The Future of the Union LexisPSL Analysis - How might an independent Scotland affect lawyers across the UK?
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The Future of the Union
Lexis PSL Analysis
®
How might an
independent
Scotland affect
lawyers across
the UK?
Lexis PSL
®
The Future of the Union
Scots Wha Hae
Wha for Scotland’s king and law
Freedom’s sword will strongly draw,
Freeman stand, or freeman fa’,
Let him follow me!
(Robert Burns, extract from Scots Wha Hae, 1793)
‘Our human connections—our friendships, relationships, business partnerships—they are under-
pinned because we are all in the same United Kingdom, and that is number one reason why we are
stronger together.’
David Cameron, The importance of Scotland to the UK
‘The Scottish Government doesn’t want to lament decisions being taken at Westminster. We want
to use the powers of independence to transform our country, rather than mitigate other people’s
mistakes. We want to get on with building a better Scotland; becoming a fairer and more prosperous
country.’
Alex Salmond, St George’s Day speech
The Future of the Union | Lexis®PSL Analysis Get a free trial of Lexis®PSL www.lexisnexis.co.uk/1weektrial iContents Please click on a title below to view the content
1 Arbitration
3 Banking and finance
6 Commercial
7 Constitutional
10 Corporate
11 Dispute resolution
13 Employment
14 Environment
15 Europe and international relationships
18 Financial services
21 Immigration
22 Pensions
24 Private client
28 Tax
Introduction
How might an independent Scotland affect lawyers across the UK?
With Scotland set to go to the polls, we asked lawyers to discuss the possible legal implications of an
independent Scotland across a range of practice areas and sectors. The interviews highlight a range
of views, both positive and negative, which will have a direct impact on the work of professionals on
both sides of the border.
Will a Yes vote fundamentally change the way we work and operate? What will a No vote and a move
to ‘Devo Max’ mean in practice? Is there a Plan B?
As the referendum debate gathered pace, we asked a panel of experts to examine the pressing
issues and set out how the new post-referendum landscape could affect you and your clients.
In this publication we have drawn together a range of articles, first published on Lexis®PSL and
Lexis®Library, which seek to frame the debate for lawyers across the UK.
Interviewed by Nicola Laver, Jenny Rayner and Helen Redding.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
For more updates follow @LexisUK_News.
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Arbitration
How might arbitration in Scotland be affected by the forthcoming Scottish referendum? Brandon
Malone, head of the contentious construction and arbitration team at McClure Naismith, says a
Yes vote could have a profound and positive effect.
How could your practice area be affected by an independent Scotland?
Independence has the potential to have a profound effect on arbitration in Scotland. At the
moment, Scotland is a separate jurisdiction for the purposes of arbitration. Scotland has its own
arbitration act—the Arbitration (Scotland) Act 2010—and its own courts to deal with procedural and
enforcement issues. Arbitration is already devolved to the Scottish Parliament. There is no appeal to
the UK Supreme Court in London in respect of any matter arising out of an arbitration. Accordingly,
in terms of arbitration law and in procedural terms, Scotland is already an independent jurisdiction
and its system is entirely self-contained. On one view, independence would have little effect.
However, there are a number of ways in which independence could have a positive impact on
arbitration in Scotland. In the first place, Scotland’s status as a neutral alternative to London is not
currently well understood or even well known. Independence would put that beyond doubt.
Secondly, with independence, there would be an increase in international trade agreements
for Scottish businesses dealt with in Scotland, which would in turn generate more international
arbitration.
Scotland currently has no separate international legal personality and is not a party to treaties in
its own right. As a consequence, there is very little investment treaty work in Scotland. That would
change with independence. Scotland would also become entitled to appoint its own International
Centre for Settlement of Investment Disputes (ICSID) and Permanent Court of Arbitration
arbitrators.
If Scotland were independent, it would have its own International Chamber of Commerce (ICC)
national committee, and would be recognised by the ICC, the London Court of International
Arbitration and other bodies as a separate jurisdiction from the rest of the UK (rUK). At the moment,
despite Scotland’s separate legal status for arbitration purposes, Scottish arbitrators are classed
as UK arbitrators. Therefore, where an English arbitrator cannot be selected because of neutrality
issues, Scottish arbitrators are also excluded. Independence would remedy that anomaly.
For these various reasons, independence could provide a significant boost for arbitration in
Scotland.
What cross-border issues currently arise in your practice area?
As part of the UK, the New York Convention applies in Scotland, and foreign awards are enforceable.
There is no regulator of arbitration per se. Scotland is an open jurisdiction, and there are no
restrictions on arbitrators and counsel from other jurisdictions dealing with arbitrations seated in
Scotland.
Where the intervention of the court is required, it is necessary to use lawyers with rights of audience
before the Scottish courts—solicitors and advocates, who are regulated by the Law Society of
Scotland and the Faculty of Advocates respectively.
What makes Scotland attractive as a seat and place of arbitration?
Scotland is a stable, arbitration-friendly, jurisdiction, where English is the official language. Its
arbitration act is modelled on the English Act of 1996—the Arbitration Act 1996—and will therefore
be familiar to arbitration practitioners. However, there are a number of distinguishing features which
make it particularly attractive as a seat of arbitration.
In the first place, there are the detailed confidentiality provisions within the Scottish Act (the
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Arbitration (Scotland) Act 2010). In contrast to most jurisdictions, where confidentiality is implied,
in Scotland, it is provided for in the Act. This provides that a breach of confidentiality is actionable.
Should there be a need for any incidental procedure in the court, the court maintains the parties’
anonymity by redacting the rolls of court, conducting hearings in private and redacting and
restricting publication of court decisions.
Scotland has a strictly controlled appeal procedure and there is no route of appeal to the UK
Supreme Court.
Discovery procedure is restricted on the basis of relevance, and there is no general disclosure of
documents as in some common law jurisdictions.
For these reasons, arbitration in Scotland is considerably less expensive than arbitration in other
major arbitration centres. In addition, Scotland has a particular concentration of expertise in energy
technology and law and is a highly suitable legal venue for energy dispute resolution.
What are your key concerns as the referendum draws near?
I have no particular concerns in the arbitration context. Whatever the arguments may be in the
wider debate, it is difficult to see how independence might adversely affect the arbitration industry.
Should there be a Yes vote, there will be a period of some 18 months to adjust to independence and
put the necessary international framework in place.
Do you think there are any issues that haven’t received enough attention or consideration?
There has not been a great deal of thought given to the mechanics of implementing the necessary
framework for an international arbitration regime, such as signing up to the New York Convention,
dealing with ICSID etc. However, these issues are not going to be seen as being high up the list of
priorities until the outcome of the referendum is known.
An area where I do think there should be more focus is the issue of how the UK’s assets and liabilities
are to be divided in the event of the Yes vote. There has been a fair bit of debate, but most of it
amounts to assertion and posturing. The outcome cannot be known in advance, and there won’t
be any pre-negotiation. However, serious thought ought to be given to the structure of negotiations,
and how matters are to be resolved if an impasse is reached. There will be a significant need for
dispute resolution strategies and techniques.
What would a Yes vote mean in practice for lawyers in your field?
A Yes vote would internationalise the Scottish profession. Investment treaties would be required
in Scotland for the first time and it would result in a general increase in international arbitration
for Scottish lawyers. This is something that we are aiming for regardless of the outcome of the
referendum, but there’s no doubt that a Yes vote would boost the level of international arbitration.
What would a No vote mean in practice for clients in your field?
If there is a No vote then, from a client’s point of view, nothing changes. Scotland will remain a
separate jurisdiction for arbitration purposes, but will still be part of the UK. We’ll continue to push
Scotland as a seat of arbitration within the UK.
Any other thoughts?
Whatever the outcome of the referendum, the independence debate has raised Scotland’s profile
on the world stage, and has increased recognition of Scotland as a separate legal jurisdiction. It’s up
to Scottish arbitration professionals to capitalise on this increased profile and ensure the growth of
the industry in Scotland.
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Banking and finance
What are the potential implications of Scottish independence for the banking and finance sector in
Scotland? Rod MacLeod and Hamish Patrick of Tods Murray LLP consider the issues and say a Yes
vote means banks and other financial institutions operating in Scotland would need to adjust to a
new regulatory environment.
How could your practice area be affected by an independent Scotland?
As banking and finance lawyers we advise most of the major UK clearing banks and other financial
institutions operating in Scotland. An independent Scotland would mean a separate banking system
in Scotland and, due to EU rules, most likely a separate financial services regulator and regulatory
regime. While the framework for the Scottish banking system is already in place—and one would
expect a Scottish government to adopt wholesale UK financial services regulations and legislation at
the outset of independence—independence would require structural and operational alterations to
the banking system in Scotland, and internally within Scottish and rUK financial institutions, to adapt
to the new regulatory and business environment.
Decisions on currency and EU membership would also have a fundamental impact on our practice.
What cross-border issues currently affect your practice area?
The majority of cross-border transactions we work on are subject to a combination of Scots and
English law (depending on the jurisdiction of the entities involved) and the location of assets used as
collateral for leveraged or structured finance transactions. While we would expect the type of Scots
law that we advise in our practice area—Scottish security, trusts and finance contracts—to be largely
unaffected by independence, thanks to the separate legal systems north and south of the border,
we would expect increased ongoing work for Scottish law firms in relation to law that currently
operates on a ‘UK’ basis (such as tax and certain regulatory laws), where UK-wide businesses may
currently seek advice only in England.
What are your key concerns as the referendum draws near?
We have two key concerns:
Currency
No Plan B on currency has been put forward by the Scottish government. Regardless of whether you
believe the UK government would or wouldn’t follow-through on its stated opposition to currency
union between rUK and an independent Scotland, the absence of a credible back-up option means
we cannot say to our clients how they should be planning their business operations in the event of a
Yes vote as we do not know for certain what currency an independent Scotland would use.
EU membership
The length of time it would take an independent Scotland to negotiate EU membership (whether
as a continuing member state or by way of an accession process as a new member state). While
we do not anticipate Scotland being denied EU membership following whichever process is
negotiated, we have deep reservations on the timescales articulated by the Scottish government
and cannot envisage ratification of Scotland’s membership by all current EU member states within
the 18-month deadline for independence set by the Scottish government. It would remain to be
seen whether that deadline would be extended by the Scottish government if ratification was not
completed in that time.
Furthermore, the longer uncertainty over issues like currency and EU membership continues, the
more damaging it will be to business in Scotland.
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Are you taking any practical steps ahead of the referendum?
In addition to producing e-bulletins for clients and briefing papers on these and related issues, we
have set-up an independence blog for clients to view materials, links to press articles and video
interviews and seminars that we have presented on independence issues. We have also set-up
a similar webpage for English law firm referral partners who regularly instruct us on the Scottish
aspects of cross-border transactions.
We are also delivering seminars and presentations on the impact of independence on financial
services for a number of the clearing banks and magic circle law firms in London in the run-up to the
referendum in September.
Do you think there are any issues that haven’t received enough attention or consideration?
The impact of independence on defined benefit pension schemes—the EU Pensions Directive
2003/41/EC prohibits defined benefit (DB) pension schemes operating across two or more EU
member states from operating in deficit. Given that the majority of DB pension schemes operating
in both Scotland and England are not fully funded, the burden on businesses with cross-border DB
pension schemes having to plug those pension fund deficits would be huge, not just in Scotland
but also in rUK. While this issue has received some press attention during the ongoing referendum
debate, the Scottish government has not articulated how it would plan to deal with this issue and we
are concerned that some businesses based in England and Wales with a portion of their workforce
located in Scotland are unaware that this will impact on their rUK operations as well as their Scottish
operations in the event of independence.
What would a Yes vote mean in practice for lawyers in your field?
We would expect there to be a significant increase of one-off work for Scottish law firms (and indeed
those in the south) resulting from the transition to independence.
As with many other businesses, currency issues would also need to be considered if there was no
currency union. This would likely affect Scottish law firms with a significant client base in rUK more
than other firms. For example, billing currency could have to be addressed if clients based in rUK
wish to be billed in sterling and the law firm operates in a new Scottish currency—while we and other
Scottish firms currently sometimes bill US based clients in US dollars or Eurozone based clients in
euros, increased exchange risks might have to be addressed. Similarly, clients operating in sterling
could want their client deposits to be kept in sterling rather than in a new Scottish currency— while
at present a Scottish law firm may keep client accounts in England, different regulatory issues on
location of client deposits may arise following independence.
Of course, if a new Scottish currency drops relative to sterling or other currencies, this could provide
opportunities to Scottish law firms to export their services at advantageous prices.
What would a Yes vote mean in practice for clients in your field?
Banks and other financial institutions operating in Scotland would need to adjust to a new regulatory
environment (although there might be little divergence between the new regime and the current
UK regime at the outset) and some banks might need to restructure their operations if they have
headquarters in Scotland but are registered in the south (or vice versa) in order to comply with the
EU Banking Directive (otherwise known as the BCCI Directive).
Scottish banks could also be subject to higher borrowing costs if an independent Scotland has a
lower credit rating than rUK and, conversely, lower borrowing costs if Scotland has a better credit
rating than rUK.
As noted above, the choice of currency would be key—if there was no currency union and Scotland
had to issue its own currency then banks (and businesses in general) would need to assess how
any Scottish redenomination laws might affect existing bank and general finance documents that
they are a party to, their exposure to sterling debt redenominated in to the new currency and their
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exposure to exchange rate risk. The banks would have to participate in an overhaul of IT systems
and bank payment infrastructure in Scotland in order to accommodate the new currency and
there would inevitably be higher transaction costs for cross-border deals in the short-term due to
exchange rate risk, currency conversion costs and price comparability issues.
There are already moves afoot for a separate stamp duty land tax and potentially different
rates of income tax in Scotland—do you think there will be more devolved power to the Scottish
Parliament if there is a No vote, as advocated by the previous ‘devo-max’ campaign?
More devolved powers are inevitable as the opposition parties (Scottish Labour, Scottish
Conservatives and the LibDems) have all made varying promises on more devolved powers if
Scotland votes No in the referendum. Devolved powers will also be necessary in order to stave-off
renewed calls from pro-independence supporters for further independence referendums over the
next five to ten years in the event there is a close referendum result. However, it will be interesting
to see whether further devolved powers leads to similar calls for more devolved power to Wales,
Northern Ireland and conceivably, regions in England.
In banking deals, will the big issues be currency, interest rates and who the central bank would
be in a Yes vote?
We would expect currency to be the main issue for the reasons given above, although much would
depend on whether a currency union could be negotiated or, in the event that Scotland issued
its own currency, whether the Scottish government chose to peg the exchange rate of the new
currency to sterling rather than opting for a floating rate.
Is there anything else significant that you think we might see in documentation if there is a
Yes vote, or are banking documents likely to remain fairly static considering the different legal
system already in place in Scotland?
Given that independence will not happen immediately following a Yes vote on 18 September 2014
(and there will be a period of negotiation and (presumably) a period of transition to independence),
we would expect to see an increased use of change of currency provisions or similar trigger clauses
that allow for renegotiation of contracts in the event of certain outcomes related to currency or EU
membership in contracts involving Scottish entities and Scottish collateral assets together with an
increased use of English law over Scots law as the governing law for facility agreements offered to
Scottish borrowers.
Is it still a waiting game—are lawyers sitting tight until the outcome of the referendum?
A lot of law firms are reluctant to engage in the debate for fear of comprising their neutrality. A law
firm’s role is to advise each client independently and in the specific interests of that client. Clients’
businesses are different and independence will be positive or negative for different businesses
and in different ways and individual businesses require greater or lesser degrees of adjustment to
independence (as reflected in the comments by the likes of fund managers with relatively minor
adjustments to make on the one hand and the likes of Standard Life on the other, facing a possible
large currency mismatch from its significantly larger customer base in rUK). It doesn’t help law firms
or their clients in giving advice and making decisions based in part on that advice for the law firm to
be anything other than ‘professionally neutral’ on independence issues. This is backed up by Law
Society of Scotland rules on professional conduct.
Neutrality is not the same as not participating in the debate, a position adopted by a number of
Scottish law firms. Detailed information and debate is necessary so that our clients can make
informed business decisions and we have been actively engaged in promoting and contributing
to that debate. As mentioned above, this has involved producing a significant amount of
independence materials for clients and contacts. We have also been engaged with senior politicians
from both sides and with civil servants and we have an upcoming event lined up involving the
Scottish Labour and Conservative leaders to follow up a previous event involving the SNP deputy
leader.
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Commercial
What will a Yes vote mean for the commercial sector in Scotland? James Lloyd, commercial
partner and head of the insolvency team at Harper Macleod, says the biggest threat to business
is, and will continue to be, uncertainty.
How could your practice area be affected by an independent Scotland?
Scotland has always had its own legal system distinct from that of rUK. Scot’s common law has
developed independently for hundreds of years but has been overlaid by UK legislation and that of
the Scottish Parliament since devolution in the late 1990s. The insolvency area is a microcosm for
Scot’s law as personal bankruptcy in Scotland is regulated by legislation originally passed by the UK
Parliament in 1985 but since amended and supplemented by common law and legislation of the
Scottish Parliament.
Corporate insolvency, on the other hand, remains within the remit of the UK Parliament, albeit
that recent consultation on reform in Scotland has taken place under the purview of the Scottish
Parliament. As a result, independence itself should not affect personal bankruptcy although steps
will have to be taken to enact a Scottish corporate insolvency regime. Whether or not that has
any practical effect on the day-to-day running of liquidations, administrations and occasional
receiverships is another matter.
What cross-border issues currently arise in your practice area?
Cross-border insolvency issues are currently dealt with by provisions within the Insolvency Act
1986 and the EC Regulations on Insolvency Proceedings (EC) 1346/2000. Presumably, reciprocal
arrangements between Scotland and rUK will be put in place as part of the separation process.
Dealings with other EU countries may, however, prove problematic. If, as has been suggested, a vote
for independence results in Scotland leaving the EU and having to reapply for membership, the EU
regulations would not apply unless some bilateral arrangements were put in place with individual
members. Alternatively, the UNCITRAL Model Law on Cross-Border Insolvency could perhaps be
used to fill the gap until membership is achieved.
What are your concerns as the referendum draws near?
My key concern is the effect that it may have for business in Scotland. There can’t be any doubt
that if an independent Scotland is to prosper it will require a strong and vibrant business sector. The
biggest threat to business is uncertainty. At the moment there is uncertainty about the outcome of
the referendum and that has undoubtedly had an effect on investment. A Yes vote will not end that
uncertainty, it will continue as discussions take place between a Scottish Government and that of
rUK as to how the family silver should be divided. It will not end on independence taking effect as the
market and investors will want to see what effect independence actually has. The risks of prolonged
uncertainty on a business sector that has not fully recovered from recession are business failures
and job losses (which will be exacerbated if, as has been suggested, large employers relocate south
of the border in the event of a Yes vote). Such events would give rise to an increase in personal and
corporate insolvencies at a time when we would be just getting to grips with new insolvency regimes.
In relation to the currency issue (ie whether there will be a change to Euros if a currency union
cannot be agreed), what would that mean in practice for existing contracts and arrangements?
I think it doubtful that any currency change will have any real impact in the insolvency field. Clearly,
cross-border commercial transactions will be affected particularly on issues of pricing. However, at
present many contracts, particularly standard form ones, recognise the separate legal systems and
specify which will apply. I would expect that to continue post-independence and although the effect
may be marginal, solicitors and clients will have to remain alive to that issue.
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Do you think there are any issues that haven’t received enough attention or consideration?
Not really. At the moment the Scottish Government (through the office of the Accountant in
Bankruptcy) is considering what changes would be required to a Scottish Corporate Insolvency
Regime as a consequence of a Yes vote. The personal insolvency regimes (and indeed of debt relief
in general) have undergone significant changes in recent years, most recently with the Bankruptcy
and Debt Advice (Scotland) Act 2014 and therefore further material changes are unlikely regardless
of the outcome. I understand that other government departments are taking similar steps as are
most large and medium-sized organisations. Despite the best endeavours of all concerned there
will, of course, be unexpected consequences of independence if it happens.
What would a Yes vote mean for lawyers in your field?
In practice, there is the potential for a huge amount of work for solicitors that would result from
independence, not just in the insolvency field but in almost every area of work. Although there is a
substantial body of Scot’s law that will not require any change, new legislation will still be required.
Solicitors and the courts will then have the task of deciding if the politicians and Parliamentary
draughtsmen have gotten things right.
What would a Yes vote mean in practice for clients in your field?
For clients, as with solicitors, a Yes vote will involve getting to grips with new statutory regimes and
regulations and implementing these. The day-to-day practice of insolvency is however likely to be
more prosaic—individuals and companies will go bust and insolvency professionals will continue
with the task of winding up their affairs much as they have always done.
Any other thoughts?
Despite the rosy hued promises of the nationalists and the doom laden predictions of the unionists
the reality of independence will probably be much the same as now and it will be ‘business as usual’.
The one thing for certain is that the weather in Scotland will not improve regardless of the result!
Constitutional
What are the constitutional implications on a Yes vote in Scotland? Dr Katie Boyle, lecturer and
ESRC Research Fellow at the University of Edinburgh and University of Limerick says major
constitutional issues are most likely to arise after the referendum when the constitutional future of
Scotland will be subject to change, regardless of the result.
What issues does the Scottish independence referendum raise in relation to constitutional
law?
The referendum question has been set and the referendum process has been agreed. The
process is governed by the terms set out in the Edinburgh Agreement reached between the UK and
Scottish Government on 15 October 2012. The Scottish Independence Referendum Act 2013 (SIRA
2013) sets out the legal framework for the referendum process and the Scottish Independence
Referendum (Franchise) Act 2013 (SIR(F)A 2013) provides the rules on who is eligible to vote.
Effectively the franchise consists of the same electorate as for Scottish Parliamentary elections and
local government elections—the eligibility test is one of residence. The vote has also been extended
to 16-year-olds. The Electoral Commission is responsible for overseeing the process and many of
the same rules that apply under the Political Parties, Elections and Referendums Act 2000 have
been applied to the context of the independence referendum.
The major constitutional issues are most likely to arise after the referendum when the constitutional
future of Scotland will be subject to change regardless of the result with either a Yes vote resulting
in a transition to independence or a No vote leading to further devolution (as promised by Labour,
Conservative and the Liberal Democrats). What is unclear about the outcome is exactly how
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Scotland’s constitutional arrangements will change. In other words, the constitutional implications
of a Yes vote and a No vote are still uncertain.
What would a Yes vote mean in practice?
The Edinburgh Agreement reached between the parties requires both the UK government and
Scottish Government to work together in the best interests of the people of Scotland and of rUK.
However, this agreement largely focusses on the referendum process itself and not the process that
follows the referendum.
The UK government and Parliament have not agreed on a framework for negotiation or the transfer
of power in the post-independence landscape with either the Scottish Government or the Scottish
Parliament. However, the Scottish Government has set out a proposed constitutional road map
across three main transitional stages. These proposals are contained in the government’s White
Paper on Independence, ‘Scotland’s future’ and in the ‘Scottish Independence Bill: A consultation
on an interim constitution for Scotland’.
First, after the referendum and before the proposed day of independence (24 March 2016)
the Scottish Government has proposed that the UK Parliament transfers power to the Scottish
Parliament to legislate in a number of reserved areas, including the power to legislate to amend
the current constitutional framework of Scotland in relation to rUK (currently reserved under the
Scotland Act 1998, Sch 5 (SA 1998)). The Scottish Parliament would then seek to pass the Scottish
Independence Bill which would give the Scottish Parliament the power to declare independence (s
1 of the Bill). Following independence day the proposed Bill would provide the terms of an interim
constitution, which would see Scotland enter the second stage of the transitional process. The
interim constitution would provide the constitutional framework until such time as a permanent
written constitution is adopted. The interim constitution provides for the continuation of laws (s 34)
and it is envisaged that a revised version of SA 1998 would continue to apply—meaning many of rules
and procedures governing public law in Scotland would remain in place.
The Bill provides that after independence day the Scottish Parliament would establish a
Constitutional Convention to make recommendations on a permanent written constitution (s 33
of the Bill). The Bill and attached consultation paper proposes that the Convention process would
be inclusive and participative. Although the Bill provides that the Convention process should be
conducted independent of Parliament and government (s 33(4)), the Convention process, or its
remit, have not yet been formalised. The Convention process effectively acts as a constitutional
platform from which Scotland would enter into stage three of the transitional process as an
independent country with a renewed written and permanent constitution.
What potential challenges or difficulties could a Yes vote create in practice?
The Scottish Government’s proposed transitional process is wholly dependent on the UK
government and UK Parliament agreeing to transfer the necessary powers post-referendum and
pre-independence day in order for the Scottish Parliament to have the legislative competence
to legislate for independence day in advance. Although both the UK and Scottish Government
are under a duty to negotiate in good faith, agreement in this area may be more difficult to secure
following the UK general election in May 2015.
For example, the proposed interim constitution suggests that the UK Parliament transfers the
power to the Scottish Parliament to legislate to provide the Scottish Government with the power to
negotiate with international organisations in advance of independence (s 20). This is what is called a
transfer executive competence and could be given effect to through a s 63 order under SA 1998. A
s 63 order requires affirmative approval in both the UK Parliament and the Scottish Parliament. The
UK Parliament is not a party to the Edinburgh Agreement and so there may be significant barriers
to ensuring the passage of such orders, particularly if there are drastic changes to the political
administration after the general election in May 2015.
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How would it affect the judicial system in England and Scotland?
The Scottish Independence Bill proposes to retain the existing court structure but rather than have
recourse to the UK Supreme Court the Bill forms a new Supreme Court for Scotland. Following
independence the High Court of Justiciary (highest criminal court in Scotland) and the Court of
Session (highest civil court in Scotland) together would form the new Supreme Court of Scotland in
their respective areas of competence.
There is also arguably the potential that the role of the judiciary would change in Scotland under the
terms of the proposed constitution. The UK constitution is uncodified and the proposed Scottish
constitution (both interim and envisaged permanent) would be at least partially written—in the first
place through a constitutional statute, the Scottish Independence Bill. The Bill proposes to retain
Parliamentary supremacy, yet at the same time affords constitutional status to some areas such as
human rights protections. For example, it is proposed the European Convention on Human Rights
(ECHR) would acquire constitutional status (s 27) meaning any law that is incompatible with ECHR
rights would have no effect in Scots law and could be declared ultra vires the legislative power of the
Scottish Parliament. This framework currently exists in Scotland in relation to devolved matters (SA
1998, s 29) and the Scottish Government proposes to extend this framework to reserved matters
in an independent Scotland. In effect, this means the judiciary would be required to ensure the
legislature and the executive act in compliance with human rights obligations. There is also the
possibility that human rights protection be further extended under the terms of the Constitutional
Conventions if such a recommendation is made.
What would a No vote mean in practice? What effect would the cross-party commitment to
devolve more to Scotland have?
The cross-party commitment to devolve more power to Scotland in the event of a No vote
culminated in a pledge being announced by Labour, the Conservatives and the Liberal Democrats at
Calton Hill, Edinburgh, on 16 June 2014. This commitment promises that further powers be devolved
in relation to spending, taxation and social security. However, the main difficulty associated with this
promise is that its fulfilment will be dependent on the passage of legislation by the UK Parliament.
There is no clear indication as to the detail of the proposed transfer of power and any further
devolution is subject to the will of the legislature in Westminster—which could well see a dramatic
change in political administration in 2015. For example, if UKIP secures a powerful position in the
makeup of the next UK Parliament they may well oppose any further transfer of power to Scotland.
Even if further powers are devolved it does not necessarily mean that there would be any significant
changes to current arrangements.
For example, Scotland already has tax-raising powers under SA 1998. However, exercising these
powers have so far proven unfeasible in practice. The Scottish Parliament currently has the power
to vary the UK rate of income tax up or down by 3p in the pound in Scotland—this power has never
been implemented. This is most likely due to the restrictive nature of the scope of the power
meaning the costs of implementation would outweigh the benefits in increased devolved revenue.
Under the Scotland Act 2012 (SA 2012) further powers have been devolved in relation to tax. In 2016,
when SA 2012 comes into force, the Scottish Parliament will be able to set a Scottish income tax
rate—this is a partially devolved power as there are conditions attached. The tax rate will be set at a
base rate of 10% less than rUK and the Scottish Parliament will have the power to set the remainder
of the tax rate in Scotland. For example, Scotland could set the tax rate at 10p, which would bring the
rate of tax to 20p to the pound—keeping in line with the rest of the UK. It is unlikely that there will be
significant changes following the introduction of this new devolved power—again this relates to the
fact that the cost of implementing a varied rate to the rest of the UK would outweigh the benefits,
and, increasing income tax beyond the UK rate would most likely be unwelcome politically.
Do you think there are any issues that have been overlooked or haven’t received enough
consideration?
One area that requires further scrutiny is the proposed Constitutional Convention process should
Scotland vote Yes in the referendum. In accordance with principles of deliberative democracy it
is crucial that any constitution-framing exercise is genuinely deliberative, inclusive, informed and
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representative. The Scottish Government has proposed that the Constitutional Convention would
take into account the views of civic society organisations including trades unions, business interests,
local councils, faith groups, community groups and ordinary citizens.
However, what is not clear is how the Convention process would achieve this in practice. It is
important that this process would not become an exercise of elite decision making. For example,
one of the difficulties that could be envisaged here would be in relation to the contribution of those
who belong to marginalised groups that may otherwise find it difficult to participate in majoritarian
decision making. The newly independent Scottish Parliament would be responsible for legislating for
the Convention and would need to consider how best to ensure that the process takes into account
an array of voices, all of which may have many differing and potentially competing interests in what
kind of permanent written constitution Scotland should adopt if the referendum result is Yes.
What does all this mean for government lawyers?
The impact of potential independence in Scotland is not confined solely to government lawyers.
Lawyers across the UK should prepare for eventualities arising out of constitutional change in their
respective areas in relation to both Scotland and the rest of the UK. In the event of a Yes vote there
would be no dramatic constitutional change overnight. The interim period between the referendum
(18 September 2014) and independence day (24 March 2016) would be the period where
negotiations would occur across a number of areas—such as the division of assets and liabilities, the
potential formation of a social union, the renegotiation of Scotland’s re-entry to the EU etc. Lawyers
would also need to prepare for potential challenges arising from the impact on individual and
commercial based rights under both EU law and ECHR compatibility.
Corporate
What are the implications of a Yes vote in the Scottish referendum for corporate lawyers? Kenneth
Rose, partner at CMS Cameron McKenna in Edinburgh, says Scottish independence could be
a stimulus for corporate activity, including acquisitions and disposals, as businesses assess the
changes in the Scottish market.
How could your practice area be affected by an independent Scotland?
Any form of material change in the business environment is usually a catalyst for corporate activity.
With Scottish independence we would expect businesses based in Scotland and/or doing business
in Scotland to be looking at their business structures to determine whether they are appropriate for
any revised business and legal environment. The creation of new legal entities on either side of the
border, the re-alignment of assets and the creation of revised group and corporate structures will all
generate corporate activity. We can also see that such a change could be a stimulus for corporate
activity, including acquisitions and disposals, as businesses assess the changes in the Scottish
market.
What cross-border issues, courts and so on currently affect your practice area?
While Scots law is already distinct from English law, the two legal systems are, in many ways, very
similar. In particular the distinctions in the corporate area are generally minor, with both relying on
a common set of companies and financial regulation legislation--in many cases derived from EU
sources. The key regulators such as the Competition and Markets Authority, Financial Conduct
Authority (FCA), Prudential Regulatory Authority and Bank of England are common across the UK. It
would remain to be seen what approach would be taken to regulation in an independent Scotland
and the likely impact on our clients.
Scotland already has a separate court system, although we would imagine that there would be a
re-assessment of the role of the UK Supreme Court as the ultimate appellate court for civil matters
(including matters as to company law).
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Are you taking any practical steps ahead of the referendum?
We are preparing ourselves to communicate with our clients in the event of either a No or Yes vote.
There are still material changes for our clients in the pipeline if there is a No vote which we want
clients to be aware of and prepared for. In the event of a Yes vote it is key that clients understand the
timescales and processes and are best positioned to react to the details of any agreement between
the respective governments on matters such as currency, taxation and regulation.
Do you think there are any issues that haven’t received enough attention or consideration?
The referendum campaigns have been largely political in nature and there are a number of areas
which would, in the event of a Yes vote, require further focus. In particular, the detailed regulatory
framework for an independent Scotland will require considerable examination and discussion both
with the UK and with the EU authorities. We think that in the event of a Yes vote there would need to
be considerable discussions around these issues at many different levels to determine the most
appropriate solutions for the resultant countries.
What would a Yes vote mean in practice for lawyers in your field?
There are likely to be some immediate challenges to respond to client demands. These will centre
initially on advice and planning but ultimately on implementing any revised structural aspects.
In the medium to longer term, Scottish independence may lead to a greater divergence of company
law, financial regulation and other relevant areas between the two jurisdictions. This will place
increased onus on law firms and individual lawyers serving both jurisdictions in terms of training and
generally keeping pace with changes and areas of divergence.
What would a Yes vote mean in practice for clients in your field?
This has been largely covered above--the corporate area is wide and varied and the effects on each
client will be distinct. At this stage, pending the outcome of the referendum and the independence
negotiations and visibility of the legislative programme of an independent Scotland, it is difficult to
predict the effects with any level of precision. Given the need for hard information we prefer not to
speculate in such general terms at this stage.
Any other thoughts?
CMS has a significant footprint both North and South of the border. Therefore, as a business it will
be faced with the same issues as any other business trading in Scotland. CMS is also active across
most of Europe giving it a really valuable insight into how new states have established themselves.
Generally we think this gives us a very real and unique position to address the issues in the corporate
market arising from a vote for Scottish independence.
Dispute resolution
Will the outcome of the vote for Scottish independence have a significant impact on dispute
resolution in Scotland? Tim Edward, partner and head of commercial dispute resolution at
Maclay Murray & Spens LLP, explains the current differences between dispute resolution in
Scotland, and England and Wales, and suggests that Scotland has an opportunity to position itself
as a dispute resolution centre—whatever the outcome of the vote.
How does dispute resolution differ between Scotland, and England and Wales at the current
time?
Scotland has a different civil court system and structure from England and Wales. In Scotland there
is tier of local courts, known as sheriff courts, all around the country and a higher court, known as the
Court of Session, based in Edinburgh which has both its own Commercial Court and its own Appeal
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Court (known as the Inner House). Appeals from the Inner House go to the Supreme Court and
there are two dedicated Scottish judges who sit in the Supreme Court.
Scotland is currently undertaking a court reform programme which, once completed, will see sheriff
courts consolidated and some lower-value business shifted out of the Court of Session into the
sheriff courts. The only aspect of this which is likely to be affected by a Yes vote on independence is
that the Supreme Court is likely to cease to have jurisdiction as a final court of appeal.
Scotland has its own Bar (the Faculty of Advocates) who, along with solicitor-advocates who have
passed equivalent exams, have exclusive rights of audience in the Court of Session. The most
pertinent practical difference between civil litigation in Scotland and that in England and Wales
for parties is that litigation in Scotland tends to be less expensive—but there is also usually a lesser
recovery of costs in the event of success (though this may soon change with planned reforms).
Scotland does not have conditional fee arrangements (CFAs) but does have speculative fee
arrangements on the basis of ‘no win no fee’. It is likely that both damages based arrangements
(DBAs) and qualified one-way costs shifting (QOCS) will be introduced in the future. In terms of
ADR, there are all the same options as in England and Wales, including mediation, arbitration and
adjudication, which will also be unaffected by independence. Although there have been cuts in
the civil legal aid budget in Scotland, the cuts are not as severe as in England and Wales, so the
prospects of getting legal aid are, on the whole, better in Scotland.
What impact would an independence vote have, if any, on dispute resolution in Scotland?
It is unlikely that an independence vote would have any immediate impact on dispute resolution in
Scotland, other than to prompt public law cases in the courts to clarify the impact of independence
on particular bodies or businesses—for example, one can see the potential for judicial review
regarding impact on budgets, regulation etc from a variety of sources. Actual independence would
not be achieved until 2016 and, during the period of negotiation, it is possible that certain bodies,
or indeed individuals, might have resort to the courts to test legal propositions. Otherwise the
operation of the courts in Scotland will continue unchanged. Rules on choice of law, jurisdiction
and cross-border enforcement are unlikely to be affected. Currently the aim is for an independent
Scotland to remain within the EU. In that event, Scotland would be an independent member state
rather than a part of a member state. In terms of funding, there is likely to be reasonable continuity
of funding in Scotland to implement court reforms, regardless of a Yes vote. Currently justice is a
wholly devolved sector, so there should not be any great change in political priorities in this regard.
What should practitioners think about in the run up to the vote in terms of strategy for bringing
proceedings in England or Scotland where there is an ability to bring in either jurisdiction?
No special considerations come into play at the moment. The types of considerations currently
applicable will revolve around:
• which jurisdiction is geographically more convenient for the client/practitioner
• which law is likely to be applicable (in most cases it is preferable to litigate in the courts of
the applicable law, although courts are prepared to decide cases on the basis of expert
evidence about foreign law)
• whether there are time bar implications (the principal Scottish prescriptive period is five
years, as opposed to the English limitation period of six years)
• which system will be quicker and cheaper, and which will provide for better cost-recovery
• where legal aid will be most readily obtainable
• the position on speculative fee arrangements
• whether there are specialist courts/judges (the only significant immediate change may be
the loss of the Supreme Court in Scotland as a final court of appeal, but that is rarely the first
thing on a litigant’s mind when considering raising proceedings)
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Could Scotland position itself as the jurisdiction of choice for disputes?
Although a Yes vote is likely to have little short-term impact on dispute resolution in Scotland, there
could be longer-term opportunities for Scotland to market itself better as a dispute resolution
centre. The Scottish Government set up a Centre for International Arbitration at Holyrood following
the enactment of the Arbitration (Scotland) Act 2010, and some funding has gone into promoting
this. Scotland could get a much greater share of arbitration work, particularly in the construction
sector and in disputes arising in the oil and gas sector. The need to resolve public law disputes
about constitutional issues following a Yes vote could give us unparalleled experience in that type of
dispute resolution which could be marketed internationally. There might also be a greater focus on
winning back commercial dispute resolution involving Scottish parties generally to Scotland—there
has been a migration of such litigation, particularly involving the financial sector, in recent years to
London. Many of these areas of possibility, of course, could be advanced equally even if there is a
No vote. Whatever happens, in due course the Scottish Parliament is likely to have more powers
and more influence and if it can be persuaded to invest more resources in dispute resolution in
Scotland, anything is possible.
Employment
What are the implications for employment law in Scotland in the event of a Yes vote? Bruce Caldow,
employment partner at Harper Macleod, says a key issue for practitioners will be the status of
Scotland in relation to the EU.
How could your practice area be affected by an independent Scotland?
Aside from the need to monitor and assess changes in legislation and update and advise clients
accordingly, which is routine for solicitors, there may be the need for other business-related advice,
depending on how clients react to a Yes vote. One key issue for employment lawyers would be the
status of Scotland within or outwith Europe. A good deal of modern employment law (equalities,
working time, paid leave) is driven by the decisions of the Court of Justice of the European Union
(CJEU).
However, we already have a proudly independent judiciary and our own President of the
Employment Tribunals. The Employment Appeal Tribunal (EAT) would need to sever, but this would
be a simple process with the EAT sitting in Edinburgh already.
In terms of the White Paper, the following are of note:
• the laws in place immediately before independence would remain in place on independence
• priorities include greater female participation on company and public boards, including consulting on
a target for representation
• consultation would be carried out in relation to greater employee representation on company boards
• the establishment of a Fair Work Commission to guarantee that the minimum wage will rise at the
very least with inflation
• the creation of a Convention on Employment and Labour Relations to transform the relationship
between government, employers and employees
• the abolishment of legislation allowing shares for rights
• encouraging wider trade union participation, the theory being in the recognition of the positive role
that can be played by collective bargaining in improving labour market conditions
• other key issues will be the living wage, zero-hours contracts and access to employment tribunals
• restoring a 90-day consultation period for redundancies affecting 100 or more employees
It is important to remember that these are the aims of the SNP. The white paper goes into little
further detail or substance in relation to the measures proposed.
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What cross-border issues, laws, regulators, courts etc currently affect your practice area?
Most employment law is UK wide, apart from differences in the procedure for employment tribunals.
As outlined above, the biggest external driver is EU law and the jurisprudence of the CJEU. The role
of ACAS is important, especially with tribunals having mandatory pre-claim conciliation.
What are your key concerns as the referendum draws near?
The biggest issue for clients and advisers alike is to have reasonable notice of change so as to
understand and prepare for change.
What would a Yes vote mean in practice for lawyers in your field?
Nothing will change overnight. Employment law constantly changes. I’m sure we’d be adept at
dealing with any changes. The key would be working with clients sooner to anticipate and plan for
change, albeit not too soon so as to act and advise on presumptions.
What would a Yes vote mean in practice for clients in your field?
As noted above there may be a greater focus on employee relations, representation on boards and
equalities issues. Although some of these issues (such as board representation) are being mooted
elsewhere, the status of the white paper would suggest that the SNP would be keen to press on with
these plans and deliver change on independence sooner, rather than later.
Any other thoughts?
Having witnessed first-hand Scotland’s biggest cultural and sporting event change and improve
Glasgow for the better—and showcase Scotland to the Commonwealth if not the world—it will
be fascinating to witness the political process and outcome that has the scope to change our
professional and personal lives substantially.
Environment
What are the potential implications for environmental legal practice in the event of a Yes vote in the
Scottish referendum? Kenneth Ross, partner and specialist in environmental law at Brodies, says
the impact will be relatively limited and there is a risk that the potential impact of independence on
environmental law might be overstated.
How could your practice area be affected by an independent Scotland?
I think the impact on environmental law would be relatively limited. Before devolution in 1998 all
legislation was made at Westminster, but Scotland did administer a fair amount of environmental
law, for example via the Scottish Environment Protection Agency and the local authorities. The
Scotland Act 1998 added legislative powers. The basic concept is that all legislative power would
devolve apart from reserved powers. It has to be borne in mind, however, that most environmental
law—whether in the UK or Scotland—is driven by European law. There is, accordingly, very little room
for manoeuvre.
It could be argued that if an independent Scotland were to remain within the EU there would be very
little difference. There is, of course, political debate as to whether an independent Scotland would
remain within the EU. However, it is difficult to imagine that it would not, ultimately, either retain or
negotiate membership. Even if an independent Scotland were not to remain within the EU, it is worth
noting that European countries which are not members of the EU (such as Norway), tend to accord
with European environmental law so as to be able to trade with Europe.
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