we are cautiously optimistic and look forward to supporting our clients to navigate the shifting economic and business landscape.”

Claire Armstrong, managing partner at Dentons in Scotland, sees a key issue concerning interest rates in the year ahead. “Banks have slowed down their lending, and there will be a major knock-on effect with some deals no longer being viable,” she says. “Restructurings and refinancings will follow, but there will be an impact on deal flow.”

At Aberdein Considine, Euan McSherry, partner and head of dispute resolution, believes the economic landscape will likely see the trend of increasing dispute instructions continue.

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He adds: “This may accelerate the evolution, and adoption, of litigation funding. The ability of a defender to pay an award is always an important factor in any litigation. It may be given greater weight in an economic downturn.”

His firm has seen an increase in commercial lease disputes and the length of time it is taking to reach a resolution. If this trend continues, McSherry anticipates an increase in landlords seeking determinations of their claims through arbitration or the courts. He also expects the marked increase in the number of commercial debt recovery, contractual disputes and insolvency instructions this year will continue into 2023.

“If there is to be an increase in the level of disputes, I hope to see a corresponding increase in the use of mediation,” he says.

McSherry explains that mediation can offer a more flexible and less expensive forum to try to resolve disputes. Such a resolution is often more effective and more durable than an order imposed on the parties. And a party can walk away from mediation at any time, without the risk of an adverse expenses award being made.

Nick Scott, managing partner at Brodies, maintains that his firm will keep recruiting and investing. “Our business planning requires us to anticipate that whole sweep of factors – political, economic, personal – that will bear on our clients and colleagues and requires us to make progress because of, not despite, those factors,” he says.

Murray McCall, managing partner at Anderson Strathern, also expects restructuring to feature in 2023, predicting more takeovers and mergers, as well as insolvencies. He believes many businesses will need to examine their cost base and work out how they can streamline operations. And he forecasts a volatile combination of distress purchases and opportunistic acquisitions will generate growth opportunities, and that economic challenges will lead to a rise in litigation.

He adds: “I envisage a slowdown in recruitment. In fact, I think we may see many organisations having to reduce headcount due to rising costs. Sadly, others may not survive a severe economic downturn.”

The severe issues around energy supply and security will also affect the type of advice that lawyers are giving over the next year amid the drive to net-zero.

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Andrew Blain, managing partner with Shepherd and Wedderburn, says: “We will continue to focus on growth in key sectors, including technology, infrastructure and clean energy. The current energy crisis is exacerbating the need to progress clean energy projects. We are involved in projects that were planned and under way long before the economic and geopolitical events we are seeing, and will continue to support our clients in the sector.”

Lawson points to the tech industry as continuing to offer opportunities as innovation continues, new market entrants appear and regulation is developed and introduced.

He says: “There will also be new opportunities in energy as the sector seeks to deliver security of supply over the short-term, following Russia’s invasion of Ukraine and the subsequent impact on gas prices and availability, in addition to the longer-term objective of developing sufficient clean energy sources to achieve net-zero.”

McCall also points to opportunities emerging from sustainability. “The green economy used to be a discrete area of law, but what we are seeing now is that the path towards a net-zero economy is driving growth across many sectors,” he says. “You have energy consumption and use; property deals and leasing; renewables, offshore and onshore wind; an increase in solar energy, and so on. All are key areas for growth and require specialist legal advice.”

The operational changes brought about by the pandemic will continue to affect the profession over the next year, including staff recruitment and retention, according to commentators. And diversity and inclusion are set to be front and centre as law firms look to bring in fresh talent.

Darroch says Harper MacLeod works hard to address the challenge of finding and keeping talented people. He says his firm is proud of its efforts with the Modern Apprenticeship programme, its Developing the Young Workforce initiative, and is attracting trainees from diverse backgrounds.

He continues: “It is a particularly competitive marketplace, but competition should be encouraged. It raises our standards in terms of client delivery, industry insight, and being an attractive place to work. How businesses of all sizes and sectors manage the hybrid working challenge will be key.”

He adds that his firm is talking to clients about the impact of long Covid on their staff, and whether it should be classed as a disability. He points out that more than two million people in the UK are thought to be living with the adverse effects of long Covid, which will be harming their health, and the organisations they work for.

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According to Armstrong, the challenge around gender must be kept front-of-mind to ensure female lawyers are encouraged to remain in the profession and can be promoted into senior positions. But, she adds that it is important to recognise that diversity goes beyond gender, and more needs to be done by the profession.

On diversity, Scott says that while the legal sector has made progress, through such initiatives as PRIME –an alliance of law firms aiming to drive socio-economic diversity –there is still work to do.

He says: “The sector must create more opportunity, celebrate success, encourage champions, share stories. If people with difference cannot see themselves in the profession, we will always struggle to attract them.

“Talent is everywhere, but opportunity is not. And too many people with difference rule themselves out, thinking there is no place for them in the sector – that has to change.”

Scott says Brodies wants to make a positive contribution to the profession and support the development of the next generation of lawyers and business services colleagues, for example, through its work with PRIME. And last year, the law firm appointed its first head of inclusion and diversity, Ashley McPartlin, to lead a review, set goals, monitor and report on progress, and drive plans forward.

Lawson believes striving for diversity should be seen as an opportunity as much as a challenge, saying: “All the evidence points to diversity and inclusivity going hand-in-hand with successful business, as you are able to draw on a wider range of outlooks, it strengthens your culture, and makes you a more attractive place for top talent.

“The Scottish legal industry as a whole is not where it should be yet – few sectors are – but progress is being made.”

This looks set to be a busy and challenging year for Scotland’s law firms, from aiming to reach ambitious net-zero targets, creating a more diverse profession and dealing with economic fluctuations. But, against that backdrop, the country’s senior lawyers say they still see numerous opportunities, for example in green energy, that they plan to tap into.