Chasing Spanish gold

Spain is no longer an economic backwater and city firms are showing increasing interest in the work it is generating.

Paula rohan hears how a new association will cement links

The trouble with the Spanish, Stuart Percival says, is that they are always late.

A meeting scheduled to start at ten o'clock won't actually begin until eleven.But when they eventually get around the table, they make up for lost time.

'The Spanish way of doing business is to be open and frank,' the Madrid-based head of the English legal finance practice at Clifford Chance says.

'People will state what they want, without any beating about the bush.' One wonders whether the Lord Chancellor, Lord Irvine, experienced this when he met the Spanish minister of justice a few months ago.

One of the purposes of the meeting was to discuss the prospect of a British/Spanish Law Association to form links between the 12 UK firms practising in Spain, and the four smaller Spanish firms currently operating in London.

In Spain are Allen & Overy, Ashurst Morris Crisp, Clifford Chance, Davies Arnold Cooper, Denton Wilde Sapte (through its network), Freshfields Bruckhaus Deringer, Linklaters, Lovells, Osborne Clarke, SJ Berwin, Simmons & Simmons, and Stephenson Harwood.

It may have been a while coming - though no one is blaming Spanish tardiness for this - but it will be a welcome development for the British firms that have been making inroads into Spain since the late 1980s.

As Alberto Perez Cedillo, chairman of the association's interim committee and managing partner in Fernando Scornik Gerstein's London office, explains, there has been much to learn as Spanish firms are 'old fashioned' in their practices.'Spanish firms tend to be smaller, and this is mainly due to lack of management,' he says.

'Their lawyers are highly academic, studying for five years and then coming in with no experience, and without the benefit of a system of articles.

As a result, there is lack of a commercial approach and tradition of well-managed firms.'It is not just the set-up of Spanish firms that is antiquated, Mr Cedillo adds.

'There is little regulation in terms of conduct or insurance,' he says.

'There is no single regulatory body like the Law Society, and, until recently, it was surprising to Spanish firms that over here we do things like charge by the hour.' However, over the past few years Spain has not just been catching up quickly, but overtaking many of its European counterparts.

The invasion of foreign law firms is just one example of how the Spanish are learning from their neighbours.

Since the socialist government - which looked to be sitting tight after a 13-year stretch in power - made way for the new centre-right, pro-European administration four years ago, the country has been developing into a leading light in economic and political terms.It must have been a shock to the system for many.

Traditionally laid back and with an economy based on agriculture, Spain is now the focus of attention for multi-nationals that want to set up a European industrial base.

This is mainly the result of its expanses of undeveloped land and a financial policy that has become increasingly laissez-faire over the years.

The government, led by president Jose Maria Aznar, has actively pursued deregulation and privatisation, along with an aggressive involvement in Europe; it was in the first wave of countries to embrace the Euro.

All of this adds up to a healthy confidence for Spanish companies and foreign businesses alike, bringing about a glut of work for the law firms, especially in the growing areas of energy and telecommunications.

But Mr Percival admits that it has not always been easy.

'We saw Spain more than ten years ago as a key plank in our policy of getting to where we thought we should be in Europe, but it is very difficult getting into the market and making yourself known,' he says.Rafael Sebastian, senior banking partner in leading Spanish firm Uria & Menendez, agrees that the initial reaction to foreign firms was negative.

'Ten or 15 years ago, it was strange for a Spanish company to use foreign law firms,' he says.

'There were doubts over their capabilities, and it took time to realise that foreign firms were just as good as Spanish ones.'However, looking back Mr Percival says Clifford Chance's first instinct was 'bang on'.

His firm now covers areas ranging from finance to labour law, with large Spanish companies and banks as its main clients, as well as international companies looking to set up trade in Spain.

The firm has acted on big Spanish deals, including a recent$8 billion US debt programme with Telefnica, and is now a major player - the fifth largest law firm in the country by number of lawyers.

'We started with ten lawyers out here and we now have 130 - the growth has been tremendous,' Mr Percival explains, which is more than twice as many as its nearest UK rival, Freshfields.

'Seventy per cent of our clients are Spanish - mainly big companies or banks - and the cases we deal with are all invariably related to legal matters in Spain.

We don't have to rely on an international network; our main focus now is as a Spanish law firm.' However, the British way of working has helped in light of the 'gradual changes'.

He says: 'In 1989, there was the first requirement for companies to prepare their accounts and have them registered.'Then there was the regulation of the stock market.

Now there is increased activity in the area of mergers and acquisitions, and securitisation.

It has all been developing and becoming increasingly complex - in terms of both products and players, the market has changed.

It all means more work for us, and because of the way the Anglo-Saxon market works, we have the expertise and we know how to apply it.' Kenneth Bonavia, managing partner of City firm Stephenson Harwood's long-established Madrid office, says the market has changed significantly in the past few years.

Though his office is flourishing, with record profits last year, and he has almost doubled its staff in the same period - from 12 to 22 lawyers - he is finding it much more aggressive recruiting; with the increasing presence of Anglo-Saxon firms, 'competition is getting fierce'.

Spanish clients are also getting more sophisticated, says Mr Bonavia.

He says: 'There is now a fierce pressure on fees, and clients are no longer loyal to one law firm.' Apart from US firms Jones Day Reavis & Pogue and Baker & McKenzie - which are already established in the country - other US firms are increasing their personnel on the ground in Spain, while they work on various large capital markets deals, and set up temporary offices, Mr Bonavia says.

He would not be surprised if more US firms eventually move to create permanent offices soon.

The market has inevitably begun to get crowded.

Mainly over the last two to three years, Clifford Chance has been joined by several competitors, though it is still seen as a leader because of its broader workload - from both England and the US.

They have all been faced with the same initial problem.

Quality of service, as Mr Sebastian emphasises, is the key to building respect and the resulting client base.

The firms have taken different avenues towards making their mark.

While a few have scouted around for mergers - Linklaters originally looked set for a partnership with Mr Sebastian's firm - the main trend has been to try and build the expertise from within.

'We have grown organically, taking on a large number of Spanish lawyers rather than buying up a Spanish firm,' he says.

One of the biggest coups was when SJ Berwin lured Carlos Pazos from B Cremades y Asociados to head its Madrid office, forming SJ Berwin Pazos Gallardo y Asociados.

But despite the poaching of staff, Mr Sebastian maintains that Spanish firms see little threat from the English/US invasion in securing clients.

'Mainly, the foreign firms are competing between themselves over capital markets, securities and project finance work,' he says.

'Because they are mainly facing competition from each other, we have no problems with them or any others that want to come over here.' In fact, if anything, Mr Sebastian says the influx has had a positive impact on how the Spanish firms work, so there are 'no hard feelings'.

He says: 'It has helped the competition in Spain, and has made Spanish firms provide better quality work and become more aggressive.'Mr Cedillo agrees.

He says that Spanish firms are learning from foreign ones, and that this will reflect on the legal system as a whole.

'It may affect things such as legal aid, which is completely different to over here because you get funding but then can't appoint your own lawyer - the court appoints one for you.

Then there is the complex court structure, which makes litigation much slower.

In fact, law reform in Spain is slower on the whole.'But for smaller provincial Spanish law firms, the changes have not made an impact.

Law firms practising in Spain base themselves in Madrid - the country's capital and major place of financial and banking activity - and Barcelona, the country's main industrial centre.

Most of the law firms have offices in both, and so far have felt no need to branch out elsewhere as 'the volume of work would not be sufficient', Mr Percival says.However, they will currently take on the work if it crops up, outsourcing from their city offices.

'We have undertaken work in the Basque country financing structures for local government, and in Valencia we did bond issues for universities,' he explains.

It seems only a matter of time before British firms manage to establish a solid domestic clientele in Spain.

'For now, companies are still relying on Spanish firms to a large extent, although I don't know how long this will last,' Mr Cedillo says.

'The local market is going to be very attractive in the next ten years.

Spain is moving so fast now, it has great potential for development.' Mr Cedillo hopes that the new association will be one way of educating Spanish firms so that they can make a similar impact on the British market.

For a country with a legal system that is slowly waking up, it will be a case of better late than never.l For more details on the association, which launches on 25 July, call the Law Society, tel:020 7320 5773, or e-mail: angela.o'grady@lawsociety.org.uk