International law liberalises

David Jacobs Baker & McKenzie “We will open in India when the regulations change to permit us to do. This is really the only hurdle for us. We would likely enter in one of two ways: invite an excellent Indian law firm to join us if appropriate, or seek out the best and the brightest in India and have them anchor an office.”

Somewhat conspicuously, missing from this debate is what impact (if any) liberalisation of the Indian legal services market and the subsequent entry of foreign law firms into the country will have on the complexity of the domestic legal scene. A look at the list of ‘best-friends’ agreements on page 32 provides a good indication. Only the brave would bet against the relationships established by Clifford Chance, Allen & Overy and Linklaters as being anything less than forerunners to complete mergers, given these firms’ already heavy investment in back-office systems and logistics.

Beyond the top end of the market, however, few Indian law firms have sought to bed down with international law firms – and with good reason, according to lawyers ALB spoke to. Many are prepared to remain polygamous rather than submitting to would what appear to be an unequal legal marriage. “We don’t want a ‘best-friends’ relationship because we believe that they are probably more trouble than they are worth,” says Khaitan’s Jhunjhunwala. “For one, we don’t want to lose our referrals and I think more importantly, we don’t think our clients are best served by us aligning with one international firm… all of our clients are 100 billion dollar clients. For the smaller clients, costs may unnecessarily be driven up.”

Partners at Indian law firms with ‘best-friends’ agreements disagree, saying that costs are actually minimised. “When you have two firms in such an arrangement working on a deal together, [then] each can bring to bear their knowledge gained from similar transactions,” says AZB’s Joshi. “In our experience the ‘best-friends’ agreement has helped us circumvent the – sometimes high – costs associated with engaging international counsel late in  a deal.”

While it is clear such arrangements may in fact minimise some costs for clients, they are also reducing the referral work that many Indian law firms who are tied up with an international partner were previously receiving. “Yes, we have [seen] this side of the business drop-off,” says the partner of an Indian law firm currently in such an agreement. “But contrary to what others say, the work we were getting from referrals was not that steady to begin with. Now I think our agreement is producing this steady stream of work through our ‘best-friend’ as well as other international law firms and other Indian firms.”

The regulations pertaining to these agreements prohibit any financial integration between international and domestic law firms. But in almost every other aspect of their businesses, both types of firms are almost always inextricably intertwined. Secondees move to and fro and everything is shared – marketing, back office, IT systems, work – and, of course, clients.

The ultimate question is, how close is too close? What impact are such agreements having on the ability of the Indian surrogates to develop and grow their own practice, independent of the international host? “The back office and management systems that we have been introduced to via Clifford Chance have helped us to grow, but it’s growth of a more guided kind,” says Joshi. “We have been able to benchmark our development against their best practices and set ourselves a clear growth trajectory.”
Does this dilute the Indian firm’s brand? When a client comes to AZB, Talwar, Thakore & Associates or ALMT, are they coming to that firm or simply to Clifford Chance, Linklaters or Clyde & Co? To many the distinction may appear rather clear-cut, but in the eyes of clients, and for that matter, other international law firms, it’s still a bit of a grey area.

"While we know that when we outsource work to an Indian firm in a ‘best-friends’ relationship we will always get high-calibre, high-value work, we are always on the look out for double-up,” says a local general counsel at a US-based investment bank. “Some international firms are notorious for featherbedding, and if you look at bills submitted by an independent firm and non-independent firm you may find differences.”

Lalit Bhasin Society of Indian Law firms “I don’t see the logic as to why foreign law firms are needed in India but if the debate is required, it’s surely one that should not involve international lawyers, law ministers and bar councils. It is a decision that the consumers should make”

It’s not all plain sailing for international law firms either, as David Jacobs, head of Baker & McKenzie’s India practice, explains. “The negative for international law firms in these sorts of best friend tie-ups is that it makes it harder for them to have relationships with other local law firms which may potentially affect the quality of service their clients receive,” Jacobs says. “Because of the limitation on the number of partners in Indian law firms, each firm tends to have its own strengths, and rarely will a firm have all the legal expertise demanded by most international clients. Therefore, entering a best friend relationship may prevent international law firms from finding the lawyer/ local firm that best meets the clients’ specific business needs.”

It’s here the virtues of remaining independent become clear. “We have said before that we are – and will remain – independent no matter what happens in relation to liberalisation,” says Amarchand’s Shroff. “We’ve had interest, and plenty of it, but for us independence is the key to surviving in India when foreign firms enter.” ALB

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