Once derided for unwieldy Bar regulations, Singapore has staged a startling comeback as a legal centre

Will they or won't they? That is the question hanging in the air in the Singapore legal market when discussion turns to the potential merger between magic circle giant Allen & Overy (A&O) and leading 300-lawyer Asian practice Allen & Gledhill.

Whatever the result, many in the market believe that the talks and the possibility of similar discussions and tie-ups is rapidly changing an already buzzing legal scene in Singapore. There is no doubt that A&O's move comes during a period in which the country has emerged as an increasingly key strategic hub in the wider Asia region.

Indeed, the Asia region as a whole, fired by robust economic growth and a fundamental shift in economic power to the East, offers a huge potential upside to successful law firms and neither the power bloc of the US or UK has come anywhere near dominating the market. Rapidly liberalised in recent years, Singapore has already succeeded in many ways in establishing itself as a key hub to Southeast Asia as well as an increasingly potent threat to Hong Kong.

Martin David, DLA Piper's finance and project division head in Asia, says that despite the fact that Southeast Asian economies have gone through "ups and downs" over the last 15 years, Singapore has continued to provide a strategic location for both corporate and financial institutions to establish their headquarters.

"Law firms have followed their clients and based themselves in Singapore to capture the regional work but it is only since perhaps 2010, as the regional economies emerged stronger from the global financial crisis compared to other regions and countries in the world, that the real potential and opportunity is being seen and Singapore's strategic value for business in the region has been recognised."

He believes that there are a number of reasons that have made laws firms decide now is the time to be in Singapore. One is that, in practical terms, there are only a limited number of places in Asia where international law firms can practise, and this, coupled with Singapore's strategic location for "tapping" the region, the gateway to Australia, and the emergence of strong corporates and triple A-rated financial institutions with limited exposure to the global financial crisis, is making many believe that Singapore is the place to be.

In legal terms, Singapore has become the hub for South Asian countries like Indonesia and Vietnam as well as the considerable amount of work that is now being generated from India. According to DLA's David, there has been a debate for many years as to where international law firms should launch their Indian business from. "Should it be Hong Kong? London? Singapore? I believe it is now clear that the answer is Singapore and our clients agree, with more and more running offshore Indian-focused business from Singapore, whereas five years ago they might have run from Hong Kong or elsewhere," he says.

In recent years Singapore has also positioned itself very successfully as an international arbitration centre for the region (see below).

According to Kevin Owen, managing partner of Mayer Brown JSM's Singapore practice, the country has been "very successful in establishing itself as the major regional arbitration centre".

"This is due largely to the foresight of the Singapore Government, which is very, very good at identifying areas in the economy that can be supported and developed. There are a lot of disputes coming out of Vietnam, India and Indonesia that are being arbitrated in Singapore," he says.

But another key industry and area of work for lawyers is in oil, gas and natural resources. Companies like Shell, BP and Chevron, that have all set up their Asian headquarters in the region, are helping to fuel the growth.

Norton Rose Southeast Asia practice head Jeff Smith says that from Singapore the firm is doing an increasing amount of work, along with colleagues in Australia, in the energy, mining and infrastructure sectors. He says it is here that "large amounts of capital are being raised to develop mega-projects to satisfy the huge demand for natural resources in North Asia and India".

However, Smith also says the strong economic growth in China, India, Indonesia and Vietnam is leading to the creation of "enormous wealth" which is also driving a demand for banking and financial services products as well as for access to telecommunications, energy and infrastructure in the region.

As growth markets go, Singapore is definitely near the top, with the list of law firms opening in the jurisdiction getting longer by the week. Earlier this year it emerged that Freshfields Bruckhaus Deringer, which closed its Singapore office five years ago, is gearing up for a relaunch in the jurisdiction. The new office will focus on arbitration, corporate, projects and energy work, with the firm also looking to use the base as a strategic access point for India.

The firm closed the door on its two-partner Singapore branch in April 2007 as part of a move to refocus its Asia efforts on China and Japan. But Freshfields, like many others, is realising that Singapore is the strategic base it needs to springboard into the lucrative Southeast Asia market.

According to the latest Forbes billionaire list, the top 40 richest people in Singapore were worth $45.7bn (£29bn) in 2010, up from $39bn (£25bn) the year before. Singapore was ranked the fourth-largest financial centre in the world after London, New York and Hong Kong, according to a survey by British consultancy Z/Yen Group.

Asian issuers have also dominated global initial public offering (IPO) activity in recent years, bringing in 65% of global proceeds over the five-year period covering 2006-10, according to Ernst & Young's global IPO report.

Similarly, M&A statistics from Mergermarket show that even though both the value and volume of M&A transactions across the Asia-Pacific region fell during the first two quarters of 2011, the drop was smaller than many other regions of the world, with activity also staying relatively resilient in Asia throughout the global financial crisis. And, even if local M&A is yet to truly rival the US or Europe, the 5%-10% annual growth rates currently sustained by some Asian economies indicate the market still has huge potential to develop.

Another firm to have recently thrown its hat into the Singapore ring is Olswang. Officially opening its doors in February with four partners, it is confident that servicing existing clients such as Tune Hotels, Visa, Tata, Telstra, PayPal and Microsoft – all of which have regional operations in Singapore – is the right strategy.

The firm's Asia managing partner, Rob Bratby (pictured), likens the region to Europe in the 1950s. "Within TMT there are a lot of developing countries in the region aside from just Singapore, with an enormous rise in the middle class, where people want to consume luxury goods and technology," he says.

"Singapore was a natural choice for us as a regional hub. Many of our existing clients have their headquarters for the region here and Singapore's dynamic, international and business-friendly outlook mirrors our own."

And the latest in a long line of names to set up in Southeast Asia's financial hub is Withers, which is planning to move two partners to the jurisdiction later this year in order to service an increasing amount of private client work in the region.

Olswang's Bratby echoes the views of many international firms that have recently opened up in Singapore when he says that it is easier to establish an international practice in Singapore than it is in Paris. Indeed, the opening up of the market has been carefully created and controlled by the Singapore Government. Before 2008 the only way for foreign firms to get a foothold in Singapore was to form a joint venture (JV) or alliance with a local firm.

The introduction of a more liberal regime in 2008 allowed six foreign firms – A&O, Latham & Watkins, White & Case, Herbert Smith, Norton Rose and Clifford Chance – licences to practise local law as qualified foreign law practices (QFLP) and has been seen as underpinning Singapore's growth and shaking up the local market.

The Singapore Government – originally very strict in the number of QFLPs it awarded – has since further liberalised the market. In February it announced changes to the Legal Profession (Amendment) Bill 2012 in order to allow foreign firms to take stakes in local law practices and share profits.

The rules have been relaxed to allow foreign ownership of law firms, with overseas firms able to take a profit and equity share in a Singapore firm of up to 33% in the event of a tie-up.

The plans, which are expected to come into effect in the second quarter of 2012, also mean that individual foreign lawyers will be able to take a greater profit and equity share in Singapore firms and will be able to serve concurrently as partners in both overseas and Singapore partnerships.

Foreign lawyers employed by Singapore firms will also be able to enjoy a larger profit share, while the six firms granted QFLP licences in 2008 will be allowed to enter into formal law alliances or joint law ventures with Singapore firms without losing their licences.

In addition, the changes will allow foreign Queen's Counsel to represent clients in certain key areas of law, including commercial, banking and corporate.

The liberalisation is an acknowledgement that the JV regime has been unpopular with many firms and has not worked, with a number of alliances being abandoned. International firms have complained that the JVs are too restrictive and allow local firms to work non-exclusively with their international partner. In contrast, the QFLP programme allows international firms to practise local law directly.

However, while Singapore has positioned itself as an increasingly effective hub for Southeast Asia, the extended liberalisation of its legal market has raised some awkward questions for some of Singapore's big local firms.

With expectations that Singapore will liberalise even further in the near future – possibly through offering unlimited licences to practise or by making it easier for foreign lawyers to re-qualify as local advocates – local leaders face their domestic market being opened up swiftly while they have limited means to service the foreign law demands of key clients.

This outlook apparently directly led Allen & Gledhill to conclude it should seek out a foreign partner and it is likely that other major Singapore firms like Rajah & Tann and WongPartnership will be weighing up similar issues.

However, DLA Piper's David (pictured) questions the degree Singapore law firms will have the appetite to merge with their international counterparts. "A lot of local law firms here are well positioned, have good businesses and are profitable. A number are also run where the real decision-making is vested in a small number of partners, so a number of Singapore law firms may find the thought of having its decision-making fettered and influenced by a foreign firm with a different culture and business strategy unattractive."

The larger Singapore law firms are also the ones most focused on broadening their business horizons beyond Singapore, which could, on the flipside, make them less attractive to international firms as a potential partner. Some are speculating that it may be the boutique Singapore firms that are better suited to merging with international firms – particularly those in M&A, project finance and energy, banking and arbitration.

Rachel Eng, managing partner at Singapore firm WongPartnership, says that the Singapore Government's latest proposals are part of its "execution of the Singapore Government's plan to continually liberalise the legal market, which started some years back.

"The Singapore firms are well aware that they have to grow beyond Singapore… but they found that Singapore law was still archaic, it was still drafted in a local way and was pretty restrictive, so changes have been made to facilitate Singapore firms making more interesting structures and equity," she says. However, she does admit that the new flexibilities will also present opportunities for foreign firms.

Elsewhere, Eng believes that Singapore has started to get the edge over Hong Kong in terms of becoming, as she puts it, "the place to live".

"It offers clean air, security, a good government structure and good talent in terms of hires. These intangible factors seem to be slowly tipping the scales in favour of Singapore."

Singapore has to accept that Hong Kong has China as its hinterland and that Hong Kong will always be backed up in terms of North Asia work. Singapore has its focus on the Southeast Asia region," she adds.

Indeed, Singapore is seen as an increasingly competitive threat to Hong Kong as an international business centre for any work that is not generated from China.

Norton Rose's Smith agrees. "There has always been a sense of healthy competition between Singapore and Hong Kong, but they each have key roles to play in the Asia-Pacific region – Hong Kong has a real China focus and Singapore serves South and Southeast Asia," he explains.

David at DLA questions the "long-term effects of Shanghai as a business capital" and what he calls the "gradual internationalisation of Chinese banks and corporates", which he thinks may see an even more dramatic shift to Singapore.

Whatever the future holds, the rapid evolution of Singapore – and the wider Asia region – promises to present many of the world's leading law firms with significant growth opportunities in the years ahead.

As one local partner puts it: "It is too early to say whether it is boom time, but it is more the case that there is an alignment of factors which has given people pause for thought and made them consider why they don't have a presence in Singapore. Even if there is a gold rush followed by a shake-out in two or three years' time, there will have been a permanent change here."

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Singapore – the arbitration play

Singapore has for years been aggressively promoting itself as a world-class centre for the provision of legal services, particularly international arbitration, and it has fast become a centre of choice for international arbitrators seeking neutral ground, with a significant increase in international cases involving non-Singaporean companies being heard.

A number of factors have contributed to the growth in volume of arbitration work taking place in Singapore. The Singapore Government's move to liberalise the legal services industry, alongside the opening of a dedicated arbitration facility – Maxwell Chambers, which opened in 2010 – has made Singapore a credible hub for arbitral activity and a focal point for an increase in arbitration volume.

Maxwell Chambers houses the Singapore International Arbitration Centre (SIAC) as well as the representative offices of a number of foreign arbitral associations, two international barrister chambers and 15 hearing chambers for arbitration case proceedings, marketing itself as a 'one-stop shop' for arbitration.

Singapore has also managed to attract the Permanent Court of Arbitration at The Hague to set up a facility, as well as the International Chamber of Commerce Court of Arbitration.

As a signatory to the New York Convention of Enforcement of Arbitral Awards, any arbitral awards granted in Singapore are enforceable in all countries signed up to the convention – now numbering more than 140. An arbitral award in Singapore is more easily enforceable than a court order in numerous countries.

Between 2000 and Aug 2010, the SIAC handled 554 international arbitrations, 70% of which were international or non-Singaporean cases.

In 2008, as part of its legal market liberalisation process, the Singapore Government also created various initiatives to further attract international arbitration work to Singapore.

International law firms were offered tax breaks of up to 50% of their qualifying income for up to five years if they handled international arbitration cases in Singapore and an exemption from applying for work permits or employment passes for professionals, including lawyers and arbitrators, entering Singapore to work on arbitrations.

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