India’s shuttered legal market spurs the separation of yet another law firm pairing, amid changing ambitions and new beginnings
Akira Kawamura, president of the International Bar Association, said recently that “opening a legal market fully to the world works to the great benefit of all of the stakeholders, provided the change is introduced in an extremely carefully planned way.”
Kawamura’s comments were shared in a report by YouGov, an independent market research agency that was commissioned by Allen & Overy to canvass the views of 300 of India’s senior lawyers, corporate counsel and business executives on liberalizing the country’s legal market. The results, which were published at the end of June, paint a picture of an India ready to embrace international lawyers and collaborate with them on home turf.
Despite this, India appears no closer to lifting its ban on foreign lawyers. The distant dream of liberalization is one that Allen & Overy and its Indian best friend, Trilegal, had clung to during their five-year relationship, which ended late last month.
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Disappointed with the lack of movement and seeing no sign of reform, the firms concluded that their arrangement restricted their “ability fully to exploit the growing opportunities in India”.
The journey was generally a happy one and one of the longest lasting referral arrangements between an Indian and international firm. However, both firms endured attacks from lobbyists determined to keep the legal market closed to foreign competition.
Allen & Overy was among the targets when a little known South Indian lawyer filed a writ petition in 2010 alleging that the magic circle firm, 29 other foreign law firms and a legal process outsourcing provider were illegally practising law in India. In February this year, a two-judge bench of Madras High Court ruled that foreign lawyers could “visit India for a temporary period on a fly in and fly out basis” to advise their clients on foreign law, but an interim order by the Supreme Court in July “clarified” that foreign law firms should not be allowed to open liaison offices in India.
Add to that a looming election, coming changes in the tax regime and a less than buoyant economy, and it seems clear that no amount of foreign pressure or domestic championing of liberalization will push the issue anywhere near the top of the government’s list of priorities.
“Our relationship was put together during a period when liberalization seemed to be just around the corner,” says Anand Prasad, one of Trilegal’s founding partners. “We realized that the government was dragging its feet on more important decisions. We didn’t see liberalization and, logically, no new government will do it immediately upon coming in.”
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Multiple partners
With zero bargaining power for India entry, international firms such as Allen & Overy and Clifford Chance can no longer justify a commitment to one Indian law firm. Clifford Chance ended its union with AZB & Partners in 2011 after a two-year referral arrangement, citing unrealistic expectations about the opening up of the legal market as a key dampener. Being sidelined as a result of their affiliation was another grave concern.
“I think there was disappointment on both sides about the level of inbound and outbound work that could be referred and that we could do together,” Bahram Vakil, a partner at AZB & Partners, told India Business Law Journal at the time of the split. Vakil noted too that “most of the other major firms stopped giving us work”. That, coupled with the global economic crisis, made it a difficult two years for the firm.
As reported in our cover story last month (Beating a retreat?), a closed legal market, compounded by clients’ perennial hunt for bottom-dollar bids and a general slowdown in India-related mandates, has forced international firms to re-evaluate their India strategies. Some firms have cast a wider net in the region in a bid to attract work in jurisdictions such as the Philippines, Indonesia and China where profitability per deal is higher when compared with India.
Others are carefully cultivating a bouquet of relations to generate fresh springs of revenue in India.
Olswang, which in February opened its first Asian office in Singapore, says it has “adopted a ‘good friends’ model of having a relatively small number of close non-exclusive relationships with Indian law firms that we know well”. Rob Bratby, Asia managing partner at the firm, adds that Olswang “invests in getting to know those firms well,” and is “not actively seeking a formal tie-up at this time”.
Herbert Smith Freehills has a similar philosophy. “We enjoy good relationships with a number of the leading firms in the country,” says Chris Parsons, head of the firm’s India practice. “For us, this has proved to be the most effective way of ensuring that our clients receive the highest quality advice that is tailored to their specific needs.”
Bithika Anand, the founder of Legal League Consulting, says many mid-sized Indian firms are still exploring opportunities to tie up, as are some international firms, not only from the UK and US, but also France, Germany and Australia. “Foreign firms may not define a relationship in a particular manner,” says Anand, “but the activity will continue in a big way.”
Open relationships
Capitalizing on synergies in niche practice areas may be a new way forward. Instead of agreeing to work solely with one law firm, international lawyers could agree to cooperate exclusively in one or more practice areas. Anand cites UK firm Beachcroft, which is affiliated with insurance boutique Khaitan Sud & Partners in New Delhi, as a case in point. “If Beachcroft receives work from Amarchand, or AZB, they would do it,” says Anand. “If they had to give work to an Indian firm, they would assign it to anyone, unless it was an insurance matter, in which case they would give it to Khaitan Sud & Partners.”
Indian Law Partners – a Delhi-based boutique firm specializing in cross-border M&A, corporate and commercial work – shares a similar non-exclusive referral arrangement with its best friend, Ashurst. “We are a small boutique firm and we don’t project ourselves as a full-service firm,” says Gopika Pant, a partner at Indian Law Partners. “We don’t have a litigation team and there are lots of sectors in which Ashurst has to go out and seek other friends in the market – and they have many.”
The reverse is equally true. “We also have clients who have small matters abroad who need to go to very small law firms or even sole practitioners in some jurisdictions,” says Pant. “We feel that even in the absence of liberalization, there are many opportunities and there is a future. All these opportunities have to be developed.”
Shalini Agarwal, a partner at Clasis Law, which has a best-friends arrangement with Clyde & Co, emphasizes the importance of allowing both partners to enjoy a degree of flexibility. “Until the Bar Council opens up and allows full mergers and you become a part of your best friend, you remain open for business,” says Agarwal. “Your best friend recognizes that, so do you.”
Firms that forge an alliance with one partner do not necessarily lose out on other work, particularly if they can demonstrate their strengths and keep a client’s best interests in mind, Agarwal says. “International law firms want us to advise their clients on Indian law and if we can do the best job at the best price in the best manner then they have said their alliances or allegiances will not affect their instructions to us.”
Gains and losses
While mandates from outside a relationship may not cease altogether, they may drop off once a tie-up is official. “Yes, there was a reduction in the referrals we got from other firms as a result of our affiliation,” admits Prasad of Trilegal.
Affiliations can sometimes cause friction, especially if one party feels it is entitled to receive more work than has materialized. Requesting anonymity, one source said there was talk in the market of an imbalance in referral work, with more mandates flowing in Trilegal’s direction.
“Trilegal got some huge clients from which most of their offices were made,” said the source. “I think Allen & Overy gave up because they got frustrated that liberalization was not happening and they were pumping a lot of work to Trilegal. In the last few years, Trilegal’s status went up drastically high because of the Allen & Overy work they got.”
Prasad agrees that Trilegal benefited from the relationship, explaining how experience with the magic circle firm taught Trilegal to organize itself using policies and processes to strengthen internal systems.
“Generally as a firm, we gained a lot,” says Prasad. “We had clearly heightened market visibility on account of our relationship and positioned ourselves as more cutting edge than we may have been able to without Allen & Overy. It would have taken us a much longer time. The relationship was extremely helpful and we’re very grateful for it.”
Indian Law Partners has profited from global access and international expertise having worked with around 14 of Ashurst’s offices in jurisdictions such as the US, the UK, Singapore, Japan, Germany, France, Spain and Italy.
Pant says Ashurst has also benefited, gaining prominence in the Indian market and immediate access to Indian Law Partners’ lawyers. “We’ve introduced Ashurst to several of our clients and sometimes it’s not just our clients but contacts in the market,” she says. “We’re ready and available on the ground if something needs to be done or if a client needs assistance, who may not necessarily be our client here, but a client of Ashurst’s.”
Similarly, Prasad says: “For Allen & Overy’s international clients, there was a comfort that you had a group of lawyers in India you could rely on that could provide a certain level and quality of service. I think their visibility in India also went up.”
Building a world-class practice
While referral arrangements are not established primarily for the purpose of equipping Indian law firms with technological, management and operational skills, many firms have profited by acquiring these tools of the trade. Without the know-how of a foreign partner, some Indian firms may not be able to achieve international best practices. “I think it will be difficult to fill that gap,” says Pant. “You need that international expertise, just like you do in every field in India.”
Agarwal at Clasis Law believes Indian law firms can take other routes to enhance their practices. “I think it boils down to the individual partners and I find that the most successful Indian firms are those that have had partners who have worked in the West or operated at international firms and then brought that best practice back to their own firm,” she says. “You can sponge off someone else but unless you genuinely implement it, it won’t work.”
Consulting firms specializing in specific areas of law and practice management may also help to bridge the gap. “A lot of Indian firms have started to reach out to service providers,” says Prasad. This can improve “their understanding of what lies out there in terms of variable enhancements, practices, technological know-how, etc.”
Case closed?
With clients increasingly investing outside India, domestic law firms might need to seize opportunities abroad and initiate tie-ups to expand and globalize their practices.
“In all the noise about opening the Indian legal market to foreign competition, little has been said about the reverse direction,” said Stephen Kines of Kines Global, in the July/August issue of India Business Law Journal.
People sometimes say, if you can drive in India, you can drive anywhere. Perhaps the same can be said of legal practice. If Indian law firms can traverse India’s testing and tempestuous legal terrain, and survive in the face of recruitment challenges, a slow-moving court system and cut-throat competition, they should be able to thrive anywhere.
“The global legal services market developed in tandem with businesses in the US and UK as they expanded outside their own markets,” Kines pointed out. “It is time for Indian law firms to take a bold step and expand alongside their clients.”
Anand says: “If liberalization isn’t happening, then [Indian lawyers] need to consolidate in India or put their act together rather than sit around and wait for a foreign law firm to come and hold their hand.”
Despite various setbacks, the battle to open India’s legal market is far from over. India offers compelling prospects (though they may appear dim at the moment) for legal professionals whose markets internationally are still recovering from economic turmoil.
What shape or form liberalization might take is anyone’s guess. Agarwal says client interests should be paramount and believes young Indian lawyers would find tremendous advantages in a market where foreign lawyers are welcome. “At the end of the day, a liberal market will open up opportunities for lawyers in India and create a competitive playing field, which will be good for the legal market,” she says. “I think if you have liberalization and properly transparent and established firms based on merit and not on relationships, the chances of young lawyers working their way up to partner in an established setting are so much greater.”
Before the market opens, a lot of things could change. Poaching could become rife as firms cherry-pick stars to enhance their talent. Old flames could be rekindled, new ones ignited … or not. “Trilegal will undergo a change in the next five to seven years,” says Prasad. “It might be a very different firm from what you see and know of today and it may decide to stay independent.”
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