Japan set to penalise firms with foreign joint ventures
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The move comes on the back of a flurry of joint ventures with foreign law firms.
In the face of protests from the Law Society of England and Wales, the Japanese legal body has ruled that Japanese-foreign law joint ventures cannot take advantage of limited liability status if they practise under the name of the foreign firm. Limited liability status has just been introduced in Japan. It allows Japanese lawyers to have more than one office and confers certain tax advantages. Head of the Law Society David McIntosh told The Lawyer that the Japanese bar was "petty and intransigent".
The measure will effectively bar foreign firms from registering as limited liability partnerships if they want to use cross-firm branding for their Japanese practices.
Freshfields Bruckhaus Deringer, which practises as Freshfields Law Office and Freshfields Foreign Law Office, will be particularly hard-hit, as will Cleary Gottlieb Steen & Hamilton, which has a similar branding.
Freshfields and several other City firms, including Clifford Chance and Lovells, asked McIntosh to put their case to the Japanese Bar Association. McIntosh, who was in Korea talking to the government about the liberalisation of the legal sector, tried but failed to convince the Japanese to change their minds.
McIntosh said: "It's a petty and irritating protectionist measure, but an important indicator of how entrenched some sectors of the Japanese bar have become in their attitudes to international legal practices. To use an analogy, it's like London cab drivers doing everything in their power to stop new cabbies coming in, even though there's a huge shortfall of taxis."
Japan has become a key destination for international firms keen to pick up restructuring work from the struggling Japanese economy. There is also still a significant amount of work for foreign direct investors due to protectionist barriers having come down in most areas of business, and there are good opportunities for inward investment.
Just last month, German firm Haarmann Hemmelrath & Partner and US firm Dorsey & Whitney secured Japanese joint ventures. The partnerships are key to the foreign firms' capacities to service foreign direct investors and also to their credibility with Japanese corporations.
Clifford Chance has just moved to strengthen its Japanese practice with the addition of five new bengoshi (Japanese lawyers). This will give the firm a total of 17, putting it in the top tier of foreign firms with Japanese practices. The lawyers come from Nakagawa & Takashina, which will form a joint venture with Clifford Chance from 4 March. Two partners, Noboru Nakagawa and Hedehiko Suzuki, three associates, one paralegal and all the support staff will join Clifford Chance.
Japanese managing partner Rob Burley said: "We needed more bengoshi because 12 isn't enough for a decent-sized deal. We've known Nakagawa for many years, and we were considering the deal when we signed up with Tanaka & Akita, but it was too much to do it all at once. We were all very disappointed with the Bar Association rule, but we knew it was coming."
Both Chancellor of the Exchequer Gordon Brown and Secretary of State for Trade and Industry Patricia Hewitt have already added their voices in support of City law firms, and the Confederation of British Industry will make similar points later this year when its director general Digby Jones visits Japan.