International law firms operating in Singapore are eyeing up unions with local players after seeing hopes of winning their own local law licences dashed. But, as Elizabeth Broomhall reports, approaches are differing widely

February 2014 was a turning point for Singapore's international legal market. News that only four of the six overseas law firms originally allowed to practise local law through Qualifying Foreign Law Practice (QFLP) licences would have their permits renewed for a further five years came as a surprise to partners on the ground. 

It highlighted the growing challenges for global players practising in the island city-state despite the proposition offered by its convenient geographical location and status as a regional hub, especially following the announcement last year that only four of the 23 firms applying for the second round of the licences in 2013 had been successful.

It means that despite efforts to liberalise the country's legal market, only eight firms have currently secured the coveted full licences, which allow them to build their own local law practices covering everything other than domestic litigation and areas such as criminal law.

But with several months having passed since the changes took effect, some partners at firms unable to practise local law have voiced relief at not being bound by growth quotas imposed by an overseas government, with many expressing confusion over what is expected of international law firms with QFLP licences. There is a widespread and growing recognition that the licences may not be the best or only way to practise Singapore law, with firms now turning their attention to alternative structures.

A shift in attitude

In the run up to the QFLP licence renewals – which Allen & Overy (A&O), Clifford Chance (CC), Latham & Watkins, Norton Rose Fulbright, White & Case and Herbert Smith Freehills (HSF) were able to apply for, having secured the original five-year permits in 2008 – there was speculation about how each firm had progressed in the city in the years since the licences were initially awarded.

Some partners at rival firms questioned HSF's chances of being granted a renewal given a recent string of partner exits and its relatively small number of locally qualified lawyers, while others pondered the future for CC after it was accused of issuing misleading statements about its capacity to offer litigation advice following its tie-up with local litigation firm Cavenagh Law. The controversy saw minister for law K Shanmugam assert that claims made by CC that it was "the first full-service firm" conveyed "an inaccurate picture". 

When the February announcement came, however, it was the Singapore government's decision to grant White & Case only a one-year temporary licence extension subject to the firm meeting certain targets that caused the biggest shockwaves. As well as boasting a 30-year history in the city-state, the firm has a solid regional practice and 35 lawyers on the ground, including its Asia managing partner. The news sparked confusion over what the Singapore Ministry of Law (MinLaw) was seeking from global firms and how performance was being measured. In particular, as part of the renewal process, partners at international firms said there was a new requirement for foreign firms to show how they planned to advocate Singapore law and promote the city's arbitration centre, in addition to the headcount and revenue targets. They argued that this was difficult to set out through quantitative data.

There is also a feeling that firms may have been too optimistic in their original growth forecasts, and perhaps this resulted in quotas not being met. "Who knows what people projected in 2008; everyone applied for a QFLP licence five minutes before Lehman went bust," one partner says. "So people might have made all sorts of projections about growth and maybe they were too ambitious."

HSF's decision to withdraw from the renewal process after initially reapplying for a licence also raised questions.  

However, those on the ground seem less concerned with the circumstances around HSF's non-renewal than what the decision represents in terms of the wider pros and cons of the QFLP licensing regime. After HSF's announcement that it would look at alternative options, several firms that were unsuccessful in the 2013 round said they would also prefer to pursue other routes rather than go for a QFLP licence should the opportunity arise again. 

"We are quite relieved in a way that we weren't successful [in our application], because the growth figures were something that many firms haven't been able to match," says one partner at a previously unsuccessful QFLP applicant firm. "There was a rush for QFLP licences when the world looked rosier economically, but since then I'm sure headcount has either stabilised or fallen at a number of firms."

Eversheds Asia managing partner Stephen Kitts adds: "We have no plans to apply for a super licence because of the conditions attached to it. I think people are now looking at the QFLP and thinking there are other ways."

Local still key

But that is not to say firms no longer have a desire to practise Singaporean law. As well as bolstering their existing practices by allowing them to advise on the Singapore law aspects of regional deals, secure panel appointments and generate additional revenues from local work, partners say the capability can also create opportunities for new practices that are more reliant on local regulations. 

"Having Singapore law capability is important to our business and we're looking at the best way to add it," explains Matthew Bubb, Asia managing partner at Ashurst. "To date, not having Singapore law capability hasn't impeded us, since 85% of our business is outside of Singapore. It is not like we're trying to operate all of our business in the Singapore market, but it is part of the regional business you run from Singapore, so, for the majority of firms that have a regional practice, it is one of those things that is becoming increasingly important to have."

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The focus, however, is seemingly shifting from the once-popular joint law venture (JLV) (see box, below) to that of the formal law alliance (FLA) – a structure most notably used by CC and Cavenagh Law. Firms recently adopting the model include Stephenson Harwood and Virtus Law, which formalised their tie-up in March, while others thought to be considering the structure include Mayer Brown, Dentons, Olswang, and Berwin Leighton Paisner (BLP) – to name but a few. Two FLAs – namely those between Lawrence Graham and PK Wong & Associates, and Norwegian firm Wikborg Rein and Pan Asia Law – have ended in recent months, but this has not deterred other international players.

According to partners, the shift towards FLAs is partly due to rule changes in 2012, which allow for greater financial integration between Singaporean and global outfits involved in FLAs, and partly because of the failure of several JLVs in the past, including those between Linklaters and Allen & Gledhill, Freshfields Bruckhaus Deringer and Drew & Napier, CC and WongPartnership and A&O and Shook Lin & Bok.

"One of the most popular models at the moment seems to be the FLA – that would be a possibility for us," says Alistair Duffield, Singapore managing partner at BLP. "My sense is that people are just a bit more cautious having seen some JLVs not work. The FLA allows the relationship to grow and develop better in its own time. A number of firms seem to be heading in this direction."

Bubb adds: "The first generation of FLAs were just marketing relationships – you could jointly market but you had to separately invoice. Then they allowed some sharing of profits. This helps with alignment of strategy, client and work targets. You may take the view that it is easier to change the structure around an FLA rather than doing a JLV; equally, it might be a stepping stone to a JLV.

"Another attraction is when a foreign firm wants to have a presence here but not necessarily a full-blown business. An FLA might work successfully without needing a commitment from a joint venture."

Dating game

The problem, of course, is finding an appropriate partner, irrespective of which model a firm chooses. Some argue smaller firms may not have suitable practice mixes, but so far it seems that the larger firms are happy to remain independent, despite past talks between the WongPartnership and King & Wood Mallesons (KWM) and Allen & Gledhill and A&O. 

"Those firms that didn't get QFLPs may be looking at these other structures, but the question is can they identify the right people to partner up with? Will the parties have a mutual understanding as to how it is going to work and what they should charge for the work and so on?" says Mei Lin Goh, managing partner of Watson Farley & Williams in Singapore. "Where it often goes wrong is that there is a mismatch in the expectations of the parties as to what each side wants to get out of it."

Ashurst's Bubb agrees. "Finding the right structure to meet our needs is an ongoing process," he says. "We get approached. Lots of people ask us if we're interested, but you've got to find the right structure and the right people. It's difficult. Which is why a QFLP was traditionally so attractive, because you didn't need to do all of those things."

Interestingly, the desire to acquire Singapore law capability seems to be further down the priority list now than it has been at times in the past, with some saying recruiters are trying to tie up deals themselves to garner interest. Notably, while approximately 150 foreign law firms now have a base in Singapore, only nine currently have QFLP licences and 11 are engaged in JLVs or FLAs. Although no one can deny Singapore law capability is desirable, as a whole firms do not seem to be in a rush to acquire it. 

Partners put this down to a focus on regional work by foreign players, in addition to a lack of suitable partners and, in some instances, a desire to offer local advice through a single partnership structure. David Tang, Asia managing partner at K&L Gates, says the latter is the main barrier for his firm when it comes to adding local law capability. "Singapore is very important for us and we're keen to see what opportunities there might be," he explains. "But the business model we use is that there is full profit sharing and governance over what we do."

The QFLP does remain of interest to some firms, even though MinLaw is yet to suggest a third round of applications is on the cards. In a statement it said: "The government has adopted a calibrated approach towards the liberalisation of the legal services sector, and will continue to assess market conditions before making a decision on whether to issue more licences." 

Firms that have said they would consider applying for a licence in the future, if the opportunity arose, include Freshfields, Morrison & Foerster and Watson Farley.

rob-ashworth-freshfields"I think it is unlikely we would look at an alliance with a Singapore firm," says Freshfields Asia managing partner Rob Ashworth (pictured). "There are QFLP licences – when the next round comes we will consider that."

Another partner at a firm with a licence explains why the QFLP regime continues to be attractive: "The QFLP is a badge of honour, there's an element of prestige attached to having it. We wouldn't discount the commercial benefit of it either – we still generate 15%-20% of our revenues from Singapore law.

"If there is a Singapore component to a wider transaction, then being able to do it under one roof and not having to go out and get quotes from other firms makes it more streamlined and easier to manage." 

Next steps for QFLPs

Even those firms that have secured a QFLP licence may wish to expand their practice in Singapore further, most likely through an FLA, if they wish to provide litigation advice. "It depends on what your focus is," says one local partner. "An FLA makes sense if you want to build a litigation capability [in conjunction with a Singapore firm]. If it works it is a sensible thing to do because it enables both firms to service clients across the board. But it is a heavy investment. You have got to consider whether  litigation in Singapore is a strategic thing you want to do, and whether you would make money out of it at the levels of profitability that top firms need to have. It isn't that deep a market."

Norton Rose, Jones Day, Gibson Dunn & Crutcher and Sidley Austin are among those firms understood to be open to the idea of an FLA; however, none have anything immediate on the cards. "We have no current plans to do an FLA, but we are committed to Singapore and we will remain open minded," says Tom Albrecht, Sidley's Asia head. "We are not seeing demand for local litigation right now. The local bar seems to be handling that effectively. But things change. It will depend on clients' perspectives and their desire to have the same law firm advise them."

Stephen McWilliams, Latham's Singapore managing partner, adds that he can see the benefits of an FLA should an appropriate opportunity come along: "The FLA is something people have seen CC do successfully with Cavenagh. It is an option; it has its own challenges, both structural and as a result of working closely with another law firm.

"The attraction is that it gives the QFLP the ability to do a full range of dispute resolution work through the local entity. It is not on our radar as a top priority but it is something that we're open minded about and that we would consider exploring if the right group of partners or firm was interested."

Moving into the second half of 2014, the biggest challenge for firms in Singapore will be managing a new wave of competition. As the number of international firms operating in Singapore continues to grow, fees for initial public offerings in the city-state are thought to be 30%-50% lower than those in Hong Kong, while those for banking and finance work are understood to be around 15%-30% less – mostly due to competition. The situation is likely to be exacerbated as local outfits expand and more international firms set up shop. Firms including KWM and Minter Ellison are understood to be getting closer to office launches, while accounting giants PricewaterhouseCoopers and EY are in discussions with regulators about how they too can offer legal services in the city as the government takes steps towards allowing alternative business structures. Meanwhile, US practices Dechert and Winston & Strawn are also hoping to open bases.

Kevin Wong, Linklaters' Singapore managing partner, concludes: "The market – for both international and local Singapore firms – has become increasingly competitive in recent years. There are new entrants taking aim at more established players, and at the same time the overall demand hasn't grown as quickly as in recent memory. To succeed, a law firm needs the discipline to keep to a strategy that plays to its own strengths, not to those of others. There isn't a single playbook, but having a deeper pocket obviously helps."

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Possible new entrants in the near term

  • King & Wood Mallesons
  • Minter Ellison
  • Winston & Strawn
  • Dechert
  • PricewaterhouseCoopers
  • EY

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FLA v JLV

Both non-QFLP and QFLP firms are allowed to form formal law alliances (FLAs) and joint law ventures (JLVs). The FLA is an arrangement where foreign and local firms work exclusively together in the same premises under one banner, sharing resources and client information, and engaging in co-branding and co-billing. The linked firms remain separate legal entities.

Under new rules introduced in 2012 for FLAs, foreign firms are allowed to take a 33% profit and equity share in the Singapore partnership, at both the individual and firm level, and lawyers can be partners at both firms. However, litigation can only be handled by the Singapore partnership through Singapore lawyers with valid practising certificates. 

By contrast, the JLV sees international outfits and local firms come together to create a new combined legal entity, which is able to advise on foreign and local law in certain practice areas (excluding litigation) under one roof and can bill via single invoices.

Under the current rules, the foreign firm can take a 33% profit and equity share in the Singapore partnership, although it may share up to 49% of the profits of any one practice. The JLV can offer local law advice through Singapore lawyers with valid practising certificates or foreign lawyers who hold foreign practitioner certificates. Local lawyers can offer litigation services, but via the Singapore firm, not the JLV. There are currently four FLAs and seven JLVs.

FLAs:

  • Ince Law Alliance
  • Clifford Chance Asia
  • Cotty Vivant Marchisio & Lauzeral Asia Alliance
  • Stephenson Harwood (Singapore) Alliance

JLVs:

  • Baker & McKenzie Wong & Leow
  • Dacheng Wong Alliance
  • Duane Morris & Selvam
  • Hogan Lovells Lee & Lee
  • Pinsent Masons MPillay
  • Watson Farley & Williams Asia Practice
  • Clyde & Co Clasis Singapore Pte

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Partner exits

Some firms have seen a string of partner exits in Singapore in the last two years. These include:

Herbert Smith Freehills

Maurice Burke – moving to Hogan Lovells (May 2014)
Geoffrey Grice – moved to Duane Morris & Selvam (December 2013)
John Dick – moved to EY (November 2013)
Michelle Chen – moved to Jones Day (November 2012)

DLA Piper

Sheela Moorthy – moved to Norton Rose Fulbright (April 2014)
Matt Glynn – left the firm (August 2013)
Martin David – moved to Ince & Co (May 2013)
Justyn Jagger – moved to Stamford Law (August 2012)

Allens (which allied with Linklaters in 2012, prompting some fallout in Singapore)

Marae Ciantar – moved to Rajah & Tann (March 2014)
Matthew Skinner – moved to Jones Day (October 2012)
Darren Murphy – moved to Jones Day (October 2012)
Rod Howell – moved to Herbert Smith Freehills (February 2012)