"It's a new era for the law. We're putting the past behind us!"*
Law firms with a presence in Saudi Arabia are weighing their options after regulations handed down by the Kingdom ripped up the way they have been doing business in the region for decades.
Until now, foreign firms which wanted to advise on Saudi law were required to enter an agreement with local licenced lawyers, in tie-ups which were usually termed as an 'association', 'partnership', 'co-operation', or 'affiliation'.
That structure was "fraught with issues", said K&A, a Saudi firm which used to be "in partnership" with Allen & Overy until they consciously uncoupled in 2020.
Whereas one foreign firm's local partners might choose to represent themselves as employee of their own Saudi firm, others positioned themselves as partners in the foreign firm. "From a client perspective, clients were often confused as to whom they were contracting with", said K&A.
"From an investment perspective, it did not give comfort to international law firms to invest in Saudi Arabia because control was only exercised contractually, and without equity being built in favor of the international law firm over time", added the Saudi firm.
"The association model often causes, or can cause, issues", conceded Stuart Paterson, HSF Middle East managing partner told law.com in an interview last year.
The new regime has taken an axe to that model by requiring foreign firms in Saudi to terminate their local agreements no later than May 2023. Brought in under the Saudi Code of Law Practice, the rules are aimed at increasing opportunities and earnings for KSL lawyers.
Foreign firms have three options, one of which is to leave. Alternatively, they can set up a branch office they own 100%, but which can't dispense Saudi advice. Or, if they want to advise on Saudi law, they will need to structure their office as a joint venture with local lawyers, who must own at least 25% of the local LLP.
Foreign firms with limited ambitions in the region, or which prioritise keeping a tight grip on the ownership reigns, are likely to plump for a branch office which farms out its Saudi work, perhaps to their former 'associated' local firm. Whereas those which are keen to offer a full, in-house service will opt for the JV.
In either case, foreign firms will have to pay tithes of knowledge and wealth to the Kingdom. Under both set-ups, the new laws require that two partners must live in Saudi and at least 50% of the office's lawyers must be Saudi nationals. In addition, work related to Saudi law must be done in the Saudi offices, and at least 70% of fees generated by the office must stay within the Kingdom.
Before all that, the foreign firm must submit itself to a prestige test. To obtain a licence to retain any kind of presence in the Kingdom, foreign firms must satisfy the Saudi Ministry of Justice as to their reputation, experience, client base and international profile.
A source said Norton Rose Fulbright has already terminated its association with Mohammed Al-Ghamdi, its local Saudi partner, although the firm was circumspect about the precise details. A spokesperson told RollOnFriday, "We have a long history in the Middle East. There is a new regulatory and licensing regime in Saudi Arabia as applicable to international law firms whereby all current associations will end by 31 May 2023. In view of these changes and like many other law firms, we are considering several options in the region as we assess our client needs in the Middle East".
Several firm expressed approval of the new regulations, which they said should bring much-needed certainty to the Saudi legal market. "It has numerous advantages from our perspective", said Clyde & Co.
Clydes said it was "in a unique position in the Kingdom of Saudi Arabia" as "we are currently one of the few international law firms with its own professional company in KSA", and its Saudi office "is aligned with the structure that is now being recognised by the new legislation. We have 13 years of experience operating under the newly recognised structure".
Herbert Smith Freehills said, "We welcome the impending change to the regime governing professional services in Kingdom of Saudi Arabia, which would enable law firms to change the way they work with clients on Saudi law related matters".
"We remain committed to the region and are currently exploring options to maintain a presence there under the new regulations", said HSF.
Others were still working on their plans. Baker Botts confirmed that it “will continue to have a presence in Saudi Arabia", and that the firm was "currently working through the new regulations". White & Case told RollOnFriday its goal was also to "ensure that we continue to have a presence in Saudi Arabia" and that the firm was "assessing our options".
Like other firms, HFW indicated it would stay, but was not ready to specify what form its office would take. "We have been in Riyadh for more than six years and it remains an important part of our broader Middle East business, working alongside our teams in Abu Dhabi, Dubai and Kuwait City to support clients across the region."
Taking a similar line, Eversheds Sutherland told ROF, "We are aware that the new regulations will mean that we need to change our current arrangements in Saudi Arabia and our intention is to put arrangements in place in accordance with the terms of, and timescales required by, the new regulations."
DLA Piper was even more tight-lipped, confirming only, "We are aware of the new regulations and will ensure we comply."
Other foreign firms were apparently so perturbed at the prospect of commenting on the Kingdom they didn't say anything at all, including Freshfields in association with The Law Firm of Salah Al-Hejailan, Jones Day slipping into the DMs of Ebrahim Alhabardi Law Office, King & Spalding getting mocktails with the Law Office of Mohammad Al-Ammar, Latham & Watkins at Go Ape with the Law Office of Salman M. Al-Sudairi, Linklaters watching Strictly with Zamakhchary & Co, Shearman & Sterling wrestling in front of a fire with the Law Firm of Dr. Sultan Almasoud, Squire Patton Boggs sobbing in the arms of Khalid Al-Thebity Law Firm, and V&E growing old with The Law Office of Looaye M. Al-Akkas.
*One of several reasons why ROF won't be opening a Riyadh branch anytime soon.