Major Law Firms Begin Overhauling Saudi Strategy Following Rule Change

Several major law firms have started reviewing or overhauling their strategies in Saudi Arabia ahead of a crucial change in the Kingdom’s law that will prohibit the way most of them currently operate there.

A change in the law ending ‘association’ arrangements, which have been a pre-condition of entry to the Saudi market for over a decade, is expected to come into effect in May 2023. Joint ventures and branch offices are the only forms of engagement that will be now sanctioned.

Firms are busy taking stock of their options. Norton Rose Fulbright is already in the process of ending its Saudi Arabia association with Riyadh-based The Mohammed Al-Ghamdi Law Firm, according to multiple people in the Kingdom with knowledge of the situation.

Without confirming the termination of its current association, a spokesperson for Norton Rose said that, due to the new regulatory and licensing regime in Saudi Arabia, whereby all current associations will end by May 31, 2023, “we are considering several options in the region as we assess our client needs in the Middle East”.

A person close to the firm said that ”discussions are taking place”.

White & Case, which has an association with Riyadh law firm The Law Office of Megren M. Al-Shaalan, has confirmed that it is currently assessing its options and that “the goal is to ensure that we continue to have a presence in Saudi Arabia”.

Sheila Shadmand, Middle East leader at Jones Day which has an association with Riyadh-based partner Ebrahim Al-Habardi, said: “We are aware of the change in regulations and are discussing our options. We have not terminated our association.”

Other firms are expected to do the same. Other major law firms with long-established cooperation agreements in Saudi Arabia include Latham & Watkins (with The Law Firm of Salman M. Al-Sudairi), Freshfields Bruckhaus Deringer (with The Law Firm of Salah Al-Hejailan) and Clifford Chance (with The Abuhimed Alsheikh Alhagbani Law Firm).

Allen & Overy decided to end its exclusive cooperation agreement with Saudi firm Khoshaim & Associates in 2020, opting instead to work with multiple law firms in the region.

The rule change will mean that foreign firms will either have to set up a joint venture with registered KSA lawyers as co-shareholders, with KSA partners holding at least 25% of the business, or create a branch office, which can be held 100% by the parent entity—but in this case, Saudi law advice may not be given.

One lawyer said that the new rules for legal practice were meant to take effect on September 4, but this deadline was extended by nine months.

While the rule change was designed to afford greater flexibility to international law firms and enable them to set up shop on more or less their own terms, in the immediate future some believe it will cause teething problems.

One lawyer based in the region said that, following the rule change, they expect “market attrition”, “with the likely prospect of further defections”.

Another lawyer added: “The new rules are in my view so unworkable from the global industry’s perspective that they should more appropriately be scrapped altogether, and radically rethought. Given the obstacles and business- unfriendly attitude of the Ministry of Justice and Saudi Bar, I’ll be surprised to see any new entrants.”

There are also concerns that local lawyers might be edged out of the market by a major international law firm influx, something the Saudi authorities seem to be mindful of. Some believe the Saudi Justice Ministry’s mandate is protectionist, meaning it will look to ensure such an invasion does not lead to the diminution of opportunity for Saudi lawyers.

However, lawyers in Clyde & Co’s Saudi team believe the law change is workable, saying in a statement: “For international firms to establish a presence here will require a real commitment and investment in the Kingdom, but for those international firms (like ours) who are prepared to do that, there are real opportunities as there is a lot of legal work to be done. As to how long these changes will take to implement, it is difficult to say. The timeline may differ for different firms.”

One lawyer said Saudiisation quotas at lawyer level had risen from 50% to 70%, in the face of new rules that would restrict branches of foreign firms from providing local advice. He then went on to ask: “What would majority Saudi workforces be expected to do, if not advise on local law?

“The best way to increase opportunities for local lawyers is to open the doors to major firms from whom they can learn the tools of the profession,” the lawyer said.

The lawyer added the salient question facing the Saudi legal profession was whether to shield an ailing domestic bench or create opportunities for real employment from firms capable of attracting serious clients.

In the past decade and more, several firms have opened associate offices in the Kingdom.

In 2010, Trowers & Hamlins became one of the earliest examples to set up a partnership, in Jeddah. In 2014, Clyde & Co became the second international outfit to launch a Saudi and foreign-owned company.

Several associations have followed, including those of Linklaters in 2017, HFW in 2019, and Gowling WLG and Curtis Mallet in 2021. Earlier this year, Addleshaw Goddard was believed to be considering a Saudi launch.