As Japanese and English lawyers boost relations by signing a friendship agreement, Jeremy Fleming discusses the benefits of soon-to-be relaxed practice rights in a country where legal demand currently outstrips supply

For a nation where courtesy is all, it is perhaps appropriate that Japanese and English lawyers came together recently to sign a friendship agreement.

The agreement between the Law Society and Japan's largest commercial bar association - the Tokyo-based Dai-Ichi - aims to solidify relations ahead of the proposed liberalisation of practice rights in Japan (see [2003] Gazette, 2 October, 5).

It is one of the key jurisdictions where big City law firms are keen to break down the barriers to practice so they can employ and go into partnership with local 'bengoshis' - as Japanese lawyers are known.

Paul Browne, a Simmons & Simmons partner who relocated to the Tokyo office last year to launch a financial markets practice there, says the move should open a line of communication that was not formalised in the past.

The agreement comes at an important time.

Robin Nadler, an associate at Linklaters' Tokyo office, says: 'Legislation was passed in July 2003 to permit partnership being formed between registered foreign lawyers and Japanese lawyers.

The law will be implemented within two years.

'The law also permits, when implemented, registered foreign lawyers to employ Japanese lawyers, although there are some restrictions on the activities of employed Japanese lawyers.

The details of the implementation will have to be worked out mainly by the Japan Federation of Bar Associations.'

Mr Browne says that although the exact timing of the implementation of the laws appears to be under discussion, 'our understanding is that the change in laws is fairly imminent'.

Rob Burley, Clifford Chance's managing partner in Tokyo, has been in the Japanese capital for ten years.

He says some parts of the legislation remain to be clarified.

'At the moment it is unclear, for example, whether bengoshis would be permitted to become full partners within a global partnership, or only partners within the Japanese branch of an international partnership,' he explains.

This could have ramifications for whether the lawyers would actually want to join such partnerships.'

The Law Society has been at the forefront of lobbying efforts for several years.

International director Alison Hook is 'very happy' with progress, which she says 'strengthens our hand elsewhere' in Asia, where other countries are resisting partnership with, and employment by, foreign lawyers.

Some might find the popularity of Japan with English law firms surprising, since - despite its position as the world's third largest economy - Japan has had ten years of economic downturn.

Mr Burley says some sectors always flourish.

He says the derivatives market is vibrant in Japan at the moment and there is an increasing drive for management buy-outs and leveraged buy-outs.

Meanwhile this autumn, Linklaters advised Vodafone Group when it sold Japan Telecom - its fixed-line business in Japan - for $2.2 billion (1.4 billion) to US private equity fund Ripplewood Group, a deal on which Clifford Chance acted for the banks.

Mr Nadler says: 'The deal was the largest leveraged buy-out - meaning the deal was largely funded by bank borrowing - in Japan to date, and one of the largest merger and acquisition transactions in Japanese corporate history.'

According to Mr Browne, competition among the larger English law firms with offices in Japan is strong.

He says: 'No single English law firm dominates the market, although some are doing markedly better than others.

'The English law firms that are doing the best in Japan are those that have been able to successfully leverage off their global relationships to win transactions from global clients that are active in Japan, and those that have formed successful qualified joint ventures with Japanese law firms or lawyers and are able to offer a combined English and Japanese law capability.'

Perhaps it is not surprising he says this, given the joint venture that Simmons has in Tokyo, the closest relationship possible with local lawyers under the current rules.

Most law firms have built joint ventures in Tokyo; Ashurst Morris Crisp was one of the most recent a year ago; because foreign firms may not employ Japanese lawyers, Shoji Ushijima and Ykiko Mitsuhashi established a Japanese firm under the name Ashurst Tokyo Law Office, which operates from the City firm's office.

Mr Browne acknowledges that, overall, work levels are 'slightly down' at the moment.

But he says Simmons & Simmons has recently been instructed on a number of large finance transactions, 'which we expect to carry us through to the next upward trend'.

He adds: 'We are very optimistic about the prospects for next year.

We believe we are very well placed to significantly increase our share of the market.

We have the largest qualified joint venture in Japan and still the only qualified joint venture between two major law firms.

This gives us the ability to advise on transactions which few other single firms in Japan can do.'

Mr Nadler says: 'It is interesting to note that UK firms are significantly larger than their US counterparts in Tokyo, despite the generally closer trading links between the US and Japan.'

Mr Browne notes that a significant proportion of international transactions, originated in Japan or involving a Japanese party, are governed by laws other than the law of Japan.

He says: 'The main beneficiaries of this have been the English and the US law firms.'

The market is expanding, says Mr Nadler: 'The number of lawyers operating here is less than demand and this is likely to remain the case in the foreseeable future.

It is also clear that any relaxation of the regulatory regime will give a significant boost to the foreign firms operating in the market, many of which are already very successful here.'

However, working in Japan requires some skills that might not be part of every City lawyer's make-up.

Mr Nadler says: 'It is important to demonstrate a high degree of cultural sensitivity - one must use the right channels when responding to a client and correctly identify who needs to be kept informed of progress.

This is particularly important when there is a need to drive a deal forward quickly, without appearing too aggressive to your counterparts.'

Another important factor, Mr Browne says, is language: 'Naturally, Japanese is the native written and spoken language, and while the majority of our work is written in the English language, it is nevertheless often very helpful to be able to communicate in Japanese.

Accordingly, certain members of our office are bilingual.'

On the cultural side, he says Japanese society is different in many ways to Western society and, 'although there is a very generous level of tolerance for Westerners, nevertheless one needs to be aware of certain Japanese customs and etiquette, including how to deal with Japanese clients on a personal and professional basis'.

Lawyers seem to enjoy working in Japan.

Mr Burley says: 'A lot of people would say that it's a quiet, safe, respectable, polite and helpful society in which everything works and the weather's great.' One downside, he admits, is that it's a long way to travel to anywhere.

Mr Browne lists among the advantages of working in Japan, 'the opportunity to work in a different and challenging environment, and being exposed to new experiences on both a personal and professional level; the unquestionable friendliness and hospitality of Japan, and its high standards in relation to providing services to clients and customers'.

Mr Nadler - who has worked previously as a lawyer in the US and Australia - says: 'There are relatively few lawyers in the market and the profession occupies a prestigious position in Japanese society.

Many lawyers therefore find their client contacts are friendly and courteous.

Overall, I have found working in Japan to be a very fulfilling and happy experience.'

English law firms in Tokyo

Allen & Overy;

Ashurst Morris Crisp;

Clifford Chance (Tokyo) LLP;

Denton Wilde Sapte Kashio Law Office;

Freshfields Bruckhaus Deringer;

Herbert Smith;

Linklaters Gaikokuho Jimu Bengoshi Jimusho;

Lovells;

Simmons & Simmons (in association with TMI Associates).