Michael West finds mixed feelings on independence from Scotland’s bloodied legal profession
It’s long been a hoary cliché to say that uncertainty is good news for the legal profession but it is hard to escape the conclusion that the uncertain prospect of a momentous vote on Scottish independence this month would be very good news for local lawyers… in the short term.
While the Better Together campaign maintains a narrow lead in the polls many believe the vote could still go the way of the nationalists. Should the Yes campaign carry the day, an independent Scotland would be established by March 2016. Legally, the country would not start from a blank slate. In its white paper Scotland’s Future – Your Guide to an Independent Scotland, the Scottish National Party (SNP) administration proposed an initial continuity of laws with current UK-wide legislation such as the Companies Act and Insolvency Act. These would then be altered by the newly-founded government but companies would not, the SNP argues, face immediate challenges to their day-to-day operations.
‘There will be massive regulation needed in financial services and in energy but every possible sector will be impacted.’
Penelope Warne, CMS Cameron McKenna
Yet the consensus among lawyers is that a split would generate substantial work given the sheer scale of resettling the country’s constitutional and commercial environment. Alistair Morris, president of the Law Society of Scotland, observes: ‘When Czechoslovakia split there were something like 8,000 new laws needed. How frantic the changes would be depends on the priorities of the administration.’ Mooted plans to move to a written constitution would also generate a large amount of new legislation.
Even if the Better Together campaign prevails, there will be some work for lawyers to get their teeth into with the Scotland Act (2012) giving greater tax and spending powers to the Scottish Parliament. Promises have also been made by all three Westminster leaders to devolve further authority, transferring more responsibility for fiscal and social security decisions.
Despite the continuation of UK-wide legislation, new regulations would still need to be developed quickly where English-based agencies currently hold authority. Penelope Warne, CMS Cameron McKenna senior partner, says: ‘There will be massive regulation needed in financial services and in energy but every possible sector will be impacted.’ Warne, noting that fast law is often bad law, says the legal framework ‘will need rationalising’.
If independence would likely produce years of work for Scots lawyers, what remains far less clear is the longer-term impact on Scotland plc.
A number of major players in the Scots economy have warned of the negative impact or risks of independence, particularly in the financial services sectors and industries facing significant regulation or a major reliance on the public purse.
Firms to cite uncertainty in Scotland include The Royal Bank of Scotland, Standard Life, Lloyds, BAE Systems, BP and Shell, though retailers and the airline industry, which hope to benefit from a more competitive tax regime, have been more upbeat.
The long-term fear of many in Scotland’s corporate sector is that the likelihood that Scotland will be forced to give up the pound, uncertainty regarding EU membership and the sheer level of regulatory upheaval will see some major companies transfer operations to England.
This comes after a post-banking crisis period in which Scotland’s financial giants have been humbled with a major negative impact on the country’s law firms.
Jim Gallagher, a visiting professor of government at Glasgow University, says: ‘The Scottish legal sector does a lot of corporate work, especially for Scotland’s financial services. It’s grown with them. Significant companies like Standard Life have said that they plan to relocate their HQs out of Scotland and a lot of legal work would go with them.’
But while the outlook is gloomy in financial services there are other areas which may expand.
The response of the independence camp is that full separation will bring longer-term benefits for professional service firms as executive and regulatory powers transfer to the Scots Parliament in Holyrood. Brandon Malone, founding member of the pro-independence group Lawyers for Yes and a partner at McClure Naismith, says: ‘It will bring the Capital effect to Scotland. BP and Shell HQs are in London to lobby the UK government because oil and gas policy is made there, they could come to Scotland. Working in a regional rather than a national market Scottish lawyers also miss out on various types of work that go through London: international arbitration, treaty arbitration, spin-off work from reserved functions such as defence.’
It is this longer-term view on which consensus breaks down – whether the opportunity of a fully independent state will ultimately outweigh the likely impact of reduced investment and fleeing companies amid the short-term period of uncertainty.
This is felt particularly keenly among Scots lawyers – which have suffered as Edinburgh has faded as a key hub in the last five years even as London has sustained its position despite the gloom that has descended on the City.
This dynamic has seen Scotland’s top firms falter with McGrigors being taken over by Pinsent Masons in 2012 and the country’s most storied firm, Dundas & Wilson, agree a near-rescue deal with CMS Cameron McKenna in December.
It likewise will not have escaped the notice of lawyers that the English legal market utterly dwarves that of Scotland and the relative clout of the Scots commercial profession has faded over the last ten years. It is also notable the 1997 vote on devolution showed little clear benefit to local lawyers.
In the absence of answers as to the longer-term picture, law firms have been jockeying since the referendum was formalised, competing on workshops and events for their clients.
However, Laurence Ward, CMS senior partner for Scotland, admits: ‘Some of this will be very complicated and there are very few firms capable of doing it, so there will be some need to look outside.’
‘When Czechoslovakia split there were something like 8,000 new laws needed. How frantic the changes would be depends on the priorities of the administration.’
Alistair Morris, Law Society of Scotland
In the run-up to the vote, firms operating in the country have taken quite different approaches in preparation. Christine O’Neill, chairman of leading Scots firm Brodies, comments: ‘Within the firm we have for the last two years had a working group on independence led by our constitutional team but with representatives from every practice area.’
Warne comments: ‘We don’t see independence as a risk, our merger goes beyond Scottish independence and we have a pool of lawyers both north and south of the borders.’
The profession as a whole would be largely unaffected by independence as it is already established as separately regulated by the Law Society of Scotland, and Scottish law and the courts are already in many respects separate from England and Wales.
The one area where lawyers could suffer would be the potential lack of EU membership, not only locking Scotland out of the common market but also seeing Scottish lawyers lose the protection of the EU Establishment Directive, which ensures solicitors can become qualified in other jurisdictions by registering with a competent authority and working for three years, potentially affecting some of the current 681 Scottish-qualified solicitors working internationally.
But, looking ahead, it is the state of the economy in general that will determine Scottish law firms’ fortunes. The topics preoccupying Scottish lawyers’ minds are those of the broader debate: Scotland’s currency, EU membership and the state of its public finances.
michael.west@legalease.co.uk