The Brazilian Bar is taking a stand against foreign firms that work alongside local associated practices. Few in the market are now prepared to bang the drum for local alliances
Hostility within the Brazilian legal market, especially São Paulo, could hardly be more intense. The Brazilian Bar Association, Ordem dos Advogados do Brasil (OAB), recently reiterated its opposition to local lawyers forming alliances with the local offices of foreign law firms. It puts Linklaters, Mayer Brown, DLA Piper, Uría Menéndez and their local associated practices – Lefosse Advogados, Tauil & Chequer, Campos Mello Advogados and Dias Carneiro Advogados respectively – very much in the firing line.
A translation of a decision by the Appeal Chamber of the OAB on 11 January says that: ‘Brazilian lawyers or law firms are prohibited from associating themselves with foreign law consultants.’ Foreign firms in Brazil must be registered as foreign law consultants. The decision goes on to say that: ‘A foreign law consultant (or a foreign law consultancy firm) who associates himself/itself with Brazilian lawyers or law firms breaches Ordinance 01/2000 – this will lead to the cancellation of the authorisation granted to him to practise as a foreign law consultant in Brazil. In addition, he also commits a criminal offence.’
What sanctions the OAB might impose are yet to be made clear, but it has been suggested that foreign firms could have their foreign law consultant licences withdrawn (foreign lawyers must be registered with the OAB as foreign law consultants) and action could be taken against the local associate firms.
‘There is some antipathy towards the aggressive way some firms are coming into Brazil.’
Antonio Corrêa Meyer, Machado Meyer Sendacz Opice
There is a very real possibility that these firms will be forced to disband their local associations and even withdraw from the market altogether. Not only that, they risk enraging pockets of the local profession and thus damaging any future referral relationships.
Antonio Corrêa Meyer, founding partner of leading Brazilian firm Machado Meyer Sendacz Opice Advogados and one of the senior members of the local profession, believes that several foreign firms have exploited the OAB’s decision some years ago to allow foreign lawyers to register as foreign law consultants and launch offices on the ground. He states that these firms have wrongly elected to provide a full service of international and domestic law by creating an association with a local firm. ‘The Bar Association is simply applying the law,’ he says. ‘The Brazilian Bar opened the window for them to be registered as foreign law consultants, but not to practise local law.’
Meyer believes that having a local associated practice is a blatant attempt to circumvent the rules and what they were intended for. ‘The law firms here in Brazil that have registered as foreign law consultants and do not have an association with a local law firm, are perfectly in accordance with the law. The Bar has nothing against them,’ he says. Given the booming Brazilian economy the Brazilian Bar is one organisation that you want to keep on side.
War path
Leading local firms have been described as being on the ‘war path’, having an ‘axe to grind’, and having too much influence within the OAB. Certainly the São Paulo arm of the OAB appears to have taken a more rigid stance, with its counterpart in Rio de Janeiro understood to be more relaxed about the activities of foreign law firms in Brazil. One general counsel at a major foreign bank in São Paulo is reported to be dismayed at the situation, blaming it on a ‘Mafia’ segment within the local legal market.
Even so, José Eduardo Carneiro Queiroz, a partner at leading Brazilian firm Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga Advogados, says that allegations of the leading domestic firms having too much power within the OAB are wide of the mark. He explains: ‘The big law firms are not closely related to the Bar association. More than 90% of Brazilian law firms have less than five lawyers and it is this type of practice that has more influence within it.’ It is a situation that resembles the stance that the Bar Council of India is taking against foreign law firms in India, a state of affairs widely blamed on the concerns of a multitude of small local firms.
What has apparently vexed the local Brazilian Bar is the recent lateral hires by the local associated practices. Last year, Linklaters’ Brazilian ally Lefosse Advogados hired capital markets partner Carlos Mello and a team of 15 from Mattos Filho. Similarly Campos Mello Advogados, which formed an alliance with DLA Piper last year, recruited a team of 14, including two partners, from the Rio office of leading firm TozziniFreire Advogados.
This may be the natural course of action for international firms to build their local capabilities around the world, but the local Bar was clearly surprised by these moves. Meyer of Machado Meyer says: ‘There is some antipathy towards the aggressive way some firms are coming into Brazil.’ He welcomes the presence of international law firms that do not practise local law, but believes the local Bar must be protected from the financial firepower of Anglo-Saxon firms. Given the sensitivity, it is perhaps not surprising that DLA Piper, Linklaters and Mayer Brown all declined to comment for this piece. Uría Menéndez was also fairly tight lipped but did make the following statement regarding its Brazilian presence: ‘Uría Menéndez has been present in Brazil for more than ten years with an office in São Paulo where, in accordance with the regulatory framework, we offer our clients advice exclusively on Spanish and European Law on a broad range of matters.’
‘In regards to Brazilian law, we regularly co-operate with Dias Carneiro Advogados with which, as with other Latin American law firms, we have a preferred but independent rapport,’ the statement concluded.
What Meyer is particularly concerned about is that giving foreign firms unfettered access to the market would lead to an instantly unbalanced playing field. He explains: ‘It is true that we can come to London and open an office, but how easy is it for a Latin American firm to come to London and be one of the major players in the market? It is the same in New York, where the top firms have been there for more than 100 years. It is not easy for a Brazilian, Uruguayan or Argentine firm to become a competitive player in the market.’
Moving the goal posts
Foreign firms operating in Brazil is not a new phenomenon. Although it is due to open a São Paulo office this year, Cleary Gottlieb Steen & Hamilton’s first foray into the country was in the 1970s when now-retired partner Anthony Gooch was resident in Rio, taking office space with one of the firm’s clients.
Furthermore, overseas firms have a history of forming local associations. Baker & McKenzie has had an association with Trench, Rossi e Watanabe Advogados since 1959, but crucially the international firm has no physical presence and does not practise international law in Brazil.
Even though Trench Rossi’s partners are listed on Baker & McKenzie’s website, the two firms have been especially careful to demonstrate that there is no legal or financial connection between the two entities. Before becoming chairman of Baker & McKenzie last year, Eduardo Leite retired from Trench Rossi’s partnership.
While the discord between the OAB and international firms that have local associated practices currently appears to be at its most intense, the matter is a long running one. In 2006, Linklaters and its Brazilian affiliate Lefosse Advogados were forced to separate their reception areas, as well as their business cards and letterheads. Linklaters’ name was also removed from the building that they shared. A story of one receptionist running between the two receptions to answer two separate telephones may be apocryphal, but it does illustrate the lengths to which Linklaters and Lefosse were forced to go to, to at least gain a temporary reprieve from the OAB. Although the two firms now have separate addresses in São Paulo, Linklaters has no resident lawyers in Brazil according to its website. When asked to clarify this, the firm reiterated that it was not willing to comment.
Speaking to LB last year however, the Magic Circle firm’s regional managing partner for the Americas, John Turnbull, described the close ties between the two. ‘The Lefosse team is closely aligned with Linklaters’ global strategy,’ he said. ‘It has generated important relationships with large Brazilian multinationals that have become clients of Linklaters, generating work across a number of jurisdictions.’
‘Once you open an office and practise local law in Latin America, you sever your contacts with the local law firms.’
Michael Fitzgerald, Milbank Tweed
For Lefosse, the 2006 separation was then followed by a series of departures at partner and associate level. This included the departure of José Orlando Lobo and Valdo Cestari de Rizzo to form Lobo & de Rizzo Advogados in 2007. Until Carlos Mello and a team of 15 joined from Mattos Filho last year, Lefosse was perceived to have been badly depleted by the departures.
The new team has clearly delivered some notable successes. It claims to have worked on 11 IPOs in the Brazilian market in 2010, including the listing of shopping centre developer Sonae Sierra. This year it has advised on IMC’s IPO, but notably on neither of these deals did it work alongside Linklaters.
What this heated episode demonstrates is that Brazil’s infamous bureaucracy and heavily regulated legal profession, must be taken extremely seriously. Gaining a licence to open an office as foreign law consultants is supposed to take six months, but in practice it normally takes between ten and 12.
Conyers Dill & Pearman’s São Paulo head Alan Dickson comments: ‘Bureaucracy here is serious and needs to be respected.’ Even so, Dickson says that his dealings with the São Paulo OAB were an ‘extremely positive experience’ and that the process of obtaining a foreign law consultant licence happened exactly as he was told it would. He explains: ‘It was more about us educating them about what we do. There was no real reference point, as we were the first offshore law firm to go through that process.’
Foreign firms that have been awarded licences to operate as foreign law consultants and who have elected not to have a local association are rigidly committed to their approach. Skadden, Arps, Slate, Meagher & Flom partner and veteran of the Brazil market Richard Aldrich says: ‘In Brazil the local Bar is very experienced and sophisticated and has demonstrated that it can effect transactions in the international arena. One reason for this is the significant presence in Brazil of large multinational companies. Since World War II Brazil has gone through periods of economic boom interrupted by periods of economic crises. This economic environment has demanded agility and sophistication on the part of multinational companies. As a result, the Brazilian Bar has developed tremendous experience in business transactions for these companies.’
Milbank, Tweed, Hadley & McCloy’s New York-based head of Latin America Michael Fitzgerald says: ‘Once you open an office and practise local law in Latin America, you sever your contacts with the local law firms and you sever your relations with the US firms that are thinking about working with you in that jurisdiction. Practising local law is a lose-lose situation.’
Slow progress
Despite all the angst surrounding the local allies of foreign firms, the OAB has not insulated itself from the rest of the world. On 15 March, the São Paulo Bar Association President Luiz Flávio Borges D’Urso and New York State Bar Association President Stephen Younger signed an ‘agreement to enhance professional ties between the two organisations’. According to Younger, Brazil has been thrust into the consciousness of the global legal market and should be given time to deal with and understand the consequences of this phenomenon. He explains: ‘Brazil is undergoing considerable change in a similar pattern to India. It has a traditional economy and legal system and now all these law firms from around the world are keen to move in and it needs to decide how to deal with them. We believe in free trade and the free mobility of lawyers around the world, but it is a big surprise for Brazil and these issues are evolving rapidly.’
A spokesperson for the American Bar Association also confirms that it is aware of the current situation in Brazil and that it is ‘monitoring the restrictions being placed on foreign lawyers practising there’.
‘I think the market is pretty open. There are a number of US law firms and UK law firms with offices here.’
José Eduardo Carneiro Queiroz, Mattos Filho
Local Brazilian firms do not necessarily view the market as closed. In any case, comparisons with other BRIC nations cast Brazil in a relatively favourable light. International law firms are prohibited from advising on local law in China and are completely excluded from India. Only Russia has allowed foreign firms unfettered access and that has led to a market that is almost completely dominated by international players.
Mattos Filho’s José Eduardo Carneiro Queiroz says that the local Bar should not be accused of protectionism: ‘I think the market is pretty open. There are a number of US law firms and UK law firms with offices here. I think it is becoming more and more open despite all the current discussions.’
Valdo Cestari de Rizzo, founding partner of Lobo & de Rizzo, says that there needs to be more dialogue between the OAB and foreign law firms. ‘I feel that this could all be resolved,’ he says. ‘These are all intelligent people and perhaps with further discussions, then they could reach a solution. They should just sit and talk. The rules are there but if the rules are not clear maybe they should consult the Bar for clarification.’ The OAB has certainly been happy to speak its mind. LB