The UK remains the jurisdiction of choice

Brexit.  Six years on we are still talking about it, perhaps unsurprisingly.  There isn’t a domain that hasn’t been affected by it (or perhaps infected by it, depending on your POV) and never has that been truer of cross-border trade, whatever the sector.  In this article, we look specifically at Brexit’s effects on one form of cross-border trade, UK legal services.

First, some context setting: the UK legal market generated £41.6bn in revenue in 2021 and is the largest legal services market in Europe second only to the US globally, so it is of huge strategic importance to the UK economy.  The export value of English law is attested to by the fact that English is the main choice of governing law for most cross-border transactions globally. 

What’s changed?

 In one sense a lot, in another not very much.  Let’s look first at the changes to the legal landscape post-Brexit, by which we really mean the end of the ‘transition period’ provided for under the UK’s withdrawal agreement with the EU, being midnight on 31 December 2020.

The pre-brexit enforcement regime

  • Prior to 31 December 2020, the cross-border dispute framework was largely a function of EU law and consisted of the following key pillars:
  • The Brussels Regulations, namely the 2001 Brussels Regulation and the Recast Brussels Regulation which in broad terms together regulate the recognition and enforcement of judgments in EU member states.
  • The EU Service Regulation which was widely recognised as facilitating the efficient transmission and service of legal documents between member states.
  • The 2007 Lugano Convention which largely replicates the position under the Brussels Regulations in relation to the recognition and enforcement of judgments in three EFTA states (Iceland, Norway and Switzerland).
  • Rome I and Rome II which determine the law applicable to, respectively, contractual and non-contractual obligations.
  • Beyond the jurisdiction of the EU, jurisdiction and enforcement is dependent on either the existence of bilateral arrangements (which exist for many countries with whom the UK has historical ties, see below) or in the absence of reciprocal arrangements the question falls to be determined under the national law of the country in which recognition/enforcement is sought or the question of jurisdiction falls to be considered.

 

Position post Brexit

  • Post 31 December 2020, the Brussels Regulations and Lugano Convention have fallen away. This represents the biggest impact on cross-border disputes with the result that the Hague Convention on Choice of Court Agreements – to which the UK is a party in its own right as of 1 January 2021 – now takes centre stage as the main reference point for conducting cross-border disputes.  Note the emphasis on commercial disputes because whereas the Brussels Regulations apply to a broad range of civil disputes, Hague’s principal limiting factor is that it only applies to cross-border disputes where there is an exclusive jurisdiction clause in favour of a contracting state (note asymmetric or optional jurisdiction clauses do not qualify).  
  • Hague is also a lot narrower in application, excluding from its ambit certain categories of dispute including consumer, insolvency, IP and insurance (among others). Its other major limitation is that it does not extend to interim relief such as freezing orders that could under certain conditions previously be passported in to other EU member states. 
  • EFTA states are not a party to Hague, meaning the UK’s failure to join Lugano (despite its best efforts) creates a gap between the UK and EFTA states which is mitigated slightly by the fact that Norway and the UK have agreed to continue to apply Lugano; as to the remaining EFTA states, the recognition and enforcement of judgments is a question of the national law of those states.
  • The EU Service Regulation has likewise been revoked and has been substituted for the not too dissimilar Hague Service Convention.
  • Lastly Rome I and II continue to apply as they form part of the package of EU legal instruments which the UK continues to apply post Brexit as “EU retained law”, which in simple terms incorporated EU law as it stood at the end of the transition period in to English law.

 

What are the implications?

Having identified the actual differences in the EU landscape, what does this mean in practice? It is true that the new regime at first blush introduces some mechanical impairments in to the process of conducting cross-border litigation.  But those differences must be balanced against the following considerations:

  • Most commercial agreements contain governing law and exclusive jurisdiction clauses; Hague should extend to most commercial agreements other than those in the specifically excluded categories.
  • As to the recognition and enforcement of judgments between the UK and EU member states that fall in between the Hague/Brussels gap, these will be resolved with reference to national laws. A good number of EU members states have evolved and mature legal systems that provide a reciprocal enforcement regime outside the international treaty/convention framework under which UK judgments can be recognised and enforced. The same point applies to inbound judgments; there is a pre-existing framework in UK law in relation to the recognition and enforcement of inbound judgments from the EU and beyond. 
  • As between the UK and the rest of the world, the UK has bilateral arrangements that deal with the enforcement of judgments with many countries with whom they have historical ties such as Canada, Australia, Cayman Islands, Bermuda, New Zealand, Pakistan, Guernsey, Jersey, BVI, Israel, India (among many others) that remain unchanged.
  • The weaker protections under Hague in terms of the recognition and enforcement of exclusive jurisdiction clauses have been mitigated by the empowerment of the English Courts to issue anti-suit injunctions, otherwise prohibited under the Brussels Regulations regime. This should address the (impolitely termed) “Italian torpedo” scenario where proceedings are issued in one jurisdiction in breach of an exclusive jurisdiction clause.
  • As to issues of service, there are many similarities between the EU Service Regulation and Hague with any differences being partially mitigated by the fact that from 6 April 2021 it is no longer necessary to obtain the permission of the English Court to serve proceedings out of the jurisdiction where there is an English jurisdiction clause (see CPR 6.33(2B)(b)).
  • It is important to bear in mind that a major share of the international dispute resolution market is international arbitration which remains the preferred method of dispute resolution for international litigants. The New York Convention regulating the recognition and enforcement of arbitral awards sits completely outside of the EU framework; if anything arbitration has emerged as a winner (see below).

 

Conclusions

Some perceive a conspiracy of silence as to the adverse impacts of Brexit on the UK more generally.  But there is good reason to believe in the resilience of the UK legal market and that it has largely emerged unscathed; what empirical data there is suggests that Brexit has neither dented English law as a brand nor the Courts of England as the forum of choice for the resolution of disputes. 

We do however caution that it is still early days and warn against complacency.  The recent Portland Commercial Courts Report indicates that between 2021 and 2022 there has been a dip of 20% in the number of Commercial Court judgments that have been issued (possibly a function of the considerable resource constraints the Commercial Court has been experiencing in terms of judge availability) but the trend since 2016 remains upwards.  Moreover, 54% of the litigants in the Commercial Court were international, up from last year’s 50:50 split.  Of these non-UK litigants, the number of nationalities represented in the Commercial Courts has also expanded, with (interestingly) the number of EU litigants increasing slightly from 11.5% to 12% over the last year. 

Beyond the Commercial Courts, London retains its pre-eminence as the preferred seat for arbitration: the number of referrals to the LCIA has increased in 2021/2022 to 444, representing a doubling of its case load of the last 10 years.  The growth in London-seated arbitration is possibly a collateral effect of Brexit in view of the enforcement benefits of the New York Convention.

Lastly, if English law is to be dislodged then there needs to be a viable alternative.  It is true that some economies have started to evolve their own body of commercial law creating competitive pressure on English law. However, much of what gives English law its considerable export value remains: the sophistication and depth of its body of contract law, the malleability of the common law and the potency of its precedent value to market participants.  In short, there are plenty of reasons to be hopeful that English law will maintain its market dominance and that English Courts, and London in particular, will continue to be the forum of choice for the resolution of cross-border disputes.

Explaining the Points-Based UK Immigration System

This system provides flexible arrangements for UK employers to recruit skilled workers from around the world through a number of different immigration routes.

The UK’s previous immigration scheme required a resident labour market test be carried out on businesses recruiting and sponsoring skilled workers. Whilst the resident labour market test has been abolished, the Skilled Worker and Home Office guidance now details the evidence of recruitment requirements that HR staff and recruiters are expected to follow when sponsoring employees on skilled worker visas.

Skilled Worker Visa – requirements

For a Skilled Worker Visa there must be:

  • a certificate of sponsorship for the applicant from an employer (Home Office approved);
  • a sufficiently skilled job;
  • a job meeting the minimum salary requirement —depending on the type of work; and
  • the applicant must satisfy the English language requirement.

A potential hire, meeting the above requirements, independently financial and able to cover the costs of sponsorship is unlikely to encounter barriers to recruitment and is likely to be able to find a role.

Businesses, however, still encounter challenges.

Removal of the Resident Labour Market Test

Businesses wanting to sponsor a skilled worker (under the previous Tier 2 (General) visa) previously had to carry out a resident labour market test (RLMT).  The test was prescriptive and added at least 28 days to the recruitment process. Businesses were required to ensure any vacancy advertised could not be carried out by a UK citizen/settled worker and added to the overall cost  of the hire. If a UK citizen or settled worker had the skills and requirements listed in the job advert, the business could not offer it to the individual requiring sponsorship — even if the stronger candidate.

Whilst the abolition of the resident labour market test, which occurred on 1 January 2021, was great news for businesses – employees can now be brought on board without the long initial delay adding value sooner, there are still administrative and operational challenges which employers need to watch out for (particularly with costs for recruiting from within EU (rather than relying on the free movement of workers)) and particularly in the field of discrimination. It is always useful to have a recap on this.

Potential risks

With the points-based system in place and the removal of the resident labour market test, applicants must not be rejected on the basis of their immigration status.

Stating that only those with the right to work in the UK will be recruited and/or offered employment may lead to race discrimination claims on the grounds of nationality. To avoid this, we would recommend the following steps to avoid potential race discrimination claims:

 Planning and Strategy

  • What level of recruitment as a business is being aimed for this year and where are these vacancies within your business – understand where your vacancies could be mapped on the immigration points-based system:
  • Is the skilled occupation list an option – does the role you require fall into this list?
  • Does the salary offered match the going rate for the role?

Carrying out this exercise will help you prepare and manage your recruitment process. If the role or salary requirements do not meet the immigration points required, then that would be the basis of any rejection — rather than the individual’s immigration status.

Internal Processes and Training

  • Make sure everyone is aware that the resident labour market test no longer applies and that applicants should not be rejected based on their immigration status.
  • Do not state in any job vacancy or advertisement that you do not have a sponsorship licence.
  • Consider applying for a sponsor licence if you are likely to be recruiting a skilled worker — it is currently taking around 8 weeks for the licence to be processed.  This prevents a delay later.
  • Don’t introduce a recruitment policy confirming you only accept applications subject to immigration status and/or from those who do not require sponsorship.
  • Avoid decisions being made based on costs only (further details below).

What if you do not want to be a sponsor?

In a nutshell, if you operate in any way that could place any nationality at a disadvantage, for example, not wanting to incur the costs of sponsoring a worker, or not wanting a sponsor licence, you will have to justify that decision by:

  • being clear on what your legitimate aim is — i.e. what is your real business need; and
  • ensuring that how you achieve that aim is proportionate — i.e. it is reasonably necessary in order to achieve that aim?

Is the cost of sponsorship the only reason for not offering a role to a potential candidate? If so, then you are not going to be able to successfully defend a race discrimination claim. Rather than saying that “it’s too expensive to sponsor a worker”  explore other considerations – to do that you need to know what they are.

For example, it may be that in relation to the administrative, compliance and/or general obligations that go with sponsorship, you just don’t have the resources or expertise to manage that confidently.

The courts recognise and understand that most business decisions have regard to costs, so something cost-driven but not solely cost-based is capable of justification. If not purely cost-based, you do have to be clear on grounds you rely on for not offering the role and be able to demonstrate that your cost-driven approach is proportionate. 

Do you have a genuine vacancy? 

Though there is no longer a requirement to carry out a resident labour market test, you must still have a genuine vacancy – any role advertised must be genuine, meet the relevant skills threshold and salary requirement.   

The best starting point to determine whether an applicant meets the required skills threshold is to consider the vacant role on the Government’s skilled occupation list. The role must not be fake, a sham or created so that an applicant can apply for a visa.

If a vacancy is not capable of being plotted under a relevant job code on the skilled occupation list, there may be a temptation to try and “fit” it under a different job code on the list. If you can genuinely consider, and demonstrate, that the role matches the relevant job code on the list, that should be fine. However, any attempt to make an application for a role that does not fulfil the relevant skill threshold, then you will likely encounter problems with your skilled worker visa/sponsorship application such as:

  • the application being rejected;
  • the application being accepted in error but later investigated, subject to a compliance visit and/or the application being rejected at a later date;
  • the Home Office could consider your application misleading, which could result in:
    • a fine
    • a downgrading of the sponsor licence
    • being on under more scrutiny  i.e. on the Home Office radar re all future applications.

You will need to ensure that you understand the requirements of the vacant role and how that may or may not correspond with the relevant job code on the skilled occupation list. 

Summary

The removal of the resident labour market test gives considerations that need to be factored into the business recruitment and decision-making process, posing real issues for the business which cannot be ignored.

We have seen many changes recently in the world of business immigration law and no doubt will continue to do so, therefore it is essential to ensure you and/or your recruitment team are up to date on the new visas, the points-based system and are clear how to avoid potential discriminatory practices.

If you find you and/or your team isn’t quite as up to speed as you thought, then equality and diversity training and/or training around the visa points-based system may be helpful and we will always be happy to assist.

The case of the stolen multi-million-pound yacht

The deceased was accused of professional negligence and being part of a conspiracy to defraud in relation to the sale and purchase of a multi-million-pound yacht.

The Sherrards Dispute Resolution and Fraud department successfully challenged the claim, which was rightfully dismissed.

There was no suggestion of any wrongdoing on the part of the deceased, whose reputation was and remains protected.

The team defended this multi-million-pound fraud matter.

To find out more, please contact Paul Marmor. 

Buying Real Estate in the UK

The first stage for an investor or owner occupier will be ascertaining the area to invest in and ultimately locating the property to purchase.

When viewing properties in the UK, you should be aware of the legal way in which you are able to hold a property.  You will either obtain the freehold of the property, which includes the whole of the building and will allow you the freedom (subject to any landed estate retaining restrictions over the property and any local council requirements) to make alterations and improvements as you so wish.

The alternative way of holding a property by way of leasehold interest, either a new lease will be granted to you (usually on a new build property) or assigned over to you from the existing owner.  The terms of leases are usually 99 years, 125 years or 999 years and the balance of the term will be transferred to you.  This will mean that although you have a long-term interest in the property, you do have a landlord who owns the freehold building.  You will be subject to service charges and ground rents, paid to the landlord and it is imperative that your advisor provides you with such details of not only current expenditure but planned future expenditure.  These are additional charges that should be borne in mind, particularly when viewing an up market and exclusive development with shared facilities such as a gymnasium or swimming pool.  You also need to investigate whether the building is properly managed.

If you are purchasing a leasehold property, when you view the property you need to look out for any improvement works required to the building as a whole, as you will be responsible via your service charges to contribute towards the cost of these items.  If the internal elements of the property require internal upgrading, then depending on the terms of the lease, landlord’s consent may be required.  In addition, the alteration works will require consent from the local council.

Tax advice should be obtained at the outset, to consider the most tax efficient purchasing vehicle due to the additional SDLT and ATED charges in place.  Consideration of personal tax structures and whether the individual is to be based offshore will be required.

It is prudent to consider any requirements in respect of timings and when a seller will require you to commit to a contract and then legally complete.  It is increasingly the norm for exchange to be required quickly and a non-refundable deposit payable to ensure exclusivity, with completion to take place soon thereafter.  This may impact on financing arrangements and the speed of which funds can be transferred and lending facilities put in place.

What is clear is the greater the value of the asset, the greater the need for sound real estate and tax advice.  Please do contact us so that we can assist you with your needs in the UK residential market.

To find out more, click here to speak to Residential Property Partner Caroline Vernon.

Top tips when buying property

Here are our top five tips to help you:

1.Finance arrangements

Whether or not finance is needed, speak to a broker early on in a transaction and preferably before your agent agrees the main elements of the purchase.  Raising finance once exchange has taken place, makes for a fraught completion experience for both you and your lawyer.

2. Planning the completion date

If you are selling a property to raise money for your purchase, ensure that the completion date of the sale is on or before the completion of the purchase. This may sound obvious but it will avoid surcharged rates of SDLT being paid at 3% above the standard rates.  These rates are paid even where your main residence is being replaced with the Revenue requiring you to claim a rebate once the additional main residence is sold.

You can also avoid the need to use your cash reserves for a deposit, as a deposit held on your sale can be used for your purchase where the property is in England and Wales.

3. Surveyor’s appointment

Appoint a surveyor. He or she will flag items that you may not necessarily have spotted on your brief viewing and may even give some bargaining power and leverage on the price.

4. Your lawyer

Make and keep a relationship with a lawyer and update them on your transaction. This is particularly important where you are marketing a property for sale, to ensure that deadlines, that you or your agent impose, can be met by buyers.  A full sales pack with all title deeds, up-to-date searches, planning and building information can be pulled together in advance.

Plan for exchange well in advance. Weeks of delay can be avoided if all the fact finding has been completed in advance.  Attended exchanges do still occur so be prepared.If there are any title difficulties, these can be addressed in advance.

5. Your accountant

Take tax advice. You may not be resident in the UK, you may own other properties worldwide or hold a portfolio of investment property.  Early tax advice will be required to work out your CGT (Capital Gains Tax) liability on sale and IHT (Inheritance Tax) liability on death.

SDLT matters will be more complicated, where other property is held and often a detailed assessment is required to determine the SDLT rates payable by you.  Where your company owns the title to the property, ATED (Annual Tax on Enveloped Dwellings) charges will be made annually and your accountant will need to claim any exemptions in your annual tax return.

Final thoughts

You may have very specific requirements which must be conveyed to all parties. You may want to access the property you are buying between exchange and completion with architects and builders to obtain quotes or for interior designers to start planning works.  The seller may even agree to you commencing limited works to help you move forward quickly with your plans.

Where you are buying a bolt hole which is a leasehold property, a landed estate owner may own the freehold, for example the Grosvenor or Portman Estate. Do not be surprised when you are asked for onerous references to obtain the landlord’s consent, in lieu of a rent or service charge deposit.

If you are buying a turn key, consider if there are any service charges for the shared estate roads and whether building warranties for any building works are available.

Where you are buying expensive items of furniture, artwork, electrical items, to be left at the property, a full inventory of those items with costings will need to be included.  Such items do not attract SDLT but they must be justifiable in their costings.

Sherrards support New York law firm with a Commercial High Court Claim

The Court found that materials produced in the course of discovery (following an order in the States), could be used in an arbitration being held in London against Dreymoor Fertilisers Overseas PTE Ltd. Discovery had been obtained in order to assist the claimants in pursuing proceedings in multiple jurisdictions.

The judgment paved the way to allow the discovery to be put into evidence.

Click here for the full Judgment. 

Sherrards advise European logistics company with an international boardroom dispute

One of the founders and principal shareholders sought to declare unilateral independence and break away from the company. They were in breach of all covenants, restraint of trade and the shareholder agreement, to set up a rival organisation and attempt to take over a number of the company’s overseas offices, staff and clients.

This led to High Court proceedings supported by injunctive relief on a global scale. The team were successful and the case was settled in our clients favour and their client base was protected.

To find out about more similar case, please contact Paul Marmor

Matthew Ball

With over 20 years’ experience in Litigation, Matthew takes a pro-active and commercially minded approach.  Whilst his emphasis is on dispute prevention, where disputes do arise, he seeks an early and cost-effective resolution, offering strong strategies to ensure a swift outcome for his clients, often utilising processes such as Mediation.

When matters are litigious, he acts for both Claimants and Defendants and has experience in commercial disputes, breach of contract claims, professional negligence claims, disputes between partners, associates, directors, trustees and beneficiaries, as well as in property and construction related disputes. 

Matthew has acted in numerous disputes between high-net-worth family members, where his experience and empathy have been welcomed by his clients.

He has a wealth of experience acting for collectors and dealers of classic cars. 

Matthew is regularly instructed by overseas clients, particularly from the Middle East, North Africa (notably Egypt), India, Europe, China and Hong Kong.  He is a longstanding member of both the Arab-British Chamber of Commerce (ABCC) and the Egyptian-British Chamber of Commerce (EBCC).  He is also a member of the Arab Bankers Association (ABA).

He is regularly instructed by foreign law firms and many clients in the Middle East and North Africa see him as their first point of contact when wanting to do business in the UK. 

Matthew knows his stuff and does not look to overly complicate matters.

Clients say “his advice and attention to detail is second to none.  A real pleasure to work with!”.

We trust that held your attention.

Brexit and the legal industry explored

In a recent article, published by the Law Society of England & Wales, Diana Bentley explores the impact of Brexit on the English legal market by interviewing leading figures in the English legal industry, including Paul Marmor, Head of the Disputes Resolution department.

Paul explains how our membership of the Alliott Global Alliance has assisted our transition into the post-Brexit world. To find out more, please contact Paul Marmor, or click here to read the full article. 

Foreign investment into the UK limited by national security concerns?

Paul Marmor spoke at the recent annual Alliott Global worldwide conference in Vancouver, on the UK government’s concerns over foreign investment and national security.  Looking from a UK perspective, Paul talked about the growing trend, particularly among Western governments, towards scrutinising foreign mergers and take-overs, and even intervening, where there is a perception that national security could be at stake.  It is clear from recent British government pronouncements that the UK plans to give ministers more powers to intervene in take-overs of British companies and assets, where national security could be at stake. This marks a real shift for Britain, which has historically been one of the most open and liberal when it comes to foreign direct investment and deals. Paul’s view, having read the British government’s recent papers and listened to what the commentators are saying, is that in practice the British government only expects to block deals in the rarest of circumstances.

Richard Kaplan of New York Alliott Group member, Golenbock Eiseman Assor Bell & Peskoe, presented a US perspective at the conference, commenting that, “While the US has for decades had a national security based regulatory regime governing foreign acquisitions of US businesses (called CFIUS), recent 2018 amendments to the law have widened its scope and given regulatory authorities greater powers to review and approve transactions.”  The takeaway, in Richard’s view, is that M&A practitioners in the US going forward will need to consider carefully CFIUS and its broader coverage in every transaction where a foreign buyer is involved.

Paul Marmor added: “Much of the discussion concerns China, which continues to grow as a powerhouse in the global economy. And, of course, with the Trump administration raising tariffs to China, this will have an impact of its own on world trade, but that is another story!”

While at the Vancouver conference, Paul also presented alongside Jeffrey Berger, from Golenbocks, showcasing a separate project on which their two firms have worked together across the Atlantic, highlighting the benefits to their respective clients of being part of a global alliance of law firms.  Let’s just hope that governments can also take the view that alliances do work and that global co-operation is the way forward!

To find out more, contact Paul Marmor.