Leigh's article was originally published in WorldECR.
Uncertainty prevails as UK government restricts provision of legal services to Russian clients
In response to Russia's annexation of Ukrainian regions, the UK Foreign Secretary on 30 September 2022 announced that the UK would implement measures to restrict Russian access to "major Western services that Russia depends on". The contemplated services include “transactional legal advisory services for certain commercial activity”. No guidance or draft regulations have yet been published, so there is substantial uncertainty as to the scope of the forthcoming restrictions.
Although the UK is moving in "lockstep with international partners”, not all partners are affected equally. As the UK Government statement recognises, London is an international legal centre. Russia is said to import 85% of all legal services from G7 countries and, according to the UK Government statement, the UK represents 59% of that market.
The practical consequences of the proposed restrictions are potentially far-reaching. Apart from London’s status as an international legal centre, the prevalence of English law as a choice of law to govern commercial transactions creates a ready market for UK legal professionals. A vast number of commercial contract templates in common usage provide for an express choice of English law, and have been specifically drafted in order to ensure that contractual terms are valid and enforceable. These are issues on which English lawyers are frequently asked to advise, even where neither the subject matter of a transaction nor the parties have any nexus with the UK. This brings into sharp focus the potential impact on the UK economy of potentially wide sweeping restrictions on “transactional legal services”.
The consequences are difficult to evaluate because of the lack of detail. The government announcement suggests that rather than a blanket restriction, measures may be targeted at "certain commercial activity" or "vulnerable sectors of the Russian economy". It remains to be seen to whom the restrictions will be targeted (e.g. Russian state or para-statal companies as opposed to all Russian businesses) or whether they will target actors in specific economic sectors deemed by the regulator to be of strategic importance to Russia. It is also likely that these will be treated in the regulations as trade restrictions, raising questions as to who as between OFSI (HM Treasury) and the Department of International Trade will administer them and what, if any, licensing exceptions may be available.
There is certainly potential for long term deleterious effects on the UK legal services sector. Affected Russian businesses may be driven to other non-Western common law legal markets (e.g. Singapore or Hong Kong) and/or to develop and rely upon a new catalogue of contract templates that avoid English law or London jurisdiction. This is a process which, once set in motion, becomes difficult to reverse even after restrictions are removed.
One of the objectives underlying the UK sanctions regime is to promote respect for the rule of law and good governance (section 1 (2)(i)). Certainty is an essential attribute of the rule of law. Professional service providers, perhaps more so than others, will be particularly sensitive to the commercial and reputational risks involved and prolonged uncertainty may ultimately have the same effect as a blanket restriction. The market needs to be guided by clear regulations and guidance, not ministerial soundbites.
It can only be hoped that proposed regulations will soon be published, and that the restrictions will be proportionately and rationally connected to the underlying aims of the sanctions, so as not to unduly harm a vitally important sector of the UK economy.