Commercial firms seeking new frontiers might want to board the next plane to Brazil, if they have not already done so. The country is growing rapidly and is now the sixth largest economy in the world, with a GDP per head bigger than India or China. Brazil has a population of 200 million, with an expanding and increasingly wealthy urban middle class. With vast energy resources, the country also boasts some big outward-looking multinationals. It is also an important financial centre – the Bovespa, the São Paulo stock exchange, is the most important in the region.
Moreover, the government is strongly encouraging private investment in infrastructure, spurred by the World Cup in 2014 and the Olympics in 2016. And the country is seen as a springboard for legal firms to expand into other Latin American countries such as Argentina, Chile or Peru. Wragge & Co partner Mark Greenburgh says: ‘With the World Cup and Olympics, interest in Brazil and the wider region is mushrooming.’ Despite slower growth predicted this year (under 2% compared to 7.5% in 2010) Brazil’s size means it is still a very attractive market for the UK legal profession, he adds.
Efforts to improve legal links between the UK and Brazil (see box, below) have great potential because, as Tony Williams of Jomati Consultants explains, historically Latin America has tended to be more of a New York law market. This is now changing as trade with the US and Europe is in relative decline and the BRIC countries (Brazil, Russia, India and China) do more business with each other – China is now Brazil’s biggest trade partner.
Williams says: ‘It really depends on where [companies] are looking to invest. For inbound investment, there may be either a preference for local law or New York law; outbound, depending on where you are going and depending on where the assets are, there may be an element of both New York and English law.’ The latter would likely be a choice in English common law African countries, where China has big investments and trade links.
If the prize is worth having, getting into Brazil is not necessarily easy. As Anthony Oldfield, managing partner of Clifford Chance’s São Paulo office puts it: ‘The primary limitation that international firms face in Brazil is the strict demarcation between local law firms and international firms, which is not something we see in many other jurisdictions.’
Under regulations in Provimento 91/2000, foreign lawyers or law firms can only practise international or their country’s law as ‘foreign legal consultants’ advising Brazilian clients on international legal matters. Foreign firms are not allowed to enter into partnership with or employ Brazilian lawyers. If an advogado enters into partnership with a foreign lawyer, they will not be able to advise on Brazilian law and will be treated as a foreign legal consultant.
Sharing fees or equity with a Brazilian law firm is banned, as is any joint marketing with local firms. What UK and other international law firms can do is work with Brazilian firms by referring business to each other and seeking each other’s advice on their respective countries’ laws. As Yves Hayaux-du-Tilly, co-founder of UK business network Latin American Forum, notes: ‘Brazil is quite a protectionist country which has not embraced free trade as some other Latin American countries have.’ The Brazilian Bar Association is ‘quite a powerful organisation’, argues Hayaux-du-Tilly, adding that its 750,000 or so advogados (Brazil has the second largest number of lawyers per capita after the US) ‘would not necessarily embrace competition from foreigners’.
Limits on foreign law firms were recently in danger of increasing further. Last year, the São Paulo division of the Brazilian Bar Association (OAB-SP) – the city with the highest number of foreign law firms – called for the toughening of existing rules. The OAB-SP had concerns about associations between national and international law firms, and believed that in some cases the rules were being flouted. But in October, after a year-long debate, the Federal Council of the OAB unanimously backed the status quo.
This will have come as a relief to some international firms, which hope for further liberalisation. Julia Bateman, head of the Law Society’s international section, said: ‘The current position of the OAB is not to change the rules. We would like to see an opening up of the market but we understand and respect our partner bar, and it is for them to choose.’
Market entry strategies
Some play down the negative impact of regulatory barriers. ‘To some extent the big international firms are used to a range of restrictions all around the world,’ says Williams, pointing to India and China. There is growth for firms offering English law advice to Brazilian businesses seeking access to international capital markets, doing projects outside Brazil, or indeed working with non-Brazilian multinationals, he argues. Twenty foreign law firms are registered with the OAB. The US has the largest foreign contingent while the UK has six: Clifford Chance, Holman Fenwick Willan, and Allen & Overy in São Paulo; Clyde & Co, CMS Cameron McKenna, and Hogan Lovells in Rio de Janeiro.
Clifford Chance opened an office in Brazil in 1998 and is one of the largest international firms operating there, giving advice on English and New York law on cross-border M&A, capital markets, and projects and finance. Oldfield says: ‘We saw the enormous growth potential for this country and Latin America in general.’
Clifford Chance’s Latin American business – which is overseen by the São Paulo office – is growing ‘at a strong and steady pace, and remains very profitable work,’ he notes. ‘Clients across Europe, Asia, the Middle East and North America are looking to Brazil and the rest of Latin America to expand businesses and operations, and increasingly, large Brazilian financial institutions and corporates are looking at opportunities overseas.’ Among them are state-controlled Banco do Brasil which Clifford Chance is advising on all of its international debt issues and on the recent NYSE listing of its common shares; and Brazil petrochemical company Braskem, which Clifford Chance advised on its first acquisition in the US, the $350m purchase of Sunoco Chemicals.
Instead of opening an office, insurance and reinsurance specialist Kennedys opted for a ‘best-friends’ association with a local firm, Marcellino & Associados (TM Law) – also an insurance and reinsurance expert - which has offices in São Paulo and Rio. Senior partner Nick Thomas explains that, in keeping with Brazilian rules, Kennedys and TM Law do not share profits. The advantage is providing a better service to Kennedy’s clients, whom it can refer to a trusted local legal firm when they need specialist legal advice.
Brazil has fast-growing markets for insurance and reinsurance since they were opened in April 2008 to foreign players after years of state monopoly. Lloyd’s has since established itself in Brazil and is now the largest foreign reinsurer. ‘We are getting more and more work in Brazil,’ says Thomas. ‘Since deregulation many more of our non-Brazilian insurance clients have entered the Brazilian insurance market and they want to go to their favoured lawyers to help them with claims.’
Another firm active in Brazil but without an office there is Freshfields Bruckhaus Deringer. The Brazilian practice, which consists of some 50 lawyers, including 20 partners across 19 offices, has grown six-fold in five years, says corporate partner David Sonter. ‘Much of that growth is the result of our focus on areas in which we can add real value for clients, including in commercial arbitration disputes, mergers and acquisitions with international aspects, financing and international regulatory matters, such as tax and anti-trust,’ he adds.
Strengthening trade links
In October the Law Society led a delegation of UK law firms, including Wragge & Co, LG and White & Case, to São Paulo. The trade mission coincided with the Lord Mayor’s trip to the country and followed calls from prime minister David Cameron to strengthen trade links. The UK aims to double annual exports to Brazil to £4bn by 2015.
The Brazilian Bar Association (Ordem dos Advogados do Brasil or OAB), visited London in September to sign an agreement with the Society to discuss how to promote business between the two jurisdictions. This will lay the ground for the launch of a new Britain-Brazil bilateral law association next March.
Julia Bateman, head of the Society’s international section, says: ‘Brazil is one of our priority jurisdictions. There is a huge range of business opportunities at the moment including a big focus on sport infrastructure.
‘The Society has had links with the Brazilian Bar Association for a number of years. But we wanted to formalise our arrangements to look at how we might bring our members together to facilitate networking and relationship building because that is really where all business starts.’
In a bid to boost exports of legal services, worth £3.6bn in 2010, the Law Society also used the trip to promote London as a centre of excellence for resolving international disputes, and encourage the use of English law for commercial contracts. The Rolls Building, the new court complex specialising in financial, business and property litigation, is proving a powerful draw.
This is part of the Unlocking Disputes campaign backed by the Society, Bar Council and lobby group TheCityUK.
For cross-border work, Freshfields relies on ‘strong relationships’ with well-known local law firms, regularly working alongside TozziniFreire, Machado Meyer and Mattos Filho. Teaming up with Machado Meyer, Freshfields recently advised Brazil’s Ultrapar Participações, which is listed on the New York and São Paulo stock exchanges, on its acquisition of Texaco’s Brazilian fuels distribution business. With Mattos Filho, Freshfields also advised BG Group on the $1.8bn sale of Comgas, a São Paulo gas distribution company.
Wragge & Co is similar in that it has no formal alliance with any law firm in Brazil nor does it intend to open an office there. Greenburgh says an office would still leave the firm unable to practise Brazilian law and would be seen as mounting competition with local firms, ‘killing your referral work’.
Wragge has a number of Brazilian law firm ‘friends’ because, as Greenburgh explains: ‘Sometimes there may be a conflict or the fee level may be wrong for that particular client, so it always pays off to have a choice.’ São Paulo’s TozziniFreire, which is a co-partner in the World Law Group alliance of independent law firms; Pinheiro Neto Advogados, one of Brazil’s largest firms with offices in São Paulo, Rio de Janeiro and Brasilia; and Siqueira Castro Advogados in Salvador da Bahia; are among Wragge’s ‘amigos’. Greenburgh explains: ‘The key to doing business in Brazil is to partner with a local enterprise because they will be your eyes and ears on the ground. They will know the system and they will navigate the barriers much more effectively than you will ever do remotely.’
Consumer and branded products including luxury goods offer substantial opportunities to service global clients – among which are Dyson and Arup – with corporate, intellectual property and brand protection advice, says Greenburgh. The firm recently helped UK luxury car-maker Aston Martin establish a dealership in São Paolo. Greenburgh also points to new potential business linked to the booming real estate sector, including shopping malls, and infrastructure, such as hospitals and prisons.
If the Law Society’s visit in October was a profile-raising exercise, there is one firm which has managed to do that with a case linked to a well-known Brazilian politician. Lawrence Graham, a London-based specialist in civil fraud and asset recovery, acted for the government of Brazil and the municipality of the city of São Paulo in a corruption case involving multimillionaire Paulo Maluf, the former mayor of São Paulo. In November Maluf was found by the Royal Court of Jersey to have taken ‘fraudulent payments’ in connection with a large public works project: $10.5m was sent offshore to an account in Jersey.
Partner James Sidwell says the Municipality of São Paulo instructed LG in 2005 because of its ‘top-class asset-tracing capability’ and highlights the importance for the export of UK legal services for an English firm to be involved in a case like this. ‘It’s been on the front pages of every Brazilian newspaper,’ says Sidwell. LG has a Brazil-dedicated team in London that focuses not just on disputes and litigation but also on corporate work. But even though it does not have an office in the country, the message is the same: building links is crucial. ‘We try to get on the ground, we see people. The entire thing is relationship-driven,’ says Sidwell, adding that LG has a ‘non-exclusive’ association with Rio de Janeiro’s Motta, Fernandes Rocha.
Also part of the Society delegation to Brazil was James Macdonald, a consultant solicitor at London’s two-partner corporate and commercial firm Merchant Legal. Macdonald worked for five years - four in São Paulo - for Brazilian law firm Noronha Advogados. Macdonald sees ample scope for smaller firms like his. ‘I think there are going to be a lot of English law contracts running out of Brazil and people who want to have them done more cost-effectively than the City firms would do them,’ he says.
But anybody seeking a future in Brazil needs to be patient, he suggests, saying his own firm is taking a long-term view. There are other barriers to business in addition to the specific restrictions on foreign law firms: notably including an unpredictable and complex tax system.
Oldfield says: ‘The challenges are similar to those any business setting up here would face: taxes, rules and regulations, language, and understanding and respecting the Brazilian culture and way of doing business.’ Even speaking Portuguese, argues Macdonald. ‘They really like it, even if you can only speak a little bit.’
So is it au revoir gloomy old Europe, and bom dia Brasil? Perhaps. Says Williams: ‘I think UK firms will achieve a significant client base – whether that’s captured in Brazil or captured as the Brazilian clients move more internationally is less clear.’
Marialuisa Taddia is a freelance journalist