Intricacies of a Borderless World – Part II

In a previous article titled “Intricacies of a Borderless World” (http://www.hk-lawyer.org/content/intricacies-“borderless”-world), I have given a brief overview of the evolution of business structures of law firms with a particular focus on non-lawyer management, ownership and control of legal practices in different jurisdictions around the world.

The recent liberalisation in the structure and operation of legal practices in the Hainan Special Economic Zone (“Hainan SEZ”) in the Hainan Province of Mainland China forms a good sequel to that article.

From 1 October 2019, a number of reforms to the Lawyers’ Practice Rules of the Hainan SEZ approved by the Standing Committee of the Hainan Provincial People’s Congress have come into effect. The most important change is the permission of professionals other than lawyers, including certified accountants, certified tax agents, certified cost engineers and patent agents, to become partners of law firms. The relaxation is subject to a restriction on the number of non-lawyer partners and their capital contribution. Both must not exceed 25 percent of the total and a non-lawyer cannot take up the position as managing partner. Further, it only applies to limited liability partnerships, which are called ‘special partnerships’ in the Mainland where partners are shielded from the intentional misconduct or gross negligence of others, but will still be liable for the contractual obligations of the law firm as a whole.

Compared to some other jurisdictions, the Mainland has highly restrictive regulations on the business form and multi-disciplinary practices of law firms. This reform of allowing limited non-lawyer ownership and management of law firms in Hainan SEZ is thus an important breakthrough. As the new reform was only introduced in October, it is too early to assess the impact of the change on the development of the legal profession in Hainan. Nevertheless, it is likely that the other Free Trade Zones or SEZs in the Mainland may also wish to experiment with this innovative change to strengthen their servicing competitiveness.

Another breakthrough that is directly relevant to the Hong Kong legal profession is the relaxation in the scope of work of representative offices of Hong Kong, Macau or foreign law firms in Hainan SEZ. Representative offices of non-Mainland law firms are generally prohibited from offering services involving Mainland law. With the implementation of the new measure, these representative offices in Hainan SEZ are allowed to deal with certain Hainan related commercial non-litigation legal matters. In addition, Mainland law firms can second their Mainland lawyers to the representative offices of Hong Kong and Macau law firms in Hainan SEZ to work as Mainland legal consultants. Vice versa, Mainland law firms in Hainan SEZ are allowed to engage Hong Kong and Macau qualified lawyers to be their legal consultants to handle matters involving the laws of their respective jurisdictions of admission and foreign law.

The general direction of the liberalisation measures is to facilitate the provision of one-stop cross-border legal services. The one-stop model enhances cross fertilisation of professional knowledge and skill among practitioners from different jurisdictions and incentivises expansion and diversification of services for the benefit of the legal service users.

Since June 2016, Hong Kong law firms and Mainland law firms are permitted to operate in closer collaboration by way of partnership associations in Guangzhou, Zhuhai and Shenzhen under CEPA (The Mainland and Hong Kong Closer Economic Partnership Arrangement). Eleven partnership associations between Hong Kong and Mainland law firms have been set up in the Guangdong Province. Starting from March 2019, the geographical scope of setting up partnership associations by Hong Kong and Mainland law firms has been extended from Guangzhou, Shenzhen and Zhuhai to the entire Mainland.

Hainan SEZ has thus taken the opportunity of the recent reform to update its Lawyers’ Practice Rules to allow Hong Kong and Macau law firms to form partnership associations with Mainland law firms in Hainan SEZ, subject to the condition that the managing partner of a partnership association must be a Mainland lawyer.

Currently, there are around 2,900 lawyers and 137 law firms in Hainan. As noted in the “guiding opinion” released by the State Council in April 2018, Hainan is designated to be the transit point for Mainland China to reach out to economies in the Indian Ocean and other parts of Asia under the Belt and Road Initiative. This important role will give rise to demands of a variety of professional services including legal services. The innovative reforms introduced in the legal service sector of Hainan are some of the ways to prepare Hainan to meet the changing needs of the market.

Despite the proximity between Hainan and Hong Kong, no representative offices of Hong Kong law firms have been set up in Hainan. Neither are there in Hong Kong any branch offices of law firms that are headquartered in Hainan yet. Nevertheless, with the doors leading to closer collaboration between the two places gradually opening up, the situation may soon change.

 

Jurisdictions: 

Secretary-General, Law Society of Hong Kong