Moving up a grade

An unlikely union between foreign and domestic firms has thrust Serbia closer to opening its legal market. James Swift reports

Just over two weeks after the UK general election, lawyers in Serbia also went to the polls. Their election centred on a new board and president of the ­Belgrade bar association. And they voted in record numbers.

According to one lawyer, voters queued for over an hour at the Sava Centre in ­Belgrade, as the polls – which usually attract no more than 300 or 400 ­people – were swamped by a crowd of more than 1,000.

The inflated turnout was down to the efforts of a coalition of domestic and foreign commercial law firms that is seeking to modernise the legal profession in Serbia and reverse the hostility that many local lawyers harbour against foreign firms.

“As foreign lawyers in Serbia we just got to the point where we thought we could either continue sitting around and complaining, like so many of us do, or we could do ­something about it,” says Patricia Gannon, a partner at Karanovic & Nikolic.

It looks like their efforts have paid off: all nine candidates put forward by local ­commercial firms and foreign firms to sit on the management board of the Belgrade bar – the largest chapter of the Serbian bar ­association with around 3,000 members – were voted in. Five of the coalition’s ­candidates will also go on to sit on the ­management board of the Serbian bar.

If the momentum continues it could be the beginning of a transformation of the legal market in Serbia. But with decades of tradition to battle against and a conservative bar association president who has publicly lashed out at foreign firms, it will not be easy.

Serbia has not been the most welcoming jurisdiction in terms of international ­competition. Foreign lawyers are not allowed to practise local law as a matter of reciprocity and have no professional legal status. Nor can international law firms be admitted to the bar. Instead the ­international players in Belgrade, like Schoenherr, Wolf Theiss and CMS ­Reich-Rohrwig Hasche Sigle, have had to set themselves up as consultancies and form associations with local lawyers who do all the domestic legal work.
“As a foreign lawyer I can’t do anything in Serbia, basically,” says Gannon.

The stifling rules are thought to be a ­protectionist tool to stop foreign law firms bundling into Belgrade and stealing the market from under the noses of the local legal profession. Similar restrictions exist in other countries in Eastern Europe too. In Croatia, for instance, foreign firms have only recently been allowed to run websites in the country, and must still be careful about what content they put on them.

“We have seen this in many countries,” says Jason Mogg, managing partner of ­Kinstellar, “where the local bar, to the extent that they can, will try and keep foreign firms out. But the European Union doesn’t like it much and so these countries have to really think about this and decide whether they want to get along with the EU and join
one day.”

And though Serbia is keen to join the EU, applying for membership in December 2009 and signing a stabilisation treaty that will ultimately force the country to open up its market, there seemed to be little drive from the Belgrade bar association – which, historically, was mostly populated by sole practitioners with criminal law backgrounds – to liberalise the market any time soon.
It was a situation that was met with ­growing frustration by international lawyers.
“Serbian lawyers generally have been pushed into thinking that the foreign law firms are out to take a piece of their pie because they can do the same work as us,” says Belgrade-based Wolf Theiss partner Bojana Bregovic, “but they can’t. We work with a team of 15 Serbian lawyers who do all the Serbian aspects of the work and we ­structure deals in a way that’s best for our ­foreign clients, and that’s what makes us more attractive than purely local firms, which don’t have the international ­experience or knowledge of foreign law that we have.”

The larger more progressive Serbian ­commercial firms were unhappy too because although foreign firms are ­restricted to acting as consultancies, they can operate as a društvo sa ogranicenom odgovornošcu (or DOO – the Serbian ­equivalent of an LLC), with limited ­liability. Domestic firms meanwhile must accept full responsibility and have no professional indemnity insurance.

“Right now we are having discussions on new advocacy laws and the big topic is what is to be done with international law firms,” says Nikola Jankovic, a partner at Jankovic Popovic & Mitic. “Should we prohibit them further on the market or should we implement rules already implemented across the EU?

“Personally I favour the second idea, as long as they practise on the same ­conditions as Serbian law firms. But the majority of Serbian lawyers don’t represent this and don’t think international lawyers should be allowed in Serbia for as long as Serbians are not allowed to practise in other ­countries, which probably won’t happen for the next five or six years.”

The alignment of frustrations from local and foreign practitioners came to a head a couple of months before the Belgrade bar association elections when lawyers from the top foreign and domestic commercial firms met to discuss the new draft advocacy law. During the discussions the firms realised that there was “a need for a stronger ­presence and wider role [for commercial lawyers in Serbia] in order to improve the standards of quality [in the legal ­profession],” according to Dejan Nikolic, a partner at Karanovic & Nikolic.

The firms put forward nine candidates (though, obviously, no international lawyer could be a candidate), to sit on the 15-­member management board (including the ­president and vice president), and rallied support to vote at the elections. It was a big step to see firms, normally in competition with each other, working together, and it took many by surprise.

“The people who lost couldn’t believe what had happened,” says Radivoje Petrikic, a partner at CMS Reich-Rohrwig Hainz in Belgrade. “For more than 40 years there were only two or three hundred people who went to the elections and now we had more than 1,000 turn up.”

Not everything went off without a hitch, though. No one from the group put ­themselves up for president of the Belgrade Bar, leaving the door wide open for the less progressive Slobodan Soskic, who has since participated in a magazine interview that one lawyer at an ­international firm in ­Belgrade described as “aggressive” in its depiction of Serbia as a Mecca for international law firms to ­infiltrate the market.

An administrative error also hangs over the victory as the successful election of the nine candidates is (at the time of writing) yet to be confirmed and, according to one lawyer, the bar association missed a name off of the candidates’ list which, although extremely unlikely, could be used as a ­pretext for a reelection, giving local firms the chance to rally support for their candidates.

But the firms involved are not dwelling on remote obstacles, rather they are focusing on what they want changed now they are in a position of influence. First on the list is the recognition of foreign lawyers, even if it is just a B-listing; second, they want the ­uniform requirement of professional indemnity insurance across the market and the option of limited liability (or DOO) ­status for domestic firms.

It won’t be easy, even with members on the management board of the Belgrade bar, as modernisation and western-style ­business practice will be difficult to foist on the small domestic firms that make up the majority of Serbia’s legal profession. Not that this has stopped some lawyers pinning their hopes on even greater changes.

“We also want to change the rules in terms of the behaviour of lawyers, clean our house out and improve the quality of work,” says Petrikic. “We have lawyers here who are criminals, it seems every month a lawyer is put in jail. We have cases where a lawyer is sitting on the money of a client and then transfers the money to a private account – and these people are still practising as lawyers. People can do things here that are unthinkable in western countries and you say how is this possible?
“It is something that’s destroying the trust of our clients, which is a big problem, or rather it was until now.”

A firm with stellar expectations

Kinstellar became the latest international firm with a presence in Serbia when it launched its Belgrade office in March 2010.

But with the downturn only really getting to grips with the country in the first quarter of 2009 and plenty more hardship on the way it seemed like an inauspicious time to establish an office in Serbia.

“We’re all curious as to why Kinstellar is here in Belgrade,” says Mark Harrison, founder of Harrisons Solicitors. “It’s difficult for everyone now and it’s extremely difficult for anyone to come into the market and become a strong player, unless they take over an existing firm.”

Kinstellar did consider bolting on another practice, according to managing partner Jason Mogg, but launched as a green-field project instead (though the firm did poach Branislav Mari, an M&A partner, from Wolf Theiss).

David Davies leads the six-man office, which includes four local lawyers. The firm is now recruiting and hopes to reach a critical mass of around ten fee-earners before changing its strategy to organic growth.

It all seems rather optimistic in a market where the biggest source of work – privatisations – has all but dried up. But Kinstellar’s decision to enter Belgrade was not rushed, nor is Mogg perturbed by the challenge posed by the downturn.

“When we launched the firm at the end of 2008 we had a number of expansion targets in mind,” says Mogg, “and Serbia, and the western Balkans, was one of them right from the start. We think it’s a market that has growth potential and doesn’t have a lot of competition that aims at the same part of the market we aim at. We’re looking to serve clients at the top end of the market.

Mogg continues: “The Serbian and western Balkans’ market has lagged behind other countries in the CEE, for obvious reasons.

And there is lot of growth and development potential. We expect some M&A, and infrastructure and energy work, and we also expect to see some from foreign investment, some from west Europe and some from the rest of the world.”