Singapore’s savvy business and legal market has a new challenge to face in the wake of the country’s legal services liberalisation. ALB analyses the changes in store for lawyers in the region.

Articles in this Report: Liberalisation of the legal services market; Beyond the loss-gain binary; Singapore law as the ‘law of choice’; The battle for Singapore lawyers

Liberalisation of the legal services market

Earlier this decade, the country made a conscious decision to liberalise its banking and financial services sectors, opening up the market to international institutions.

“We need to get our banks into shape or they are going to be crushed,” Lee Kuan Yew said. “You shape up or you perish.”

The need to concurrently ‘regionalise’ and ‘internationalise’ was at the core of domestic policy then, and remains so now with legal market liberalisation. And while Singapore law firms are in no danger of being crushed or killed off, there is a recognition that Singapore must act now to cement its position as a regional legal hub and international player. This sense of urgency is apparent in the findings of Justice VK Rajah’s Committee to Develop the Singapore Legal Sector (all of which have been adopted in principle by the government).

Fundamentally geared towards establishing Singapore law as the law of choice in the region and enhancing the market’s ability to undertake high-profile international work, the recommendations centre on an enhanced JLV scheme (EJLV) and the Qualifying Foreign Law Firm (QFLF) scheme.

Under the new EJLV scheme, foreign firms will be allowed to hire their own Singapore lawyers and share up to 49% of their profits with their Singapore partner firm. In addition, they will also be able to hire Singapore lawyers without establishing a JLV if they are successful in obtaining a QFLF licence.

Under the QFLF scheme, up to five foreign law firms (FLFs) will be given a QFLF licence to practise Singapore law through Singapore-qualified lawyers employed by the firm. FLFs will have to compete for the licences by demonstrating, inter alia, a commitment to Singapore. According to the Ministry of Law, they would be asked for proposals regarding the size and constituency of their local office, the areas of work in which they will engage and the countries which they will service from Singapore. The practice areas for these QFLFs will not include work pertaining to litigation, and domestic areas of law such as criminal law, retail conveyancing, family law and administrative law. The licences are expected to be issued within the next 18 months.

“The reforms will bolster the growth of Singapore’s banking, financial and other key economic sectors through a full range of competitive cutting-edge legal services,” says Justice Rajah.

“The legal sector is an important component of our economy, and Singapore needs to establish itself as a premier regional legal talent.”

Phillipe Taverne, a partner at Cotty Vivant Marchisio & Lauzeral, notes that the timing of liberalisation was ideal.

“As investments in the region start to mature, the liberalisation will only serve to attract and keep more international business in Singapore,” he says.

For Taverne, the biggest beneficiaries in the short term will be Singapore’s small and medium enterprises (SMEs): “A lot of multi-national corporations (MNCs) are already here but the liberalisation will be a real boost for the domestic economy as it will give SMEs unprecedented access to the reach of international firms.”

The latest steps towards a liberalised legal services market have ostensibly been welcomed by most international and domestic law firms. The firms that ALB spoke to expected the volume of work to increase due to these measures, with the resultant increased competition considered to have a positive impact on professional standards.

The perennial issues of profitability, fees, and recruitment and retention of staff were concerns for most; however, opinion was divided over who would be the most affected by the entrance of international firms.

While the full effects of the proposed changes to the legal market will not be known for at least four, five or even 10 years, competition among domestic firms and against international firms for clients, for talent and for market share has already taken off.

More so than in the past, Singapore firms are busily recruiting and pursuing brand expansion plans and business development projects as each tries to out do the other and get a head start for the QFLFs.

Singapore’s legal market is competitive at the best of times, but sources have told ALB that the current levels of activity are unprecedented, so much so that even the ‘traditionally thrifty’ domestic firms are getting involved. Maintaining market position is the short-term goal; meeting the challenges of a liberalised market is the objective for the mid to long term.

Edmund Kronenberg, a director at Tan Peng Chin, offers the following anecdote to describe the positive effects of increased competition for the industry. “I once attended a conference of Singapore lawyers and a man held up his cellular phone and shouted out: ‘Do you know why Nokia is so good? Because of all the competition it faces!’.

“These liberalisation measures put another runner onto the track in Singapore, and when you have someone to run against, you always run faster. I expect that standards will rise across the board,” he adds.

Manoj Sandrasegara, a director of Drew & Napier, supports this view and suggests that liberalisation will impose upon local firms the need to evolve their practices.

“These reforms are likely to encourage firms to invest in training, infrastructure and succession planning,” he says.

Sandrasegara predicts that QFLF firms are likely to use a Singapore firm as a surrogate to establish themselves in the market. Further, he adds that the impending entrance of international firms will “increase the pace at which domestic firms regionalise and internationalise their practices”.

Alban Kang, managing partner of ATMD, agrees, but notes that accruing these long-term benefits depends on how, and if, smaller firms are able to weather the initial storm that liberalisation will bring. Kang suggests that small firms will be most exposed to the negative effects of increased competition, and so must look most actively to alternative business structures to survive.

“Smaller firms will need to look at tieups and mergers to avoid becoming marginalised in the market,” he says. “I think we’ll see a lot of domestic mergers in the years ahead, with the possibility of tie-ups in the Middle East or India.”

The case for medium-sized firms is slightly different, however. Thio Shen Yi, joint managing director and senior counsel at TSMP, says they may be a tantalising prospect for QFLF firms looking to bring Singapore lawyers on board. “Medium- sized firms may be more liable to takeover because they are more easily digested; large firms are harder to digest so they are more disposed to suffer being dismantled,” he says.

While the effects of liberalisation are expected to affect the market’s structure in different ways, there is unanimous agreement that the reforms will increase the volume of work on offer for domestic firms, with high-end corporate work and arbitration set to soar in the years ahead.

The managing principal of Baker & McKenzie.Wong & Leow, Wong Kien Keong, predicts a flurry of activity in international arbitration, capital markets, and projects & infrastructure.

“The reforms are designed to attract the big transactions – the ‘big ticket’ items. I think we will see an increase in the size and complexity of work being handled,” he says, adding that the deepening of bilateral relations between India and Singapore may see an increase in legal work flowing both ways.

Christopher Chuah of WongPartnership meanwhile concurs with this view, and says banking & finance is an area to watch. “Banking & financing work in the region is set to soar on the back of infrastructure development being undertaken by Indonesia and its developing neighbours,” he says.

“The sovereign wealth coming in from the Middle East is a big market and I think Singapore really needs to develop its credentials in Islamic financing in the short term to be able to compete for it,” he explains.

Professor Steve Ngo, managing director of the Adler Centre for Dispute Resolution and secretary-general of the Trisakti Institute of Arbitration at Trisakti University, Jakarta, agrees that liberalisation will increase the quantity of international and regional work coming into Singapore.

“As more and more international arbitration bodies set up operations in Singapore, we will be called on to play a more active role in the ‘grassroots’ work such as lawyer and corporate education right from the initial contractual stage,” says Ngo.

Just how much additional legal work will come to Singapore as a result of liberalisation will depend on the extent to which domestic players are able to retain the innovative edge which has made them world leaders in areas such as REITS.

“Singapore is the obvious choice of location for a regional workplace law practice because so many MNCs have a regional office here,” says George Cooper, practice leader, workplace law & advisory, Freehills.

“The HR and in-house legal people who have to deal with the issues arising across their Asian operations, which often have a cross-border element, are based here and appreciate having a single point of contact who they can go to locally,” he continues.

“The innovativeness of Singapore firms remains the market’s competitive edge,” says Wong Liang Kok, director, Tan Peng Chin.

“It’s how we differentiate ourselves from the rest,” he notes.

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