After Dubai last month eased its COVID-19 lockdown for Ramadan, a measure of optimism broke out in the emirate; an improvement in business conditions appeared possible. But as the month of fasting draws to a close, the city, for years the legal world's gateway to the Middle East, returns its attentions to a pandemic that many fear will peak again in a second wave.

As commentators explain, the immediate future will be tough for many businesses, including law firms. In these times, Dubai has become a bellwether for the fortunes of international firms throughout the Middle East, and is being closely watched for signs of pain. So as the world's biggest firms reconsider their global strategies in the face of this unprecedented challenge, one question looms: will the UAE's legal industry survive? 

There are 47 ALM Global 200 international law firms in the UAE, including 45 with an office in Dubai, and 20 with offices in Abu Dhabi. Some have been in ther region for 50 years, such as Clifford Chance, Dentons, and Allen & Overy, while others landed in the 1980s-90s such as Simmons & Simmons, Clyde & Co., and Shearman & Sterling.

Since 2009, there have also been closures, especially in Abu Dhabi and, more recently, Qatar. Some firms have associated offices in Saudi Arabia. Today, people are asking, how many will still be in the region?

Expanding internationally

Globally, in the 1980s-2000s, firms moved to expand internationally, and opened satellite offices as a matter of prestige. You were not international if you were not in Tokyo, Shanghai, Frankfurt, and London. The rationale was: 'Follow your clients.'

It was once a gateway for international firms. Most are today located in the Dubai International Financial Centre (DIFC). Leadership is important. There are two types of managing partner in the UAE: those that keep heads down and try not to be noticed, hoping the Middle East practice will be considered immaterial and not singled out for cost reduction, and those who try to cut costs so as not be singled out.

"We have not made any redundancies in Dubai or [cut] company pay or anything else. I would say we are genuinely business as usual," says Tim Taylor QC, managing partner, King & Wood Mallesons. "Deals are obviously down, but the key problem is that unless you've got premium clients, there are a lot of clients who can't afford to pay for lawyers. That's going to be the real problem.

"The main footprint of KWM is [in the East]; some 80-plus percent of the revenues are coming from probably mainland China or Australia, and part of my thought process is that I am bloody relieved to be in that position."

Furloughing staff

Late last month, Law.com reported that Dentons was withholding distributions and furloughing staff.

"It remains a week-by-week approach. I can see what's happening for about a week or 10 days ahead. It is more difficult to make judgements long-term," says Dubai office managing partner Alastair Young.

"I am sure I speak for most law firms when I say we don't know how the world is going to look in the next few months. We are preparing for really difficult times, but hope they never come to pass."

Pervez Akhtar, regional managing partner, Freshfields Bruckhaus Deringer in the Middle East and North Africa, said the level of uncertainty had led to a number of business restructurings and insolvencies, including a major one in Abu Dhabi—NMC Health—but others had yet to "come out of the woodwork."

"We [have seen] some strategic M&A. By strategic, I mean government-related-entities looking to buy companies or businesses," he added. "What are you going to need in a situation like this? Healthcare facilities, companies in the pharma space, distribution, manufacturing, all the medical needs you might have. Interestingly, one of the things the Gulf states are most focused on is food security: not so much distribution channels, but actual access to sources of food."

Potential damage

Chris Williams, managing partner at Bracewell believes that "once there is greater certainty about the environment in which we are working, funds (whether it's private equity or otherwise) will be looking for ways to deploy capital".

He added: "The biggest challenge at the moment is planning. Nobody can predict an end date for the current situation. Obviously, the longer it goes on, the more potential damage it might have from an economic perspective."

Williams says his firm has "recently seen encouraging signs, particularly in Dubai, in terms of the fact that the very stringent lockdown is now at an end".

Hunton Andrews Kurth managing partner Patricia Tiller echos this: "We're in a very fortunate situation, with a small team and a very diverse offering of legal skills. Our billings remain strong and our lawyers' hours remain quite high, notwithstanding a general downturn in the market."

She suggests that "the situation isn't actually as dire as, perhaps, for some of our competitors".

"It's very much business as usual. I just got off a call for a new, local UAE transaction, even though everybody here has been working from home for [over] a month. It's for industry clients. Business needs to go on and power stations need to continue producing power."

Oil price decline

Despite the decline in oil prices, 2014-17 was a good period for the Middle East. However, in 2018-19, things started to get tougher. Many large firms closed Abu Dhabi. From June 2017, another trend of closures, this time in Qatar, where the sector has shrunk from around 40 firms to as few as 11.

Sadiq Jafar, managing partner at Hadef & Partners, an independent UAE law firm with 100 lawyers in the UAE said: "Post financial crisis, the period 2010-17 was a beneficial era for many law firms in the UAE. Oil prices ranged from USD70-100/bbl for much of that period, and other business fundamentals were strong for a range of reasons. Thereafter, economic conditions declined during 2018 and for much of 2019.

"We were very pleased to observe signs of reasonable recovery and growth at the end of 2019 and beginning of 2020. Then, the COVID-19 crisis emerged out of the blue and has rapidly presented most of our clients with challenges on a scale no one had anticipated. The oil price crash, and the forward outlook for hydrocarbon supply and demand, adds to what is currently a gloomy overall picture."

Competition tight

Competition is tight for international firms in the UAE. The UAE offices of a number of international law firms had been losing money or barely breaking even prior to the current crisis. The last firm to close down in the UAE was Winston & Strawn.

But certain work is flourishing.

"We are a global firm, and don't depend on our practice in the UAE, Saudi Arabia and the Middle East," said Jawad Ali, ME managing partner at King & Spalding. "Half of the firm is government investigations and regulatory and dispute resolution practice, the other half transactional. As a firm with U.S. roots, we [are] international.

"We are strong in the U.S., Europe, the Middle East and Asia. We are well hedged globally. If the whole globe shuts down for a number of months or a year, we, as King & Spalding, a 130-year-old institution, don't depend on one office's activity. We are well funded and debt-free. We are masters of our own destiny."

Long Dubai

KWM's Taylor said Dubai was a place that would continue to be run intelligently as a family business.

"Emirates is run like a really good family business and is a model that works very well," he said. "It's a form of governance that people understand, and they have got the diversity and tolerance balance pretty damn good. So yes, I'm definitely long on Dubai. How could you not be long on the UAE?

"I am very happy about why I'm long on Dubai in general. I think there are too many non-contentious lawyers here. There will be some consolidation in the market. There are worse places to be than the UAE. I think government's reaction to the coronavirus has been intelligent—and I'm long Dubai."

Dentons' Young echoed this point: "This is our 51st year in the region. We have been here for a long time and we are in it for the very long haul. We have weathered storms before, such as 9/11, and multiple other crises. We are confident we will weather this. These are unparalleled times. We are acting in a prudent way to protect the business. I can't speak for other law firms, but we expect to be here for a very long time."

Fundamental challenges

But some lawyers don't see the current malaise as limited to the Middle East or to Dubai.

A Dubai-based lawyer said: "Am I generally optimistic about the legal business? It's going to be tough. It's going to be tough no matter where you are. And so do I worry about this region more than I worry about New York City? No. There's going to be a radical shift in terms of how law firms structure themselves, how they grow, what their partners make, and what their borrowing requirements are.

"I think the day of reckoning is coming. And I don't think there's a thing that most law firms can do about it. I don't view the Middle East as unique in terms of the challenges. I think the entire legal profession is going to [face] some fundamental challenges over the next [few] years."

Major decisions

Jonathon Davidson, founding partner of Davidson & Co Legal Consultants, said he thought the larger law firms in Dubai would have some major decisions to make, particularly as a COVID-19 second wave beckons.

"They have very large networks," he said. "I think they will have to enter into a period of consolidating those networks. I think Dubai and the UAE are not necessarily the priority they once were in those networks. Dubai remains relevant as a regional hub… but I certainly think the headcount in Dubai for the larger firms will be diluted."

Broaching difficult topics with major law firms raised the question of which law firms "will prevail and thrive, which law firms will sustain, and which law firms will be unable to sustain, a presence," he said.

Davidson argues that in the law, like any business, there is always opportunity in adversity.

"I don't mean that as a throwaway line. Those firms that can make fast and effective decisions, who are flexible and nimble, I think, will come out the other side intact, but there will be less people servicing that market.

He adds: "Therein lies the opportunity. I think [it's inevitable] that the number of legal services providers at the international level will diminish. Law firms will need to make some difficult decisions, and decide whether to spend significant sums of money in order to maintain their expensive footprints in Dubai."

Almost all sectors and businesses will face problems over the next 24 months, and this time law firms won't be an exception. Many top firms fared well in the global financial crisis, as there was more liquidity available after the 2002-2008 boom.

But now, COVID-19 is putting firms under untold strain. The journey for Dubai, and indeed the whole region, could turn out to be a difficult one.

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