In the cafes, restaurants and meeting-rooms of Rome at the annual conference of the International Bar Association (IBA) last month, the conversation kept returning to one main topic.
“The rule of law is always the centre of discussion, but everybody was quite fixated on Brexit,” says Gordon Jackson QC, dean of the Faculty of Advocates, who attended the event with vice-dean Angela Grahame and more than 5,000 other delegates. “It has taken things over.”
While the ‘getting on with it’ mantra seems to have prevailed in the Scottish legal market for the last year and more, there is a sense of everyone holding their breath for 2019 as the debate over the UK’s Brexit deal – or no deal – continues to ebb and flow on multiple fronts.
Peter Lawson, chairman of Burness Paull, who was also in Rome, says: “Brexit was very much the main topic of discussion at the IBA conference. I think there has to be a softening and a drop-off in activity in Quarter 1 next year – if you invest in February and then there is a big drop-off in April, it’s a risk.”
Alison Atack, president of the Law Society of Scotland, points to a survey of the UK’s largest firms showing 94 per cent of board members felt their business was well prepared for Brexit – yet only 53 per cent of their legal advisers agreed.
However, Scotland’s top legal firms are cautiously optimistic about 2019.
Nick Scott, managing partner at Brodies, says: “It appears to me that a lot of clients are getting on with things and investing in their business until they have an idea precisely what Brexit might mean. Even when there are challenges, there are opportunities – and there will be opportunities for businesses and individuals to make progress in 2019. In any major political event, the outcome is never binary. There are different implications for different sectors and individuals.”
Scott feels that Scotland is perhaps particularly well-placed to deal with change. He explains: “The Scottish economy in general has become pretty inured to dealing with major challenges – the banking collapse, global economic issues, the Scottish independence referendum and now Brexit.
“And the legal sector in Scotland is resilient; it continues to pilot a path in the face of uncertainty.”
Allan Wernham, managing director (Scotland) at CMS, says: “So far, Brexit doesn’t seem to have had much of an impact on activity in the market. It has the potential to give us a bumpy ride, but equally if a deal is done to facilitate a smooth transition, there is also the potential that the period after March 2019 will be very busy indeed.”
Alison Atack also picks up on the opportunities as well as what she calls the “unprecedented legal challenges ahead”.
She says: “The legal profession is approached on a daily basis by businesses seeking advice on Brexit. Key issues where lawyers will be called on to advise include stability in law; cross-border freedom; security; justice issues; recognition of citizenship and employment; continued professional recognition within the EU; rights of audience before EU courts; and respect for legal professional privilege as it applies to Scottish solicitors.”
As well as expertise in dealing with these issues, Atack stresses that specific legal knowledge will be required to deal with the changes to an estimated 1,000 regulations affected at UK level and hundreds specific to Scotland.
“Trade will be another area where lawyers’ skill will be required,” says Atack. “Trade agreements can be used to affect a wide range of changes in the relationship between states and regions and the means to promote or reinforce the application of the rule of law. The legal services sector facilitates trade across all other sectors.”
She also notes the important role other areas of the legal framework play in facilitating trade – such as the continuing protection of intellectual property rights, promotion of competition and facilitating the flow of data.
Mergers and acquisitions experts are broadly positive about the ability of business to ‘trade through’ Brexit – although David Davidson, corporate finance partner at CMS, is circumspect.
He says: “Anecdotally, there are a number of concerns around Brexit with those sectors that are likely to be most directly impacted reviewing corporate actions and future M&A activity. Those who are less directly affected continue to pursue a cautious approach from a macro-economic perspective.”
Doug Crawford, partner and head of private equity at Brodies, is more positive: “There is a lot of inward investment coming into Scotland as it is seen as a relatively safe and cost-effective place to do business. The currency valuation – effectively an impact of Brexit – has been a positive and has offset other concerns.
“I think we will see a pretty buoyant M&A market depending how Brexit plays out. If we didn’t have Brexit, we would be pretty optimistic for a lot of activity in 2019. That might still be the case; however, we are getting to the sharp end.
“Nobody knows what it really means, there are too many possible outcomes. You do not know how business will react until it actually happens. But businesses in Scotland are pretty resilient in the face of a challenge and will see opportunities for clients in the market. People will trade through whatever happens.”
Mark Ellis, a corporate finance partner at Burness Paull, agrees: “For a number of reasons, market sentiment has remained very positive and deal activity has remained strong. There is significant cash looking for a good home, both private equity investors and corporates sitting on cash.
“People want to get deals done, but they are aware of the potential of the road bumps to be addressed. The pipeline to the end of the year looks very good. Next year, will it be similarly positive? I don’t know. We are concentrated on doing as many deals as possible for our clients.”
Burness Paull’s chairman, Peter Lawson, despite his sense of a Q1 slowdown, describes 2019 as “a year of opportunity”.
He says: “We go into 2019 with a higher oil price driving opportunities in Aberdeen – and Scotland as a whole will continue to attract inward investment because it is seen as a great place to do business.”
Legal regulation will be a huge topic in 2019 after a review commissioned by the Scottish Government said the profession should have a new, single, independent regulator.
Review Chair Esther Roberton described the regulatory and complaints handling system as too complex and not accessible to those who use legal services or those who deliver them.
The report recommends removing the regulatory role of the Law Society of Scotland, Faculty of Advocates and the Association of Commercial Attorneys and replacing them by a single regulator for all providers of legal services in Scotland. It would be responsible for all regulation (entry, standards, monitoring, complaints and redress, covering individuals, entities and activities) and be accountable to the Scottish Parliament.
Alison Atack said: “We strongly oppose the primary recommendation of a new single regulatory body because of the unnecessary risk it places on protecting consumers and higher cost.
“The Law Society has almost 70 years’ experience of successfully setting and enforcing standards in the solicitor profession. I find it surprising that, following such a long review, Roberton would conclude without any consultation with the profession, that a new regulatory body be set up and that the Law Society be removed from the regulatory process.”
Neil Stevenson, chief executive of The Scottish Legal Complaints Commission, welcomed the recommendation for reform.
He said: “Two and half years we were a lone voice saying the current regulatory and complaints system was broken and that an entirely new approach was required both in the public interest and to support a vibrant and sustainable legal services sector. A single and simplified regulatory scheme, established as an independent body, is a logical starting point for future discussions.”
This article appeared in the Scottish Legal Review. A digital edition can be found here.