APPENDIX 10
Memorandum by Clifford Chance LLP
SUMMARY
1. The UK legal services industry is a world
leader in the provision of legal services internationally. There
are significant investment opportunities for UK law firms in India,
but restrictions on the practice of law in India make it impossible
for UK law firms to pursue these opportunities fully, even though
Indian lawyers may freely practise here. The restrictions in India
also impede the growth of the Indian economy. Liberalisation of
the legal services market in India, by permitting foreign law
firms to open offices and practise law in India, would benefit
UK law firms, but would also contribute to the development of
the Indian economy, and assist the dissemination of legal skills.
We hope the Select Committee will recognise the key importance
of legal services, and that the Committee will recommend that
the UK government continue to press, and indeed increase their
efforts to press, the Indian government to resolve these issues.
CLIFFORD CHANCE
AND THE
UK LEGAL SERVICES
INDUSTRY
2. This submission is made on behalf of
Clifford Chance LLP, in response to the invitation by the House
of Commons Select Committee on Trade & Industry to submit
evidence on trade and investment opportunities with India.
3. Clifford Chance is the first fully integrated
global law firm, with 28 offices in 19 countries, and over 3,700
legal advisers, the largest number of whom are based in London.
We are regulated by the Law Society of England and Wales.
4. According to a report by International
Financial Services London, published in March 2005, legal services
contributed £12.9 billion or 1.4% of the UK's GDP in 2002,
net exports generated by international law firms totalled £1,802
million in 2003, and international law firms in London generated
an estimated £2.6 billion in UK tax revenue in 2001-02.
5. Our policy has been to follow clients'
needs and expectations in deciding where to set up offices. Thus,
the countries where we have offices include the United States
of America, all of the major European economies and other key
growth economies around the world such as Brazil, Russia and China.
6. The big exception is India, where local
regulatory constraints currently prohibit foreign law firms from
establishing offices.
7. It is clear that India is a very important
market, and that its importance will continue to grow over the
coming decade. There are significant trade and investment opportunities
for all kinds of UK businesses.
8. We note the Committee intends to focus
its inquiry on the IT, life sciences, aerospace and financial
services sectors. Nevertheless, we would like to stress that legal
services play a crucial role in any major transaction, whether
it is a joint venture between telecommunications companies, an
aircraft refinancing project, the establishment of a bank branch
office, or the construction and financing of a cross-border gas
pipe-line. All of these are likely to require expert and detailed
advice in the law of more than one jurisdiction from lawyers with
experience in multi-jurisdictional commercial transactions.
9. Legal services are therefore just as
important as other infrastructure services, such as financial
or telecommunications services, in facilitating foreign investment
and developmental projects that offer many benefits to developing
countries, including India. Large investors and global corporates
would be much more reluctant to participate in projects without
the assurance provided by competent and experienced legal advisors.
10. Our concerns are largely shared by other
international law firms, as well as by the Law Society of England
and Wales, which has been very active in this debate.
LEGAL SERVICES
AND RESTRICTIONS
IN INDIA
11. The statement that international law
firms are necessary for the successful completion of these complex
transactions is not intended as a criticism of Indian lawyers.
We work closely with a number of leading Indian law firms and
recognise the competence and ability of their lawyers. However,
a number of factors mean that Indian firms do not yet have the
same breadth and depth of expertise as the international law firms.
Indian firms are relatively small (the largest is about one-twentieth
the size of Clifford Chance), which can create logistical problems
on very large or complex transactions. Further, they have limited
exposure to international markets, since India is just opening
up, whereas many of our partners have been involved in international
business throughout their careers and, indeed, were taught by
partners with similar experience. The accumulation of this expertise
in India can only be delayed if the legal work on many major Indian
transactions continues to be done outside the country.
12. We have been providing services to clients
based or active in India for many years, working not only for
international clients investing in the country, but also for Indian
companies. Much of our work, and that of similar international
firms, is international and involves assisting financial institutions
and commercial organisations in connection with the acquisition,
development and financing of businesses around the world. This
includes infrastructure, natural resources, the development of
the capital and financial markets and privatisations, as well
as foreign direct investment more generally.
13. However, we are not able to establish
an office in India. This hampers our ability to offer a full service
to clients, and constrains our further investment in India. We
also believes that the failure to liberalise legal services impedes
the development of the Indian economy (see below).
14. Our service to clients is affected in
a number of ways. We are not able to advise directly on Indian
law. The difference in time zones makes working on Indian transactions
more costly and less time-efficient (because we do not have an
office in India). The result is that it is not possible to deliver
a "seamless" service, as we have to refer some work
to Indian law firms.
15. The main reasons that foreign law firms
are prohibited from establishing in India appear to be historical
barriers, and continuing opposition from the local legal profession.
Indian lawyers fear that foreign law firms will take work away
from them—advocacy is a particular concern.
16. We believe that their concerns about
the impact that foreign law firms would have on their practice
are misplaced. There is minimal overlap between our practice and
the practices of the vast majority of Indian lawyers. Clifford
Chance and other international law firms will not be competing
with Indian law firms in, for example, matrimonial, domestic conveyancing,
wills, or criminal law, and, most importantly, will not be seeking
advocacy rights (advocacy being the area that forms the core of
the business of most Indian lawyers).
17. There may be some overlap with the larger
Indian commercial firms, but we know that they have been preparing
for the arrival of the foreign law firms for some years and that,
inter alia, pricing differentials will limit direct competition
for some years to come. It should also be noted that law firms
are partnerships and do not have the capital raising powers of,
say, banks. It is therefore likely that any Indian office would
initially be much smaller than the large Indian commercial firms.
18. Indian lawyers point to restrictions
in domestic legislation that, they argue, would place them at
a competitive disadvantage vis-a"-vis foreign law firms.
We understand that these restrictions mean that Indian law firms:
may not practise in a partnership of more than 20 partners; may
not advertise; may not share fees between lawyers and non-lawyers;
may not charge contingency fees; and may operate only as sole
proprietorships or as partnerships with unlimited liability for
its constituent partners.
19. We recognise that such restrictions
could be detrimental to Indian law firms competing with foreign
law firms. However, a number of these restrictions are, in practice,
easily overcome. For example, parallel partnerships have been
established to overcome the 20 partner rule (one of the leading
Indian law firms claims to have 28 partners in its brochure).
Other restrictions, such as the inability to establish limited
liability partnerships, existed here until very recently and (as
the very successful development of the legal sector in the UK
shows) are not fundamental impediments to growth. All of the restrictions
could be lifted by the Indian government and/or Bar Council of
India, the Indian regulatory body that oversees the legal profession.
In the meantime, foreign law firms could be allowed to practise
in India subject to restrictions designed to create a level playing
field until such time as the restrictions on Indian law firms
were successfully removed.
20. This approach has been adopted in the
recent report to UK Ministers of a team of British lawyers, following
meetings with their Indian counterparts, as one of the task forces
set up by the United Kingdom-India Joint Economic and Trade Committee
(JETCO). The report, which we recommend to the Select Committee's
attention, proposed a staged programme of liberalisation, beginning
with limited opening, so as to give the Indian Government, Parliament
and profession time to ensure a fully level playing field before
allowing full entry of foreign lawyers into the Indian legal services
market. This would broadly follow the same lines as the Chinese
scheme. The report also advised against a suggestion made by the
India team for a form of highly regulated joint ventures with
Indian firms, without liberalisation in the full sense.
THE CASE
FOR LIBERALISATION
21. While liberalisation in the Indian legal
services sector would benefit both individual UK law-firms and
the UK economy, we believe there are clear benefits also for India
itself. The multinational companies for which we typically act
need sophisticated, complex legal advice, often spanning a number
of jurisdictions. International law-firms therefore provide a
service which would otherwise not be available, the lack of which
may deter inward investment in that jurisdiction.
22. Liberalisation of legal services in
India would also create much enhanced employment opportunities
for Indian lawyers.
23. As noted above, we do not generally
compete directly with local law-firms. While we operate in a very
competitive environment, we compete with other global law-firms
rather than with local lawyers; indeed, we employ, train and enter
into partnership with local lawyers, where permitted, thus transferring
our skills to them. Local regulations which prevent us from doing
this hamper our attempts to provide a comprehensive service to
clients as well as curtailing career prospects and experience
for local lawyers.
24. Nevertheless, competition head to head
with international law firms would strengthen the Indian legal
system and promote quality work amongst the top Indian law firms.
25. The UK already has one of the most liberal
regimes for legal services in the world. There are no restrictions
on the provision of legal advice, whether on the law of this or
any other country or supranational organisation, or on international
law. So the concern for `reciprocity', often voiced by Indian
lawyers, is based on a misunderstanding. As the British JETCO
report makes clear, we are not seeking for our lawyers any opportunities
in India that Indian lawyers have not had in England for many
years. Indeed we have asked for a lower level of liberalisation
than that currently offered here.
STEPS TOWARDS
LIBERALISATION
26. The current GATS talks offer possibilities
for liberalisation of legal services in India. Obstacles to this
include the predominance of agriculture in the negotiations, the
opposition of the Indian legal community, and the fact that the
UK must negotiate as part of the EU (and some of the other Member
States have more protectionist attitudes towards legal services
than the UK). There is now considerable urgency in the talks as
practical considerations require they reach a conclusion by the
end of 2006, although little real progress has been made so far
on the services negotiations. We would urge the UK government
to continue to press for a successful outcome to the negotiations,
including liberalisation in the Indian legal services sector.
27. We would also encourage the UK government,
whether through Ministerial interventions, through UK Trade and
Investment or through other channels, to help UK law firms in
their attempts to be permitted to establish an operating presence
in India. While we are willing to accept practising restrictions
in India designed to even out the anti-competitive effects of
any restrictions there may be on Indian law firms, it is not acceptable
for India to impose a blanket restriction on UK lawyers, particularly
when Indian lawyers can benefit from the very liberal regime here.
28. We hope that the Select Committee will
agree with our approach, and urge the UK government to maximise
its efforts to achieve liberalisation of legal services in India.
To this end, we would be glad to assist the Select Committee in
any other or further way that it may think useful.
9 January 2006
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