As the Singapore legal market moves quickly toward liberalisation, local firms are eyeing regional markets as the next source of growth

When legislative changes were recently made to allow local Singapore firms to hire top foreign legal talent and offer them equity in their local practices, the response from the local market - at least among the top tier - was somewhat subdued.

What was perhaps of more interest in the speech given by Deputy Prime Minister Prof S Jayakumar, when reading the Legal Profession (Amendment) Bill 2007, was the clear indication this would not be the last batch of changes the legal industry would face.

"The changes to be made through this Bill will further develop and grow the legal services sector, but these, I want to add, will not be the only measures that we'll need to take," Jayakumar said. He referred to news that Malaysia is considering further liberalising its legal services market in view of the increased economic activity in areas such as M&A where international expertise was sought. "We too can't stand still," he said.

This is of course no news to local firms. A committee headed by Justice VK Rajah has been undertaking a comprehensive review of the entire legal services sector in Singapore, and has been consulting local and international firms in the course of this review to come up with a plan for further liberalisation. The committee is expected to submit a report in the next few months, which will contain recommendations for the future.

No-one is yet sure just what shape these recommendations may take. However, Jayakumar flagged it may involve making "further refinements to existing schemes or the introduction of new schemes" and further amendments to the Legal Profession Act.

A regional legal hub?
Rumour in the market, though not as yet confirmed, is that very soon, on the back of JK Rajah's upcoming report, the government will likely open the local legal market to some extent to allow international firms to practice in at least some areas of Singapore law.

Put in context, this is not such a shock. Singapore has been dramatically positioning itself as a regional hub for multinationals wishing to do business in Asia and has been successful in attracting these businesses through a raft of business-related reforms. To be truly international, the legal market should follow suit, rather than relying on referral relationships or the somewhat inefficient JLVs used by some firms in recent years.

Changes would likely allow foreign firms to hire local Singaporean lawyers who would no longer have to give up their Singaporean practicing certificates to join them and who could then advise on local law, at least in areas such as corporate, M&A and finance.

The extent to which Justice Rajah is consulting with international firms is evidence of the extent to which the committee is going to meet their needs. Lunches have been held for UK and US firms, in which the current arrangements in place for foreign firms were discussed, as well as the options for improving them to make their lives easier. Latham & Watkins Singapore managing partner Mark Nelson jokes that "this might be the only country in the world where the government service is actually better than the private sector".

Duane Morris managing partner Eduardo Ramos-G¢mez is similarly impressed by the efforts of the local government and optimistic about the possibility of liberalisation. "We don't want to be perceived as an American firm doing business in Asia and Singapore - we want to be a part of the landscape here," Ramos-Gomez says. "We see that amendments undertaken by the Singaporean government might give an opportunity for firms like us to become Singaporean one of these days." He says he expects this may happen "very quickly", likely within the next 18 months. Other predictions are even more optimistic. With the International Bar Association (IBA) meeting being held in Singapore in October this year, which is a big deal for the local legal market, it may be that the government would like to have an announcement to make prior to the event in regard to liberalisation.

Horses for courses
Though an opening may be imminent due to the progressive tendencies of the Singaporean government, firms are not expecting a severe impact, but rather more of a continuation of the current market position among locals and internationals.

Due to Singapore being such a small legal market and already being serviced effectively by top quality lawyers and firms operating in Singapore who have well-established relationships with their clients, international law firms will not be making a sudden jump into Singapore with the expectation of making inroads into the local market. This is compounded by the difference in legal fees charged by international and local firms. Singapore firms are consistently able to charge clients substantially less than their international counterparts, and this situation is unlikely to change in the very price-sensitive local market.

International firms are instead looking at such changes as making it more efficient for them to conduct and build their regional practices, and advise global clients in any aspects of Singapore law that effect their investments in the region. Any Singapore opening would also be more attractive to mid-size offshore firms, with many of the top tier internationals more interested in the growth of China further north.

However, there will be changes, most likely to the existing JLV schemes that allow internationals to partner with local firms. With any liberalisation, these schemes are likely to be effected in some way, and may even be rendered defunct if other foreign firms, not presently in JLVs, are allowed into the market to advise on Singapore law. No doubt if this does happen, close working relationships between these firms would still remain.

For Singapore firms, it may make the recruitment market even tougher. These firms have been hit by a large attrition rate in recent years, as local lawyers gain experience in the market and then opt for the larger pay packets and regional opportunities being offered by foreign firms, particularly in the candidate-strapped China market. If anything, the changes may push this attrition rate among associates even higher as foreign firms seek to take on Singapore lawyers as additions to their regional practices, driving local firms to compete for their own homegrown lawyers with salary hikes.

 Trading places: International firms play musical chairs

Eyes on the region
Among local firms, there have been no major changes in the state of play. Allen & Gledhill, Rajah & Tann, Drew & Napier and WongPartnership are the four firms that still dominate as the local top tier. Allen & Gledhill is renowned for its corporate work (which of any sector has seen the most growth over the past year), while Rajah & Tann is strong in litigation (as well as having a well-rounded practice), WongPartnership is strong across the board (with a particular recent growth in corporate work), and Drew & Napier is particularly strong in litigation and dispute resolution, as well as IP work.

Some of the smaller firms in the market have also been seeing strong growth on the back of increases in demand, such as Rodyk & Davidson, now ranked 5th in pure numbers in Singapore, with the firm a result of a merger with Helen Yeo & Partners back in 2002.

The biggest trend among local firms is the pursuit of growth in their regional practices, with mid-size firms pursuing this with more energy and larger firms knowing that they probably should but in the current booming market, not having the time or resources.

Recently, WongPartnership announced its expansion into the Middle East with a new office in Qatar, adding to its existing overseas office in Shanghai. WongPartnership managing partner Dilhan Pillay Sandrasegara said the growing population and increasing foreign investments that Qatar has attracted, coupled with a relatively low number of lawyers in the country, would offer the firm opportunities. "In addition, an office in Qatar will enable us to service our Singapore, Malaysian, Chinese and Indian clients who may be seeking to invest and provide services in Qatar and other countries in the GCC (Cooperation Council for the Arab States of the Gulf). We also hope to provide services to Middle Eastern companies seeking opportunities in Southeast Asia, China and India."

The move is typical of the sentiment among local firms that their regional practices will be the source of future growth, with KhattarWong managing partner Tan Chong Huat telling ALB that its regional practices would become a growing focus for the firm. Recent changes allowing firms to take on foreign lawyers and offer them equity will enable local firms to lure top level partners from other jurisdictions to help them expand internationally. Local pundits suggest that smaller and mid-size firms will likely take advantage of this more than the larger firms, who are very focused on an extremely busy Singapore market, and for whom one or two foreign partners will make less difference.

Mergers among smaller firms such as that of Rodyk & Davidson in 2002 may also become more frequent, as these firms try to gain critical mass for regional expansion.

HOT OR NOT?
When it comes to sources of new business, there is no shortage of sectors and growth markets to talk about, with all firms fully stretched in an effort to keep up with demand.
 + M&A / Private Equity
As with many regional markets, M&A has picked up rapidly in recent months to levels many firms claim are unprecedented. Not only is the local M&A market busy, but the majority of Southeast Asia regional M&A work is flowing through Singapore, requiring local legal advice. Large private equity firms are also looking actively at the region, with WongPartnership recently involved in a KKR buyout in Singapore. Latham & Watkins' Mark Nelson says that while private equity activity has been more hype than activity so far, he expects the market to see an increased number of actual deals in the next year.
 +  India
With Singapore positioning itself as a gateway to India through favourable tax treaties and a beneficial FTA, law firms have been reaping the rewards of multinationals using Singapore as a base to invest into India, as well as the growing number of Indian corporates expanding to make investments overseas. Manoj Sandrasegara says recent trends have been investments into the telecommunications sector, and that he expects aviation to be a growth area. He says Drew & Napier is being consulted on investments into India, and that the firm is careful to manage essential relationships with local firms.
 + Construction
With many firms having won business acting for the license bidders (successful or otherwise) for the 'integrated resorts' or casinos, the Marina Bay Sands and Resorts World Sentosa, the resorts have now entered their construction phase. With about S$10bn worth of construction contracts out in the market, most firms are experiencing a sharp rise in construction-related work on the back of these projects. The WongPartnership is retained by two companies involved in developing the resorts, and so far has given rise to all sorts of legal transactions, including drafting infrastructure contracts and being involved in the tenders for construction that have been going out. Drew & Napier hopes to pick up disputes work bound to flow from the construction process

 - Competition
With the newly minted Section 34 of the Singapore Competition Act coming into force in January 2006, law firms have begun positioning themselves to take advantage of what is expected to be a growing market. Rajah & Tann's Kala Anandarajah recently advised Qantas and British Airways in the first public decision from the Competition Commission of Singapore in relation to anti-competitive agreements under the new law. More work is expected to flow as companies assess their own arrangements under the law.
 -  Litigation
While there is no shortage of local litigation work for firms, the popularity of this line of practice as a career path has taken a hit among the younger generation of lawyers. A recent survey of law students in Singapore found that two out of every three respondents wanted to pursue careers in transactional law, rather than litigation. With litigation firms lamenting their plummeting popularity, and jesting that transactional law "is not real law", an effort will need to be made to encourage interest among students in litigation, or firms will find their ability to recruit in the sector increasingly difficult.

 Q&A: An in-house update
Angeline Joyce-Lee, SPH Magazines head of legal and Singapore Corporate Counsel Association (SCCA) president, gives ALB the low-down on the issues facing in-house lawyers in Singapore and the stellar growth of the SCCA.

What is the state of play in the Singapore in-house legal market?
Anecdotal evidence shows that the Singapore in-house market has grown quite significantly, and continues to grow. We also understand that a number of the lawyers who have left practice have gone on to join the in-house community.

Why is this growth in numbers occurring?
Working in-house is as challenging and demanding. However, generally, working in-house does give a better work-life balance. In addition, in-house work gives good exposure and in some cases, provides greater specialisation and cutting-edge skill sets. The compensation gap has also narrowed. Again, anecdotally, there have been more companies coming to the region. This is hardly surprising given the growth potential in Asia. Local companies have contributed to the growth in the in-house community; this shows that more local companies are recognising the importance of in-house lawyers.

Where are companies sourcing their in-house lawyers?
Most corporations hire lawyers who had previous experience in private practice. The preference lies in the recognition that a lawyer in the house can have direct experience with the business and can possibly give better experience related advice. It is also a challenge for many in-house lawyers to be able to experience different areas of the business from the products to HR and administration.

What are the hot issues facing these growing in-house departments?
Cross border transactions, advising management on the implementation of sound corporate governance, applying true legal profession ethics as opposed to wearing the corporate hat, keeping up with the developments in the legal frontier and the evolution of the laws.

Will changes allowing foreign lawyers to practice at firms in Singapore affect the in-house market? I would say there is more leverage on expertise from the law firms, but would not say that there would be significant changes in the in-house community.

What is the latest news for the Singapore Corporate Counsel Association (SCCA)?
The SCCA has itself seen a very encouraging growth in its membership. Since its formation in 2002, membership has grown from 70 to close to 500 members at present.
Fast growth has occurred in the last year, with membership having grown two-fold since January 2006.