Why are international law firms pulling out of Qatar?
The news that CC and HSF are shutting up shop in Doha has prompted questions about the market's future for international law firms
February 10, 2017 at 07:21 AM
6 minute read
It has been a bad week for the international legal market in Qatar, with both Clifford Chance (CC) and Herbert Smith Freehills (HSF) confirming they will shut up shop in Doha this year.
News that the UK top 10 duo is pulling out of the local market comes on the back of the 2015 exit by Latham & Watkins, which closed its Doha and Abu Dhabi bases around 18 months ago, leaving it with two Middle East outposts.
So are CC and HSF's exits just a blip? Or is this part of a wider trend, as the much-heralded Qatar market fails to live up to expectations?
Like Latham before them, both CC and HSF have argued that the closures are not about scaling back in the Middle East or indeed moving away from Qatari work. Instead, they claim the moves merely reflect a growing realisation that they do not need to have an office on the ground in each location and can instead serve the Middle East region from one or two hubs.
As CC says in its statement: "From our ongoing discussions with both our Qatari clients and international clients looking to invest in Qatar, it is clear that there is no longer the same need for a presence on the ground in Doha. Rather, consolidating those relationships into Dubai and servicing clients from there and across our wider network, will be the best approach."
Many in the Gulf state though argue that the Doha market is saturated, with too many firms fighting for too little work.
Simmons & Simmons Qatar office head Andrew Wingfield says: "Qatar has always been a very competitive legal market, illustrated by the more than 20 foreign law firms in the Qatar Financial Centre alone, in addition to the local firms. While giving clients a broad choice, that's a lot of law firms in a country the size of Yorkshire or Connecticut."
Simmons is one of two international law firms, along with Squire Patton Boggs, which operate in Qatar via licenses issued by the Qatari Ministry of Justice, while a host of other firms, including Allen & Overy, White & Case and Clyde & Co, are among 24 licensed by the Qatar Financial Centre, an onshore business and financial centre in Doha.
The intense competition for work is not the only challenge, with falling oil and gas prices in recent years also impacting work levels, since oil and natural gas account for more than 50% of the country's gross domestic product.
Charles Russell Speechlys Qatar head Simon Green says: "This year is likely to continue to be a challenging one from a transactional perspective. This is largely due to budgetary constraints across government entities as a consequence of sustained low energy and oil prices."
CC's practice was seen by some in the market to have been particularly reliant on project finance work, a sector that has been hit hard by the slowdown in spending triggered by the slump in oil and gas prices.
That's a lot of law firms in a country the size of Yorkshire or Connecticut
However, others argue that the Qatari legal market still holds a great deal of potential for firms focusing on other areas, such as finance, corporate and disputes.
Addleshaw Goddard Qatar office head Martin Brown says: "My view is the market is fairly resilient. If you have a domestically focused practice there is work to be done, and we have remained busy."
Qatar is not the only Middle East market coming under scrutiny from increasingly cost-conscious firms in recent years. Latham's 2015 Doha exit came alongside a closure in Abu Dhabi as well, and a host of other firms have closed their Abu Dhabi offices in recent years, including HSF and Baker Botts in 2015 and Hogan Lovells in 2012.
These firms argue that by servicing their clients across the Middle East from fewer regional hubs, they can save money on the the extra overheads of offices in multiple jurisdictions.
One regional managing partner of a firm that pursues this strategy says: "It is often easier to get people to go to Dubai and Abu Dhabi than some other states, and that creates longevity. People stay and they know how deals get done throughout the Gulf Cooperation Council, which works better than having a small team in somewhere like Qatar."
However, others argue that firms without a local presence could lose out on mandates from Qatari clients.
Samir Kantaria, a Dubai-based partner at regional firm Al Tamimi, says: "Some of the bigger Qatari-based companies can be very picky about having someone on the ground to provide them with advice. The argument is that if you are doing it out of Dubai, you may as well do it out of London, as someone will still have to fly over for a meeting."
Despite the doubts, Doha still remains an attractive destination for international firms. Litigation powerhouse Quinn Emanuel Urquhart & Sullivan is understood to be considering launching in Doha following the hire of HSF partner James Bremen last year as its London disputes head. Bremen has extensive experience in the region and has advised the governments of both Qatar and Saudi Arabia on major infrastructure projects and disputes.
With the FIFA World Cup coming to Qatar in 2022 and the country launching an ambitious infrastructure investment programme – dubbed Qatar National Vision 2030 – there is still high quality work for law firms in the Gulf state.
Quoting Qatar's finance minister, the BBC reported this week that Qatar was spending $500m (£400m) a week on preparations for the World Cup and that total expenditure was likely to exceed $200bn (£160bn).
Eversheds Sutherland Qatar head Dani Kabbani adds: "Frankly, we have never been busier. For firms to be successful in Qatar, they need to adapt during the good times as much as the bad times and not rely on one sector or practice. For a firm like ours that has been here since the mid-1990s, the good relationships that we have built with local contacts and government entities have been key to our success."
However, there is still a sense that the Qatari market is a difficult one to succeed in, and rumours swirl about the possibility of further firms cutting back or closing down their Qatari operations. Even if there are not further exits, partners predict that firms will rein in their expenses in the state, relying on their wider network for additional resources rather than having large teams on the ground.
Green says: "I am aware of a number of lawyers who have left Doha over the last 12 months. I am also aware that a number of firms are now effectively servicing this market from Dubai, and I think this trend will continue until we see the inevitable increase in activity levels."
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