Clifford Chance’s Saudi Arabia office could be forced into a major restructure following a legal challenge concerning the validity of joint ventures in the country.
It has emerged the Saudi Ministry of Justice has launched an appeal to overturn the decision that granted Clifford Chance its joint venture application after one of the Saudi partners and the head of the Saudi firm exited their roles.
Current legislation allows foreign firms to enter into a joint venture and own up to 75 per cent of a domestic firm. A Saudi national licensed to work in the legal profession must own the remaining 25 per cent of the share capital.
Clifford Chance was the first successful law firm to open a joint venture in the region when it transferred Al-Jadaan’s practice into the firm in January 2014.
Founder and head of project finance Abdulaziz Al-Abduljabbar left to launch his own firm in December, while former head of the firm Mohammed Al-Jadaan also resigned from his position after taking up a role as chairman of the Capital Markets Authority.
A Clifford Chance spokesperson said: “In terms of the regulations in force today, we are fully compliant and our licences stand.
“In structuring our operations in the Kingdom, we were very careful to take a conservative approach that would be entirely compliant with all the relevant regulations and we received all the necessary approvals, all of which remain in place today.”
On 1 January 2016 Clifford Chance appointed Khalid Al-Abdulkareem as its Riyadh office managing partner.
Sources in the country said the Ministry of Justice’s legal challenge is still working its way through the Saudi court system.
Clifford Chance and Clyde & Co are the only two law firms to have successfully opened a joint venture in Saudi Arabia. Clydes formalised its own relationship with Abdulaziz Al-Bosaily Law Office last September after entering into an association with the firm five years before.
Although the legislation allows the formation of legal joint ventures to exist in practice, setting up these partnerships has proved difficult.
It is understood Clifford Chance will be required to go through the Saudi appellate courts in order to receive a final judgement relating to the status of its business in the country.
The outcome of the challenge could have larger implications for any firm wishing to formalise its relationships in region.
Speaking to the The Lawyer a partner at the Saudi associated firm of a top 30 UK firm said the two outfits attempted to register a similar entity in 2006. However the clerk at the relevant ministry refused to register the company and showed him that the register itself was empty.
The firms’ discussions progressed to the point that the articles of association had been drafted and notarised, but the joint venture was never actually registered.
Although the law does allow professional services firms to open joint ventures, the partner said the current challenge represents a “divergence between the legislation and the policy maker”.
The partner said that a joint venture with its UK partner would be a “serious option to pursue” should the process open up.
It is also understood that a fourth firm made moves to cement a joint venture in Saudi Arabia but ceased its application following the news of the legal challenge.
The only foreign firm to operate without an affiliation or a joint venture with a Saudi Arabian firm is Middle Eastern giant Al-Tamimi & Co. It is able to do so because it is based within one of the six countries that make up the Gulf Cooperation Council (GCC).