Until now, Hong Kong has been home to the most liberalized legal market in Asia; it’s a place where attorneys from all over the world have the freedom to practice law and can even qualify to practice local law.
But the Law Society of Hong Kong wants to change that.
The professional body has proposed a series of amendments that aim to protect local lawyers and restrict foreign ones. The proposals have prompted a strong backlash from various groups in Hong Kong’s international legal community, including from large U.S. and U.K. firms and from in-house counsel.
“[The amendments] may have knock-on effects on the capital markets’ ecosystem, which will harm Hong Kong’s competitiveness as an international financial center … as well as potentially other initiatives, such as enhancing Hong Kong as a center for dispute resolution and arbitration,” wrote Lin Shi, president of the Hong Kong chapter of the Association of Corporate Counsel, in an article that appeared in the organization’s official publication.
More than a dozen U.S. firms, including Davis Polk & Wardwell; Weil, Gotshal & Manges; Sullivan & Cromwell; Goodwin Procter; Paul, Weiss, Rifkind, Wharton & Garrison; Shearman & Sterling and Skadden, Arps, Slate, Meagher & Flom, are preparing a joint submission to the Law Society opposing the amendments. A group of U.K. firms, including Linklaters, Clifford Chance, Slaughter and May, Ashurst and Simmons & Simmons, also will submit a joint response opposing the changes.
Among the Law Society’s objectives is to improve job opportunities for Hong Kong-qualified lawyers. To do that, the Law Society wants firms to hire two locally qualified lawyers for every foreign lawyer they employ and extend a required association period from three years to five years.
Currently, half of the Hong Kong-based lawyers employed by a firm must be locally qualified. Under the new law, firms will get two years to increase the number of locally qualified lawyers on staff so that two-thirds are qualified in Hong Kong law. Many lawyers said, that to meet the requirement, they will be forced to relocate lawyers out of Hong Kong instead of hiring more local lawyers, which would require making a business case for the increase in head count.
And that causes a problem for the clients. The ACC’s Shi, who also heads up IPO vetting at the Hong Kong Stock Exchange, warned that, if the proposed changes result in international firms decamping for nearby jurisdictions, that would adversely impact the quality and efficiency of legal services available in Hong Kong.
“Our Hong Kong office is a regional hub that enables us to counsel clients across Asia,” said Ropes & Gray’s Hong Kong managing partner Daniel Anderson. “The proposed changes could curtail the ability of international law firms to provide counsel across the region from Hong Kong.”*
Yash Rana, Asia chair of Goodwin Procter, said, if the ratio change proposal goes through, the firm would effectively be forced to move foreign lawyers to Singapore. “We have lawyers who want to move to Hong Kong today, but we are unable to move them because of the current ratio,” he said, adding that, over time, this movement could reduce Hong Kong’s influence as the regional center for private equity and finance in Asia. Goodwin currently has one Asian office—in Hong Kong.
In addition to Goodwin, other firms, including Weil Gotshal, Latham & Watkins, Sidley Austin, Kirkland & Ellis and Shearman & Sterling, the latter of which lost many Hong Kong-qualified lawyers this year, might have difficulty meeting the 2:1 ratio.
Singapore, meanwhile, has been on the mind of many lawyers. Hong Kong’s archrival in Southeast Asia has been following the amendment with great interest, according to sources close to the matter. During one meeting between global firms and leaders of the Law Society, an international firm representative, upon returning from a meeting with senior government officials in Singapore, remarked that the Singaporean government is trying to take advantage of Hong Kong “shooting itself in the foot,” said sources with knowledge of the meeting.
Foreign firms are not permitted to practice Singaporean law in the city-state unless they sign up for one of the several government-approved schemes to cooperate with local firms. But the government has significantly opened up the market over the past decade; the closest form of collaboration allowed under the law is a full merger with a foreign law firm holding no greater than one-third of the equity.
The Hong Kong Law Society encourages foreign lawyers to get a Hong Kong qualification, which all foreign lawyers are free to do after passing a set of examinations known as the Overseas Lawyer Qualification Examination. The OLQE, according to a source with direct knowledge of the matter, has recently been made more difficult for U.S.-qualified lawyers, as they are no longer exempt from a full-day exam on accounts and professional conduct.
The Hong Kong Law Society declined to comment on the OLQE and other issues related to the amendments, citing ongoing consultation with members.
If firms simply move lawyers out of Hong Kong, the Law Society’s goal to improve job prospects for local lawyers will become unattainable, lawyers say. Some point out that the Law Society might have other motives for the ratio change.
“Some foreign lawyers are more senior at global firms and have greater clout in the office, and they may not be compliant with local practice,” said one U.S. firm partner, who like many other partners that spoke with The Asian Lawyer for this story requested anonymity, as he was not authorized to speak.
“[The Law Society wants] to make sure local lawyers have the majority so local rules are taken seriously,” the U.S. firm partner said.
A crackdown on unauthorized Hong Kong law practices is also on the Law Society’s agenda. The professional body said it had received complaints about foreign lawyers without a license to practice local law marketing their Hong Kong law capability. Back in 2015, then-Law Society president Stephen Hung called for a review of Hong Kong’s foreign lawyer regulatory regime, writing in the organization’s official publication: “Any misrepresentation will be viewed seriously by the Law Society.”
But the Law Society’s position shifted the next year as Mayer Brown litigation partner Thomas So took over as president. In an article he penned in March of this year, So argued that the current regulatory regime for foreign lawyers has the right balance between free competition, high professional standards and protecting clients’ interests.
Things changed again, however, when later in the year the presidency went to Melissa Pang, who continued with the review and proposed changing the language of the law so that foreign lawyers could only offer legal advice that relates to their registered jurisdictions. The current language of the law provides that foreign lawyers may advise on the law of a jurisdiction other than Hong Kong.
Some global firm lawyers are sympathetic to the Law Society’s position to protect lawyers at smaller local firms. The international firms are not in direct competition with these Hong Kong firms but end up becoming collateral damages, said one Hong Kong law partner at a U.S. firm who has encountered non-Hong Kong qualified legal staff working on Hong Kong Stock Exchange-related corporate and compliance work for listed companies. Several large international firms send Hong Kong listing-related work to China-based paralegals and legal managers for lower rates, he said.^
“The smaller local law firms are getting their lunches eaten by non-Hong Kong qualified legal staff,” the U.S. firm Hong Kong law partner said. “They’re trying to do the right thing, but they’re suffering.”
Others are more skeptical. A capital markets partner at an international firm who is qualified in both the U.S. and Hong Kong said he hadn’t come across anyone practicing Hong Kong law without qualification, and the junior staff usually only handle generic due diligence work on a listing or a related transaction. “Saying that they are advising on Hong Kong law is just not true,” he said.
The majority of global firms specializing in Hong Kong listings require Mandarin-speaking fee-earners; often these are Chinese lawyers who are also qualified in the U.S., where law degrees and qualification are popular among Chinese law students. And keeping on these lawyers is crucial for most firms, said the dual-qualified capital markets partner. “Most of the global firms’ IPO clients are mainland Chinese companies, and they like working with mainland Chinese lawyers,” he said.
Despite the proposed changes, local law access in Hong Kong’s legal market will still be better than in the rest of the Asian market. In his March article, former Law Society president Thomas So noted that, since 1995, 72 foreign firms have localized to be Hong Kong law firms. No other market in Asia has allowed that.
Still, to many lawyers, the direction the Law Society is taking with the proposed amendments contradicts the government’s goal of promoting Hong Kong as a global city. In October, Secretary for Justice Teresa Cheng said during Hong Kong Arbitration Week that the government wants to streamline the visa process for foreign lawyers. “We cherish the foreign lawyers that are coming to work in Hong Kong,” she said, “[We will] enhance our policies and procedures to keep [foreign lawyers] coming to Hong Kong and, more importantly, staying here.”
The amendments, lawyers said, appear protectionist. “Hong Kong serves as an important platform for international finance and trade opportunities,” said Hayden Flinn, Hong Kong partner of King & Wood Mallesons. ”[T]he proposal does not help drive Hong Kong as the lead international legal center in Asia.”
Additional reporting by John Kang in Hong Kong.
*Updated 12/24: This story has been updated with comments from Ropes & Gray partner Daniel Anderson.
^Updated 12/24: This story has been updated to clarify a source’s point that international firms are not in direct competition with small-sized Hong Kong firms.