North Korea’s belligerence casts a long shadow over its southern neighbour. But South Korea has shown it can develop and thrive despite the tension across the 38th parallel. It is, many insist, a good time for UK law firms to be thinking about South Korea. Although the country has not escaped the global downturn, the manufacturing-driven economy remains the fourth-largest in Asia and the 12th-largest globally, boasting some of the world’s best-known brands, including Hyundai, Daewoo and Samsung.
South Korean corporations are assertively expanding abroad and the country recently signed free-trade agreements with its main trading partners, including the UK, boosting potential investment. As part of this liberalisation process, Seoul is opening the country’s legal services market – estimated to be worth about $2-3bn, according to UKTI. English law firms – some of which are already established advisers to South Korean corporates on international deals and disputes – can now open representative offices in South Korea.
Herbert Smith Freehills (HSF) dispute resolution and construction partner Tony Dymond, whose firm is opening an office in Seoul in April, is upbeat about South Korea: ‘It’s a huge outbound [investment] market and that’s really what makes it exciting for the English law firms,’ he says.
‘And it is an economy which invests in a lot of quite difficult jurisdictions where [Korean] clients need a lot of hand-holding,’ he adds, pointing to resource-rich parts of Asia, such as Burma, or Myanmar, and Africa, where English law firms can offer their expertise in advising on energy, natural resources and infrastructure projects.
No ‘big bang’So what are the main challenges for foreign law firms starting out or expanding in South Korea?
As Benjamin Hughes, formerly senior foreign attorney and co-chair of the international dispute resolution group at top South Korean law firm Shin & Kim, warns: ‘South Korea is a tough nut to crack.’
First, liberalisation of South Korea’s underdeveloped legal services market will be gradual – not a ‘big bang’. The first stage began with the EU-Korea FTA, which came into force in July 2011, allowing EU firms to establish a representative office in South Korea. The second stage is due to start in the second half of 2013 when foreign law firms will be permitted to fee-share with their Korean counterparts. It is only in the third and last phase, to begin no later than 2016, that foreign lawyers, who can only practise in the country as foreign legal consultants, will be allowed to enter into partnership with, and employ, South Korean lawyers.
For some, this gradual approach means lost business opportunities. Marine group partner Michael Kim, chief representative of DLA Piper’s office in Seoul, says the firm receives many requests for advice on South Korean law from its global clients doing business in South Korea that the firm cannot satisfy. ‘Because we are not yet allowed to practise Korean law we have to refer our international clients to the local firms all the time. It is an inconvenience,’ he says.
Second, it is not easy getting the right people into UK firms’ South Korean offices. This is compounded by the fact that the main competitor – the US – enjoys a number of natural advantages in this regard due to strong historical links.
Only three of the 14 foreign firms which have so far obtained approval from the South Korean Ministry of Justice to establish a Foreign Legal Consultant Office, are UK firms: Clifford Chance, DLA Piper and HSF. The rest are from North America. The same picture is evident in applications.
The chief representative of a foreign firm’s office in South Korea must have qualified in the firm’s home jurisdiction and practised there for a minimum of seven years. And it so happens that most South Koreans who qualify abroad do so in the US.
Dymond, who received Foreign Legal Consultant approval from the MoJ in October 2012, says: ‘Most of the US firms have opened with South Korean nationals who are US-trained, but when you look at the UK legal market there are comparatively few English-qualified South Korean lawyers.’ Clifford Chance’s approach has been to place as second-in-command at the Seoul office a South Korean national, Hyun Kim, who is a US attorney.
The HR problem may be short-lived though. Come 2016 UK firms will be able to hire South Korean lawyers and they should find plenty of willing candidates. The number of Korean lawyers is expected to double in the next six to seven years, following the liberalisation measures and reforms to South Korean legal training in 2009. And although there are currently only about 12,000 South Korean lawyers in a country with a population of 50 million (a tiny number by UK standards), there is already a shortage of work for them. As Jasper Kim, professor at the Graduate School of International Studies at Ewha Womans University in Seoul, and founder of the Asia Pacific Global Research Group, notes: ‘Many recent law graduates are facing difficulty in finding attractive jobs in the legal sector and foreign law firms can certainly fill the gap.’
Pricing, due in part to lower Korean wages, is another challenge.
‘South Korean clients are very cost-sensitive,’ says Hughes. ‘They want to cap their exposure. So you see a lot of success-fee arrangements. Foreign firms here will have to be creative in terms of how they structure their fees.’
Law firms should also be mindful of South Korean companies’ top-down management style. As Graeme Warburton, legal director at national firm Addleshaw Goddard and chairman of the British Korean Law Association, notes: ‘The decision-making process is very hierarchical and it’s done by committees, rising up the hierarchy.’
Entry strategies UK law firms that have, or are about to, open a representative office in South Korea may be in the minority, but this gives a misleading picture of the true scale of business already being done with the country. In total, Korean companies and government paid around US$1.1bn to foreign law firms for their services in 2011, according to UKTI. As Law Society president Lucy Scott-Moncrieff states: ‘An awful lot of UK law firms do work in Korea without being based in the country and so [current physical presence] is not an indication of the amount of work that is being done there.’
Clifford Chance has been doing business in Korea for more than 30 years, but in October took the plunge and became the first UK firm to open a representative office in Seoul. According to counsel Brian Cassidy: ‘Opening an office is a natural step for us. It will help us create stronger and closer relationships with our existing clients, and help us develop relationships and service new ones – both Korean clients looking to invest outbound and international clients with Korean interests.’
Although ‘committed to long-term, sustained growth’, the firm will for now maintain a small office in Seoul comprising 11 lawyers, says Cassidy. He and Hyun Kim will lead the team, which will focus on advising Korean clients on capital market transactions (recently the firm advised on four such deals worth $2.35bn), M&A, banking and finance (including project finance, and arbitration).
Cassidy says his involvement with Korean companies operating in the energy sector, including in oil, gas and clean energy, has increased in recent years. In clean energy, Clifford Chance recently advised Korea’s Hanwha Group, one of the world’s largest solar manufacturers, on the purchase of the assets of German photovoltaic company Q-Cells.
DLA Piper opened its Seoul office in January. Like Clifford Chance, the global firm already had a substantial business in South Korea, where it advises on transactions in the corporate sector, and litigation and arbitration, including in shipping, outside South Korea. But, as Michael Kim notes, a base in Seoul will make it easier for DLA to market itself to new and existing clients, which include Hyundai, Samsung and STX Group. It will also be much more convenient for clients. ‘In the litigation process we can invite our clients to our office to take their statements and go through all the difficult issues with them,’ he says.
With its Seoul office, Herbert Smith Freehills can offer ‘an end-to-end service for clients,’ says Dymond who, in common with other UK firms the Gazette spoke to, adds that the main focus is outbound investment. ‘The idea is to join up the legal advice on the ground in Korea where the client is with the teams in the relevant jurisdiction where a transaction or dispute is happening,’ he explains. For example, HFS is advising Korean corporates and state-owned enterprises – including Korea Electric Power Corporation, Kogas, and steelmaker giant Posco – with respect to energy resources and infrastructure projects across the world.
There are potential downsides to opening an office as both international firms and large Korean firms do outbound investment, capital markets and international arbitration work.
UK law firms, including HSF and DLA, have been working in an ad hoc, informal fashion with Korea’s top firms Kim & Chang, Lee & Co, Bae Kim & Lee and Yulchon. But Dymond notes: ‘Once you enter a market, you are going to be viewed differently by the players who are already present there.’
That is one reason why Addleshaw Goddard, which has been acting for Korean clients involved in international projects and disputes in the construction industry for 12 years, does not plan to open an office. As Warburton puts it: ‘We are quite confident and comfortable that the relationships that we have with the large Seoul-based practices are sufficient at the moment. Opening an office would probably undermine those relationships.’
Warburton notes that the number of Korean corporates approaching the firm directly – as opposed to business obtained through a Korean firm – has been on the increase. This is recognition for Addleshaw’s long-standing commitment to Korea, and the relationships it has built, he asserts. ‘Clifford Chance and DLA may be on their doorstep, but it does not mean to say that Korean clients are going to drop everybody else. As well as the business relationship, in Korea it’s the relationship between individuals that is important.’
Plus, Warburton argues, ‘the fact they know you are making the effort to fly all the way over there can really work in your favour.’
While top Korean firms may end up becoming competitors, Hughes predicts there will instead be ‘a lot of co-operation’ between UK firms and small to mid-size Korean players, which include Kim Chang & Lee, Jipyong Jisung, Hwang Mok Park, Barun Law, and Cho & Partners , once this is permitted from later this year. In 2016, on top of fee-sharing, mergers and acquisitions with local firms will also be an option for foreign firms.
With a view to either collaborate with foreign firms or to compete, small to medium-sized Korean law firms are preparing to scale up. ‘A notable portion of Korean law firms have or are activily exploring the option of merging with other local law firms to gain critical mass,’ Professor Kim notes.
Making the moveClearly, establishing or ramping up operations in Korea is a big decision for UK law firms, but there are some good reasons to make that move. Scott-Moncrieff argues that its not just English firms’ skills and expertise in helping clients put together cross-border deals that is highly valued. ‘Our reputation for being user-friendly, speedy and very commercially minded in terms of both litigation and alternative dispute resolution is second to none,’ she states.
English law is certainly popular in Korea. DLA Piper’s Kim, who advises on shipping and shipbuilding contracts and disputes, says English law is ‘in a very dominant position in this sector’. South Korean business people like the element of ‘predictability’ of the English case law system, which enables them to make decisions quickly.
Chul-Won Lee, a Korean attorney in the international arbitration and cross-border litigation practice group at South Korea’s largest law firm, Kim & Chang, notes that English law is also ‘widely used as the governing law’ in other areas where South Korean corporates are expanding such as finance, insurance, international sales and construction. English law also has a ‘significant influence’ on the legal system of Commonwealth countries with common law systems, such as India and parts of Africa, he adds.
This is driving an increasing demand for South Korean lawyers who understand English law. Lee was the first of two Korean lawyers to be admitted as a solicitor in England and Wales through the Qualified Lawyers Transfer Scheme (QLTS), since Korea became a recognised jurisdiction in 2011. He tells the Gazette that he has since been contacted by many young Korean lawyers about this scheme, which provides a fast-track route to qualification.
So UK law firms may feel outflanked by the transatlantic competition in the short term, but looking to a slightly more distant horizon, the prospects in Korea look good. Which happens to fit well with Korea’s Confucian values. Says DLA Piper’s Kim: ‘You have to see the market as a long-term investment. You have to be patient. You have to keep going, and be there like a trusted friend.’
- For more information on joining the Law Society’s international section see the Law Society website.
Marialuisa Taddia is a freelance journalist
New mediation centre
English law for business contracts is popular and on the increase among Korean companies, but Herbert Smith Freehills’ Tony Dymond notes there isn’t a ‘predisposition to come to London to litigate and arbitrate among Korean corporates’. Observers point to more conveniently located dispute resolution centres, such as the Singapore International Arbitration Centre, which is especially popular for resolving maritime disputes.
And, with exports accounting for more than 50% of Korea’s economy, Professor Jasper Kim from the Graduate School of International Studies at Ewha Womans University notes that ‘finding a way to settle disputes with offshore counterparts through arbitration or mediation is increasingly viewed as a viable option’.
Enter the Seoul International Dispute Resolution Centre (IDCR), which is officially set to open its doors in the Seoul Global Center on 17 April. The IDRC, supported by the Korean Bar Association (KBA), the Ministry of Justice, the Korean Commercial Arbitration Board, and the Seoul Metropolitan Government, has been established ‘to meet growing demand for alternative dispute resolution in Korea and the Asia region’, says Sean (Sungwoo) Lim, head of the international dispute resolution practice group at Lee & Ko. Lim says that, with the rise of Hong Kong and Singapore as international dispute resolution venues in Asia, global competition to become the hub of choice is ‘intense’. But with Seoul located at the crossroads between the US, Japan and China, he believes ‘there is great potential for becoming a crucial dispute resolution venue for international disputes between parties of these countries’.
So is IDRC good or bad news for London as a centre for dispute resolution? The London Court of International Arbitration (LCIA) will be one of four arbitral institutions to have an office in the IDRC. As Scott-Moncrieff says: ‘It’s like an outpost in Seoul of the LCIA. A Korean company that wanted to arbitrate using the rules of the LCIA could agree that in its contract, but the actual resolution of any disputes could take place in Seoul [instead of London].’
Strengthening trade links
The UK is the EU’s second largest exporter to Korea (after Germany), and there are 200 Korean companies in Britain, including 15 listed on the London Stock Exchange. So it is no surprise that South Korea is regarded as an important jurisdiction for the Law Society and its members.
Last November, president Lucy Scott-Moncrieff visited Seoul to sign a memorandum of understanding with her counterpart, Dr Young-Moo Shin, at the Korean Bar Association to build further on links between Korean lawyers and solicitors in England and Wales. The KBA and Chancery Lane will hold joint seminars and training events in Korea and the UK over the next three years. ‘This will facilitate good working opportunities for our members,’ says Scott-Moncrieff.
The Society was involved in the negotiations for and implementation of the Korea-EU FTA on behalf of the legal profession, notes Scott-Moncrieff, and, as part of its ongoing relationship with the KBA, Law Society representatives will return to Seoul next month, while a delegation of Korean lawyers will visit the UK in July.