Foreign law firms have had offices in London for many years where they practise the law of their home country. The reason for their existence has been to attract work to the head office.
Strategies have changed. Increasingly, such offices are developing English law capability and senior solicitors and partners are being recruited.
An English solicitor is generally not allowed to share profits with somebody who is not a solicitor. But there is an exception for solicitors in a multi-national partnership (MNP) with registered foreign lawyers (RFLs).
Foreign law firms establishing MNPs with solicitors in the UK face a conflict between commercial objectives and regulatory and liability issues. The overwhelming commercial objective of the (usually US) firms is to present the MNP to the outside world as part of a seamless global law firm, without any separate identity. English partnership law and regulatory issues present potential obstacles to that objective.
Cross-exposure to liability
Unless steps are taken to make it clear to clients that the US firm and the MNP are separate entities, there is a risk that the two firms will be exposed to each other’s liabilities. Under the Partnership Act 1890, anyone who allows himself to be held out as a partner in a firm is liable to anyone who relies on that perception in instructing the firm. A client is more likely to instruct the London office of an organisation that is presented as a single global law firm than a five-partner MNP associated with a US firm. If a client has, in fact, instructed an MNP and something goes wrong, he may claim he was relying on the holding-out of the lawyers in the US firm as partners in the MNP.
This may be of particular concern where the US firm is a limited liability partnership (LLP). The partners in the MNP are, under English law, exposed to unlimited personal liability. A client with a negligence claim against an MNP presented to him as part of a single global law firm (with no indication of the limited liability status of the LLP), will argue that the partners in the LLP should also face unlimited personal liability for that claim.
US firms have responded to these liability issues in different ways. Some have taken a cautious view and make it clear in letters of engagement, business cards and billing that the MNP and the US firm are distinct.
Other firms see it as a risk management issue. Regarding the appearance of globalisation as more important than limiting risk, they simply extend their professional indemnity policies to cover liabilities arising from the MNP. One major insurer has noted, however, that unless the insurance is carefully tailored there is a significant risk of claims falling between gaps in the cover for the two firms.
