Two international firms have announced their departures from Hong Kong— UK law firm Osborne Clarke will wind down its operations this month and U.S. law firm Orrick, Herrington & Sutcliffe will exit the market in August.

 

Orrick earlier told Asian Legal Business that the decision to exit the market had been made a while back, but the pandemic had delayed the announcement. Osborne Clarke mean-while has simply altered its Asia plans to focus on China, Singapore and India.

Law firm exits tend to be infrequent in Hong Kong, but months of sustained political unrest with no end in sight and vocal concern from the U.S. and UK governments about the situation have rattled confidence in the finance hub. Now, some believe that COVID-19 could provide more firms with the impetus to leave Hong Kong.

Observing the recent developments, Rossana Chu, managing partner of LC Lawyers, the Hong Kong member firm of EY Law, predicts there could be more law firm exits in the coming months, while others “may prefer to downsize rather than close”.

Reflecting on the slowing economic activities, Chu says clients are “alert to the impacts of COVID-19 on their business operations and are keen to learn from law firms how to deal with the challenging legal issues”.

However, clients are beginning to take more legal work in-house “prob-ably due to legal budget constraints,” and there has also been something of an attitude shift during COVID-19.

“Legal issues arise from time to time, including those related to disruptions in contract performance, failures to make payments, chain reactions resulting from business interruptions and govern-mental restrictions, and labour disputes. But parties tend to resolve those issues by making compromises, and the volume of disputes resulted in formal legal actions taken was less than anticipated,” says Chu.

While there is little doubt that the COVID-19 outbreak will change Hong Kong’s legal landscape — both in terms of forward planning and technology adoption —this can be expected to be underpinned by political and economic dynamics, says Chu.

“Asia seems to be ready to open up and most governments plan to take stim-ulus measures and quantitative easing actions to boost up the economies,” she says, adding that this is likely to push up investments and local consumption and herald more work for law firms.

“However, different industries will experience different paces of recovery and this affects law firms with industry focuses. The China-U.S. relationship is one of the drivers to changes. The volume of outbound investments between China and the U.S. has shrunk, but in the future, there may be more US investments in other Asian countries. In a nutshell, I think changes will continue but will affect law firms in different ways,” Chu says, adding that she expects to see PRC firms grow and the Big Four to continue to further their legal capabilities in Hong Kong, as has been a trend for the past few years.

Eric Chin, principal at legal consultancy Alpha Creates, says that firms have had to prove themselves to be adaptable in the current climate by utilising technology and flexible approaches.

“The traditional law firm-client interface has been forced to ‘go virtual’. Businesses continue to require legal services that help them navigate the changing government advisory on lock-down rules, but need these services delivered in different ways. This includes every-thing from advice on lockdown compliance to ensuring that supply chains, contracts, and operations continue to operate in our new environment,” he says.

But the environment has also impacted some firms’ bottom line. “As legal budgets are tightened and payments postponed, some firms are opting to invest in existing client relation-ships by providing services at reduced rates or on a pro bono basis,” he says.

Flexibility and tech adoption has been the rallying cry throughout the COVID-19 outbreak. But now, as the pandemic eases in some jurisdictions, international firms are also taking a step back a re-evaluating their approach to Hong Kong and Asia, and looking for opportunities to rebound.

“The Hong Kong exits have been driven by protracted periods of disruption that has forced some of the law firms to re-examine their Asia strategy,” says Chin. “The lean periods that follow the COVID-19 pandemic will force a few more hands, but will also offer new pockets of growth to those firms that are quick to identify new opportunities in the region,” he adds.

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