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South Korea’s legal market was supposed to enter its third and final stage of liberalisation in March. But just months before Asia’s fourth-largest economy fully opened up, the country’s legislature passed a revision of the Foreign Legal Consultant Act (FLC Act), restricting the structures of permitted joint ventures between local practices and foreign firms.
The amendments limited foreign ownership in a joint venture to just 49 percent. Unsurprisingly, a number of the foreign firms initially voiced their opposition to the measure, but eventually decided to work around it. There are 28 foreign law firms in Korea, and so far none have joint ventures in the country, according to the Korean Bar Association.
The Foreign Law Firm Association has been actively working with the Ministry of Justice and other government ministries to facilitate full legal market opening since 2014. Daniel Lee, DLA Piper's Korea managing partner, who was the first president of the association from 2014 to 2016, said their top priority was working with the Ministry of Justice (MOJ) to relax the FLC Act.
“Despite all these efforts, MOJ's position on the current FLC Act is firm,” says Lee. “All the foreign law firms that opened an office in Seoul understood that the legal market opening as defined by the Free Trade Agreement is a ‘complete’ opening, meaning that the market will be fully open in three phases in five years. Yet, MOJ's position is that it is only the third-phase opening, which means there will be a fourth and fifth phase in the future, without any specific time identified.”
BUSINESS AS USUAL
But despite the restrictions, global law firms haven’t been affected.
“It really has to do with the business model of each law firm,” says Jong Han Kim, chair of Paul Hastings’ Seoul office. “We are not interested in handling Korean domestic matters, that’s why we're not interested in any kind of joint venture with Korean law firms. So the law doesn’t affect us.”
This is also the case with DLA. Despite actively calling to relax the FLC Act, it hasn’t had an impact on the firm’s strategy. “We opened our office to service our existing Korean corporate clients,” says Lee. “Given the restrictions, we will continue to focus on outbound transactions and outbound arbitration/litigation for large Korean companies.”
Herbert Smith Freehills, which has one of the largest offices among foreign firms in South Korea and also focuses on outbound work, says it is similarly unaffected. “We maintain good relations with the major Korean firms and prefer to partner with the best firm for each particular matter rather than to align with just one,” explains Mike McClure, chief representative of the firm’s Seoul office.
Though the revised FLC Act doesn’t affect the global law firms much, one of the restrictions does make things inconvenient for international firms, by curtailing their ability to hire junior associates. The current law prohibits international firms from hiring foreign lawyers with less than three years of experience in their home jurisdiction. They are also forbidden from hiring local lawyers unless it is through a joint venture.
“The only thing I would like to change is allowing foreign firms to hire junior associates,” says Paul Hastings’ Kim. “It prohibits us from having the necessary staff. It's not a big deal, but it would make things much more convenient.”