Offshore jurisdictions fill pockets of barristers – but for how long?

Barristers’ earnings from overseas clients have increased by almost 40 per cent over the past two years.

Income derived from so-called zero-rated or VAT-free work suddenly shot up from just over £61m (see chart) in year end 2000 to almost £85m in year end 2002, according to the Commercial Bar Association (Combar). Figures for 2003, currently being compiled, are expected to show further rises.

The increase in revenues is partly down to the growing demand for English barristers, particularly silks, to act in offshore havens, from where much of the VAT-free work is derived. Many companies with assets, holding companies and offshore subsidiaries have been hit by corporate scandals and insolvencies, which has led to a rise in court battles in places such as the Caribbean, the Isle of Man and the Channel Islands.

The figures are based on responses to Combar’s questions on zero-rated work, which were sent to all chambers doing commercial work.

Not all sets returned the forms. In 1999, 23 sets reported total zero-rated income of £61.69m. This figure was almost the same as 2000’s, when there was no record of the number of sets that responded. The latest £85m figure relates to 28 sets.

VAT expert Conrad McDonnell of Gray’s Inn Tax Chambers defined zero-rated work as follows: if a barrister’s fee note is issued in the name of the solicitor, and the solicitor is based outside the UK, then the barrister is not liable for VAT. Alternatively, the barrister can issue a fee note in the name of the lay client. If the lay client is based in the European Economic Community (EEC), then VAT is not chargeable if the transaction is business-related, but is VAT-liable if it is a private matter. Barristers are not charged VAT if the lay client is based outside the EEC.

Despite the figures, some chambers are now predicting a downturn in this work as a result of the demise of the English silks system. One said: “Offshore lawyers like the QC system. If it goes and there’s no distinction between barristers and silks, then it’s arguable that business could be affected.” Peter Bennett, chief executive of Maitland Chambers, said there is “always pressure to restrict rights of audience in offshore jurisdictions”.

Foreign clients have also raised concerns that overseas barristers are being paid too much. This may lead to a drop in their use.

Jeremy Sandelson, managing partner of Clifford Chance London’s litigation and dispute resolution practice, said the main concern was the brief fee system. “The idea of paying a large lump sum fee [the brief fee] to secure the future availability of counsel for a lengthy trial – which may well settle early in the trial – has become increasingly unattractive,” he commented.
“Instead, we’ve witnessed a number of [foreign] clients preferring to pay hourly rates for work actually done, together with a realistic commitment fee to cover early settlement.”

Another possible attack on the volume of overseas work could derive from efforts by some Caribbean jurisdictions to introduce practising certificates for foreign barristers.

However, growth in foreign arbitrations and litigation in more obscure legal jurisdictions, including India and South America, have contributed to the rise in zero-rated work. Several sets have also pointed to earning large sums from providing EEC competition advice to East European states set to accede.

Despite the positive impression given by the figures, the view remains that, in the longer term, income from overseas work will decline. One senior silk concluded in relation to zero-rated work: “I have the feeling that the commercial and chancery bar is facing a leaner period after some very healthy years.”

Barristers’ overseas revenues 1998-2002
For year end Gross figure (£) No of chambers surveyed
2002 84,815,235 28
2001 77,453,608 28
2000 61,489,908 N/A
1999 61,690,436 23
1998 61,304,657 23
Source: Combar