S Korea opens up to foreign law firms
US and UK law firms are racing to set up offices in South Korea to feed its corporations’ growing demand for legal services, after the government opened the sector to foreign competition.
Large South Korean companies have rapidly increased spending on legal fees over the past decade as their growing market share and global footprints have embroiled them in complex legal issues such as inter-company litigation and antitrust cases.
While foreign law firms have been hired for most of these international cases, they were long forbidden from opening offices in South Korea or practising the country’s domestic law. However, that situation has changed in the past year thanks to two trade agreements – with the EU in July 2011 and with the US in March this year – that opened the door to law firms from both regions.
Seventeen law firms, all from the US or the UK, have applied to open offices in South Korea and a handful, including Ropes & Gray and Clifford Chance, have already received permission to set up shop.
Bill Kim, head of Ropes & Gray’s Seoul office, said he expected continued rapid growth in the Korean legal market, pointing to Samsung’s high-profile court battle with Apple as an example of the complex cases driving up revenues. He estimated that legal fees accruing annually to foreign firms rose from $698m in 2006 to as much as $1.4bn last year, adding that the figure could reach $2bn within five years if that pace was maintained.
The opening of the sector will be gradual: foreign firms can set up joint ventures with South Korean counterparts only after two years, and cannot practise Korean law until five years after opening offices in the country.
Only three of the 17 firms to have expressed interest in opening a Korean office are from the UK. Lawyers say this is partly the result of a legislative quirk requiring the head of a foreign firm’s Korean office to have spent three years working in the firm’s home country. There are far more Korean-speaking lawyers working in the US than in the UK, in part because of the large Korean-American community.
“By virtue of the demographics, it’s been advantageous for US law firms,” said Lee Yong-guk, head of the Korea practice at Cleary Gottlieb, which will open an office in Seoul later this year.
Peter Charlton, head of the Asia practice at Clifford Chance – whose Seoul office will be run by Brian Cassidy, a Briton – conceded that the rule was “a factor in deciding who you put on the ground”, but added that the company would benefit from a closer relationship with its Korean clients.
While foreign lawyers play down the likelihood that they will engage heavily in domestic cases, the reforms have sparked some consternation in Seoul’s legal community. Some midsized firms have already begun examining the merits of mergers, either with another domestic firm or with a larger international counterpart, and have been contacting foreign firms to discuss preliminary co-operation agreements.