The once insular nature of offshore legal business is being transformed by the emergence of a ‘magic circle’ of multijurisdictional firms that appear well positioned to form a global elite.
Once tied firmly to their home jurisdictions, a number of offshore law firms are throwing off their domestic shackles and establishing a presence in other international centres, whether by setting up a practice in the new jurisdiction from scratch, acquiring a small existing operation or merging with a major player from another territory.
The trend towards offering clients in-house legal expertise in a variety of jurisdictions comes in addition to the opening by offshore law firms of offices in the markets that represent their major sources of business. Several leading Channel Islands, Caribbean and Bermuda firms already have presences in London, but Hong Kong and now Singapore are becoming key areas of expansion.
The head of one law firm already well down the multijurisdiction route identifies the emergence of a magic circle of at least six firms that appear well placed to dominate the future market for legal services in the world’s principal offshore jurisdictions.
According to Peter Bubenzer, the Bermuda-based managing partner of Appleby Spurling Hunter, movement by offshore firms into multiple jurisdictions has increased over the past six or seven years in response to a range of factors, including competition between financial centres as well as between the firms based there.
“It’s becoming an increasingly crowded marketplace,” Bubenzer says, arguing that expansion into new markets is a response to a change that has seen the spirit of gentlemanly competition that once prevailed in offshore centres replaced by a determination to fight for every piece of business.
In addition, he says, there is a maturing of the offshore market in major jurisdictions, which are increasingly known for particular specialisations. “Bermuda’s well known for insurance, while Cayman is the world leader in funds,” he explains. “This means that, as a Bermuda law firm seeking to develop a funds practice, one runs into considerable difficulty when the centre of the marketplace is in Cayman.”
It was this logic that prompted Appleby Spurling & Kempe, one of the two leading offshore firms in Bermuda, to merge in April 2004 with Hunter & Hunter, a leading funds specialist in Grand Cayman. Today the firm has 430 lawyers and staff and boasts further offices in the British Virgin Islands (BVI), London and Hong Kong.
The merger is one of a number of high-profile tie-ups over the past two or three years. These include the link-up in 2003 between Carey Langlois of Guernsey and Olsens of Jersey to create Carey Olsen and the establishment last year of Ogier & Boxalls, which has a presence in Jersey, Guernsey and the Cayman Islands.
Ogier chairman Jonathan White comments: “Up to two or three years ago, each of the offshore centres jealously guarded its own turf. They proceeded on the basis that it was the only place to do offshore business and would never acknowledge that a competitor might have something to offer that they didn’t.
“But as you began to see how beneficial a multijurisdictional presence had been for the larger onshore firms, a number of offshore firms started looking at the way they provided their own services.”
Bubenzer argues that a further driver of expansion into new markets is confidence in a firm’s brand. “Over the years, we’ve come to appreciate the strength of the reputation built up over the past 50 years,” he says. “We find that this brand is recognised and appreciated. It’s capable of transportation into another jurisdiction and being used to develop further business.”
Bubenzer says that one result of the recent mergers has been a gradual appreciation of the value of a multijurisdictional firm among referers of business, such as onshore law firms, accountants and investment managers, not least because “clients appreciate the ability to give dispassionate advice on the virtues of different jurisdictions”.
He adds: “Many clients come to us on the basis that they feel they know offshore jurisdictions well and they have a predetermined choice as to where they wish to go. But there are real opportunities now for us to give them the differences so that they can truly make an informed choice.” He says Appleby Spurling Hunter is now seeing an increase in cross-jurisdictional referrals from within the firm and in multijurisdictional transactions.
White at Ogier notes that, when business is referred by an onshore law firm, it is the latter that determines which offshore jurisdiction is appropriate for a particular transaction, and then it decides which provider to use in that jurisdiction. “We felt we had a reasonable chance of moving ourselves up the food chain if we were able to provide services across a number of jurisdictions,” he says, “because in this case the intermediary wouldn’t need to decide which jurisdiction to use before they chose the provider.”
Sometimes the motivations for a cross-jurisdiction merger can be more straightforward. According to Brice Putterill, the senior partner at Hunter & Hunter before its merger with Appleby Spurling & Kempe, a key reason for the combination was that the Cayman firm wanted a Hong Kong office, which Appleby already had.
“The merger substantially beefed up our London office, which went from one lawyer to five,” says Putterill. “In addition, we thought we needed help in gaining access to some of the institutional clients that Appleby in Bermuda represented and that were using other Cayman firms. Since the merger, we’ve got access to a huge number of referrals of legal services clients that we didn’t have before.”
He adds that, for offshore law firms, there is a risk that if they fail to expand, they will finish up contracting. “In hindsight, we can now see that if you don’t go forward, you may go backwards. It’s obvious that we’ve done the right thing because we’re getting more work, but also because otherwise we probably wouldn’t have been able to afford to set up in Hong Kong for several years. There’s a chance we’d have gone backwards.”
Bubenzer says six large firms are “poised to form a magic circle of offshore law firms”. These include his own firm as well as Conyers Dill & Pearman from Bermuda, Walkers from Cayman, Carey Olsen and Ogier & Boxalls. He believes they will continue to expand, although in some cases there may be a pause to digest recent mergers and acquisitions.
Nevertheless, he argues that mergers with leading local players are likely to prove the most practicable approach for breaking into established markets. “In some places we’ve used the organic growth method ourselves, but in the more sophisticated and developed markets it’s going to be a lot harder to establish a new law firm from scratch,” he says.
Another member of the magic circle is Jersey-based Mourant du Feu & Jeune, which has expanded from purely legal work into investment fund services, wealth management and employee benefits. From its base in Jersey the law firm has added offices in Cayman and London; its other business has given the group a presence in Guernsey, Luxembourg, Dubai, New York and Seattle.
According to managing partner Tim Herbert, the increased compliance demands on offshore centres from organisations such as the International Monetary Fund, the Organisation for Economic
Co-operation and Development and the Financial Action Task Force on Money Laundering has played a role in prompting a convergence of offshore centres and in turn of the firms established there.
Instead of seeking mergers with leading players, Mourants’ strategy for growth focused on building up niche activities in new jurisdictions. Herbert says: “In opening a satellite office, it makes every sense to play to your strengths. If you have a strong mutual funds reputation, you set up the satellite office with a funds expertise and leave litigation, real estate and IP practice to a later date. The development of an offshore practice with ‘niche’ as the satellite’s watchword and full service for the home territory is a logical way forward.”
He tends to dismiss clubs and associations as a way of achieving jurisdictional reach. “They can have some purpose, but ultimately I think they end up as rather frustrating from an economic and business perspective,” he says. “It’s a low-cost option that gives you instant onshore and offshore reach, but ultimately, as a business driver, they’re unsatisfactory and unsatisfying.”
Similarly, Herbert says: “Referral and fee-sharing arrangements between law practices in different jurisdictions end up not being focused enough. One party is always disappointed by the performance of the other at some point.”
Starting with a greenfield practice and a handpicked team is inevitably slower in terms of gaining market share and profitability, acknowledges Herbert, but “one of the clear advantages is that you control your own business and your own destiny within the context of your own brand. You can grow people within your own organisation who go from the home to the satellite office, and you have a choice of being niche rather than risking a less clear vision through merger and acquisition.”
Herbert notes that all of the magic circle firms identified by Bubenzer (he would add Harney Westwood & Riegels from the BVI) now have extensive administrative and fiduciary businesses.
But few would go as far as Mourants in identifying itself as a financial service provider rather than a law firm, or increase their dependence on non-legal advisory services for income. But Herbert concludes: “The fee income last year of the law practice in my firm, for example, was £17m-£18m, but the fee income of the whole organisation exceeded £50m.”
Simon Gray is a freelance journalist and the former editor of International Money Marketing