Ireland: Brexit’s biggest legal services winner

Since the referendum result, firms including Freshfields Bruckhaus Deringer, Hogan Lovells, Slaughter and May and Allen & Overy have put forward applicants to join the Roll of Solicitors in the Republic of Ireland in order to continue practising European law. Some firms had even begun this process ahead of the results of the referendum.

For many, the message is clear: international clients need to be reassured that their UK firms are capable of handling European Union (EU) work regardless of the form that Brexit ultimately takes.

But UK firms are also investing in their physical presence in the Irish capital. Pinsent Masons is one of five firms rumoured to be planning a Dublin office. The Lawyer reported that the firm was searching for 10,000 square feet of space in Dublin and has viewed several properties in the city.

Berrymans Lace Mawer (BLM) has also outlined its intention to expand its Ireland capability, with plans to increase its square footage in the Irish capital following the expiry of its office lease.

Eversheds, which is set to launch its consulting arm in Ireland this year with a new Dublin team led by litigation partner Pamela O’Neill, has accelerated its plans because of the Brexit vote. The intention is to capture more financial work, although local pundits expect the firm to expand its capability further in the near future.

But what does this mean for independent Irish firms? Although competition for their current clients isn’t likely to heat up any time soon, talent retention may become a focus in the coming years. UK firms that plan to launch in Ireland are widely expected to source their talent from local independent firms rather than transferring existing partners to their new offices.

Outsourcing hub

The trend for big firms to invest in business services centre expansion outside the South East of the UK has become established in recent years, with a number reaping the benefits of lower-cost back-office centres in regions across the UK.

In the legal sector, the most significant movers have included Herbert Smith Freehills and Allen & Overy who opened offices in 2011 in Belfast, and were followed by Baker & McKenzie in 2015; Ashurst who opened up in Glasgow; and Berwin Leighton Paisner, Latham & Watkins and Freshfields Bruckhaus Deringer who chose Manchester.

But might a future outside the EU encourage more UK firms to turn their gaze to the Republic of Ireland as a location for back-office work, with the potential to expand to provide fee-earners capable of handling EU work? The first legal process outsourcing company to launch in the Republic of Ireland opened its doors in Dublin just weeks after Britain decided to leave the EU.

Outsourcer Johnson Hana International (JHI) tells The Lawyer that it plans to increase its headcount in Dublin from the current 10 to more than 200 staff – a rise of 1,900 per cent on the back of an uptick in work from law firms post Brexit. A number of leading Irish lawyers have joined the outsourcer, including former Maples and Calder Ireland managing partner Jennifer Caldwell and ex-Matheson litigation partner Stuart Margetson, who has joined JHI as a consultant.

The primary focus for most of these moves so far continues to be support staff rather than legal advice. But that is changing, as firms turn to cost-saving solutions targeting legal advice.

Q: Do you believe Ireland will be better positioned to capture work into Europe following the referendum?

Barry Devereux, managing partner, McCann Fitzgerald: From a business perspective, the consequences of the Brexit vote are significant. There is a real concern that if demand for goods and services in the UK falls and investment is deferred or abandoned, real damage will result to large companies and SMEs alike. The UK is Ireland’s largest trading partner, with more than €1.2bn of goods and services traded between us every week – when the UK economy grows by 1 per cent, we grow by 0.3 per cent as a result. But the reverse is true as well.

However, there may also be some advantages for Ireland – especially in financial services – and in the new environment Ireland can offer solutions for businesses that are operating in the UK and elsewhere.

Nonetheless, the route ahead is uncharted and seems certain to be long and arduous.

“Pre-Brexit, Ireland was widely considered a location of choice for multinationals wishing
to access Europe – and it still is” Brian O’Gorman

Declan Black, managing partner, Mason Hayes & Curran: It’s too early to say. But Ireland will be the only English-speaking common law member of the EU and that has to be an advantage.

Brian O’Gorman, managing partner, Arthur Cox: Pre Brexit, Ireland was widely considered a location of choice for multinationals wishing to access Europe – and it still is. There are many compelling reasons for this – we have a competitive corporate tax rate; we are a committed member of the EU and the only English-speaking jurisdiction in the eurozone; as a common law jurisdiction, we have a legal system similar to that of the US and the UK; we have an established international financial centre and a young, skilled and well-educated labour force. Ireland is also considered a leading knowledge economy. All these factors have made it a competitive location for the establishment of European headquarters for multinationals, and for those wanting to do business in and through Europe.

“Ireland will be the only English-speaking common law EU member and that has to be an advantage” Declan Black

Financial services is one of the areas that may stand to gain the most from Brexit. Passporting is a major factor in any European financial centre’s attractiveness and with London most likely set to lose this benefit, Dublin is emerging as an even more attractive alternative financial centre.

Julian Yarr, managing partner, A&L Goodbody: Ireland has, for many decades, had a very strong track record in attracting foreign direct investment (FDI) and Brexit does not change that attractiveness. Indeed, in many cases it could increase the level of FDI. However, it’s still too early to say whether Ireland will see a material increase. UK and international businesses are currently looking at all the options available to them in a post-Brexit world, including whether to relocate operations or direct investment to countries, such as Ireland, that will remain in the EU. A lot depends on the exit negotiations between the UK and the EU. However, what we have seen to date is that businesses won’t wait for the politicians to reach agreement – which could take years – and they are already making decisions.

Darren Maher, financial institutions partner, Matheson: We are already seeing more opportunities for Ireland to attract investment into Europe as a result of the Brexit vote. We believe Ireland’s position as an English-speaking gateway to one of the world’s largest markets will be even more significant than in the past. We have already seen some of our clients move (with others planning to move) some or all of their operations or business lines to Ireland, in order to be certain that they will retain continued access to the European market. These clients are aware that the UK may secure a deal with the EU by which it retains access to the European market but they are either unwilling or unable to live with that uncertainty as it may be damaging to their business.

Bryan Bourke, managing partner, William Fry: There is no doubt that, as well as the challenges the Brexit vote brings, it raises the possibility of additional opportunities for Ireland. Obviously, a lot will depend on the terms of the exit and, while there is much contingency planning at the moment, it is difficult not to see London remaining a key financial centre. For those who do look to leave, or for international clients looking to have a base in the EU, they may look to jurisdictions other than the UK that may not have been top of their list before. Ireland has a common law legal system which will be predictable and familiar to a number of key international jurisdictions. A move to Ireland would not have the same operational or contractual impact as to a non-common law jurisdiction – the Irish Courts will understand clients English law agreements and give effect to them. Our courts system is historically modelled on the UK system as well, which will be attractive.

That, together with the fact that we have an English-speaking, educated workforce means there could be additional opportunities.

Q: How has your strategy been affected by Brexit?

Black: We remain committed to expanding our offering to international businesses active in or through Ireland. Post Brexit, Ireland still has an open and attractive disposition to such businesses so we see no reason to change.

Bourke: We continue to pursue our strategy to grow our business and focus on high-end work for international and large domestic clients.

The UK (and the City in particular) is an extremely important market for us. But our strategy is also focused on other jurisdictions including the US and Asia where we have strong relationships. But in terms of mapping out how our strategy might be affected by Brexit we need to see more in terms of what Brexit will actually mean and what the UK’s relationship will be with Ireland and the broader EU. Obviously, there is little real insight into that at this point.

There is no doubt that the uncertainty in the run-up to the Brexit election caused a pause in terms of clients progressing transactions. and we are likely to see that continue to a degree. So it may affect transactional work which drives a lot of our activity. But if there is a shift towards Ireland we will see more regulatory/advisory work, which is an area in which we are strong.

O’Gorman: Whilst the vote in favour of Brexit has had some immediate economic, political and social impact, implications will be more gradual and will become clearer over time.

We have been closely monitoring developments on Brexit and we have been advising, and will continue to advise, our clients on the potential legal implications for their businesses of the UK leaving the EU.

As a firm, we have always appreciated that our clients operate in a constantly changing and developing commercial environment and we take a consistently proactive approach in helping them prepare to meet what lies ahead – both challenges and opportunities.

Devereux: It is generally accepted that Brexit represents the most significant challenge that the Irish economy and Irish business have faced in decades.

Therefore, in an approach similar to that we have advised clients to adopt, McCann FitzGerald has established a review team which has as its primary aim the identification of the principal aspects of the firm’s business that will be affected most by Brexit. The aim is to identify weaknesses and possible concerns, legal and business risks and opportunities and steps that should or ought to be taken in the aftermath of the leave vote.

Yarr: Our international strategy will remain broadly the same. We will maintain our focus of supporting international clients as they interact with Ireland, leveraging our strength in depth and our multidisciplinary offering. In particular, we would expect to see continued activity in financial services, which includes banking, insurance and investment funds, as well as commercial property and mergers and acquisitions (M&A).

Maher: As the law firm of choice for internationally focused companies and financial institutions doing business in and from Ireland, our strategy has always included a strong focus on international firms seeking to invest in Europe. As a result, our teams are well placed to advise international companies that are considering Ireland as a place to do business as a result of the Brexit vote.

As part of that strategy, we have been seeking to get in front of our clients and potential clients since the Brexit vote in order to discuss their future business plans. This allows us to have a discussion with our clients about the benefits involved in setting up a business in Ireland.

Q: What are the opportunities for Irish firms in the coming financial year?

Bourke: Our market remains strong and we are looking at positive GDP growth forecasts – the highest in Europe this year. We are looking at a lot of contingency planning advisory/regulatory work, which may be a short-term pipeline if the deal the UK does is attractive. But that aside, activity in key sectors like energy remains strong.

Black: Clearly, to advise on any relocation or restructurings consequent on Brexit. But also to deepen our ties with the US and mainland Europe given the UK’s decision.

Devereux: Generally speaking, in the last year or so, the market for legal services has normalised. Work types associated with the crisis and post-crisis period such as restructurings, insolvencies, asset disposals and loan book sales are diminishing. These have been replaced by traditional corporate/M&A transactions, buoyant activity in the construction and real estate sectors and a continuing strong performance in the banking and financial services sector, particularly in the areas of aircraft financing and leasing, investment funds, insurance and corporate banking, to name some. Alongside opportunities arising from the launch of our Data Investigations Group the general outlook is positive.

“There may be short and medium-term gains for Irish financial services but the longer-term position is uncertain and somewhat insecure” Julian Yarr

However, as an open economy, much depends on economic and business trends in international markets that affect Ireland. In the context of Brexit, we believe the UK financial services industry is the most exposed of all UK industry sectors. There may be short and medium-term gains for Irish financial services but the longer-term position is uncertain and somewhat insecure.

O’Gorman: International M&A activity is still healthy and we do not expect any material impact on this area from the Brexit referendum vote. We will continue to work closely with our international clients to realise their M&A opportunities.

Our domestic M&A market has been steadily rebounding for a number of years and we have also started to see several of our largest domestic corporates doing a lot of deals abroad. We are optimistic that this trend will continue.

Yarr: Brexit could present some good opportunities for our Irish domestic clients, while for other clients it could raise difficulties. The opportunity for Ireland to attract UK and international companies who are looking for a presence in the EU is also promising. Taking all this into account, in the short to medium term we are likely to see increased activity because of Brexit, particularly for a large firm like ourselves which has a strong multidisciplinary offering and can operate on an all-island basis in conjunction with our office in Belfast.

Maher: There is an opportunity for Irish firms to get in front of their existing clients and have a positive discussion with them about their future business plans at a time when many clients are giving this a lot of thought. This will give Irish firms the opportunity to have real input into important decisions that existing clients make about the structure of their business. This should allow Irish firms to strengthen their relationships with their existing clients.

For Irish firms that have the right skills and experience and have developed a successful strategy for attracting business from international companies, there will also be opportunities to act for new investors into the Irish market. It is important to remember, however, that Ireland is only one of a number of countries seeking to attract investment from international companies. The number of opportunities that arise for Irish firms will depend on Ireland continuing to be an attractive investment location. Law firms have a role to play in this too as they are speaking to these investors and hearing about what they are looking for from an investment location.

Q: There are rumours that partners in international firms are investing in becoming Irish-qualified. What are your thoughts on this?

Black: It’s unsurprising for competition and trade lawyers. More broadly, international firms have always done big-ticket, Irish-sourced work without needing an Irish platform. It remains to be seen if some decide to establish a base here. If they do, it will be a good thing because it will mean their clients are here too.

O’Gorman: The figures published by the Law Society of Ireland are certainly interesting. In the first six months of 2016, 186 solicitors from the UK were admitted to practise in Ireland. In the same time period in 2015, only 50 were admitted. Our understanding is that most of these lawyers specialise in EU and competition law, and the rationale is to preserve rights of access and privilege in proceedings before European courts and bodies.

Devereux: So far this year, according to the Financial Times, 219 English solicitors have been admitted to the Roll of Solicitors in Ireland – compared with 70 in 2015. The Law Society of Ireland says the vast majority have cited Brexit as their primary reason for seeking admission.

This jump in admissions is unsurprising and reflects the economic, legal and regulatory uncertainty that is the result of the vote to leave.

Yarr: From what I understand, the main reason why UK solicitors are registering in Ireland is so that they can continue to practise EU law in
the future, should Brexit happen.

Maher: These are not rumours as this has recently been confirmed by the Law Society of Ireland. It is our understanding that UK firms are encouraging their lawyers to become Irish qualified so they can continue to act in EU competition law cases once (if) the UK leaves the EU. Law firms that wish to practice Irish law should first consider the applicable rules set down in the Solicitors Acts of Ireland.

Bourke: The Irish market has not been of interest to most large international firms in the past. There is certainly a lot of talk now about them looking at Ireland and the Irish Law Society seeing a large number of applicants for Irish practising certificates. It is possible international firms will consider, as part of contingency planning or otherwise, establishing in Ireland. One challenge for them is that they may find that the Irish market operates at a level where recovery rates are not as attractive as, for example, the City, but it will be interesting to see how this pans out.

Q: The first business services outsourcing centre has launched in Ireland. Is this the start of a trend?

Black: I always think you need to see three of something before you have a trend!

O’Gorman: It is far too early to tell. But it does demonstrate that Ireland is an attractive place to establish and do business.

Devereux: It has been evident for some time that the market for legal services is changing.

Increasing workload and risk for clients, the demand for delivery of more legal services at less cost, limited availability of qualified legal resources and increasing use of technology are just some of the drivers in today’s market for legal services. These changes require all lawyers to reconsider their service offering and how they respond to client demand to increase efficiency and effectiveness in the delivery of legal services.

In response, McCann FitzGerald recently established the Data Investigations Group (DIG), a pioneering model for the management of high-volume document review and reporting. The DIG brings the efficiencies of better resourcing and state-of-the-art technology to all large projects, including corporate due diligence on M&A transactions, verification on equity and debt capital markets work, loan sales, e-discovery, disclosure, investigations, data subject access requests and other data and resource-centric projects.

By combining the latest data review software and techniques with specialist legal project management, we have shown that DIG services can save clients up to 40 per cent in cost over traditional review and research methods.

Maher: It may be the start of a trend for clients that are seeking to outsource routine work to low-cost providers. Whether it develops as a trend is likely to depend on whether clients are convinced that these firms can provide the requisite level of service and deliver real cost savings.

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