International firms are hiring more disputes lawyers in Asian markets, but why are global players increasingly interested in local litigation? Elizabeth Broomhall finds out

When Davis Polk & Wardwell hired Clifford Chance disputes partner Martin Rogers in December 2012, it surprised Hong Kong's legal community. Few had suspected that Rogers, one of a handful of partners at international firms with a well-established local Hong Kong litigation practice, would make the move to a US outfit, with American firms having previously primarily advised locally on corporate transactions. 

But the drive by international firms to hire more disputes lawyers in Asia – both locally and internationally qualified – has been building for a while. 

So why has the market shifted towards contentious work? And what are firms doing to take advantage of a potential windfall?

While an influx of US firms into the Far East has created a highly competitive landscape, post-financial crisis conditions have generated a pipeline of new contentious matters, from general commercial disputes to internal investigations.

The growth of litigation and arbitration work was particularly noticeable last year. In June Clifford Chance reported disputes to be its most profitable practice in Asia, and the year saw a string of firms, including Debevoise & Plimpton, Morrison & Foerster, Ashurst and DLA Piper, bolster their teams in both Hong Kong and Singapore. Specialist US litigation outfits Kobre & Kim and Quinn Emanuel have also declared their interest in the region, with the latter opening in Australia, Shanghai and Hong Kong. 

Partners point to a change in the macroeconomic conditions as a key driver behind the trend. "Litigation has been particularly strong in the past five years which reflects the global climate – litigation everywhere is busy," observes Peter Charlton, Asia managing partner for Clifford Chance. "It's been driven in part by financial investigation and litigation coming out of the global financial crisis but also by the general global [economic] environment which is pretty tough for business and when things are tough for business you tend to get a more litigious environment."

Firms' agendas vary depending on the jurisdiction. In Hong Kong, where foreign lawyers are permitted to appear in court, many firms are now focused on acquiring local litigation capability, while in markets where non-local firms are prohibited from handling such matters – such as Singapore, Korea and China – there is an emphasis on international arbitration and US Foreign Corrupt Practices Act (FCPA) work.  

US strategy

As for local Hong Kong litigation, US firms are the ones most closely monitoring the situation as, unlike their London-based counterparts, most still have little or no local disputes capability and are under pressure to replicate their US practices in Asia to retain their global clients.

"It is really driven by a recognition that we have a wide-ranging disputes practice that we have grown globally through our US and London offices," says David Zemans, head of Milbank in Asia, which currently has no litigation or arbitration lawyers but is considering whether to establish a Hong Kong practice. "Disputes is one of Milbank's elite practices. But we are looking for the best. We are not going to do it if we don't get the best."

A further driver is a desire by firms to support their local corporate practices, given the prevalence of dispute resolution clauses in commercial contracts stating that a related dispute must be carried out in a certain jurisdiction and in a certain way.

For Rocky Lee, head of Asia at Cadwalader Wickersham & Taft – a firm that also has no disputes practice on the ground in Asia but is looking – this is key. "We want to be able to say: my litigator will defend that opinion or view if we have to go to court," he says. "That's the final piece that we want. Ultimately it's defensive – we [want to] be full service and competitive, and to say we can now render opinions with absolute confidence; it helps our corporate practice." 

Sudden interest

However, a local litigation partner who wants to remain anonymous believes the sudden interest in Hong Kong disputes is mainly due to a drop off in transactional work last year.  

"My suspicion is that recent interest is driven primarily by weak revenues on the transactional side," he says. "When the M&A and capital markets side was doing well they didn't have a lot of interest in contentious work because it's a very competitive area, and there are cultural and structural differences."

When it comes to arbitration and FCPA work the case for contentious capability is more straightforward, as most partners agree that a surge in cross-border deals within the region will lead to a corresponding rise in arbitration and that a rise in the number of US-Asia transactions is bringing the need for FCPA counsel to the fore.

"International arbitration is a natural way for people to want to resolve cross-border disputes, because the idea of being in someone's home court is just not very attractive, and the different courts in different regions can be unpredictable," says Craig Celniker, head of the Asia disputes practice at Morrison & Foerster (MoFo). The firm currently has a handful of US qualified disputes partners in Asia, but is seeking to grow a local Hong Kong practice as well as a larger international practice for work across the region.

"The FCPA work is because there is so much international commerce going between Asia and the US, and the US laws are so extra-territorial in their reach that this is a real concern for people who have almost no contact with the US but can be hit out here."

In China specifically, partners say the need for legal assistance has increased following the country's own clampdown on corruption, which is intensifying as the domestic economy grows.

"A practice that most people don't talk about is China's own anti-corruption practice," says Lee. "China has a robust set of corruption regulations; they're just not necessarily enforced. That's why people don't take this practice all that seriously. 

"But we're starting to see real enforcement across the board. We're seeing the consumer protection rules being enforced; we saw GlaxoSmithKline being investigated for corruption."

Wanting to grow an Asia disputes team is one thing; actually doing it is quite another. In Hong Kong in particular there are only a handful of top-tier local teams, few of which are willing to move. Far from just being Hong Kong-qualified lawyers, they are primarily partners – most of whom are at UK firms – who have been handling local Hong Kong litigation work for between 10 and 20 years, with a strong reputation in the market and a network of local clients. Their level of experience leaves a large number of US firms fishing in a relatively small pool.

"We need to have well-rooted partners who really know the local legal system, the rules and various nuances," says Lee. "There are indeed many lawyers who have been in Hong Kong for a long time and they have a Hong Kong qualification, but I don't necessarily consider them to have a local litigation practice."

Meanwhile, Chinese-speaking, US-trained partners with specialist knowledge of the FCPA are even more difficult to come by at a time when firms are under increasing pressure to make such hires as more and more work is being generated in China. Currently most firms are running their FCPA practices out of Washington DC or New York, with perhaps a handful of Mandarin speakers on the ground in Beijing.

Rising stars

"Most firms want young rising-star partners from the US with a Chinese background who have focused on white collar, FCPA, corporate investigations or securities litigation, and who want to come out to Hong Kong or China," explains recruiter Evan Jowers, of Kinney Recruiting.

"These are extremely hard to find because six or seven years ago, no Chinese person who ever wanted to go back to China would have picked litigation in their internship at law school even if they preferred it, because it was impossible to transfer to China as a litigator. Only in the last few years has that happened."

The market is starting to see an emergence of very junior Mandarin speaking FCPA associates, adds Jowers, but firms' options are limited when it comes to recruiting for more senior roles. Typically they will hire general commercial litigators or IP litigators and transition them to focus on FCPA, or recruit Western partners who specialise in FCPA while employing Mandarin speaking associates to run the investigations. Neither approach is ideal.

While firms running FCPA practices out of DC and New York typically have strong connections to the investment banks, and therefore are in a better position to win work, smaller firms are under even more pressure to do something special. 

Cadwalader's Lee agrees that there is definitely an increasing need for Chinese speakers. "There is a perception [in China] that the cultural understanding of what is deemed appropriate and not appropriate is not something that we can train people in. 

"So we have to have junior bilingual and bi-cultural lawyers working under one of the Washington DC senior partners."

But Celniker disagrees, suggesting that most practices are still functioning well without Chinese speaking partners and with partners in the US running the work. 

"I don't think you need a Chinese speaking partner as long as you can use Chinese language support," he says. "My own view is that you should get the expertise. Ultimately you can be US qualified and speak Chinese and still not be an expert in FCPA investigations." 

Away from the FCPA, a further problem when it comes to launching Asia litigation practices is the difference between the rates typically charged by top-end international firms and those expected by clients in the local markets. 

Taking Hong Kong litigation as an example, partners at top end firms might expect to charge around HK$12,000 (£923) per hour for work whereas an established local practice may bill as low as HK$8,000 (£615) per hour, as well as offering a discount.

The lowest prices are often for disputes generated by Chinese entrepreneurs, though multinationals on the ground will also expect much lower rates than their counterparts in the US or Europe. Problems thus arise when firms want a local litigation practice to fit in with their high-end international model.

Focus on cost

"Asia is much more cost aware than it is brand aware," says the anonymous Hong Kong litigation partner. "If you're looking at some massive state owned enterprises and they want to list in New York then they'll go for big brands. But if you're looking at entrepreneurs they are much more cost sensitive. 

"Even the big oil companies, banks and insurance companies in Hong Kong – they have been here for decades and they know the local set up. So if you're trying to get a big insurance company to pay New York or London rates in Hong Kong they won't do it."

He adds that the sticking point is often firms' willingness to discount, with US firms much less inclined to do so than their UK counterparts. The number of hours billed is also an issue.

"If you don't discount for Asian clients you're not doing much work with them," says the partner. "Another factor is how you charge hours. The US firms seem to go through a higher number of hours."

Celniker explains that for MoFo, the plan is to focus on the top end of the market where possible, and hire a team that can do both local and international disputes work to offset the lower rates charged locally. Big fee reductions, however, are not sustainable.

"We need a practice that is able to function in an international environment," he says. "There is a challenge as there is probably more downward pressure on Hong Kong rates than upward. I think that's why it's important to find that person who is looking to expand their practice to the international piece too." 

But a partner at another top US firm, who asked not to be named, suggests a different approach. He says a possible solution would be to charge New York rates for partners and local rates for work done by the rest of the team. He nevertheless agrees that US firms need to adapt to the local market.

"I believe that a local practice ought to be charging local rates, or maybe local rates at a slight premium," he says. "I think we are moving to a world where international law firms cannot justify a £1,000 per hour rate for a Vietnam matter. I don't believe our clients will buy into that. 

"It's not what we are going to monetise from this practise. It's really about building up a broad base of capability so that our clients don't go to another firm. I'm very surprised by some people that I talk to in the market who see it as a revenue generator." 

The local litigator agrees, but sees yet another fix. Ultimately he believes firms need to look for a capability rather than a full local practice, or else review their cost bases. 

"A capability can add to [a firm's] offering without being a drain on their resources, and if there is not a lot of work around then the cost of maintaining that practice isn't too high. But there are very few American firms that could impose their costs on [a fully-fledged local practice] and be profitable – they'd have to operate it on a lower cost base."

Finding space

With pressure on costs, space – and the price of it – becomes another factor. While the top end Hong Kong practices tend to operate with teams of up to 25 lawyers, the limitation for US firms is that they don't have the office space to accommodate all the bodies, and would rather cherry pick top partners. For those being propositioned, the offer of doing the same workload with fewer people is of course less than appealing.

Looking ahead, it is unlikely that all these challenges will stop firms from building up on the disputes side, but they may have to be more open-minded and creative in their approach to hiring. 

Most partners believe firms will continue to run their practices out of the US for now, but with an increasing focus on building up the number of Mandarin-speakers within their ranks. 

Meanwhile, movement by US firms on the Hong Kong litigation front could be slower in the short term, unless, as one partner suggests, they are prepared to leave Hong Kong's expensive Central Business District. "Over the next few years I think you will see firms exit Central," he says. "Office costs are moving in such a direction that litigation practices locally are becoming difficult to sustain. [They are also] moving the local firms towards the cost base of the big US and London firms and clients are not prepared to see a consequent increase in legal fees."

Jowers concludes: "There are only a few top-end Hong Kong senior litigation partners that top US firms want and those partners typically have large groups, pay associates lower salaries and charge clients lower fees than top US firms. 

"So far, the recruitment of the bigger Hong Kong litigation partners in the market by US firms has been more like trying to fit a square peg into a round hole."

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Hong Kong litigation moves

• Davis Polk & Wardwell hires Clifford Chance rainmaker and head of Asia-Pacific litigation and dispute resolution Martin Rogers – December 2012
• Latham & Watkins hires Sidley Austin global co-chair of arbitration and senior litigator Ing Loong Yang – March 2013
• Linklaters hires Herbert Smith Freehills Asia disputes head Gavin Lewis – August 2013 – and former Allen & Overy restructuring partner David Kidd – September 2013
• Ashurst hires former Allen & Overy senior financial litigation partner Angus Ross – September 2012 – followed by two Herbert Smith Freehills lawyers in Singapore and Tokyo – December 2012
• Watson Farley & Williams launches a Hong Kong litigation practice with the hire of dispute resolution partner Richard Wilmot from Holman Fenwick Willan 
• Debevoise & Plimpton appoints former UK attorney general Lord Peter Goldsmith to head Asian litigation practice – 2013
• Morrison & Foerster launches an anti-corruption practice in Singapore with the relocation of Daniel Levison from its Tokyo office
• Freshfields Bruckhaus Deringer hires Herbert Smith Freehills financial services regulatory partner Tim Mak – April 2013
• Quinn Emanuel Urquhart & Sullivan opens offices in Hong Kong and Australia – 2013

Asia management appointments

• April 2014 Latham & Watkins makes head of Asian litigation Simon Powell the new Hong Kong managing partner
• February 2014 Jones Day appoints former disputes lawyer and co-head of its securities litigation and SEC enforcement practice in New York, David Carden, as its first ever Asia managing partner
• December 2013 Linklaters promotes Hong Kong-based global litigation head Marc Harvey to Asia managing partner
• May 2013 Hogan Lovells names co-head of global litigation and arbitration practice as head of Asia, relocates him to Hong Kong
• March 2013 Herbert Smith Freehills names Hong Kong arbitration partner Justin D'Agostino as its new China managing partner. One year later he is made the firm's new global head of dispute resolution

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