On January 20, 2010, I stepped off a plane in Bucharest to start a secondment at Clifford Chance’s local office, which was supposed to last eighteen to twenty-four months. I was a young and eager lawyer, keen for new experiences and ready for the challenge of working in emerging markets. In the end, I left nearly three and a half years later, and I almost stayed on permanently in Bucharest. It was an amazing experience, and English law in CEE has had a massive impact on my life.
But a lot has changed in the ten years since I arrived in Bucharest. Back then, the financial crisis was still working its way through the global economy, and the regional legal market was dominated by Magic Circle and Silver Circle firms, together with national and regional firms and a mix of US law firms.
Since then, we have had – naming only a few monumental events during the last decade – the Eurozone crisis, the Ukrainian revolution, sanctions against Russia, Brexit, and COVID-19. In these times of change and disruption, the legal market has shifted drastically. US firms have arrived in London, France, and Germany in force, having a massive impact on compensation and profitability expectations. Law firm mergers have led to cross-border behemoths, with some having more than 5000 lawyers around the world. And client expectations on cost and delivery in an era of ever-increasing automation and speed of communication have shifted.
In this context, the role of English law in CEE has remained strong. English law remains a far more common choice of law for cross-border transactions, particularly in CEE, than any other option. It is particularly popular with inbound/outbound investment and lending, where the parties do not want one side to have a “home field” advantage. This position has been reinforced by the development of English case law in the last decade. Time after time after time, the courts have articulated principles – binding at common law in a way they would not be in a civil law jurisdiction – which encourage the sensible interpretation of contractual obligations by reference to the reasonable expectations of the parties. The English courts have demonstrated a serious commitment to reasonableness, in a way which should give confidence in the sensibility of the English courts and English law.
This important standing of the English courts and English law came under some pressure with Brexit, but in my view, it has passed that test. The UK Supreme Court had a decisive impact on the approach of the UK Government to Brexit. Its role in the process reinforced the sound approach of the judiciary in the UK, notwithstanding certain tabloid hysterics. And whatever happens with the end of the transition period, English law will continue to be available as a safe harbour, just as New York law has been used around the world for decades without any of the arrangements tied to membership of the European Union.
The role of English law and English law firms in CEE and elsewhere will, however, continue to evolve. We have seen the emergence of strong local markets, where deals are increasingly being dominated by local plays. A large loan from a Polish bank to a Polish borrower is more common nowadays, and in that context, English law and English language documents make less sense. At the same time, local borrowers have more sophisticated and more international. They are accessing international capital and doing deals in ways which we did not see before. And, when (for example) the Polish bond market seized up, we saw a sustained uptick in Polish companies seeking finance from sources other than Polish banks, including non-bank lenders with a strong preference for English law.
In this context, law firms have had to reassess their business and staffing. What gets done in London? Do lawyers need to sit physically in the region? Or can it all be done from London or a regional hub? And one issue looms over the entire industry - profitability. Clients are increasingly sophisticated consumers of legal services. Can everything be done by a global law firm with a single profit model? Or does it make sense to have a broader mix of international, regional, and national law firms? Back in 2010, the legal market was driven in many respects by international law firms driving into local markets, but I am not sure that will continue. We - as an industry - are still trying to work our way through that. What is clear, however, is that the world and CEE look a lot different than in 2010, but the new circumstances present opportunity.
By Kevin-Paul A. Deveau, Partner, Reed Smith