Authorities in Singapore have decided to defer a decision on whether to renew the Qualifying Foreign Law Practice (QFLP) licenses of four global law firms that have failed to deliver on the promises they made when they were granted the licenses in 2013.
The license allows a foreign law firm to hire Singapore-qualified lawyers and practice in some areas of Singaporean law.
Gibson, Dunn & Crutcher, Jones Day, Linklaters and Sidley Austin will have their QFLP licenses in Singapore extended until 2020 as the city-state’s authorities consider whether to grant official renewal. The performance of all four firms has been worse than expected, and none of them delivered on promises made back in 2012 when they filed their applications, according to the ministry. The licenses were originally due to expire in 2018.
“Deferring the decision to 2020 will allow the ministry to better assess each firm’s performance and contribution to Singapore and their respective proposals for the new license period,” Singapore’s Law Ministry said in a statement.
Singapore launched the QFLP program in 2008 as part of the government’s efforts to internationalize the country’s legal market, support the growth of Singapore’s key economic sectors and offer opportunities to Singaporean lawyers. Under the program, licensed foreign law firms are allowed to hire Singapore-qualified lawyers and practice Singapore law, except in domestic areas of litigation and general practice such as criminal law, retail conveyancing and family law.
The ministry said it decided to defer its renewal decisions in part because the firms’ failure to deliver on promises was beyond their control.
“Their respective performances have fallen short of the initial commitments they made in 2012, as they have all been impacted by the Asian economies’ weaker-than-expected growth, drop in commodities prices and decrease in mergers and acquisitions, which resulted in weaker demand for legal services in the region in the last two years,” the ministry stated.
The Law Ministry also said it recognizes that the four firms have contributed to the growth of Singapore’s legal sector. The combined head count of lawyers in Singapore at Gibson Dunn, Linklaters, Jones Day and Sidley Austin has doubled since 2013, the ministry said.
There are currently nine firms that hold QFLP licenses. Allen & Overy, Clifford Chance, Latham & Watkins, Norton Rose Fulbright and White & Case received their licenses first in 2009 when the program was introduced. All but White & Case had their licenses renewed in 2014; White & Case received its full renewal in 2015 after taking part in an extra hearing with the government. The licenses of that group of firms are good until 2019.
Herbert Smith Freehills, one of the first six QFLP firms licensed, opted not to renew in early 2014. In 2015, the Anglo-Australian firm formed a Formal Law Alliance (FLA) with the Singaporean firm Prolegis.
Under the FLA—an umbrella term that covers both the foreign and Singaporean firms—the Singaporean firm is not prevented from practicing in certain areas, as they are in the QFLP. The structure has gained popularity in recent years, especially among firms that emphasize local litigation work. Reed Smith and CMS are among the international firms that have recently chosen to adopt an FLA structure.
The last time the Singapore government called for applications to QFLP, in 2012, it selected only four out of nearly two dozen applicants. There has so far been no timetable indicating when or if the government will invite more firms to apply for a QFLP license.
In its statement issued Wednesday, the Ministry of Law said that in deciding on the renewal, it will consider the firm’s “quantitative and qualitative performance, such as the value of work that the Singapore office will generate and the extent to which the Singapore office will function as the firm’s headquarters for the region, during the five-year licence period relative to its earlier commitments.”
The terms and conditions of the QFLP licenses were not disclosed, but it is not surprising that firms have had trouble making good on their proposed commitments in revenue and recruitment. During the last round of renewal evaluations, QFLP firms found themselves lagging behind targets after being hit by the global financial crisis in 2008-09.
The Ministry of Law reported that about 30 percent of the 450 lawyers employed by the nine QFLP firms in Singapore are locally qualified lawyers.
In addition to hiring requirements, firms have also been assessed by the amount of non-Singapore law work carried out in their city-state offices. During the fiscal year 2016-17, 80 percent of the $300 million combined revenue from the QFLPs came from so-called offshore work, or according to the ministry, “work that could have been done elsewhere.”
Most global firms in Singapore work primarily on foreign law matters because the offices typically cover all of Southeast Asia, and cross-border work is often governed by English or New York law. QFLP firms usually do securities offerings on the Singapore Exchange and related transactions that require Singaporean law.