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Last Updated: 28 September 2009
THE PROFESSIONAL ‘TUG OF WAR’: THE REGULATION OF FOREIGN LAWYERS IN CHINA, BUSINESS SCOPE ISSUES AND SOME SUGGESTIONS FOR REFORM
ANDREW GODWIN[*]
[This article looks at the regulatory framework governing foreign law firms in China and the unique challenges that this poses for foreign lawyers, Chinese lawyers and the Chinese regulators. The challenges are unique because of the significant gap between, on the one hand, the strict letter of the law in terms of what foreign law firms are permitted to do and, on the other hand, the liberal interpretation and enforcement of the law in practice by the relevant regulatory authority — the Ministry of Justice. The article concludes by considering various models for reform to the regulatory framework and providing suggestions as to the appropriate choices.]
CONTENTS
I INTRODUCTION
In keeping with its
status as the world’s fastest-growing emerging market,
China[1] is now host to
many foreign law firms. These include law firms that have a large international
presence (such as those based in the
United Kingdom and the United States of
America), as well as law firms that include China as part of their regional
presence (such
as those based in
Australia).[2] The
importance of transactions involving Chinese counter-parties and Chinese assets
is reflected both in the revenues that foreign
law firms are generating out of
their China practices and also in the size of their China-based professional
resources.
The context for this article is the regulatory framework governing
foreign law firms in China and the unique challenges that this
poses for foreign
lawyers, Chinese lawyers and the Chinese regulators. The challenges are unique
because of the gap between, on the
one hand, the strict regulatory restrictions
on the permitted scope of business of foreign law firms and, on the other hand,
the
liberal interpretation and enforcement of the regulations by the regulatory
authority. This has provoked a ‘tug of war’
between Chinese lawyers
and foreign lawyers — one that flares up periodically and became
particularly heated and controversial
in 2006.
This article is set out in
seven parts. Part II sets out the background to the current regulatory framework
and places it within the
context of China’s World Trade Organization
(‘WTO’) commitments concerning the permitted business scope of
foreign
law firms. Part III analyses the current regulatory framework as it
applies to business scope issues and outlines the reaction of
foreign law firms
to the current regulations and the practice of foreign law firms in China to
date. Part IV looks at the controversy
that flared up in 2006 concerning
the operations of foreign law firms and compares the perspectives held by the
main protagonists
— namely, the regulators, the local profession and
foreign lawyers. Part V outlines the regulatory regime in respect of
lawyers
from the Hong Kong and Macao Special Administrative Regions
(‘SARs’) for the light that it might throw on the future
reform of
regulations governing foreign lawyers. Part VI identifies certain models for
further reform and Part VII draws some conclusions.
II BACKGROUND TO THE REGULATION OF FOREIGN LAWYERS IN CHINA[3]
A The Initial Framework
The first rules governing
offices of foreign law firms in China were the Provisional Rules of the Ministry
of Justice and the State Administration for Industry and Commerce on the
Establishment of Offices in China by Foreign
Law Firms, which were issued on 26
May 1992 (‘Provisional
Rules’).[4]
Prior to the Provisional Rules, there was no express basis on
which foreign law firms could establish an office in China and many maintained a
presence in the form
of representative offices of consultancy companies pursuant
to the provisions governing representative organisations of foreign companies
in
China.[5]
This avenue
was closed by the Provisional Rules, which provided that foreign
law firms were not permitted to engage in legal service activities in the name
of a consultancy company,
a commercial company or under any other
name.[6]
The permitted business scope was set out in Provisional Rules arts
15 and 16:
Article 15
Offices of foreign law firms and their personnel may undertake the following business activities:
(1) providing consultancy advice to clients on the laws of the country in which the lawyers of the law firm are permitted to practise and on international treaties, international commercial law and international practice;
(2) accepting instructions from clients or Chinese law firms to undertake legal matters in the countries in which the lawyers of the law firm are permitted to practise;
(3) acting on behalf of foreign clients and instructing Chinese law firms to undertake legal matters within China.
Article 16
Offices of foreign law firms and their personnel may not undertake the following business activities:
(1) representation in relation to Chinese legal matters;
(2) interpretation of Chinese law to clients;
(3) other business activities that foreigners are not permitted to undertake
under Chinese law.
The Provisional Rules also provided in art
17 that the offices of foreign law firms were not permitted to employ Chinese
lawyers.[7]
The above
business scope formed the basis for the current rules governing the
‘representative
offices’[8] of
foreign law firms in China. The language of the former Provisional
Rules was similar to the restrictions on foreign lawyers adopted in
Japan,[9]
but much less specific in defining concepts such as ‘representation in
relation to Chinese legal
matters’[10] and
‘interpretation of Chinese law to
clients’.[11] As
a result, ambiguity arose in respect of the interpretation of the
Provisional Rules, which hindered their strict enforcement by the
regulators.[12]
B China’s WTO Commitments
China made specific commitments to open up its market to foreign law firms as part of its accession to the WTO, including the following commitment in respect of the permitted business scope of foreign law firms in China:
Business scope of foreign representative offices is only as follows:
(a) to provide clients with consultancy on the legislation of the country/region where the lawyers of the law firm are permitted to engage in lawyer’s professional work, and on international conventions and practices;
(b) to handle, when entrusted by clients or Chinese law firms, legal affairs of the country/region where the lawyers of the law firm are permitted to engage in lawyer’s professional work;
(c) to entrust, on behalf of foreign clients, Chinese law firms to deal with the Chinese legal affairs;
(d) to enter into contracts to maintain long-term entrustment relations with Chinese law firms for legal affairs;
(e) to provide information on the impact of the Chinese legal environment.
Entrustment allows the foreign representative office to directly instruct lawyers in the entrusted Chinese law firm, as agreed between both parties.[13]
It
is important to note that China’s WTO accession commitments did not
include a commitment to allow foreign lawyers to practise
Chinese law nor a
commitment to allow foreign law firms to employ Chinese lawyers, a point that
has been highlighted by Chinese
commentators.[14]
Instead, their permitted business scope was limited to advising on the laws of
foreign jurisdictions where they were qualified to
practise.
The commitment
to allow foreign law firm representative offices ‘to provide information
on the impact of the Chinese legal environment’
as part of their permitted
business scope was later to prove contentious. It is an inherently ambiguous
concept and does not appear
to have parallels in other jurisdictions. It appears
that it was the result of a compromise between China, who did not want to commit
to opening up the market to permit foreign lawyers to practise Chinese law, and
the European Union (‘EU’), who were keen
to formalise the existing
realities. Given that it was expressly included in the permitted business scope,
EU negotiators appear
to have believed that this would allow foreign law firms
to offer services on Chinese
law.[15]
This was reflected in an overview of the bilateral negotiations between China
and the EU, which stated as follows:
Legal services: foreign law firms will, for the first time, be able to also offer services on Chinese law. In particular they will be able to provide information to their clients on the Chinese legal environment. Concerning other activities in Chinese law (representations before the Courts etc), the arrangements with local law firms have been improved by allowing foreign firms directly to instruct individual Chinese lawyers in these firms. This will allow foreign firms to create a direct link with a Chinese lawyer of their choice, which may in practice be equivalent to full employment.[16]
The understanding of the EU negotiators that foreign law firms would be able to offer services in respect of Chinese law was later contradicted by the express exclusion of ‘Chinese legal services’ from the permitted business scope of foreign law firms in the current rules.[17] Moreover, the expectation that foreign law firms would be able to establish a relationship with individual Chinese lawyers, ‘which may in practice be equivalent to full employment’, was also to prove misplaced.
III THE CURRENT REGULATORY FRAMEWORK
A The Administrative Regulations and the Implementing Rules
On 19 December 2001, the State Council passed the Administrative Regulations on Representative Offices of Foreign Law Firms in China (‘Administrative Regulations’).[18] These came into effect on 1 January 2002. The relevant provision concerning business scope is art 15:
Representative offices and their representatives may only undertake the following activities not including Chinese legal services:
(1) providing advice to clients on the laws of the country in which the lawyers of the law firm are permitted to practise and consultancy advice on international treaties and international practice;[19]
(2) accepting instructions from clients or Chinese law firms to undertake legal matters in the countries in which the lawyers of the law firm are permitted to practise;
(3) instructing Chinese law firms on behalf of foreign clients to undertake Chinese legal matters;
(4) maintaining long-term retainer relationships through contracts signed with Chinese law firms in relation to handling legal matters;
(5) providing information concerning the impact of the Chinese legal environment.
In accordance with the provisions of the agreements entered into with Chinese law firms, representative offices may directly make requests of the lawyers at the Chinese law firms that have been instructed.
Representative offices and their representatives may not undertake legal services activities or other profit-making activities outside the scope of paragraphs (1) and (2) of this article.
On one
interpretation, the effect of the final paragraph of art 15 is that the
provision of advice on the impact of the Chinese legal
environment under
sub-para (5) does not form part of the formal legal services that foreign
law firms are permitted to provide to
clients.[20]
This appears to be inconsistent with China’s WTO commitment, which
included this activity expressly within the agreed business
scope of foreign law
firms.[21]
Further,
the final paragraph excludes sub-paras (3) and (4) from the scope of
‘profit-making activities’. This is also
curious, given that foreign
law firms would expect to charge clients for the time spent in instructing and
liaising with Chinese
law firms, irrespective of whether this formed part of, or
was merely incidental to, the services included in sub-paras (1) and
(2).[22]
Similar to
the position under the Provisional Rules, art 16 of the
Administrative Regulations provides that a ‘[r]epresentative
office may not employ Chinese practising lawyers, and supporting personnel who
are employed
may not provide legal services to clients.’
Encouragingly
for foreign lawyers, the reference to ‘Chinese practising lawyers’
formalised their existing practice, under
which Chinese lawyers employed by
foreign law firms would relinquish their practising certificates in order to
comply with the formalities
of the rules. It also appeared to reflect a shift
from the previous position adopted by the Ministry of Justice, which stated that
foreign law firms could not employ Chinese lawyers (including personnel with
Chinese law qualifications). This suggested that foreign
law firms were not
permitted to employ personnel who had previously qualified as Chinese lawyers,
even if they had relinquished their
practising
certificates.[23]
Less
encouraging for foreign lawyers, however, was the prohibition on the provision
of legal services by supporting personnel. On
a strict interpretation, this
would rule out any involvement by local professionals in client work, even if
such work were undertaken
under the supervision of a registered foreign lawyer.
Such an interpretation would run counter to the practice adopted in many other
jurisdictions,[24]
where non-lawyers are permitted to undertake client work and communicate
directly with clients so long as the ultimate responsibility
for the matter is
borne by a qualified
lawyer.[25]
The
Administrative Regulations were supplemented on 4 July 2002 when
the Ministry of Justice issued the Rules for the Implementation of the
Administrative Regulations
on Representative Offices of Foreign Law Firms in
China (‘Implementing
Rules’).[26]
These came into effect on 1 September 2002.
Article 32 of the
Implementing Rules provides the following definition of the term
‘Chinese legal
services’[27]
(that is, services that registered foreign lawyers are not permitted to provide
under art 15 of the Administrative Regulations):
The following activities shall be considered to be ‘Chinese legal services’ as provided in art 15 of the Administrative Regulations:
(1) participating in litigation proceedings in China in the capacity of a lawyer;
(2) providing opinions or certification[28] on specific issues concerning the application of Chinese law in contracts, agreements, articles of association or other written documents;[29]
(3) providing opinions or certification on actions or events to which Chinese law applies;[30]
(4) in the capacity of an agent, expressing an opinion on the application of Chinese law in arbitration activities;[31]
(5) representing clients in undertaking registration, amendment, application
and filing procedures and other procedures with Chinese
government authorities
or other organisations that have administrative management functions conferred
on them by other laws and
regulations.[32]
Article
33 of the Implementing Rules is also relevant in terms of limiting
the scope of foreign law firms to ‘provide information about the impact of
the Chinese
legal
environment’:[33]
When providing information concerning the impact of the Chinese legal environment in accordance with sub-para (5) of the first paragraph of art 15 of the Administrative Regulations, representative offices and their representatives may not provide specific views or conclusions on the application of PRC law.
Article 33 of the Implementing Rules
appears to rule out the possibility that foreign law firms may indirectly
provide ‘Chinese legal services’ on the basis
of
Administrative Regulations art 15(5). This begs the question as to
what purpose art 15(5) was intended to serve, particularly if it should
have been treated
as part of the permitted business scope of foreign law firms
pursuant to China’s WTO accession commitments. If, as the last
paragraph
of art 15 suggests, the provision of information on the impact of the Chinese
legal environment does not fall within the
permitted business scope of foreign
lawyers, the purpose of art 15 would apparently be limited to preparing
client newsletters and
reporting generally on the impact of the Chinese legal
environment for marketing purposes.
Other provisions of the
Implementing Rules that are relevant for the purposes of this
analysis are art 37, which imposes restrictions on promotional
material,[34] and art
38, which prohibits foreign law firms from using the title ‘Chinese law
consultant’.[35]
Article 39, which governs the relationship between foreign law firms and local
law firms, is also significant and merits a translation
in full:
Article 39
Representative offices and the law firms to which they belong must not engage in any of the following conduct:
(1) directly or indirectly investing in Chinese law firms;
(2) forming practice associations with Chinese law firms or Chinese lawyers to share profits or jointly undertake risks;
(3) establishing joint offices or seconding personnel to Chinese law firms to undertake legal services;
(4) managing, operating, controlling or enjoying equity interests in Chinese
law firms.
The above provision makes it clear that the operations of Chinese
law firms must remain independent of foreign law firms.
B The Reaction of Foreign Law Firms
Initially, the foreign
lawyers in China reacted to the Administrative Regulations and the
Implementing Rules with a high level of consternation. The new
regime triggered meetings of the legal committees of chambers of commerce in
China, such
as the American Chamber of Commerce, and letters of concern to the
regulators.[36] One of
the concerns was that the procedures followed in implementing the regulations
were not WTO-compliant because, unlike local
lawyers, foreign lawyers had not
been provided with a draft of the regulations before they were issued and had
not been given an
opportunity to comment on
them.[37] On its face,
the new regime limited the activities of foreign lawyers to providing advice on
foreign law only and precluded them
from advising on any issue that was subject
to, or governed by, Chinese law. Of particular concern was the impact of arts
32(2) and
(3) of the Implementing Rules and the extent (if at all)
to which this was mitigated by art 15(5) of the Administrative
Regulations.
Some clarification on the interpretation of the new rules
was provided by the Ministry of Justice at a meeting to which foreign lawyers
were invited and which was held in Shanghai on 27 August
2002.[38] No official
meeting notes were prepared in relation to this meeting, but the author’s
own notes suggest that the main concern
of the Ministry of Justice was the
degree to which foreign law firms were advising on Chinese law. No detailed
explanation was provided
as to where the line should be drawn between what was
permitted and what was prohibited. On the one hand, it was made clear that
the
provision of authoritative and conclusive views on the application of PRC law to
specific issues would fall within the prohibition.
On the other hand, the
provision of general advice on issues that were governed by PRC law would fall
outside the prohibition. According
to comments from the Ministry of Justice
representative at the meeting, the basis for the latter was in fact art 15(5) of
the Administrative Regulations, which permitted foreign law firms
to ‘provide information on the impact of the Chinese legal
environment’. The implication
in these comments was that art 15(5) was not
limited to the preparation of client newsletters and other marketing activities
but
could form part of the advice that lawyers provide in the ordinary course of
their activities and for which they could charge fees.
Although this appears
inconsistent with the last paragraph of art 15 of the Administrative
Regulations, the understanding conveyed by the Ministry of Justice
representative was that there was some flexibility for interpreting this
provision.
If this understanding is correct, it may reflect concerns on the part
of the regulators to rebut any claims of non-compliance with
China’s WTO
commitments.[39]
Certain
other points were also clarified. First, foreign lawyers would not be in breach
of the rules by passing on advice from PRC
lawyers in communications with
clients, so long as they made it clear that the information was based on advice
from PRC lawyers.
Secondly, despite the recommendations of PRC lawyers, the
rules did not prohibit foreign lawyers from drafting documents governed
by PRC
law, such as joint venture contracts. Thirdly, irrespective of the effect that
foreign lawyers may attribute to disclaimers
inserted in their
advice,[40]
these were not effective in terms of allowing foreign lawyers to circumvent the
prohibition on providing advice on specific issues
concerning the application of
Chinese law. Finally, the restrictions on the relationships that foreign law
firms could maintain with
local law firms did not rule out flexible fee
arrangements, long-term retainer arrangements (under which the foreign firm
would effectively
act as the ‘client’) or even the sharing of
resources, so long as this did not result in a ‘shared-office
arrangement’.
Instead, the intention was to keep local law firms
independent of foreign law
firms.[41]
C The Legal Practice of Foreign Law Firms in China to Date
In order to understand
the current situation concerning foreign law firms in China, it is necessary to
review the historical development
of legal practice by foreign lawyers in
China.
As noted above in Part II, under Provisional Rules art
16, foreign law firms were prohibited from undertaking the following activities:
(1) representation on Chinese legal matters;
(2) interpretation of Chinese law
to clients; and (3) other business activities that foreigners are not permitted
to undertake under
Chinese law. The provisions did not define the term
‘Chinese legal matters’ and did not clarify the circumstances in
which foreign lawyers would be considered to be engaged in the
‘interpretation of Chinese law to clients’. The position
taken by
many foreign law firms was that this prohibited them from representing clients
in court proceedings and issuing formal legal
opinions (as distinct from routine
legal advice).[42] On
this basis, foreign law firms believed that they could achieve compliance by
instructing PRC lawyers in court proceedings, inserting
disclaimers in their
advice (noting that they were not permitted to issue formal legal opinions on
Chinese law so that they could
not be accused of holding themselves out as PRC
lawyers) and arranging for formal legal opinions to be issued under the
letterhead
of a local Chinese law firm where the circumstances required it. In
other respects, foreign lawyers proceeded on the assumption that
they were at
liberty to advise on matters relating to Chinese law.
A notice issued by the
Ministry of Justice in 1992 provided that representative offices of foreign law
firms were not permitted to
employ Chinese lawyers (including personnel who were
qualified as Chinese lawyers) or to establish joint venture entities with
Chinese
law firms.[43]
In response to this, foreign law firms took the view that they could employ
local professional staff so long as they did not hold
current practising
certificates. The practice arose where, instead of referring to such
professional staff as Chinese lawyers, foreign
law firms referred to them as
‘Chinese legal consultants’.
It was on the basis of the above
understanding and practice that foreign law firms built their extensive
practices and resources in
China. To understand the circumstances that have led
to the current situation, it is important to recognise that the market in the
early 1990s, when the Provisional Rules were issued, was
fundamentally different from today’s — most local law firms were
owned by the state and had not developed
the expertise, experience or resources
to compete directly with foreign law
firms.[44] In
addition, there were no local law firms with a national presence within China,
let alone firms with an overseas presence, that
could compete successfully with
international law firms in the lucrative foreign direct investment
(‘FDI’)
market.[45]
Given
the undeveloped nature of local Chinese law firms at the time, FDI work was
initially monopolised by foreign law firms. The
involvement of local Chinese law
firms was peripheral in nature, being limited to discrete activities such as
undertaking searches
with government authorities and collecting information that
foreign lawyers were unable to collect by themselves. Significantly,
foreign
clients were happy to instruct foreign firms despite their lack of formal
Chinese law capacity and the disclaimer in their
advice for the simple reason
that there was no other choice. The informal — albeit substantial —
Chinese law expertise
of foreign law firms was thus a creature born partly out
of necessity and partly in response to the huge potential that the Chinese
market
represented.[46]
The
status quo was challenged significantly when the Administrative
Regulations and the Implementing Rules were issued. The new
regulatory regime appeared to leave very little doubt (if any) that foreign law
firms could no longer advise
clients on the basis of their informal Chinese law
expertise. In particular, significant concerns arose in relation to the effect
of art 32 of the Implementing Rules, under which the scope of
legal advice that foreign lawyers could provide was significantly curtailed and
foreign lawyers were prohibited
from representing clients in dealings with
government authorities.
That the new regulatory regime did not drive the
final nail into the coffin for the informal Chinese law practice of foreign law
firms
is attributable to several factors. First, the Chinese practice of foreign
firms had become a force to be reckoned with and was inextricably
identified
with foreign investors and with foreign investment in China generally. The
importance of foreign lawyers, and the need
to avoid jeopardising investor
confidence in China, led the Ministry of Justice to recognise the Realpolitik
involved. Secondly,
although the local Bar had played an active role in the
drafting of the new regulations, the regulation of foreign lawyers in China
falls squarely within the jurisdiction of the Ministry of Justice, and the local
Chinese Bar does not have any enforcement role or
direct influence. This
contrasts with the position in other jurisdictions in Asia, such as Japan, where
foreign lawyers are required
to join the Japan Federation of Bar
Associations.[47]
Thirdly, although China had not committed to allowing foreign law firms to
practise Chinese law as part of its accession to the WTO,
foreign governments
had lobbied strongly in favour of opening up the
market.[48] Given the
entrenched position of foreign law firms in China and the considerable influence
that they wielded, both in their own right
and also through foreign governments
and international lobby groups, it was not easy for the regulatory authorities
to take a rigid
stand against the forces of
liberalisation.[49]
Lastly,
but equally significant, was the practical difficulty of identifying whether
certain activities were permitted or prohibited
and enforcing the rules
accordingly. By way of illustration, consider the difficulties of determining
whether a foreign law firm
is in compliance with the rules when undertaking the
following activities: (1) reviewing the structure of a proposed transaction
and
identifying legal issues that may be relevant from a Chinese law perspective;
(2) drafting opinions on Chinese law in a suitable
form for Chinese counsel
to issue; (3) reporting on and explaining information or advice that has been
sourced from the Chinese regulatory
authorities or from Chinese counsel;
(4) participating in negotiations in which Chinese legal issues are
discussed; and (5) drafting
contracts and transactions documents that are
governed by Chinese
law.[50]
Enforcement
action has ensued where foreign law firms clearly operate outside the permitted
scope. By way of example, these include
circumstances where the Chinese
personnel of foreign law firms have held themselves out as Chinese lawyers in
arbitration proceedings
and witnessed documents that should have been witnessed
by Chinese
lawyers.[51]
The
tension between the need to recognise the Realpolitik involving foreign law
firms and the need to enforce compliance with the
regulatory regime is reflected
in the ongoing ‘tug of war’ between local and foreign firms. This
came to a head in 2006.
IV THE 2006 CONTROVERSY
A The Background
The
first shot across the bow in the 2006 controversy was fired by the Shanghai Bar
Association (‘SBA’) in a document
entitled ‘Notification of
Legal Services Risks (No 1)’, which was issued on 1 December
2005.[52]
In this document, the SBA noted the prohibition in the Administrative
Regulations on foreign law firms undertaking Chinese legal services and
warned that any breach of the Administrative Regulations,
including the prohibition on advising on Chinese law, should be regarded as an
unlawful and invalid act. Not only did this constitute
unfair competition and a
civil wrong,[53] so
the document claimed, it was also likely to result in significant latent losses
to companies and individuals who had obtained
the services in
question.[54] Further,
the income earned by any firm in breach of the regulations would constitute
unlawful income and, depending on the severity
of the circumstances, such
unlawful activities could be suspected of violating Chinese criminal
law.[55] The document
concluded by calling on the public to monitor the situation and to report
suspected unlawful activity directly to the
SBA.[56]
This was
followed by a memorandum from the SBA dated 17 April 2006 (‘SBA
Memorandum’),[57]
which was subsequently submitted to the Ministry of
Justice.[58]
The
SBA Memorandum asserted that the legal services offered by foreign
law firms in China had far exceeded what was permitted and that the situation
had become increasingly severe, posing a threat to the ‘justice and
economic safety of
China’.[59]
Eight illegal activities were alleged against foreign law
firms:[60]
The
SBA Memorandum concluded by repeating the call for the public to
monitor the situation, report on illegal activity and work together to
‘purify
the [Shanghai] foreign legal services market, thereby improving
the legal
environment.’[69]
The
SBA discussed the issues again in its 2006 Work
Summary.[70] This is
revealing in terms of the light it throws on the main objectives of the campaign
in 2006. The main objectives appear to have
been to warn foreign firms not to
stray too far away from the rules, to act as a deterrent to foreign law firms,
to increase public
awareness of the issues and to support the local profession.
That it would be difficult at this stage to achieve more ambitious objectives
was reflected in the following comments:
there are certain difficulties and obstacles in carrying out this work. Not only is it necessary to undertake sufficient investigation at the legal level, it is also necessary to strengthen communications and cooperation with government; as a result, the completion of this task will require a long and arduous process.[71]
Implicit
in the above comments is an acknowledgment that the concerns and objectives of
the Ministry of Justice and its bureaus around
China are not synonymous with the
concerns and objectives of the local profession as voiced by the local Bar
associations.[72]
The
issues were also discussed in a report issued by the Beijing Bureau of Justice
on 27 September
2006.[73]
The report reflects the difficult balancing act on the part of the regulators
and also the need for them to take account of market
access and international
sensitivities. Significantly, the report acknowledged that regulators had fallen
behind developments on
the ground. The report went on to identify the need for
reform in certain areas. First, reform was needed in relation to the regulations
themselves, ‘which were expressed in general terms and allowed too much
scope for manoeuvre by foreign law
firms’.[74] The
report also pointed to the employment of Chinese personnel to undertake Chinese
legal services and the use of disclaimers to
circumvent the restrictions as two
of the most prominent examples. The Beijing Bureau of Justice also alleged that
foreign law firms
often used client confidentiality as an excuse not to provide
the regulatory agencies with information that was necessary for them
to
supervise
effectively.[75]
Secondly, reform was required in relation to the coordination and information
sharing between the regulatory authorities, ‘which
were unable to perform
a guiding role in the relationship between local and foreign law firms ...
because of the arrangements that
are entered into behind the
scenes’.[76]
In
its recommendations, the Beijing Bureau of Justice suggested that reform should
be cautious, that measures should be adopted to
support the healthy development
of the local
profession,[77] that
the content and scope of the terms ‘interpreting Chinese law’ and
‘providing information on the impact of
the Chinese legal
environment’[78]
should be clarified, that local lawyers should be supported, that enterprises
should be encouraged to instruct local lawyers and
that the role of the local
Bar associations should be
developed.[79]
B The Perspective of the Regulators
In articles and speeches
published by officials at the Ministry of
Justice,[80] it
appears that the response of the regulators has been influenced by the need to
strike a balance between the interests of foreign
and local lawyers and to
recognise the Realpolitik involved. This involves an acceptance that foreign
lawyers operate at the margin
of what is permitted and what is prohibited, and
that enforcement in practice is limited to circumstances in which foreign
lawyers
clearly cross the
line.[81]
Underpinning the approach are the following realities: (1) the positive
contribution that foreign firms have made to foreign trade
and investment in
China, including the way in which they have ‘assisted foreign companies to
understand Chinese law’
and the Chinese investment
environment;[82]
(2) the need to develop the local profession and to strengthen the
competitiveness of local law firms; (3) the need to open up the
market in a
manner that is cautious and that ‘proceeds from the national
interest’;[83]
and (4) the global trend towards liberalisation in the legal services
market and the need to avoid ‘blind
protectionism’.[84]
In
light of these realities, the regulators have cautioned against rushing into
liberalisation and allowing foreign firms to localise
too soon. He Min has
expressed the position as follows:
Cooperation and partnerships between law firms from two different societies ... should be considered carefully particularly in the current circumstances where the overall level of the development of the PRC legal profession is not high, their competitiveness is weak and the market for legal services is not standardised ...
If the restrictions on the localisation of foreign firms were lifted, foreign firms would attract many young lawyers to their offices in China on the strength of their brand advantage, their superior expertise, their technical training and high salaries. This would pull the rug from under the domestic firms that are doing international work and that are just emerging amongst the fierce competition in the market for international legal services ... and would not be beneficial in the current stage to strengthening the competitiveness of the local profession and developing the human capital necessary for an outstanding local profession ... In the circumstances, if cooperation or partnerships between Chinese and foreign firms were allowed, this would result in foreign firms achieving a monopoly of part of the local legal services market and would not be beneficial to the growth of small to medium-sized local firms.[85]
In terms of the way forward, the regulators have suggested the following three stages in line with the experience in other jurisdictions: (1) allowing foreign firms to enter the market to practise foreign law and allowing foreign lawyers to sit the Bar examination and practise local law;[86] (2) allowing local firms to employ foreign lawyers to practise foreign law;[87] (3) allowing foreign firms to employ local lawyers or to enter into joint ventures or partnerships with local firms. This, it has been suggested, reflects the reality that
[a]t present, China has entered the first stage, and is considering the feasibility and practicalities of the second stage. The third stage must be achieved progressively in accordance with the actual requirements of China’s economic development and the market in legal services post-WTO.[88]
C The Perspective of the Local Profession
It appears that for many
local lawyers the concerns relate partly to matters of principle, including the
need to ensure that foreign
law firms comply strictly with the
rules,[89] and partly
to economic interests and market share, particularly in the lucrative FDI
market.
The concerns have prompted some colourful and strident criticism of
foreign law firms, who have been accused of playing an ‘edge
ball’[90] by
engaging in Chinese legal services behind the scenes but using Chinese law firms
as ‘fronts’ to translate, verify,
sign and issue legal opinions
prepared by the foreign law
firms.[91] This has
provoked a ‘war that should never have arisen’, one in which foreign
law firms have ‘stormed the
beaches’.[92]
It
also appears that the response from the local profession is based on the view
that the regulatory regime was set up to ensure that
foreign lawyers and local
lawyers would each stick to their own roles. By way of example, in lucrative
cross-border transactions,
the role of the foreign lawyers would be to advise on
foreign law and the role of the local lawyers would be to advise on Chinese
law.[93] Two issues
have proven to be particularly sensitive. The first is the success with which
foreign firms have attracted Chinese professionals
(both law graduates and
qualified lawyers) away from the local
firms.[94] This has
been a cause of resentment for many local firms and appears to have exacerbated
the dispute between local and foreign firms,
particularly in view of the huge
influx of foreign investment in recent years and the corresponding need for
firms to build their
professional
resources.[95] The
second is the extent to which foreign law firms have ‘snatched’
clients away from local law firms by advising on
Chinese law based on their
claim — albeit justified in many respects — to be experts in Chinese
law.[96]
Another
theme that runs through the views of the local profession is the need to
preserve China’s
sovereignty.[97] This
has been expressed in terms of national security, where the continuing
activities of foreign law firms outside the permitted
scope ‘will affect
the development of domestic firms and will change the environment for their
survival, to the point where
it will threaten the impartiality of local law and
economic
security’.[98]
The
sovereignty issue has also been identified by a representative of a local
court:
China regards the lawyer system as a part of a country’s sovereignty and, before reform and opening up, treated lawyers as state personnel ... Since undertaking Chinese legal services is considered to be within the scope of China’s sovereignty, foreign firms have been prohibited from this business.[99]
D The Perspective of Foreign Lawyers
The author’s own
experience suggests that most foreign law firms have learnt to live within the
grey area created by the current
regulatory regime. Although the situation is
not ideal and the threat of a crackdown by the regulatory authorities is always
present,
foreign law firms have benefited from the regulatory ambiguities and
have been prepared to make adjustments — including working
more closely
with the local profession — in order to stay within the unofficial
‘permitted boundaries’. Many foreign
firms consider that it would be
counter-productive to call vociferously for further reform, at least at this
stage, and have therefore
made a decision not to rock the boat.
There appears
to be little doubt, however, that most (if not all) foreign law firms would
support liberalisation of the market. Given
the extent to which they have
developed their Chinese law expertise and resources, the economic motivations
are obvious. There is
also an argument that the current restrictions are not in
the interests of Chinese lawyers or the Chinese legal system. The restrictions
are particularly harsh on young Chinese lawyers since they are not able to be
employed formally as lawyers in foreign firms and must
therefore weigh up the
benefits (such as training and remuneration) against their indeterminate status
when employed by foreign firms.
In line with the justifications for
liberalisation generally, foreign lawyers argue that allowing foreign firms to
employ Chinese
practising lawyers would be beneficial to the local profession in
terms of improving standards and modern management techniques,
and would also
increase the trend for Chinese lawyers to flow back to local firms, thereby
strengthening the local
profession.[100]
In
support of their argument for liberalisation, foreign law firms could also point
to the realities associated with international
legal practice. These include the
fact that in some areas of law (for example, cross-border M&A transactions
and structured finance)
firms that have an international presence will always
dominate. Consequently, the emphasis should not be on excluding foreign law
firms from this market in China. Instead, the emphasis should be on creating an
environment in which law firms, whether domestic
or international, can compete
effectively in their respective
markets.[101] This
means that some large Chinese firms will acquire an international presence and
profile, which will enable them to compete effectively
with foreign firms in the
international areas of
practice.[102] On
the other hand, Chinese firms that are purely domestic in nature will focus on
their own practice areas, most of which do not
attract competition from foreign
firms. Therefore, for these Chinese firms, the restrictions on the activities of
foreign law firms
are
unnecessary.[103]
Ironically,
the lack of strict enforcement of the restrictions and the maintenance of the
status quo has strengthened the hand of
foreign law firms, since the trend
towards liberalisation now appears irreversible and the regularisation of the
current practice
appears inevitable. As one commentator described it:
The globalisation of legal services, as driven by economic globalisation, is an indisputable fact. The localisation of the representative offices of foreign law firms in China is a new demand for the increasingly complex legal services [that are required] as China operates within the framework of an integrated global economy.[104]
One
area in which the professional tug of war has been resolved in favour of local
law firms — at least on a formal basis —
is merger control filings
under China’s Anti-Monopoly Law issued by the Standing Committee of the
National People’s Congress
on 30 August 2007
(‘AML’).[105]
To date, the involvement of foreign law firms in the area of competition law has
mainly revolved around advising clients on international
competition law and
practice, drafting filings, assisting in the formulation of arguments and
strategies, and undertaking compliance
audits. At this stage, advisory work
constitutes the principal source of revenue for foreign law firms, since the
contentious matters
are off limits to
them.[106]
Although
foreign law firms have been extensively involved in the above activities and
have bolstered their resources for this
purpose,[107] they
are prevented from lodging merger control filings or representing clients in
notification proceedings as a result of the policy
adopted by the Ministry of
Commerce (‘MOFCOM’). This policy is reflected in the Guidelines on
Anti-Monopoly Filings where
Foreign Investors Acquire Domestic Enterprises,
which were issued by MOFCOM on 8 March 2007 (‘Filing
Guidelines’).[108]
Article
1 of the Filing Guidelines provides that a notifying
party[109] may file
a notification by itself in its own name, or engage a Chinese law firm to file
the notification on its behalf by a lawyer
who is qualified as a Chinese lawyer.
By implication, this rules out any involvement by foreign law firms in the
filing process.
This contrasts with the situation before the Filing
Guidelines were issued, when foreign law firms were permitted to make the
filings and represent the client in meetings with MOFCOM.
The specific reason
behind the decision to limit this activity to Chinese lawyers is not apparent.
It may reflect a desire on the
part of MOFCOM to protect the market for the
benefit of local law firms and to encourage local lawyers to develop their own
expertise
in competition law. It may also reflect the need to achieve compliance
with the restrictions on foreign lawyers under art 32(5) of
the
Implementing
Rules.[110]
In any event, it will require greater involvement by local lawyers in
cross-border M&A transactions and closer cooperation between
foreign and
local law firms. Although of itself this is not a bad thing, it is likely that
foreign law firms will endeavour to maintain
a dominant role in the drafting of
merger control filings for their international clients and that an informal tug
of war will continue
to be waged behind the scenes. The formal exclusion of
foreign law firms from merger control filings is unfortunate, since the
development
of competition law in China is a prime example of an area in which
foreign law firms have a constructive role to play, particularly
in relation to
international competition law and practice.
Encouragingly, there is a trend
towards local law firms importing competition law expertise, as reflected in the
strategic alliances
entered into between foreign firms and local law
firms[111]
and the employment of foreign experts by local law firms. However, even local
law firms are inhibited in terms of developing their
practices in this area as a
result of their own regulatory framework, which does not formally recognise the
status of foreign qualified
lawyers who are employed within Chinese law
firms.[112]
As a result, such employees cannot be referred to as ‘foreign
lawyers’ and more general terms such as ‘foreign
consultants’
have to be used
instead.[113]
V DEVELOPMENTS IN RELATION TO LAWYERS FROM HONG KONG AND MACAO
Developments in relation
to law firms and lawyers from Hong Kong and Macao may throw some light on the
direction of future reform
in this area. Law firms from the Hong Kong and Macao
SARs are governed by separate regulations issued by the Ministry of Justice
on
20 February 2002 and effective on 1 April 2002: The Administrative Measures on
Representative Offices of Law Firms from the Hong
Kong and Macao Special
Administrative Regions in the Interior (‘Hong Kong
and Macao Administrative
Measures’).[114]
The
Hong Kong and Macao Administrative
Measures substantially mirror the Administrative
Regulations, which govern the representative offices of foreign law firms
in China. The permitted business scope for Hong Kong and Macao law
firms, as set
out in art 15 of the Hong Kong and Macao
Administrative Measures, is the same as the business scope in
respect of foreign law firms in the Administrative
Regulations[115]
except for the inclusion of the following additional provision:
In accordance with association[116] agreements entered into between the Hong Kong or Macao law firms to which they belong and interior[117] law firms, representative offices and their representatives may cooperate with the lawyers at the associated interior law firms and carry out the relevant associated business.[118]
The
basis for permitting law firms from Hong Kong and Macao to enter into
associations with (Mainland) PRC law firms is the Closer
Economic Partnership
Arrangements (‘CEPAs’), which are free trade agreements entered into
between each SAR and the
Mainland.[119]
Taking
the CEPA between Hong Kong and Mainland China as an example, Mainland China made
the following commitments:
(1) To allow Hong Kong law firms (offices) that have set up representative offices in the Mainland to operate in association with Mainland law firms, except in the form of partnership. Hong Kong lawyers participating in such associations may not handle matters of Mainland law;
(2) To allow Mainland law firms to employ Hong Kong legal practitioners [defined as solicitors and barristers of Hong Kong]. Such practitioners who are employed by Mainland law firms must not handle matters of Mainland law; and
(3) To allow the 15 Hong Kong lawyers who have already acquired Mainland
lawyer qualifications to intern and practice on non-litigation
legal work in the
Mainland [in accordance with the PRC Lawyers
Law].[120]
Such
associations are governed by the Administrative Rules on Associations between
Interior Law Firms and Law Firms from the Hong
Kong Special Administrative
Region and the Macao Special Administrative Region (‘Administrative
Rules on
Associations’)[121]
issued by the Ministry of Justice on 27 November 2003 and effective on 1 January
2004. These provide that law firms may enter into
associations[122]
under which they may pool their resources, market their services under the name
of the association, collect and distribute fees,
bear costs and assume
liabilities — all in accordance with the terms of the joint operation
contract.[123] Each
law firm in a joint operation is limited to undertaking the approved legal
services that are permitted by the Administrative Rules on
Associations (specifically, Hong Kong lawyers cannot practise PRC
law).[124]
An
association takes the form of a contractual arrangement and may not be
undertaken through a partnership or an incorporated
entity.[125] During
the term of the association, the legal status, name and finances of each law
firm must be kept independent and each law firm
must independently assume civil
liability.[126]
This appears to rule out any profit-sharing arrangement under which one law firm
is able to share a percentage of the profits generated
by the other firm in
joint transactions. The benefits of the association model include the ability to
provide a one-stop shop service
to clients, to share resources and to bill
clients jointly.
Under the rules, the Hong Kong law firm and the Mainland law
firm must each satisfy certain criteria. In the case of the Hong Kong
law firm,
it must have been operating for at least three years, the sole proprietor or all
of the partners must be Hong Kong practising
lawyers, its main scope of
operation must be the provision of local legal services in Hong Kong, and it
must have obtained approval
to establish a representative office in Mainland
China.[127] In the
case of the Mainland law firm, it must have been established for at least three
years and it must have no fewer than 20 full-time
lawyers.[128]
The
other two general CEPA
commitments[129]
— namely, to allow Mainland firms to employ Hong Kong and Macao legal
practitioners and to allow Hong Kong and Macao lawyers
who have acquired
Mainland law qualifications to practise Chinese law matters — are also
noteworthy. The former is a first
step towards allowing Mainland firms to employ
foreign qualified lawyers generally and confers a formal status on Hong Kong
lawyers
who are employed by Mainland firms. The lawyers are referred to as
‘legal consultants’ and are issued either a Hong Kong
legal
consultant certificate or a Macao legal consultant
certificate.[130]
The latter is a first step towards allowing foreigners generally to sit the
qualification examination and qualify as Chinese lawyers.
At present, however,
only Chinese citizens who are permanent residents of Hong Kong and Macao are
expressly permitted to sit the
examination.[131]
Lawyers
from Hong Kong and Macao who have acquired the qualifications to practise
Chinese law are permitted to undertake ‘non-litigation
Chinese legal
matters and representation activities in marriage and inheritance cases
involving Hong Kong or
Macao.’[132]
The
concerns over allowing foreign lawyers (non-citizens) to sit the lawyers’
qualification examination and practise local law
are shared in other
jurisdictions in Asia. In particular, there are similar concerns about the
involvement of foreign lawyers in
litigation. For example, one writer has
suggested that the reluctance on the part of domestic lawyers in Korea to open
Korea’s
legal markets to foreign lawyers was partly ‘based on a
negative view of litigation and the high likelihood that an influx
of foreign
lawyers would result in making Korea a more litigious
culture.’[133]
In
China, it has been suggested that ‘the major concern is that some
litigation in China inevitably involves political issues.
It is for this reason
that the Chinese government has taken a conservative approach and maintains this
exclusionary
policy.’[134]
It is also possible that there are concerns about the extent to which
involvement by foreign lawyers in litigation proceedings would
give them access
to sensitive information, some of which might fall into the category of state
secrets. Sensitivities concerning
the involvement of non-Mainland Chinese
lawyers in litigation proceedings would also arise if foreign law firms were
permitted to
employ Chinese lawyers to provide advice on PRC law as part of
their formal legal services, or to enter into partnerships with Chinese
lawyers.
VI MODELS FOR FURTHER REFORM
One argument in support
of liberalisation is that, although countries have a legitimate interest in
imposing qualification requirements
on those who are permitted to practise
domestic law, they should not distinguish between foreign and local firms for
that purpose.
To date, China has officially withstood the pressure to liberalise
its markets, even though the reality on the ground has created
its own de facto
liberalisation.
At the same time, this de facto liberalisation also imposes
limitations on the reform options that are available. In theory, of course,
it
would be open to China to reverse the de facto liberalisation and move towards
strict enforcement of the restrictions on foreign
law firms. However, in the
author’s view, the role of foreign law firms in China has become too
entrenched to make this a feasible
option. It would also be seen as a retrograde
step, one that would not appear consistent with China’s move towards
global economic
integration.
If it is correct to assume that the option of
reversing the de facto liberalisation is not on the table (despite possible
protests
to the contrary from local lawyers), the following options would
remain:
Given that one of the primary objectives of a law firm
association is to pool resources, it is unlikely that the first model would
be
attractive to foreign law firms that already have substantial expertise and
resources in relation to Chinese law. It would enable
them to offer formal
Chinese law advice on a ‘one-stop shop’ basis. However, an important
question would be whether foreign
law firms would be willing to tie themselves
to a local law firm in circumstances where there was significant overlap between
the
services that each firm provided (and therefore a high likelihood that a tug
of war would ensue) and where a profit-sharing arrangement
was not
possible.
The second joint venture model is likely to be more attractive to
foreign law firms, since it would probably allow a certain degree
of profit
sharing. However, it is subject to the same query in terms of the overlap
between services. This might present difficulties
for foreign law firms in terms
of identifying potential partner firms and might encourage them to create an
‘internal’
joint venture out of their existing resources (that is,
by hiving off their Chinese law resources into a separate local firm) instead
of
choosing an existing Chinese law firm as the joint venture partner. Although
such an internal joint venture would probably work
for foreign law firms
(assuming that there were no qualification
requirements[138]
for the Chinese law firm that would favour the large established firms), it
would not directly benefit the local profession by strengthening
the existing
Chinese law firms.
Another point to bear in mind is that the joint venture
model has not proven to be an unqualified success in other
jurisdictions:[139]
it serves a limited purpose and inevitably bows to pressure for further
liberalisation.
If the above concerns are valid, there appears to be a strong
argument (at least as far as foreign law firms are concerned) to move
directly
to either the third or fourth
option.[140]
However, it is unlikely that the regulators will allow reform to occur before
the local profession has been given an opportunity
to become more competitive.
As noted above in Part IV(B), it is likely that the next step will be to allow
local firms to employ
foreign lawyers to advise on foreign
law.[141]
One
variation on the third option, which might achieve a balance between the
interests of the various constituencies, would be to
reserve certain areas, such
as litigation, to Chinese law firms. This would satisfy the concerns about the
political sensitivities
and the perception that only Mainland Chinese lawyers
are culturally equipped to practise in such areas and would be similar to
reforms
adopted in
Singapore.[142]
VII CONCLUSION
In establishing its
regulatory framework to govern the operations of foreign law firms, China has
proceeded in a manner that is consistent
with the approach adopted in many other
jurisdictions. However, owing to historical factors and pressures to liberalise
in the context
of China’s accession to the WTO, a situation has arisen in
which foreign law firms are actively involved in advising on matters
relating to
Chinese law. This has led to a de facto liberalisation of the domestic legal
services market, which exposes discrepancies
in the interpretation of the
regulations governing foreign law firms and creates uncertainty in terms of the
enforcement of those
regulations.
Understandably, Chinese law firms have not
responded favourably to the de facto liberalisation. On the basis of their
claims that
foreign law firms have not complied with the regulations to which
they are subject, Chinese law firms have lobbied hard to keep foreign
law firms
within the boundaries that they consider to be acceptable.
Mindful of the
significant contribution that foreign law firms have made to the Chinese economy
and the global trend towards liberalisation
of the legal services market, the
regulators to date appear to have decided not to clamp down hard on the
activities of foreign law
firms and to hold the concerns of the Chinese law
firms at bay. The preferred approach appears to be to accept the Realpolitik and
to give the Chinese law firms time to become more competitive before taking
further steps towards liberalisation of the legal services
market.
As seen in
the area of competition law, however, even where foreign lawyers have a
legitimate role to play — one that is within
the spirit of the rules
— they are often impeded by practical obstacles thrown in their path by
the regulatory authorities.
Once again, tension between the need to strengthen
the local profession, on the one hand, and the reluctance to clamp down hard on
foreign lawyers, on the other, has resulted in a less than ideal halfway house,
where cooperation exists between foreign and local
lawyers, but is often beset
by a professional tug of war.
Developments concerning lawyers from Hong Kong
and Macao are encouraging for three reasons. First, the ability for Chinese law
firms
to employ lawyers from Hong Kong and Macao is a step towards the
recognition of multi-jurisdictional practices within Chinese law
firms and,
ultimately, towards the employment of Chinese lawyers by foreign law firms.
Secondly, the ability for Hong Kong and Macao
lawyers to sit the PRC Bar
examination and to practise Chinese law bodes well for the possibility that
foreign lawyers might be permitted
to sit the PRC Bar examination and qualify as
Chinese lawyers at some point in the future. Thirdly, the ability for law firms
from
Hong Kong and Macao to form associations with Chinese law firms is a step
towards recognising closer relationships such as profit-sharing
joint
ventures.
In terms of models for future liberalisation, this article has
suggested that associations or joint ventures between Chinese and foreign
law
firms are not the most appropriate choice, particularly in view of the extent to
which foreign law firms have already built up
their Chinese law expertise and
resources. Instead, China should either allow foreign law firms to employ
practising Chinese lawyers
or proceed to full liberalisation under which foreign
lawyers could form partnerships with Chinese lawyers. If sensitivities
concerning
the involvement of foreign law firms in areas of practice such as
litigation remained, such areas could be reserved to Chinese law
firms in line
with the practice adopted in other jurisdictions.
[*] BA (Hons), LLB (Hons), LLM (Melb); Senior Lecturer, Melbourne Law School, The University of Melbourne; Associate Director (Asian Commercial Law), Asian Law Centre, The University of Melbourne. The author practised as a foreign lawyer with an international law firm in China for 10 years between 1996 and 2006. The author would like to thank Nicholas Rudd for his research assistance and also the anonymous referees for their constructive comments and suggestions. All errors and omissions are the author’s alone. Unless otherwise attributed, all translations of Chinese material are the author’s own, including the text of legislation and titles of journal articles. This article is based on a paper that was presented by the author as ‘The Professional Tug of War: The Regulation of Foreign Lawyers in China, Business Scope Issues and Insights from Developments in Competition Law’ (Paper presented at Unleashing the Tiger? Competition Law in China and Hong Kong: A Gilbert + Tobin – Melbourne Law School Conference, Melbourne, 4 October 2008).
[1] For the purposes of this article, the terms ‘China’ and ‘People’s Republic of China’ (‘PRC’) are used interchangeably and refer to Mainland China, and not Hong Kong and Macao.
[2] According to the Australian Trade Commission (‘Austrade’), ‘[e]ight or more Australian law firms maintain, or operate from a foreign law firm office in China (excluding Hong Kong SAR)’: Austrade, Legal Services Overview (2008) <http://www.austrade.gov.au/Legal-services-overview/default.aspx> .
[3] For background to the evolution of the regulatory framework in China concerning foreign law firms and the impact of China’s accession to the WTO, see generally Sida Liu, ‘Globalization as Boundary-Blurring: International and Local Law Firms in China’s Corporate Law Market’ (2008) 42 Law and Society Review 771; Susan E Vitale, ‘Doors Widen to the West: China’s Entry in the World Trade Organization Will Ease Some Restrictions on Foreign Law Firms’ (2001) 7 Washington University Journal of Law and Policy 223; Richard Qiang Guo, ‘Piercing the Veil of China’s Legal Market: Will GATS Make China More Accessible for US Law Firms?’ (2002) 13 Indiana International and Comparative Law Review 147; Jane J Heller, ‘China’s New Foreign Law Firm Regulations: A Step in the Wrong Direction’ (2003) 12 Pacific Rim Law and Policy Journal 751.
[4] «司法部、国家工商行政管理局关于外国律师事务所在中国境内设立办事处的暂行规定» [Provisional Rules of the Ministry of Justice and the State Administration for Industry and Commerce on the Establishment of Offices in China by Foreign Law Firms] (PRC) Ministry of Justice and State Administration for Industry and Commerce, 26 May 1992. These Provisional Rules use the general term ‘office’ (‘办事处’) instead of ‘representative office’ (‘代表机构’), which appears in both the earlier provisions as well as the current regulations.
[5] «中华人民共和国国务院关于管理外国企业常驻代表机构的暂行规定» [Interim Provisions of the State Council of the People’s Republic of China on the Administration of Resident Representative Offices of Foreign Enterprises] (PRC) State Council, 30 October 1980 (‘Interim Provisions’).
[6] Provisional Rules art 3. This prohibition against involvement in legal service activities is repeated in the current provisions: see «外国律师事务所驻华代表机构管理条例» [Administrative Regulations on Representative Offices of Foreign Law Firms in China] (PRC) State Council, Order No 338, 19 December 2001, art 15 (‘Administrative Regulations’) and below Part III(A). For reference to violations of the Provisional Rules by foreign law firms in China, see Vitale, above n 3, 227 fn 19 (describing in particular the situation of Coudert Brothers in 1995); Shin-yi Peng and Benjamin Y Li, ‘Facilitating Market Access for Taiwanese Lawyers in China’ (2006) 23 UCLA Pacific Basin Law Journal 172, 180–1, citing Ann Davis, ‘Shanghai Exit for Coudert’ (1995) 17(22) National Law Journal A6.
[7] See below Part III(A) for the position under the current rules.
[8] The original Chinese text is ‘代表机构’.
[9] For discussion on Japanese regulation in this area, see 何敏 [He Min], «外国律师事务所在中国本土化问题的争鸣» [The Contentions Surrounding the Localisation of Foreign Lawyers’ Offices in China] (2001) 7 中国律师 Chinese Lawyer 58; Misasha Suzuki, ‘The Protectionist Bar against Foreign Lawyers in Japan, China, and Korea: Domestic Control in the Face of Internationalization’ (2003) 16 Columbia Journal of Asian Law 385, 393–8; Leonardo Ciano and Drew Martin, ‘The Foreign Lawyer Law of Japan: Legitimate Complaints or Red Herrings?’ (2002) 76 Journal of Inquiry and Research 121.
[10] The original Chinese text is ‘代理中国法律事务’.
[11] The original Chinese text is ‘向当事人解释中国法律’.
[12] See 蔡永彤 [Cai Yong Tong], «WTO 服务市场开放研究及相关法律问题探析 — 以法律服务市场开放为视角» [Research on the Opening Up of the Services Market under the WTO and Analysis of Relevant Legal Questions — From the Perspective of the Opening Up of the Legal Services Market] (2004) 12(2) 山西经济管理干部学院学报 Journal of Shanxi Institute of Economic Management 60, 63.
[13] Accession of the People’s Republic of China, WTO Doc WT/L/432 (2001) (Decision of 10 November 2001) Annex 9 (‘Schedule of Specific Commitments on Services — List of Article II Exemptions’), incorporating by reference Report of the Working Party on the Accession of China, WTO Doc WT/ACC/CHN/49/Add.2 (2001) (Addendum — Part II: Schedule of Specific Commitments on Services — List of Article II MFN Exemptions) II(A)(a).
[14] See, eg, the
comments of 王小耘 [Wang Xiao Yun] as reported in
田享华 [Tian Xiang Hua],
«上海律协:揭秘外国律所违法执业»
[Shanghai Bar Association: Revealing the Illegal Practices of Foreign Law Firms]
(2006) 国法网 Law.com.cn
<http://www.law.com.cn/lcs/program/
html/fazhijiaoliu_content.php?ItemID=10&ID=10423>.
See generally 蔡永彤 [Cai Yong Tong], above n 12.
[15] See Heller,
above n 3, 764, citing Commission of the
European Communities (‘European Commission’), The
Sino–EU Agreement on China’s
Accession to the WTO: Results of
the Bilateral Negotiations (8 April 2003) European
Commission — External Trade
<http://trade.ec.
europa.eu/doclib/docs/2003/april/tradoc_111851.pdf>.
[16] European Commission, above n 15, 4.
[17] See Administrative Regulations art 5 and below Part III(A).
[18] «外国律师事务所驻华代表机构管理条例» [Administrative Regulations on Representative Offices of Foreign Law Firms in China] (PRC) State Council, Order No 338, 19 December 2001.
[19] This is
different from the wording in art 15 of the Provisional Rules,
which referred to ‘international treaties, international commercial laws
and international practice’
(‘国际条约、
国际商事法律和国际惯例的咨询’).
The reference
to ‘international commercial laws’
(‘国际商事法律’) was omitted in
the
Administrative Regulations.
[20] See 林华 [Lin Hua], «洋律师觊觎中国市场» [Foreign Lawyers Covet China’s Market] (1 December 2001) 观察新闻 [Observations and News] 49, 49–50. Lin argues that foreign law firms are in breach of the prohibition on undertaking Chinese legal services by packaging their advice as ‘information on the impact of the Chinese legal environment’.
[21] See above n 13 and above Part II(B).
[22] This is perhaps less curious in the light of the traditional perception in China that the role of lawyers is limited to issuing legal opinions and representing clients in court and arbitration proceedings: «中华人民共和国律师暂行条例» [Interim Regulations of People’s Republic of China Lawyers] (PRC) National People’s Congress Standing Committee, Order No 5, 26 August 1980, art 2. See generally Henry R Zheng, ‘The Evolving Role of Lawyers and Legal Practice in China’ (1988) 36 American Journal of Comparative Law 473, 504. As the experience of western commercial lawyers would confirm, however, the fees generated from such activities are often negligible compared with the fees generated from contract drafting, deal negotiation and transaction management, which would include instructing and coordinating foreign counsel in cross-border transactions.
[23] «关于外国律师事务所在华设立办事处有关事宜的通知»
[Notice on Relevant Matters Concerning the Establishment of Offices in China by
Foreign Law Firms] (PRC) Ministry of Justice, Doc
No 105, 30 October 1992
<http://www.hflib.gov.cn/law/law/falvfagui2/xzf/FLFG/
NWXZ%20SF/1188.htm>.
See also Guo, above n 3, 169, who refers
to the Provisional Rules as ‘Provisional
Regulations’.
[24] These include Australia and the United Kingdom, where non-lawyers in law firms are able to communicate directly with, and provide services directly to, clients.
[25] The employment of Chinese professionals by foreign law firms has proven to be a particularly sensitive issue to Chinese law firms: see below Part IV(C).
[26] «关于执行‹外国律师事务所驻华代表机构管理条例›的规定» [Rules for the Implementation of the ‘Administrative Regulations on Representative Offices of Foreign Law Firms in China’] (PRC) Ministry of Justice, Order No 73, 4 July 2002, as amended by «司法部关于修改‹司法部关于执行‘外国律师事务所驻华代表机构管理条例’的规定›的决定» [Decision of the Ministry of Justice on the Amendment of the Rules of the Ministry of Justice concerning the ‘Administrative Regulations on Representative Offices of Foreign Law Firms in China’] (PRC) Ministry of Justice, Order No 92, 2 September 2004.
[27] The original Chinese text is ‘中国法律事务’.
[28] The term ‘certification’ (‘证明’) is not defined. On one interpretation, it refers to verifying or certifying a state of affairs, such as providing a formal legal opinion to confirm the validity of a legal agreement under PRC law.
[29] This appears to be directed generally towards interpreting Chinese law.
[30] This appears to be directed generally towards advising on the application of Chinese law to specific facts.
[31] Prior to an
amendment in 2004, this provision read as follows: ‘in the capacity of an
agent, expressing an opinion on the application
of Chinese law and
facts that involve Chinese law in arbitration
activities’
(‘在仲裁活动中、以代理人身份对中国法律的适用以及涉及到中国法
律的事实发表代理意见或评论’):
«关于执行‹外国律师事务所驻华代表机构管理条例›
的规定»
[Rules for the Implementation of the ‘Administrative Regulations on
Representative Offices of
Foreign Law Firms in China’] (PRC) Ministry of
Justice, Order No 73, 4 July 2002. It is likely that the amendment (see above
n
26) was made in response to concerns
expressed by foreign lawyers that the original wording would unduly restrict the
role of foreign
lawyers in arbitration proceedings.
[32] For comments on the impact of this restriction in the area of competition law, see below Part IV(D).
[33] The original Chinese text is ‘提供有关中国法律环境影响的信息’.
[34] Among other things, this provides that when representative offices indicate to clients that they are able to conduct business in the PRC, they must state clearly that they do not possess the qualifications, licences or capacity to undertake PRC legal services.
[35] The original Chinese text is ‘中国法律顾问’.
[36] These concerns were reflected in communications issued by the American Chamber of Commerce in China and the Law Society of England and Wales to their respective members at the time.
[37] Based on the author’s own experience, other concerns that were expressed about non-compliance with China’s WTO commitments included concerns about the application criteria for establishing a representative office, the three-year waiting period for establishing a second office, and qualification restrictions on the personnel of representative offices of foreign law firms in China.
[38] The information that follows is based on the author’s attendance at this meeting and his personal experience while working as a foreign lawyer in Shanghai at the time.
[39] See above Part III(A).
[40] See below Part III(C).
[41] In discussions with the author, a representative of the Ministry of Justice stated that the intention behind the new rules was not to drive out foreign lawyers; instead, the hope was that foreign lawyers would involve local lawyers in their transactions more often and stay within the spirit of the rules.
[42] The term ‘formal legal opinions’ is used here to refer primarily to closing opinions in commercial transactions — namely, opinions confirming ownership of assets, the legal capacity of Chinese entities and the validity and enforceability of contractual obligations under PRC law.
[43] «关于外国律师事务所在华设立办事处有关事宜的通知»
[Notice on Relevant Matters Concerning the Establishment of Offices in China by
Foreign Law Firms] (PRC) Ministry of Justice, Doc
No 105, 30 October 1992, [3]
<http://www.hflib.gov.cn/law/law/falvfagui2/xzf/
FLFG/NWXZ%20SF/1188.htm>.
See also Guo, above n 3, 169. Article 40
of the Implementing Rules provides a list of circumstances in
which foreign firms will be deemed to employ Chinese practising lawyers.
[44] The first rules governing lawyers in China were issued in 1980 and defined lawyers as ‘state legal workers’ (‘国家的法律工作者’): see Guo, above n 3, 165, citing Qizhi Luo, ‘Autonomy, Qualification and Professionalism of the PRC Bar’ (1998) 12 Columbia Journal of Asian Law 1, 10; «中华人民共和国律师暂行条例» [Interim Regulations of People’s Republic of China Lawyers] (PRC) National People’s Congress Standing Committee, Order No 5, 26 August 1980, art 1. Several years were to pass before private partnership firms emerged: Guo, above n 3, 166, citing Virginia Kays Veenswijk, Coudert Brothers: A Legacy in Law — The History of America’s First International Law Firm (1853–1993) (1994). Domestic firms are now governed by the «中华人民共和国律师法» [Lawyers Law of the People’s Republic of China] (PRC) National People’s Congress Standing Committee, Order No 76, 28 October 2007 (‘PRC Lawyers Law’), which was amended in 2007 and came into effect on 1 June 2008. This defines lawyers as persons who have passed the PRC Bar examination and obtained a practising certificate: arts 2, 5.
[45] There is now an express basis on which PRC law firms may establish branches overseas: «律师事务所在外国设立分支机构管理办法» [Administrative Measures on Law Firms Establishing Branch Organisations Overseas] (PRC) Ministry of Justice, Order No 35, 13 January 1995. These measures also apply to PRC law firms that wish to establish branches in Hong Kong or Macao: art 13. At the date of writing, PRC law firms with offices outside Mainland China included the following: King & Wood (Hong Kong, Tokyo, Silicon Valley and New York), Grandall (Hong Kong), Jun He (Hong Kong and New York), Jincheng and Tongda (Los Angeles), Zhong Lun (Tokyo) and Chen & Co (Hong Kong).
[46] The frustration felt by Chinese lawyers at the willingness of foreign clients to instruct foreign law firms despite the regulatory restrictions is reflected in comments by 吕红兵 [Lü Hong Bing], the President of the Shanghai Bar Association in 2006, as reported in 田享华 [Tian Xiang Hua], above n 14: ‘Many companies only believe in foreign law firms; they don’t believe in Chinese law firms. They would prefer to pay rates of US$600 per hour or more to foreign law firms than to pay rates of US$300 per hour to local law firms’. The author’s own experience indicates that over the past five years or so a trend has emerged for multinational clients to favour local firms in certain areas of practice, such as advice on employment law. This is in line with the natural development of the local profession in China. In addition, the large local law firms in China are now actively competing with foreign law firms in the FDI market and in cross-border transactions.
[47] See the
website of the Japan Federation of Bar Associations (2002)
<http://www.nichibenren.
or.jp/en/>. See generally Suzuki, above n 9, 407. See also the comments of
吕红兵 [Lü Hong Bing] as reported in
田享华 [Tian Xiang Hua],
above n 14: ‘because foreign law firms are
not members of the Bar Association, the Bar Association would like to supervise
them but does
not have any power. As a result, foreign law firms exist in a
regulatory vacuum’.
[48] For example, the efforts of the EU negotiators: see above n 16.
[49] These forces are reflected in the attempts to achieve greater market access for the international trade in legal services under the General Agreement on Trade in Services (‘GATS’): Marrakesh Agreement Establishing the World Trade Organization, opened for signature 15 April 1994, 1867 UNTS 3, Annex 1B (entered into force 1 January 1995). A discussion of this is beyond the scope of this article.
[50] Anecdotal evidence suggests that the local Bar had lobbied hard to include drafting contracts governed by Chinese law in the scope of prohibited activities under the Administrative Regulations. For further comments on the practical difficulties in drawing the line between permitted and prohibited activities, see Liu, above n 3, 780–1.
[51] For a reference to the fine imposed on Coudert Brothers for appearances by Chinese assistants in arbitration proceedings, see 宋伟 [Song Wei], «外国律师中国执业状况调查:业务受限 生意兴隆» [Investigation into the Practice of Foreign Lawyers in China: Practice Is Restricted but Business Is Flourishing] (2006) 邦道律师事务所 George Wu & Partners Law Firm <http://www.bdlawoffice.com/english/ShowArticle.asp?ArticleID=1134> .
[52] 市律协宣传部 [Shanghai Bar Association], «法律服务风险提示(一)» [Notification of Legal Services Risks (No 1)] (2005) (‘SBA Notification (No 1)’) (on file with author).
[53] One Chinese lawyer is reported as suggesting that a class action could be taken by local law firms against foreign law firms on the ground that foreign law firms had engaged in unfair competition: 田享华 [Tian Xiang Hua], above n 14.
[54] SBA Notification (No 1), above n 52.
[55] Ibid.
[56] Ibid.
[57] Shanghai Lawyers Association, ‘The Situation of Illegal Business Activities Practiced by the Foreign Law Firms in Shanghai Is Severe: The Foreign Law Services Market Needs Regulating’ (Shanghai Lawyers Association News Brief No 9/150, 17 April 2006). Note that ‘Shanghai Lawyers Association’ and ‘Shanghai Bar Association’ can be used interchangeably. The author has obtained an unofficial English translation of this memorandum from the website China Law Blog, A Blog about Chinese Law and the Legal Issues of Doing Business in China <http://www.chinalawblog.com/> , which obtained it from a Chinese lawyer. It has not been possible to verify the translation against the original document, however the contents are consistent with the details as reported in other sources: see, eg, 田享华 [Tian Xiang Hua], above n 14. For further commentary on the SBA Memorandum and the circumstances surrounding it, see Liu, above n 3, 795–801. Liu’s article (referring to it as a ‘brief’), which examines data from in-depth interviews conducted with lawyers in Beijing and Shanghai, explores the blurred boundary between foreign and local law firms in China, particularly in relation to the competitive dynamic that this has generated, and provides insights into the consequences for the practice and career patterns of Chinese corporate lawyers.
[58] See 田享华 [Tian Xiang Hua], above n 14.
[59] SBA Memorandum, above n 57, 2.
[60] Ibid 2–3. For further details on these activities, see the comments of Chinese lawyers as reported by 田享华 [Tian Xiang Hua], above n 14.
[61] SBA Memorandum, above n 57, 2. The prohibition is contained in Administrative Regulations art 16.
[62] SBA Memorandum, above n 57, 2. The SBA Memorandum did not identify the basis on which drafting contracts and participating in negotiations were in breach of the rules. These activities are not expressly prohibited by the Administrative Regulations or the Implementing Rules.
[63] SBA Memorandum, above n 57, 2. The term ‘due diligence’ services appears to be referring to the services that lawyers provide when they undertake a comprehensive investigation of the legal issues concerning a company or a business.
[64] Ibid. This appeared to be a reference to the practice adopted by foreign law firms of undertaking watching briefs on behalf of clients in litigation and arbitration proceedings in China. The reference to ‘[using] Chinese lawyers in courts only’ suggests sensitivities on the part of the local profession concerning the perceived marginalisation of Chinese lawyers by foreign lawyers.
[65] Ibid 3.
[66] The SBA Memorandum did not detail the circumstances in which foreign law firms were establishing and controlling Chinese law firms. Such Chinese law firms have been described as ‘puppet law firms’: see 田享华 [Tian Xiang Hua], above n 14. See also Liu, above n 3, 783.
[67] SBA Memorandum, above n 57, 3. This probably refers to the ways in which foreign law firms promote their Chinese law expertise in marketing materials.
[68] Under art 26(2) of the Administrative Regulations, the fees that the PRC offices of foreign law firms receive from clients must be settled in China (for example, the fees must be paid into the bank accounts of the PRC offices in China).
[69] SBA Memorandum, above n 57, 4.
[70] 市律协宣传部 [Shanghai Bar Association], «外事委员会2006年工作总结» [2006 Work Summary by the Foreign Matters Committee] (2007) (on file with author).
[71] Ibid. It was reported in December 2007 that there had not been any official response from the Ministry of Justice to the SBA Memorandum. This was accompanied by the suggestion that the activities of foreign firms would be seen as a barometer for the further liberalisation of the market: see 袁铭良 [Yuan Ming Liang], «抓一手最好的律师: 2007年国际律师行中国指南» [Grabbing the Best Lawyers: 2007 Guide to International Law Firms in China] (2007) <http://bbs2.ustc.edu.cn/cgi/bbscon?bn=Economic & fn=M4764E51E & num=7189> . See also 宋伟 [Song Wei], above n 51, who suggests that the lack of a response from the authorities is due to the sensitivities involved.
[72] The local Bar
associations around China are all members of the All China Lawyers Association
(‘ACLA’), which was founded
in 1986 pursuant to art 19 of the now
repealed
«中华人民共和国律师暂行条例»
[Interim Regulations of People’s Republic of China Lawyers] (PRC) National
People’s Congress Standing Committee, Order
No 5, 26 August 1980, and
describes itself as ‘a social organization ... and a self-disciplined
professional body for lawyers
at national level which by law carries out
professional administration over lawyers’: ACLA, Law
Committees (2000)
<http://www.chineselawyer.com.cn/html/union/englishunion/briefintro
duction.html>.
The author is not aware of any formal position taken by the ACLA in relation to
the 2006 controversy surrounding
foreign lawyers in China.
[73] 北京市司法局律师工作管理处干部
[Lawyer
Management Cadre, Beijing Bureau of Justice] (prepared by
段耀州 [Duan Yao Zhou] and 陈玲 [Chen Lin]),
«关于外国、香港律师
事务所驻京代表处执业情况的调研报告»
[Investigative Report into the Practice Situation of Representative Offices of
Foreign and Hong Kong Law Firms in Beijing] (2006)
(‘Beijing
Bureau of Justice Investigative
Report’).
[74] Ibid part 2(2).
[75] For an analysis of this issue, see Patricia Ginsberg, ‘An Ethical Dilemma of American Attorneys in China: The Conflict between the Duty of Confidentiality to Clients and the Requirement of Disclosure to the Chinese Government’ (1999) 12 International Law Practicum 47.
[76] Beijing Bureau of Justice Investigative Report, above n 73, part 2(2).
[77] Such measures, the report suggested, included the compulsory participation of local lawyers in major projects: ibid part 4(1).
[78] Ibid part
4(2). The original Chinese text reads
‘解释中国法律’ and
‘提供有关中国法律
环境影响的信息’
respectively.
[79] This, the report suggested, included providing training to foreign and Hong Kong law firms on professional ethics and discipline: ibid part 4(1).
[80] See, eg, 何敏 [He Min], above n 9.
[82] See
何敏 [He Min], above n 9,
59. See also 李仁真 [Li Ren Zhen], «WTO
与中国法律
服务市场的对外开放»
[The WTO and the Opening Up of China’s Legal
Services Market] (2004) 11
中国司法 Justice of China 25, 26;
Hongming Xiao, ‘The Internationalization of China’s Legal Services
Market’ (2000) 1(6) Perspectives [Zhimin Wen trans] part 4
<http://
www.oycf.org/oycfold/httpdocs/Perspectives2/6_063000/internationalization_of_china.htm>;
Liu, above n 3, 798–9.
[83] 何敏 [He Min], above n 9, 59. See also 李仁真 [Li Ren Zhen], above n 82.
[84] 何敏 [He Min], above n 9, 61.
[85] Ibid 59–60. See also Xiao, above n 82, part 4, who refers to the ‘brain drain’ that would result from allowing foreign law firms to hire Chinese lawyers.
[86] This is currently limited to lawyers qualified in Hong Kong and Macao and to their employment in local law firms: see below Part V for the relevant provisions.
[87] See below Part V for more information in relation to the employment of lawyers from Hong Kong and Macao by Chinese law firms.
[88] 何敏 [He Min], above n 9, 61.
[89] One lawyer, 王小耘 [Wang Xiao Yun], has stated, ‘it appears that foreign lawyers do not feel that they have anything to fear from breaking the law’: 宋伟 [Song Wei], above n 51.
[90] An ‘edge ball’ is a ping-pong term to describe the situation where the ball shaves the edge of the table and is consequently very difficult to return. See 田享华 [Tian Xiang Hua], above n 14.
[91] See ibid.
[92] 林华 [Lin Hua], above n 20, 49.
[93] See 田享华 [Tian Xiang Hua], above n 14, reporting comments of 吕红兵 [Lü Hong Bing], President of the Shanghai Bar Association.
[94] See, eg, Liu, above n 3, 792, on the effects of recruitment of middle-level associates.
[95] The author’s own experience indicates that over the past five years or so, a reverse trend has emerged as many Chinese professionals have moved from foreign law firms to Chinese law firms in response to the greater career opportunities at Chinese law firms. It has been suggested that local firms have not always done their best by local lawyers: see 蔡永彤 [Cai Yong Tong], above n 12, 62. Cai notes the eagerness of many domestic law firms for instant success and their exploitation of law graduates, which has encouraged an exodus of talent to foreign firms. Liu’s empirical research suggests that the exodus of Chinese lawyers to foreign law firms has made local law firms less willing to invest in their training: Liu, above n 3, 792.
[96] This has been described as ‘snatching the food-bowl from Chinese lawyers’: 宋伟 [Song Wei], above n 51.
[97] This argument
often stems from the perception that the activities of lawyers involve the
‘execution of public duties’:
see Guo, above n 3, 154, quoting Canadian Bar Association,
Submission on the General Agreement on Trade in Services
and the Legal Profession: The
Accountancy Disciplines as a Model for
the Legal Profession (2000) 1
<http://www.cba.org/
cba/submissions/pdf/00-30-eng.pdf>. See also
蔡唱 [Cai Chang],
«中外法律服务承诺
比较研究»
[A Comparative Study of Commitments in Respect of Legal Services by China and
Foreign Countries]
(2003) 10(6)
湖南商学院学报 Journal
of Hunan Business College 106, 107. Similar concerns
have been expressed in Japan, particularly in relation to the loss of
‘pure’ Japanese law
firms: Suzuki, above n 9, 396–7.
[98] 林华 [Lin Hua], above n 20, 51.
[99] 方建伟 [Fang Jian Wei], «试论入世后中国法律服务业的开放» [Examining the Opening Up of China’s Legal Services Sector after WTO Accession] (2004) 行政与法 [Administration and Law] 121, 122. Fang suggests that allowing foreign lawyers to sit the Bar examination is not possible in the foreseeable future ‘because of the great differences in terms of the legal systems between east and west ... and the fact that China regards the legal profession as part of a country’s sovereignty.’ However, Fang accepts that the trend towards further reform cannot be reversed: ‘China’s legal profession must develop and cannot rely on government protection; the key is for the legal profession to strengthen itself and its competitiveness.’
[100] For the
comments of one foreign-qualified lawyer in this regard, see
陶景洲 [Tao Jing Zhou],
«现代律师事务所的扩展、合并及中外律师事务所的合作»
[The Expansion and Merger of Modern Law Firms and Cooperation between Chinese
and Foreign Law Firms] (2002) 1 中国律师
Chinese
Lawyer 24, 28. See also 何敏 [He Min], above n 9, 61. It is interesting to consider the
experience in Singapore, where many local firms consider that full
liberalisation would have
an adverse impact on the development of the local
profession. One of the reasons cited by local firms is that international firms
would attract Singaporean lawyers on the basis of the higher salaries, but they
would still be getting them on the cheap compared
with lawyers from other
jurisdictions. In such circumstances, the local firms would not be able to offer
competitive salaries and
this would result in most of the lucrative Singaporean
law work in areas such as finance law going to the international firms:
Committee
to Develop Singapore’s Legal Profession, Final
Report of the Committee to Develop
the Singapore Legal Sector (2007)
(‘Rajah
Report’) 69, 89 <http://notesapp.internet.gov.sg/__48256DF200173A1F.nsf/LookupMediaBy
Key/GOVI-79LDSM/$file/Justice%20V%20K%20Rajah%20report.pdf>.
The author would argue, however, that China is in a different position
in view
of the extensive Chinese law expertise that foreign law firms already have.
[101] See Suzuki, above n 9, 396–7, arguing this in relation to the Japanese market.
[102] See above n 45 and accompanying text.
[103] This reality, as it relates to domestic law firms in Singapore, was acknowledged in a review of the legal profession commissioned by the Singaporean government, which was conducted by Justice V K Rajah: Rajah Report, above n 100, 89.
[104] 何敏 [He Min], above n 9, 61. See below Part VII.
[105] «中华人民共和国反垄断法» [People’s Republic of China Anti-Monopoly Law] (PRC) National People’s Congress Standing Committee, Order No 68, 30 August 2007. This law, together with the «中华人民共和国反不正当竞争法» [People’s Republic of China Law against Unfair Competition] (PRC) National People’s Congress Standing Committee, Order No 11, 2 September 1993, forms the core of China’s evolving body of competition law.
[106] Contentious matters would include applying under AML art 53 for administrative review or undertaking an administrative lawsuit if there is an objection to a decision made by an anti-monopoly law enforcement agency.
[107] This
includes relocating competition law experts from Europe and the United States to
Hong Kong and Mainland China: see, eg, ‘China:
Law Firms Prepare for Tough
New Anti-Monopoly Laws’, Asianlaw (online), April 2008.
<http://www.asialaw.com/Article/1970752/Channel/
16707/China-Law-firms-prepare-for-tough-new-anti-monopoly-laws.html>.
[108] «关于外国投资者并购境内企业反垄断申报指南» [Guidelines on Anti-Monopoly Filings where Foreign Investors Acquire Domestic Enterprises] (PRC) Ministry of Commerce, 8 March 2007.
[109] The original Chinese text is ‘申报人’. In principle, the notifying party is the acquirer, although it may also be the party being acquired subject to the specific circumstances.
[110] See above Part III.
[111] One example is the strategic alliance between King & Wood and the Australian law firm, Gilbert + Tobin. For further details, see Gilbert + Tobin Lawyers, King & Wood (2007) <http://www.gtlaw.com.au/gt/site/articleIDs/DB2D55C64C0BA247CA25738D0079C26A?open & ui=dom & template=domGT> .
[112] PRC Lawyers Law art 12 provides that personnel of PRC law firms who have not obtained a lawyer’s practising certificate may not engage in legal services business in the name of a lawyer. The effect of this is that a lawyer who is qualified in a foreign jurisdiction and who does not hold a PRC practising certificate cannot be held out as a lawyer if employed by a local law firm.
[113] The terms ‘legal consultant’ (‘法律顾问’) and ‘lawyer’ (‘律师’) are referred to in PRC Lawyers Law art 29. For reference to similar issues that have arisen in Japan and South Korea, see Suzuki, above n 9, 390, 392.
[114] «香港、澳门特别行政区律师事务所驻内地代表机构管理办法» [Administrative Measures on Representative Offices of Law Firms from the Hong Kong and Macao Special Administrative Regions in the Interior] (PRC) Ministry of Justice, Order No 70, 13 March 2002.
[115] See Administrative Regulations art 15.
[116] The term ‘association’ is the word adopted in the English version of the Closer Economic Partnership Arrangements: see below n 119. The literal translation of the Chinese term for ‘association’ (‘联营’) is ‘joint operation’.
[117] The word ‘interior’ (‘内地’) is used instead of ‘Chinese’ to reflect the fact that Hong Kong and Macao are part of the PRC.
[118] Hong Kong and Macao Administrative Measures art 15(3).
[119] Mainland
and Hong Kong Closer Economic
Partnership Arrangement, signed 29 June 2003 (entered into force 1
January 2004) (‘Mainland and Hong Kong
CEPA’); Trade and Industry Department (HK SAR), CEPA (2005)
<http://www.tid.gov.hk/english/cepa/legaltext/
cepa_legaltext.html>;
Closer Economic Partnership Arrangement
between China and Hong Kong, China,
WTO Doc WT/REG162/N/1 S/C/N/264 (2004) (Communication circulated by the
Committee on Regional Trade Agreements). Mainland and Macao
Closer Economic Partnership Arrangement, signed 17
October 2003 (entered into force 1 January 2004) (‘Mainland
and Macao CEPA’); Government Printing Bureau (Macao
SAR), Mainland and Macao Closer Economic
Partnership Agreement (CEPA) (2009)
<http://www.imprensa.macau.gov.mo/edicoes/
en/dse/cepa>; Closer
Economic Partnership Arrangement between
China and Macao, China, WTO Doc WT/REG/163/1 (2004)
(Communication circulated by the Committee on Regional Trade Agreements).
[120] This extracts three of the six commitments in Mainland and Hong Kong CEPA Annex 4 table 1 (‘The Mainland’s Specific Commitments on Liberalization of Trade in Services for Hong Kong’) sector 1(A)(a).
[121] «香港特别行政区和澳门特别行政区律师事务所与内地律师事务所联营管理办法»
[Admin-
istrative Rules on Associations between Interior Law Firms and Law
Firms from the Hong Kong Special Administrative Region and the
Macao Special
Administrative Region] (PRC) Ministry of Justice, Order No 83, 27 November 2003,
as amended by
«司法部关于修改‹香港特别行政区和澳门特别行政区律师事务所与内地律师事务所联营管理办法›的决定»
[Ministry of Justice Amendment of ‘Administrative Rules on Associations
between Interior Law Firms and Law Firms from the Hong
Kong Special
Administrative Region and the Macao Special Administrative Region’] (PRC)
Ministry of Justice, Order No 109, 6
March 2008.
[122] Administrative Rules on Associations art 2.
[123] Administrative Rules on Associations art 9.
[124] Administrative Rules on Associations art 12.
[125] Administrative Rules on Associations art 3.
[126] Administrative Rules on Associations art 3. On this basis, each firm is liable to third parties for any negligent or unlawful act, although it is possible for the parties to apportion liability for meeting any compensation claims between themselves in accordance with the association agreement: art 17.
[127] Administrative Rules on Associations art 5.
[128] Administrative Rules on Associations art 6.
[129] See Mainland and Hong Kong CEPA Annex 4 table 1; Mainland and Macao CEPA Annex 4 table 1.
[130] See «香港法律执业者和澳门执业律师受聘于内地律师事务所担任法律顾问管理办法»
[Ad-
ministrative
Measures on Hong Kong Legal Practitioners and Macao Legal Practitioners Who Are
Employed by Interior Law Firms to Act
as Legal Consultants] (PRC) Ministry of
Justice, Order No 82, 30 November 2003, art 4. Note that there appears to be no
express basis
on which Taiwanese lawyers may sit the PRC Bar examination or on
which Taiwanese law firms may establish representative offices in
Mainland
China. Administrative
Provisions art 34 envisages that Taiwan will form a separate tariff zone
and thus be regulated differently. See generally Peng and Li, above
n 6, 189–90. According to one report,
30 Taiwanese lawyers will be allowed to practise in the Mainland after passing
the annual
Bar examination in September 2008, following an announcement by the
Ministry of Justice in April 2008 that it will relax the restrictions:
see
Rashid Yosufzai, Taiwan Lawyers to Practise
in Mainland China (2008) ALB Business Legal News
<http://asia.legalbusinessonline.com/news/breaking-news/31588/details.aspx>
.
[131] See
«取得内地法律职业资格的香港特别行政区和澳门特别行政区居民在内地从事律师职
业管理办法»
[Certain Provisions on Residents of the Hong Kong Special Administrative Region
and
the Macao Special Administrative Region Participating in the National
Justice Examination] (PRC) Ministry of Justice, Order No 81,
27 November 2003,
effective from 1 January 2004, as amended by
«司法部关于修改‹取得内地法律职业资格的香港特别行政区和澳门特别行政
区居民在内地从事律师职业管理办法›»
[Ministry of Justice Amendment of ‘Certain Provisions on Residents of the
Hong Kong Special Administrative Region and the Macao
Special Administrative
Region Participating in the National Justice Examination’] (PRC) Ministry
of Justice, Order No 105,
1 December 2006.
[132] The scope of the reference to ‘representation activities in marriage and inheritance cases involving Hong Kong or Macao’ is not clear. On one interpretation, this operates as an exception to the prohibition on participation in litigation matters.
[133] Suzuki, above n 9, 405. South Korea is currently planning extensive reforms that would open up the legal services market to foreign law firms: Hyung Tae Kim, ‘Legal Market Liberalization in South Korea: Preparations for Change’ (2006) 15 Pacific Rim Law and Policy Journal 199.
[134] Xiao, above n 82, part 4.
[135] As previously noted, this would not allow profit sharing: see above n 126 and accompanying text.
[136] Under the current joint venture model in Singapore, joint law ventures (‘JLV’) are permitted to practise in commercial law areas (not including litigation) and the constituent law firms may share the profits of the JLV. However, the foreign law firm may not employ Singaporean lawyers and Singaporean lawyers may not become an equity or profit-sharing partner in the foreign firm. In response to the recommendations of the Rajah Report, above n 100, annex B, the Singaporean government has decided to liberalise the legal services sector. The reforms include allowing the foreign law firm in an existing JLV to share up to 49 per cent of the profits of the Singaporean law firm and allowing ‘qualifying foreign law firms’ to employ Singaporean lawyers directly. For further details, see Ministry of Law (Singapore), ‘Government Accepts Key Recommendations of Justice V K Rajah’s Committee on the Comprehensive Review of the Legal Services Sector’ (Press Release, 7 December 2007) [7](iii); Singapore, Parliamentary Debates, 26 August 2008, vol 84 (K Shanmugam, Minister for Law) (second reading speech for the Legal Profession (Amendment) Bill 2008 (Singapore)).
[137] This model
permitted foreign lawyers and Japanese lawyers ‘who possess separate and
respective offices to co-handle in the
same facilities all matters, other than
certain prohibited areas such as litigation cases, and to share revenues and
profits derived
therefrom’: Ciano and Martin, above n 9, 123 fn 11. Pursuant to amendments to the
Act on Special Measures concerning the
Handling of Legal Services by Foreign
Lawyers (Japan) Act No 66 of 1986 [Ministry of Justice (Japan) trans],
which came into effect on 1 April 2005, foreign lawyers may now employ
Japanese
lawyers and establish an enterprise jointly operated by a registered foreign
lawyer and a Japanese lawyer or corporation
under a partnership contract: arts
2(xv), 49-3. However, business scope restrictions still apply: art 4. For the
Japanese legislation,
see Ministry of Justice (Japan),
Gaikokuho-Jimu-Bengoshi (‘Gaiben’, Registered
Foreign Lawyers) (2006)
<http://www.moj.
go.jp/ENGLISH/information/gjb.html>.
[138] Such as the qualification requirements in respect of Hong Kong and Macao law firms that wish to enter into an association with a local PRC law firm: see above Part V.
[139] One of the reasons for this is the cost associated with maintaining a joint venture. In Singapore, the Rajah Report, above n 100, 87, acknowledged that the restrictions on economic union and profit sharing had impeded the growth of JLVs. In addition, the joint venture model often represents a less than ideal halfway house in terms of career opportunities for employees. In Japan, for example, anecdotal evidence suggests that the former Specific Joint Enterprise model was not very attractive to Japanese lawyers, since the tie-up with one international law firm made it difficult for them to arrange overseas secondments with other international law firms, limiting their career development options.
[140] It is interesting to note that the recent developments in Japan introduced both of these options at the same time, giving foreign law firms a choice between the two: see above n 137 for the relevant legislation.
[141] Interestingly, one commentator has suggested that the legal services market could first be liberalised in Shanghai, because of its status as a financial centre, along similar lines to the way in which foreign lawyers have been attracted to London: 蔡永彤 [Cai Yong Tong], above n 12, 62.
[142] Under these reforms, qualifying foreign law firms will not be permitted to engage in litigation or domestic areas of law such as criminal law, retail conveyancing, family law and administrative law: see above n 136. This reflects comments in the Rajah Report, above n 100, 97, that ‘[t]here is no reason to allow [foreign law firms] to engage in any aspect of litigation, at least certainly not in the initial phase of liberalisation.’
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