Lacking Middle Eastern promise

A tough Middle East market means setting up an outpost there requires an alternative approach

Trust Dewey & LeBoeuf to road-test a Kuwaiti association firm on a rival’s behalf. The defunct firm, while still alive and kicking, had a go at a tie-up with local lawyer Jamal Ahmed Al-Shehab in 2011 following a suggestion from a recently recruited partner.

Houston-based Karl Hopkins’ wish was to open an office in the state in alliance with his friend Al-Shehab.

Kuwait: international firms have experienced difficulties setting up offices here

A number of Dewey partners in the Middle East were opposed to the plan but somehow chairman Steve Davis gave it the go-ahead at some point between Hopkins’ hire in January 2011 from Baker & McKenzie and his exit a year later. Sources say Hopkins laid out certain financial expectations. Whether these were met is, well, unclear at best.

“It turned out to be a disaster,” a former Dewey partner recalls.

Hopkins took the relationship with him when he jumped to pre-merger SNR Denton’s Washington DC base as a partner in February 2012, three months ahead of Dewey’s collapse. By January this year, SNR had switched its existing Kuwaiti association from International Legal Group to Al-Shehab, who had returned from a stint in a government position to practice under the firm name The Law Office of Al-Shehab & Partners.

It is far from apparent that Dentons’ venture with Al-Shehab has been as unsuccessful as Dewey’s was. Indeed, if anything, the two might even work more closely now. As revealed last week, Dentons is gearing up to vote on shutting its own office in the country but is expected to retain its association with Hopkins’ old acquaintance.

Demanding clients

The move shows how tough the market is in the Middle East generally right now, and particularly in Kuwait. Across the region, especially in Dubai, partners talk about pitching for work against up to 10 firms and finding they come around seventh despite offering what they consider to be rock-bottom rates. Plus clients in the United Arab Emirates (UAE) are demanding more and more added value such as secondees, heavily favouring the people-heavy magic circle firms.

Kuwait is a case in point. Without generalising and viewing the Middle East as one homogeneous region, Kuwait seems a clear example of how firms are being forced to exit jurisdictions that simply do not offer the required margins.

New York-headquartered Curtis Mallet-Prevost Colt & Mosle also pulled out of Kuwait on 1 May only a year and a bit after opening an office. It now utilises the local association with Mashora Advocates and Legal Consultants it set up when entering the market in March 2012.

The developments point to difficulties for international firms of operating an office in Kuwait staffed with their own partners and employees. Both Dentons and Curtis appear to have opted for a more efficient strategy, although there are still costs involved: in general law firms pay around $15,000 to $25,000 (£9,600 to £16,000) to their Kuwaiti association firms per month.

Only DLA Piper has its own outpost left in Kuwait, where the market is increasingly dominated by the top local players such as Al Ruwayeh & Partners or pan-Middle East businesses of the Al Tamimi & Company variety.

In the UAE, almost every UK firm outside the magic circle is talked of as being in struggle mode as they battle to meet clients’ increasing demands, but some US firms are growing. Baker & McKenzie will go live with its merger with UAE leader Habib Al Mulla on 1 July, while Texan oil and gas powerhouse Baker Botts is in talks to take on a large team from the legacy Fulbright & Jaworski arm of Norton Rose Fulbright’s Festival City base in the emirate.

Regional wobble

But things are not all good for the Americans either. It is perhaps the worst kept secret in the Middle East market at the moment that Baker Botts’ rival Vinson & Elkins is looking to scale back in the region, with Dubai partner exits expected. This could be a good opportunity for some of the middling UK firms to snap up bulk.

Norton Rose Fulbright’s regional wobble is slightly different. Many people associated with the firm feel management does not place the Middle East as centrally in its global strategy at it once did. This is especially so for those who remember the early and mid-2000s days of Neil Miller, the market-leading Islamic finance partner now at Linklaters’ Dubai office, and energy figures such as John Inglis, who now plies his trade at Shearman & Sterling in London.

At the same time, an apparent lack of affinity between Fulbright and Norton Rose partners has meant there has been little melding in Dubai, resulting in the imminent exit of a large slice of that Fulbright team. The two sections don’t even have offices in the same part of the city.

Mid-market or higher-end firms such as Ashurst, Addleshaw Goddard, Stephenson Harwood and even the now extinct Cobbetts have all made various plays in different parts of the Middle East recently, while Clifford Chance is preparing to make the unusual step of bringing aboard part of the team from its Saudi Arabian association partner Al-Jadaan into the UK firm.

Firms have their idiosyncratic approaches, but ultimately things are not looking wonderful in the transient Middle East market.