Freshfields Bruckhaus Deringer LLP—Written evidence (TAS0046)

Evidence to the House of Lords EU Internal Market Sub-Committee

UK-EU trade in non-financial services

On 13 September 2016, the House of Lords EU Internal Market Sub-Committee issued an informal call for evidence regarding the effect of the UK leaving the European Union (EU) on trade in non-financial services.  Freshfields Bruckhaus Deringer LLP (Freshfields) welcomes the Sub-Committee’s focus on the trade in services (rather than goods), as well as the opportunity to contribute to the Sub-Committee’s inquiry.

The paper concentrates on the free movement of legal services between the UK and mainland EU.  However, the fate of the legal services sector post-Brexit is dependent on the success of a Government strategy encompassing the following interlinked points:

• the identification and exploitation of opportunities for the legal services sector post-Brexit;
• the promotion and protection of English law as the globally-recognised governing law of choice for international contracts;
• the promotion and protection of the UK as a pre-eminent dispute resolution centre, its lawyers as world-class, international professionals and the enforceability of English judgments post-Brexit; and
• more generally, the promotion and protection of the UK, and particularly London, as a dynamic international business hub served by an exceptional legal services sector.

We have been in touch with the Ministry of Justice and other Government departments about the finer details of such a strategy.

Sectoral overview

1. Please provide us with an overview of trade in your sector. Please include a summary of the significance of the sector to UK trade in services, including employment statistics (linked to trade if possible), the volume and balance of trade, value added and Foreign Directive Investment (FDI), and UK strengths and specialisations in the sector.

Freshfields does not collate industry-wide statistics for the UK legal services sector.  Instead, when drafting sector-wide papers, such as those relating to Brexit, Freshfields uses third party reports.  Most recently, we have used these papers to inform our views:

• CityUK, Legal Services 2016 (20 July 2016);
• Law Society, Economic Value of the Legal Services Sector (March 2016); and
• Law Society, The EU and the Legal Sector (October 2015).

The following paragraph gives a brief overview of the legal sector’s economic contribution to the UK.  All statistics are taken from the CityUK July 2016 Report, p. 4 and, unless otherwise stated are for 2015.

The legal services sector makes an important contribution to the UK domestic economy calculated to be worth £25.7bn annually.  Not only is the legal services sector a significant contributor to the UK’s GDP (1.6%), but it is also a key employer, employing well over 300,000 people.  At the moment, two of the four largest law firms in the world based on headcount have their main base of operations in the UK, while four of the ten largest law firms in the world based on gross fee revenue are also primarily based in the UK.  The UK accounts for 10% of global legal services fee revenue – and a fifth of European fee revenue.  The UK is by far the largest market for legal services in Europe and second only to the US globally.

EU and market access

2. How and to what extent does the EU facilitate enhanced market access for your business/in your sector? Is there a harmonised Single Market framework that allows you full access to other member states’ markets? If not, how (and how well) does the Single Market function in your sector?

The EU Single Market framework gives UK legal services near-full access to other Member States’ equivalent markets (with the exception of restricted activities which are defined on a State-by-State basis).  Without this framework, UK lawyers in the EU would be governed by local Bar requirements

The UK’s access to the EU single market, and particularly the European legal services market, is crucial to the UK legal service sector’s success.  Not only does single market access provide the UK legal services sector with an opportunity to export its products (the UK legal services sector recorded a worldwide export surplus of £3.4bn in 2015), but it also attracts foreign law firms to establish a presence in the UK.  These foreign law firms, particularly non-EU law firms, then use the UK as their EU base.  For instance, two hundred foreign law firms have offices in the UK, with half of these from the US.[1]

The EU single market framework for legal services is founded on three key lawyer-specific rights derived from treaties and directives:

(a)                the free movement of legal services,[2] which enables UK law firms to: (i) second lawyers for short periods of time within the EU; (ii) provide fly-in-fly-out legal advice when visiting clients in other EU Member States; and (iii) provide cross-border legal services from one EU Member State into another;

(b)                the rights of establishment for lawyers,[3] which facilitate the permanent relocation of the UK lawyers to alternative EU network offices; and

(c)                the mutual recognition of professional qualifications, which precludes the requirement for UK lawyers to prove their professional qualifications when providing legal services or establishing their practices permanently in a host Member State (rather than their home Member State where they originally qualified as lawyers).

In combination with two of the four freedoms (free movement of people and services), this framework gives UK-qualified lawyers the EU Legal Services Single Market.  Annex A sets out the Single Market framework for the legal services sector in further detail.

3. Do other aspects of EU membership help or impede the ability of your business to operate (eg, access to justice, horizontal legal regimes, free movement of persons, mutual recognition of professional qualifications, regulation and standards)?

As noted above, the legal services sector benefits from the free movement of persons and mutual recognition of professional qualifications.  The free movement of persons enables international UK law firms to send UK national lawyers to other Member States (on a long- or short-term basis) without the need to complete bureaucratic immigration requirements.  This right allows UK law firms and lawyers to react swiftly to clients’ requirements for a physical presence .  For example, if a client, based on mainland Europe, is dawn raided by a continental regulator , a UK law firm can have its lawyers on the ground in a matter of hours.  The mutual recognition of professional qualifications serves a similar purpose by circumventing bureaucratic requirements.  This right is explained further above and in Annex A. 

Exiting the European Union

4. What specific issues does the UK exiting the EU raise for your business/sector? Please be as specific as possible.

The precise issues Brexit will raise for the UK legal services sector will depend on the outcome of UK-EU negotiations.  As discussed in questions 2 above and 6 below, EEA membership (or its equivalent) would ensure a smooth transition post-Brexit with no changes to the framework governing UK lawyers and the legal services sector.  However, a WTO or FTA Brexit would raise a number of significant, and potentially detrimental, issues for the UK legal services sector. 

In a WTO/FTA scenario UK-qualified lawyers would lose the five rights discussed in question 8: free movement of legal services, rights of establishment, automatic mutual recognition of professional qualifications, appearance rights in front of the European Court of Justice (CJEU) and the benefits of legal privilege in EU matters.  UK-qualified lawyers might also lose the right to practise EU law.  The loss of these right would have significant repercussions.  In a worst case scenario:

• UK-qualified lawyers would no longer be able to provide cross-border legal services to mainland Europe either via email, telephone or in person on fly-in-fly-out visits.  This would have a detrimental impact on the UK legal services sector and its ability to advise international clients based in continental Europe;
• UK-qualified lawyers would lose their rights of establishment on mainland Europe and vice versa.  This loss would make it more difficult for UK-qualified lawyers to relocate to the Continent on a permanent or semi-permanent basis. 
• UK and continental law firms would no longer be able to second lawyers from/to London.  This would weaken links between the legal communities and the familiarity that many EU lawyers have with English law due to stints spent in the UK;
• UK-qualified lawyers would need to complete additional steps to have their professional qualifications recognised on mainland Europe.  Depending on local Bar requirements these additional steps could include oral and/or written exams.  Without them, UK-qualified lawyers would not be able to provide cross-border legal services or establish themselves in Europe;
• UK-qualified lawyers would no longer automatically be able to appear in front of the CJEU;
• UK-qualified lawyers would no longer benefit from legal privilege in EU matters automatically;
• UK-qualified lawyers would no longer be able to advise on EU law without an EU legal qualification.  The precise details would depend on local Bar requirements;
• clients could turn to lawyers in other Member States for advice.  Clients could consider that as EU-lawyers these lawyers would be better qualified to give advice on EU matters than their UK counterparts.  Clients could also believe that as EU lawyers, these lawyers would have more influence and better contacts in Brussels;
• London could lose its position as the EU legal services capital and the accompanying coordinating role it often plays in transactions and investigations e.g. in relation to global/EU merger filings;
• the UK would be a less attractive location for non-EU firms to establish their European operations as the UK would fall outside the EU legal services framework; and
• the quality and experience of UK-qualified lawyers could decline as complex matters with an EU nexus were relocated to mainland Europe.

Future UK-EU trade relationships

5. What would the impact be for your business/sector of leaving the EU and operating on WTO (GATS) terms? To what extent would businesses be able to continue to trade in services as at present? How would your business adapt to this specific scenario? Are WTO terms an attractive option?

The WTO model would have a detrimental impact on the UK legal services sector and UK law firms.  The UK would lose its access to the EU framework for lawyers and would be unable to continue its trade freely in legal services with mainland Europe.  In this scenario, the UK would not retain any of the four freedoms and there would be extensive restrictions on the provision of legal services.  More generally, it is possible that British E&W-qualified lawyers would not be permitted to advise on EU law, at least in certain EU Member States.  There would be no rights of establishment for UK lawyers and no automatic mutual recognition of professional qualifications.  As with the Swiss and Canadian models, access to the CJEU and legal privilege would only be retained if E&W-qualified lawyers were entitled to practice in the Republic of Ireland or another EEA Member State. 

6. Would leaving the EU but remaining a member of the European Economic Area (EEA) retain present levels of market access for your business or not? Is this an attractive option?

From a legal services point of view, EEA membership would be an attractive option.  The UK legal services sector would be unaffected by a transition to EEA membership as the EU legal framework for lawyers would continue to apply (albeit via different instruments).  UK lawyers could continue to move freely between London and mainland Europe for short- and long-term secondments, as well as permanent relocations, without any additional bureaucratic requirements.  UK-qualified lawyers would automatically retain legal privilege in EU matters and the right to appear before the CJEU.  Annex B explores the EEA model for legal services in more detail.

7. Is a negotiated UK-EU Free Trade Agreement (FTA) an attractive option? How confident are you that the needs of your business/sector, including but not limited to market access, would be accommodated in such an agreement?

No.  Given the protectionist approach that many countries, including EU Member States, take towards legal services, an FTA is unlikely to give the legal services sector the comfort it needs to continue with business as usual.  For example, the yet-to-be-ratified  Canadian Comprehensive Economic and Trade Agreement (CETA) contains sparse provisions on legal services.  There are no rights of establishment and service provisions cover only limited situations (e.g. not secondments or fly-in-fly-out business trips).  Many of the EU Member States have specific reservations for legal services.  Furthermore, mutual recognition of UK lawyers’ legal professional qualifications would not be guaranteed.  In a CETA scenario, the UK and EU would need to agree that legal professional qualifications could be subject to mutual recognition provisions before the protracted recognition process could be set in motion.

8. What should the Government’s key objectives be for your sector in its negotiations with the EU?

The following five lawyer-specific rights are crucial in ensuring that the UK’s lawyers and law firms continue to compete with their European counterparts and continue winning business both from EU and global clients. 

(i)            Free movement of legal services, which enables a firm to: (i) second lawyers for short periods of time within an EU network; (ii) provide fly-in-fly-out legal advice when visiting clients in other EU Member States; and (iii) provide cross-border legal services from one EU Member State into another.  This right is based on a combination of the Treaty for the Functioning of the European Union (TFEU) and the Lawyers’ Services Directive (77/249/EEC), building on the Services Framework Directive (2006/123/EC).

(ii)            Rights of establishment for lawyers, which facilitate the permanent relocation of UK lawyers elsewhere in the EU with minimal bureaucracy and discrimination.  Like the provision of legal services, these rights are derived from a combination of the TFEU and Lawyers’ Establishment Directive (98/5/EC).

(iii)            Mutual recognition of professional qualifications, which precludes the requirement for EU lawyers to prove their professional qualifications when providing legal services or establishing their practices permanently in a host Member State (rather than their home Member State where they originally qualified as lawyers).  The Professional Qualifications Directive (2005/36/EC) provides the legal basis for this mutual recognition.

(iv)            Automatic legal privilege for EU-qualified lawyers’ communications in EU cases provided that the following criteria (derived from case law - AM&S[4] and Akzo[5]) are fulfilled.  The relevant communications must be: (i) made in the interests of the client’s right to defence; and (ii) emanate from an independent lawyer entitled to practise in the European Economic Area who is not bound to the client by a relationship of employment.  Where it applies, this right allows legal advice documents to be withheld in disclosure exercises involving the European Commission.

(v)            Appearance rights before the European Court of Justice (CJEU) for UK-qualified lawyers.  According to the CJEU Protocol: “Only a lawyer authorised to practise before a court of a Member State or of another State which is a party to the Agreement on the European Economic Area may represent or assist a party before the Court.” 

Of these five key requirements, the first three (or negotiated equivalents) are currently the most fundamental for the UK legal sector to continue with “business as usual” post-Brexit.  For England and Wales- and Northern Ireland-qualified lawyers, rights (iv) and (v) can currently be retained by taking advantage of the reciprocal arrangements with the Bar of the Republic of Ireland.[6]  These arrangements enable these lawyers to register with the Irish Bar and obtain practising certificates automatically (on the payment of a fee).  However, as a solution this relies on a number of assumptions[7] and may not be permanent.  It is therefore worth including (iv) and (v) on the agenda of any future EU negotiations.

Routes to achieving the key requirements

As discussed above, rights (i)-(iii) are currently based on three specific Directives: the Lawyers’ Services Directive (77/249/EEC), the Lawyers’ Establishment Directive (98/5/EC) and the Professional Qualifications Directive (2005/36/EC) (together, the Directives).  The simplest way to retain access to the Directives would be to follow the example of the EU-Swiss bilateral agreement on the Free Movement of Persons i.e. by expanding the Directives’ definitions of “Member State(s)” to expressly include the UK (which would no longer be a “Member State” under the EU definition). 

An alternative to amending the Directives could be to conclude a separate bilateral agreement with the EU which covered similar principles but in an altered manner.  For instance, the rights granted by the Directives could be restricted e.g. with registration requirements when providing legal services in EU Member States (not currently required under the Lawyers’ Services Directive), a time limit for the provision of services or the automatic requirement for an exam to gain the relevant rights of establishment.   

If the UK were unable or unwilling to secure access to the Directives and their accompanying principles, it would need to negotiate a bespoke agreement with the EU.  Recently negotiated and concluded trade treaties, including the Canadian CETA, have contained sparse provisions for legal services.  However, it is possible that the UK could negotiate satisfactory terms based on its historically close relationship with the EU.

For rights (iv) and (v), as discussed above, England and Wales- and Northern Ireland-qualified lawyers could temporarily use the Irish solution.  However, in the long-term it is likely that the relevant CJEU Protocol would need to be amended and a new interpretation of case law proffered to enable lawyers qualified only in the UK to practise before the CJEU and benefit from EU legal privilege.

9. Does leaving the EU raise significant benefits or growth opportunities for your business/sector? What are these and how can they best be exploited? To what extent do they offset/outweigh concerns about reduced access to EU markets?

The UK’s departure from the EU may offer some new (but limited) opportunities for the UK legal services sector.  However, these opportunities would not be significant enough to outweigh concerns about reduced access to the EU markets, nor would they offset the UK legal service sector’s potential losses in the event of Brexit.

Brexit would permit the UK to conclude new bilateral agreements to facilitate a more integrated trade in legal services with third party economies.  It is logical that these opportunities will be global and probably most significant with countries which:

• already have a close relationship with the UK culturally, economically and linguistically;
• share English Common Law as the basis for their legal system (27% of the world’s 320 legal jurisdictions use English Common Law[8]); and
• have similarly developed economies and education systems.

Based on these criteria, the most likely partners would be Commonwealth countries such as Australia, New Zealand and South Africa.  However, it is worth noting that these opportunities would be a potential addition to, rather than substitute for, any form of access to the EU single market in legal services. 

Generally countries take a protectionist approach towards their local legal services sectors, as shown by the sector-specific reservations in the WTO General Agreement on Trade in Services (GATS) schedules.  There is therefore no guarantee that they would be willing to conclude agreements on legal services.  Even if the countries were willing to enter into agreements on legal services, it is likely that these agreements would be significantly more restrictive than the current system of reciprocity rights with the EU.  In addition, the agreements would be more limited in monetary value, as without a commonality of supranational law (e.g. EU law) and common market, trade in legal services tends to be less voluminous. 

Any legal service trade agreements would inevitably involve reciprocal rights.  The arrangements’ value would therefore depend whether or not the counterparty already takes a liberal approach to mutual recognition of qualifications, rights to practice and immigration policies.  The value of an agreement with an already liberal local bar regime would be significantly less than with one with more stringent requirements.  The UK’s liberal approach to legal practice may therefore act against it in negotiations on legal service trade agreements.

Finally, in order not to fall foul of the most-favoured-nation (MFN) restrictions in the GATS[9] - any agreements around legal services would likely need to be concluded as part of an economic integration agreement (EIA).  To be classed as an EIA (as defined by Article V of the GATS), the relevant agreement would need to provide for: (i) “substantial sectoral coverage” (understood in terms of number of sectors, volume of trade affected and modes of supply); and (ii) the “absence or elimination of substantially all discrimination” between the parties in the relevant sectors.

Any agreements with third party economies would need to enshrine the three principles articulated in the Directives – free movement of services, rights of establishment and the mutual recognition of professional qualifications - to be effective.  The UK could therefore use the Directives as a blueprint for future negotiations.

Other

10. Please make any additional points here.

Figure A below summarises the rights for lawyers which accompany each alternative model to EU membership.  As stated above, only EEA membership (or its equivalent) would preserve the status quo, although the Swiss option would be a viable alternative which would not detrimentally affect the UK’s legal services sector.  The WTO and CETA options would have a very significant negative impact on the UK legal services sector, isolating it and its professionals from mainland Europe.

Figure A

Annex A

The framework underpinning the free movement of legal services within the EU

Introduction

1. A combination of directly applicable provisions of the Treaty for the Functioning of the European Union (TFEU), EU Directives, and national Member State implementing legislation enables EU lawyers to practice their profession throughout the EU, subject to certain restrictions.
2. The legal profession is the only (liberal) profession covered by two sets of Directives:[10] (i) general Directives, namely the Services Framework Directive (2006/123/EC) and Professional Qualifications Directive (2005/36/EC); and (ii) Directives specific to the legal profession, namely the Lawyers’ Services Directive (77/249/EEC) and Lawyers’ Establishment Directive (98/5/EC).  The Directives only apply to fully-qualified individual EU lawyers and not firms and offices.[11]
3. This annex summarises the effect of these Directives and the other main legal instruments governing the British law firms’ EU lawyers’ professional practice.  While examining the legislative framework, it is important to note that the activities that a lawyer executes differ from Member State to Member State.  Legal advice, for example, is not a regulated activity in a number of Member States.  Consequently an individual giving legal advice in such a Member State is not necessarily considered part of the legal profession.[12]
4. This annex only refers to EU lawyers.  However, European Free Trade Association (EFTA) lawyers have the same, or broadly similar (in the case of the Swiss), rights to their EU counterparts.  These rights derive from the European Economic Area (EEA) Agreement and the EU-Swiss bilateral treaty on the Free Movement of People.
5. For the avoidance of doubt, in this section, the term “EU lawyers” refers to lawyers who are both EU-qualified and EU citizens (including the UK).

Rights of Establishment: underlying TFEU provisions

6. Lawyers’ rights of establishment are partly derived from the cross-sectoral Title IV, Chapter 2 (Articles 49-55) TFEU which addresses EU nationals’ rights of establishment.  Article 49 TFEU expressly prohibits restrictions[13] on the rights of establishment between Member States.[14]  In addition to its application to individuals, this prohibition applies to restrictions on the setting up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of another Member State.  This provision consequently enables British law firms to establish network offices (referred to internally as branches) across the EU without fear of discrimination from the relevant host Member State.
7. The TFEU’s rights of establishment provisions apply equally to law firms as they do to the individual EU lawyers.  Article 54 TFEU states that companies or firms formed in accordance with the law of a Member State and having their “registered office, central administration or principal place of business within the Union shall…be treated in the same way as natural persons who are nationals of Member States.” 

Rights of Establishment: Lawyers’ Establishment Directive (98/5/EC)[15]

8. The Lawyers’ Establishment Directive facilitates the practice of the profession of lawyer on a permanent basis in a self-employed or salaried capacity in a Member State other than that in which the professional qualification was obtained.[16]  For example, it is this Directive which enables a British, England & Wales (E&W)-qualified antitrust lawyer to practice as an antitrust lawyer on a permanent basis in Brussels.  Furthermore, this Directive ensures that that lawyer has equal rights to their Belgian counterparts, subject to the limited restrictions and conditions explained below.[17]  This Directive is unlikely to be applicable to a lawyer on secondment from one EU Member State to another, as secondments tend to be temporary, rather than permanent, arrangements.[18]
9. Provided that an EU lawyer is registered with the Host Member State’s[19] competent authority and continues to register with their own home competent authority,[20] they may pursue their professional activities under their home-country professional title.[21]  In the chosen example, the newly relocated antitrust lawyer would need to register with the French or Flemish Brussels Bar, in addition to continuing registration with the Solicitors Regulation Authority (SRA) in London.
10. The Lawyers’ Establishment Directive would also allow the antitrust lawyer in Brussels to become locally-qualified and therefore registered on List A (for Belgian-qualified lawyers).  Local qualification would give the lawyer identical rights to their Belgian counterparts and lift the limited restrictions imposed on EU lawyers by the Brussels Bar.  The antitrust lawyer would also be able to practice under the Belgian title of ‘avocat,’[22] as well as their English title of ‘solicitor.’[23] 
11. The Lawyers’ Establishment Directive only applies to EU and Economic Free Trade Area (EFTA) nationals.  This nationality restriction stems from the definition of “lawyer” in the Directive as “any person who is a national of a Member State and who is authorised to pursue his professional activities” under one of the professional titles given to lawyers in the different Member States.[24] 

Mutual Recognition of professional qualifications

12. To facilitate EU lawyers’ rights of establishment and the free movement of workers, Article 53 TFEU provides for the mutual recognition of diplomas, certificates and other evidence of formal qualifications.[25]  This provision relates only to self-employed persons.  However, the Professional Qualifications Directive (2005/36/EC)[26] extends this right to salaried individuals, such as lawyers employed by British law firms.
13. The Lawyers’ Establishment Directive[27] reaffirms the right of mutual recognition derived from 53 TFEU and the Professional Qualifications Directive.  Article 10(2) of the Directive specifically states that a lawyer, “practising under his home-country professional title in a host Member State may, at any time, apply to have his diploma recognised” in accordance with the Professional Qualifications Directive with a view to integrating into the local legal profession.
14. In the context of the newly relocated Brussels lawyer, the Professional Qualifications Directive relieves that lawyer of the need to apply for an award of a degree equivalent to the Belgian licence/licenciaat in order to practice as a lawyer in Belgium.  Instead, the lawyer’s degree and professional qualifications, awarded by UK (i.e. Member State) universities automatically benefit from the principle of mutual recognition.  Consequently, the E&W-qualified lawyer may practice their profession in Belgium using their own title or, if they make the suitable applications, the local equivalent title.  Similarly, a German lawyer seconded to London has their German qualifications automatically recognised in England and Wales, allowing them to practice in London.

Free movement of legal services: underlying TFEU provisions

15. Title IV, Chapter 3 (Articles 56-62) TFEU establishes free movement of services for EU nationals within the EU.  Article 56 TFEU prohibits restrictions on freedom to provide services temporarily within the EU where nationals of Member States are established in a different Member State to their customer.  Article 57 TFEU expressly includes “activities of the professions” (i.e. the legal profession) in the definition of “services.”  Articles 51-54 TFEU (discussed above in relation to the right of establishment) also apply to the free movement of services.[28] 
16. The TFEU free movement of services provisions enable EU lawyers to carry out the following activities without the threat of discrimination as between EU nationals:

(a)                travel to provide services (e.g. as a consultant);

(b)                travel to receive services (e.g. to attend external conferences); and

(c)                provide a cross-border service (e.g. giving clients based in another Member State advice from London).[29]

17. In relation to the provision of services, the activity must be: (i) limited in time;[30] (ii) normally be pursued against payment; and (iii) involve some form of foreign aspect, unless the border is physically crossed.[31]  Services provided under a contract outside the country of establishment may be of a long duration.  There is nothing to preclude an activity for the provision of services from being of a magnitude necessitating the acquisition of real estate in the country of the provision of services.[32]  Law firms may therefore establish a permanent office in which no individual lawyers are established permanently, so that lawyers providing services do not fall under the Lawyers’ Establishment Directive with its obligation of bar registration.

Lawyers’ Services Directive (77/249/EC)[33]

18. The Lawyers’ Services Directive, in conjunction with the TFEU, permits EU lawyers to provide temporary cross-border services within the EU, without prior notification of/registration with the host Member State’s bar.[34]  Unlike the Lawyers’ Establishment Directive, there is no express nationality requirement.  Under the Lawyers’ Services Directive, EU lawyers must use their home-country professional titles when providing cross-border services to avoid confusion.[35]  The Lawyers’ Services Directive differentiates between legal advice and legal representation.  The host Member State may lay down more stringent requirements for legal representation, such as co-representation with a local lawyer and the requirement of an introduction to the host Bar.[36]

Nationality requirement?

19. The Lawyers’ Services Directive does not contain an express nationality requirement, instead applying to persons entitled to bear the professional titles listed in Article 1(2) of the Directive.  This omission has led to the Law Society stating that: “contrary to the Establishment Directive, there are no conditions of nationality under the Lawyers’ Service Directive.”[37]  In addition, commentators have suggested that third country nationals who have a right to rely on EU law (for example family members of EU citizens) and who also have the right to bear one of the titles mentioned in Article 1(2) of the Directive, can rely on the Directive (see Article 2).  However, there is an opposing interpretation.
20. The Lawyers’ Service Directive originates from the free movement of services provisions which apply to “nationals of Member States” (Articles 56 and 59(2) TFEU).  Article 56 TFEU does give the European Parliament and the Council the discretion to extend the application of the free movement of services provisions (Articles 56-62 TFEU) to “nationals of a third country who provide services and who are established within the Union,” provided it does so in line with ordinary legislative procedure.  However, there is no evidence that the European Parliament and Council have taken advantage of this provision in relation to the Lawyers’ Service Directive, with the exception of the EFTA Member States, via the EEA Agreement and EU-Swiss bilateral treaties.  Whether or not the Lawyers’ Services Directive has an implied nationality requirement is unclear. 
21. Free movement of capital.  The TFEU’s free movement of capital provisions (Title IV, Chapter 4, Articles 63-66) allow British law firms to move capital between their EU network offices and pay EU suppliers, subject to very limited restrictions.[38]  The provisions prohibit all obstacles, not just discriminatory ones and lay down a general prohibition which goes beyond the mere elimination of unequal treatment on grounds of nationality.[39]
22. Appearance rights before the European Court of Justice.  Lawyers qualified in the United Kingdom can currently appear before the CJEU.  According to the CJEU Protocol: “Only a lawyer authorised to practise before a court of a Member State or of another State which is a party to the Agreement on the European Economic Area may represent or assist a party before the Court.”[40]  For example, the British, E&W-qualified lawyer based in Brussels can appear in front of the CJEU to challenge an antitrust infringement decision by the European Commission (DG Comp.) in relation to their client.
23. Legal privilege in EU matters.  Case law (AM&S[41] and Akzo[42]) shows that privilege in an EU context will attach to lawyers’ communications where they are: (i) made in the interests of the client’s right to defence; and (2) emanate from an independent lawyer entitled to practise in the EEA who are not bound to the client by a relationship of employment.  Consequently, all EU lawyers may withhold legal advice documents in disclosure exercises involving the European Commission.

October 2016

Annex B

An EEA Model

24. The EEA encompasses all the State signatories to the EEA Agreement i.e. all EU Member States and Member States of the European Free Trade Association (EFTA),[43] with the exception of Switzerland.  Switzerland has its own network of treaties agreements with the EU.[44]  The “Norwegian option” whereby the UK gains the rights afforded by the EEA Agreement as an independent, rather than EU Member State, has been mooted as a potential model after the UK leaves the EU. [45]
25. As with the TFEU, the EEA Agreement is founded on the principles of free movement of goods, persons, services and capital.[46] To facilitate these principles, discrimination on the grounds of nationality is prohibited.[47]  Consequently, business would continue as normal for UK law firms in an EEA scenario.  For example, the freedoms and rights enjoyed by the British, E&W-qualified Brussels lawyer and Frankfurt secondee to London would be unaffected by the introduction of the EEA model.  These lawyers’ practices would therefore not suffer from a transfer from the EU to EEA model.
26. To avoid confusion in this section, “EEA national(s)” is used to refer to nationals of all EEA Member States with the exception of the UK.  Similarly, “EEA lawyers” refers to lawyers qualified in non-UK EEA Member States.  This section assumes that the UK would become a signatory to the EEA Agreement in its own right (rather than as an EU Member State), rather than signing a separate, bilateral EEA-like agreement with the EU.  If this second scenario were pursued, references to the “EEA” in the context of future actions, would need to be changed to “EU” in the analysis below.[48]
27. Free movement of workers.  Like the TFEU, the EEA Agreement secures freedom of movement of workers among the EEA Member States.[49]  Similar to its TFEU equivalent, Article 28 abolishes “any discrimination based on nationality between workers of EC Member States and EFTA States as regards employment, remuneration and other conditions of work and employment.”[50]  The provisions also enable these nationals to “move freely within the territory of EC Member States and EFTA States for this purpose.”[51]  An EEA scenario would therefore not affect the UK law firms’ current business operations in terms of shifting employees around the EEA.  British lawyers would continue to be able to travel to client meetings and to be temporarily or permanently seconded outside London within the EEA.  Similarly, EEA nationals could continue short and long-term secondments and business trips to London.  Neither set of travel would require additional immigration requirements, such as visas. 
28. Rights of establishment for lawyers.  The EEA Agreement establishes EEA nationals’ rights of establishment and recognises and enforces the Lawyers’ Establishment Directive within the EEA.[52]  Consequently, in an EEA scenario, UK law firms’ British and EEA national, E&W-qualified lawyers would continue to benefit from the freedom to establish their practices permanently outside London but within the EEA – for instance, the Brussels example used previously.  Similarly, British and EEA national, EEA-qualified lawyers could continue to establish their practices in London on a permanent basis.
29. As with the EU framework, the EEA’s rights of establishment provisions apply equally to UK law firms (being registered in the EEA) as they do to the firms’ individual EEA lawyers.  Article 34 of the EEA Agreement states that companies or firms formed in accordance with the law of an EEA Member State and having their “registered office, central administration or principal place of business” within the EEA “shall…be treated in the same way as natural persons who are nationals” of the EEA Member States.

Mutual recognition of professional qualifications

30. The EEA Agreement dictates that EEA Member States recognise professional qualifications gained in other EEA Member States.  The Professional Qualifications Directive is integrated into the EEA Agreement to facilitate this automatic recognition and the accompanying rights of establishment.[53]  In an EEA scenario, British and EEA national E&W-qualified lawyers (such as the British, E&W-qualified lawyer in Brussels), would therefore continue to benefit from mutual recognition of their legal qualifications in the EEA Member States, as would EEA lawyers (e.g. the Frankfurt secondee) in London.
31. Free movement of legal services.  Similar to the TFEU, the EEA Agreement forbids any restrictions on the provision of services within the EEA.[54]  Article 37 of the EEA Agreement expressly includes “activities of the professions” (i.e. the legal profession) in the definition of “services.”  The EEA Agreement also encompasses the Lawyers’ Services Directive.[55]  British and EEA national, E&W-qualified lawyers could therefore continue to advise clients cross-border within the EEA or on a temporary basis from another EEA Member State without facing: (i) additional bureaucracy; and (ii) discrimination.  Similarly, British and EEA national, EEA-qualified lawyers would be capable of continuing to provide their legal services in London.  The Frankfurt secondee’s position would therefore remain unchanged, as would that of the British lawyer from Brussels advising clients in Amsterdam.
32. Free movement of capital.  As with the TFEU, the EEA Agreement’s free movement of capital provisions (Chapter 4, Articles 40-45) allow UK law firms to move capital between within the EEA and to pay EEA suppliers, subject to very limited restrictions.[56]
33. Appearance rights before the European Court of Justice.  As is currently the case, the  E&W-qualified lawyers could continue to appear before the CJEU as they would continue to be qualified to practice before a court of an EEA Member State.
34. Legal privilege in EU matters.  Similar to appearance rights before the CJEU, the situation under an EEA structure would not differ from the current system.  E&W-qualified lawyers would continue to benefit from EU legal privilege provided that the relevant communications were: (i) made in the interests of the client’s right to defence; and (2) and they were not deemed to be acting as in-house counsel.