Brexit threat to London’s legal eagles

Without a deal on mutual recognition of court judgments by the UK and EU27, there will be massive legal uncertainty across Europe.

Brexit threatens to deal a hefty blow to the U.K.’s lucrative legal profession — and create huge uncertainty for courts across the rest of Europe.

That’s if Brexit negotiators don’t secure a deal that ensures Britain remains in a decades-old system that allows civil and commercial court rulings in one EU country to be recognized and enforced in another.

Currently, a law known as the Recast Brussels I Regulation ensures that rulings in one European country are automatically recognized by the courts of another. Without this provision, a judgment made by a U.K. court, no matter how legally coherent, would be unenforceable in another country.

The law means that plaintiffs can expect legal consistency across the EU; its absence would have massive implications for the U.K. legal sector. London is currently the go-to destination for large international corporations looking to sue rivals in England’s well-respected courts.

As a result, the legal profession has become one of the country’s most successful economic sectors, generating £30.9 billion in fees in 2015 and employing 314,000 people, according to a report published by the lobby group CityUK.

“What has happened since the Big Bang in the City [when regulations were relaxed in 1986] is that non-U.K. parties have often been increasingly happy to choose U.K. law and settlement and dispute in the U.K. in contracts, which don’t otherwise particularly touch the U.K,” said Anthony Parry, a senior consultant at the law firm Freshfields Bruckhaus Deringer.

But despite its importance to the U.K. legal profession, it has so far barely featured in the public Brexit debate. “Too much time has been spent focusing on the European Court of Justice and too little on what sort of cooperation will take place between national courts after Brexit,” said Kenneth Armstrong, a professor of European law and director of the Center for European Legal Studies at the University of Cambridge.

“The advantages of [European judicial cooperation] are so neat and helpful that it’s quite extraordinary that no one thought to mention it at any given level during the referendum campaign,” said Claude Moraes, a U.K. Labour MEP who chairs the European Parliament’s justice committee. “At the moment, a judgment given by an English court is enforced anywhere in the EU. There’s uncertainty now whether that will happen.”

Legal cliff edge

The concern on the EU side is clear. One of the first position papers published by the EU’s chief Brexit negotiator, Michel Barnier, focused entirely on ensuring “ongoing judicial cooperation” between the U.K. and the EU27.

In a bid to prevent massive uncertainty over whether a ruling made by a U.K. court will be enforceable elsewhere in Europe and vice versa, Barnier argues that “the relevant provisions of Union law … should continue to govern all judicial decisions given before the withdrawal date.” That would, however, involve the Brexiteers’ most hated institution, the European Court of Justice (ECJ) — the EU’s highest court, based in Luxembourg — having a role in the U.K. post-Brexit.

Ensuring that any case brought to a court or ruling handed down by a U.K. court before Brexit remains covered by existing EU law is the easy bit to agree.

What happens after is anyone’s guess — despite pleas from the U.K.’s legal profession for clarity.

“Many months have elapsed since these points were made clear by the judiciary and the legal profession to Her Majesty’s government,” said John Thomas, the lord chief justice of England and Wales, in a speech last month. “There is no reason for further delay.”

The U.K. government will grandfather existing EU laws, including those on mutual recognition of court rulings and other relevant provisions allowing parties to choose which court and the form of law they use through the Repeal Bill — which will transfer EU laws across to the U.K. statute book and has already begun its passage through parliament.

This would, however, only ensure the recognition of rulings made elsewhere in Europe in U.K. law, and not the other way around. “A system which has relied on mutual recognition cannot be replicated by such an asymmetric approach,” said Cambridge University’s Armstrong.

ECJ troubles

There are some quick fixes, one of which would entail negotiating continued participation in the Recast Brussels I Regulation, in the same form agreed in 2005 with Denmark, which has opted out of EU justice and home affairs policies since 1992.

Another option would involve signing up to the so-called 2007 Lugano Convention, which is based on an earlier form of the EU regulation, that ensures the mutual recognition of judgments in EU countries and states within the European Free Trade Association (other than Liechtenstein).

There are snags to both, however.

Both options would involve the ECJ: directly in the case of the regulation, or to a lesser extent in the case of the convention, which requires “any court [to] pay due account to the principles laid down by any relevant decision [from the ECJ].” The U.K. government has made clear that the Luxembourg court can have no say over U.K. affairs post Brexit.

But Moraes said that makes it nigh on impossible to reach a deal that doesn’t cause massive disruption to U.K. courts. “This is the price you pay for being so knuckle-headed about the ECJ,” he said, describing the court’s involvement as “a precondition for a good deal.”

Even if a deal is reached, the current question mark over whether rulings made in English courts will continue to be enforced elsewhere in Europe may dent London’s attractiveness as a legal center.

“People may be saying to themselves ‘how do I feel about using a legal system outside the EU if the enforcement system doesn’t work automatically?'” said Freshfield’s Parry. 

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For Moraes, the threat is even more severe. “We’re doing everything humanly possible to diminish [the U.K. legal profession’s] advantages,” he said.