Circling the sand
29 September 2008
Office workers in Dubai are used to feeling the odd rumble under the desks, routinely caused by the swarms of cranes and large drillers pockmarking the once pristine desert landscape and forging the foundations of yet another high-rise steel and glass tower.
But several weeks ago, accompanying the rumble was a prolonged, undulating roll that mimicked the uncomfortable feel of being at sea. It was an earthquake.
Within minutes the neatly trimmed green lawns around the Dubai International Financial Centre (DIFC) were teeming with flustered bankers, brokers, accountants, lawyers, their secretaries and administrative staff, evacuated from buildings to stand in the blazing mid-afternoon sun, with temperatures hovering around 40 degrees.
Rarely do these grassy knolls feel footfall, as Dubai is a city where the vast majority travels exclusively by private car or taxi. But for once it looked like a proper urban environment, inhabited by real human beings and not just automatons among metal boxes.
Earthquakes, as evidenced by the 6.2 Richter scale tremor that struck off Qeshm Island some 20-odd miles from Dubai, are one of the two great fears in the emirate, with the other being the prospect of a catastrophic terrorist attack. But there is a third fear that stalks Dubai’s boardrooms and dinner parties – the dread that the economic bubble will one day burst.
Almost as much ink has been spilt in analysing the Gulf miracle as oil has been pumped from the sands beneath the region that funds the boom itself. As the great western capitalist economies find themselves on a rollercoaster of Alton Towers proportions, the oil-rich monarchic fiefdoms of the Gulf provide potentially the only safe haven in the choppiest of international financial waters.
And where there is an economic bandwagon, the global legal profession is never far behind. Seemingly not a month goes by without a UK, US and even major European law firm announcing to much fanfare that it has bagged a little corner of office space in the DIFC or on the Sheikh Zayed Road and will immediately be offering either full or niche services to its “long established” clients in the region.
Despite the influx, those on the ground reckon there is still room for growth. “The pie of work has grown,” says Campbell Steadman, Middle East head at Norton Rose. “Perhaps not as much as the number of firms coming in, but there probably weren’t enough lawyers in the market in the first place.”
The main problems with rapid growth for firms in the region have been recruiting the appropriate talent and resisting the temptation to slit each other’s throats in a dash to undercut fees. Outside of Dubai, the former remains a problem, although ironically the economic crunch in the west is viewed as a means of relieving the recruitment crisis in the Gulf.
As Gavin Watson, Dewey & LeBoeuf’s Dubai office head, puts it: “We’ve been pulling in resources from the US, so the downturn has presented a positive opportunity. A couple of associates have come out to the Middle East on short-term engagements. We can have people on the ground almost immediately, which is preferable to going through the recruitment process.”
In relation to fees, practitioners acknowledge that there has been a degree of low-balling on certain transactions. Corporate clients, particularly the big United Arab Emirates (UAE) players, have also begun a move within the past 12 months towards appointing panels.
“Clients are becoming aware of low-balling and aren’t being taken in by it,” comments one senior lawyer at the Dubai office of a UK firm. “So they’re going for arranged fees, which from their panel firms are slightly lower than headline fees. And once they’ve got those arrangements in place, the clients appear to be very good at sticking to them. They get approaches [from non-panel firms] but there’s a considerable level of client loyalty in the region.”
Somewhat ironically, considering the media attention focused on the city of 1.4 million people, Dubai itself has almost become passé. Every magic circle firm bar Slaughter and May is in town, as is the majority of the silver circle, however it is defined, plus Herbert Smith and LG, the most recent to jump on the bandwagon last year. They joined lawyers from Norton Rose, Clyde & Co, Denton Wilde Sapte, Lovells, Ashurst, DLA Piper and Eversheds.
Dubai has also provided some firms with the opportunity to punch well above their domestic weights. For example, Trowers & Hamlins’ entire ‘international’ network is based in the city and then spreads through the Gulf. Anglo-Scottish firm HJB Gateley Wareing, which, try as it may to argue to the contrary, is effectively a provincial firm in the UK, has attempted to make a big impression in the sand with its property department.
The Americans – traditionally more focused on clients in Saudi Arabia – have also started moving into Dubai, with Latham & Watkins, King & Spalding, Baker Botts, Vinson & Elkins, Gibson Dunn & Crutcher and Fulbright & Jaworski already in town. Earlier this year, white shoe firm Dewey & LeBoeuf raided Akin Gump’s Dubai outpost, poaching its two partners and other staff and reportedly driving the victims to the point of upping sticks entirely.
However, even that level of humiliation is not enough to force a practice out of town, as Akin Gump is now strongly rumoured to be considering a Dubai relaunch in the next few weeks.
With Dubai crawling with so many global lawyers, firms are now tripping over themselves to get in the queue at the Abu Dhabi licensing office so they can open in the UAE capital, which, while lacking the glitz and glamour of its sibling to the north, is where the real wealth lies.
Then there are those who have adopted the approach of pooh-poohing the UAE altogether as being massively over-lawyered. If you want to get a leg-up in the region now, they say, then look to Qatar, Bahrain or even Oman. And, of course, there is Saudi Arabia, with its vast oil wealth but very much stricter adherence to sharia law principles.
It might not be so difficult to recruit young lawyers to Dubai (they can spend their bonuses in countless western bars), but Saudi, where you cannot get a beer outside a compound and where women are technically still forbidden from driving, is a bit more challenging on the HR front.
Indeed, it is between those countries, plus Kuwait, that the Gulf Cooperation Council (GCC) is formed. Now more than a quarter of a century old, the GCC has spent most of its existence as a bit-part player in the league table of international economic nation state collectives. But with the western economies wobbling and the council states moving towards a single currency, the GCC is becoming increasingly powerful – to the point where it could only be a matter of time before it is mentioned in the same breath as the European Union and the North American Free Trade Association.
So what is the business of the GCC and how are international lawyers capitalising across the region?
The United Arab Emirates
If nothing else, the marketing gurus behind Dubai deserve medals. What is effectively a blazing hot, dusty, polluted building site bisected by a 12-lane motorway and carved up by various dual carriageways has convinced the world that it is the Middle East’s modern El Dorado. So probably enough said about Dubai, the Middle East’s poster boy. But what about its siblings, neighbours and rivals?
Its older, more established and wealthier counterpart lies 90 miles to the south. Abu Dhabi is the biggest of the seven UAE emirates, it is the capital, and despite Dubai’s brashness it is the powerhouse of the country, accounting for some 60 per cent of the nation’s GDP. And while there have been some long-term global law firm residents, only recently has the international legal community begun to flock to the city.
The numbers make it easy to see why. The government’s Abu Dhabi Investment Authority has an estimated pot of $1tr (£541.27bn) to hand. Last year, the government announced a programme involving more than $250bn (£135.32bn) in investment to diversify away from oil-related projects.
As part of the plan, the rulers have gradually liberalised restrictions on the operations of foreign law firms. “Regulatory changes by the executive council have created an excellent framework for us to invest here,” says Villers Terblanche, head of the local office of US firm White & Case.
His counterpart at one of the longest-established UK firms in the region, Andrew Rae of Trowers & Hamlins, maintains that the town is booming – perhaps even more so than Dubai.
“Infrastructure work is a key element, with a need for the city and the emirate generally to expand rapidly to cope with actual and expected population and industrial expansion,” says Rae. “Commercial and corporate activity with significant restructurings, corporate projects and financing are also becoming key elements.”
With business across the region, clients prefer their lawyers to be on their doorsteps. And that approach is nowhere more keenly felt than in Abu Dhabi, where the rivalry between it and Dubai means local corporates adamantly insist on law firms having a presence in town. Indeed, a chief executive of one bluntly told the office managing partner at a leading UK firm that unless you open here, we will cease to instruct the firm.
“Abu Dhabi clients like to be serviced by firms that are based in Abu Dhabi,” agrees Peter Michelmore, senior partner based at Reed Smith’s local office. “It’s a great city in which to work – there’s greater access to Emiratis [than there is in Dubai], and certainly the quality of work is no less interesting and the quality of professionalism is every bit that of Dubai.”
It is only about 14 years ago that the Emir of Qatar, Hamad Bin Khalifa Al Thani, seized the reins from his father after the old man nipped off for a shopping trip to Switzerland allowing his son to slip into his shoes. That mini-coup triggered a round of social, political and economic reforms in the country of a million people that have now reached the stage where Qatar challenges the UAE in terms of western-friendliness.
Illustrating the point in concrete and glass is the Qatar Financial Centre (QFC), which opened a mere six months after Dubai whipped the covers off the DIFC in September 2004.
Almost coinciding with that came the lifting of strict restrictions on foreign law firms in the country. The first two invited in by the government were the UK’s Simmons & Simmons and Washington DC-based Patton Boggs. Now others have followed, notably Eversheds, which two years ago became the first firm to be licensed by the QFC, and Clyde & Co, which opened at the beginning of 2007.
Clydes’ office managing partner David Salt still sees plenty of room for growth in the Qatar market, maintaining that “it remains a relatively unfished pool compared with Dubai”.
What sort of fishing is on offer? The energy sector still forms the preponderance of work, according to Simmons’ office managing partner Andrew Wingfield, but the country, like the region, is trying to diversify. “Corporate/commercial work and real estate are important – especially real estate financing,” he says. “There’s huge construction work going on and there’s both conventional and Islamic financing.”
Clydes’ Salt is a corporate specialist, but points out that it helps to be a jack of all trades in Qatar. “You have to be a general lawyer and work across all practice areas,” he says, describing the capital Doha as “a miniature version of Dubai” that focuses on banking, construction and corporate/commercial work.
Manama, the capital of this island country of a million people that floats between Qatar and Saudi Arabia, is the traditional seat of Islamic finance. Now threatened and therefore resentful of Dubai’s efforts to usurp that mantle, the government has attempted to fight back by signing a free trade agreement with the US in 2004 that aimed to reduce barriers and give the country some international leverage.
“In comparison with the main players in the Gulf such as Dubai and Doha, Bahrain’s vision has been to grow steadily, while studying its path and roadmap carefully to ensure the best possible future in economic and environmental terms,” explains local lawyer Elham Ali Hassan, founder of her own eponymous firm.
The most robust fields of work in the country are the telecoms, financial and energy sectors, with the global law firms in the country restricted to Norton Rose (with a presence there for some 30 years), Trowers & Hamlins, and a niche office for London-based Charles Russell, which has been building on the firm’s relationship with the country’s telecommunications regulatory authority.
Part of the reason more firms have not yet sniffed around the country could be rooted in the hostility of the local bar. Ali Hassan’s firm has been acting for Norton Rose and Trowers in an attempt to see off a challenge by the Bahrain Bar Association to the granting of licences to global law firms.
Despite legal wrangles, the globals still see good prospects in the country.
“Business is booming in Bahrain,” says Norton Rose’s Manama office managing partner Dominic Harvey, who maintains that the country is the preference for leading investment funds, capital market offerings and new financial institution launches. Indeed, its close proximity to Saudi Arabia means that several companies and transactions there can be serviced through Bahrain.
Everything else in the Gulf region should pale into insignificance compared with Saudi Arabia. At $446bn (£240.01bn), its GDP puts the country 32 places higher than any of its Gulf rivals on the International Monetary Fund league table. Its population and land mass dwarf those of its neighbours. And it really has got a lot of oil – Saudi stockpiles are estimated by experts to account for 20 per cent of the global total.
But so far, in terms of international legal work, the kingdom has been a bit of a minnow. There are two reasons for its low profile on the radar of global law firms. First, it still maintains a strict practice rights regime that prohibits foreign law firms from opening offices on their own account. And second, of all the Gulf region countries, Saudi maintains a harsh adherence to Islamic law, rendering it far less attractive in terms of lifestyle to overseas lawyers.
However, according to Bimal Desai, a partner at the Dubai office of magic circle law firm Allen & Overy (A&O), the situation is gradually changing.
“Historically, there weren’t that many western lawyers there – it was an under-lawyered market even though there was quite a bit of work,” he says.
“But the number of deals and their size has gone through the roof in the past six or seven years. It has to do with all those private petrochemical projects, power projects, and a huge amount of equity capital markets work.”
US law firms – in the shape of Baker & McKenzie, White & Case and Fulbright & Jaworski – used to have what legal work there was in the kingdom tied up, but the UK firms are now piling in. Following A&O are Clifford Chance and Herbert Smith.
Clifford Chance’s Saudi-affiliated partner Mohammed Al Jadaan says the country is set to overtake the UAE as the leading jurisdiction in the region for global law firms. The market, he says, “could cope with five more joint ventures. Mega project finance, downstream energy work, power and water, real estate development – all are booming. Investment banks are struggling to find the legal services they need.”
Jonathan Ames is editor of Dubai-based The Brief