25 November 2010 Russian Roulette

Volatility of the Russian market - which saw its gross domestic product (GDP)contract by as much as 7.9% in 2009 but spring back to a growth of 5.4% this year – has seen it become both adversary and temptress for the law firms practicing in the market.

The unsettled markets saw Simons & Simmons pull out of Moscow October last year, while by contrast Berwin Leighton Paisr’s practice – launched in 2009 with the hire of high-profile Russian corporate partner Andrey Golstblat and a team of 70 lawyers from Pepeliaev Golstblat & Partners announced in June this year that it had generated revenues of $23m (₤15.3m) in its first financial year and grown a newly-launched tax practice from two lawyers to 11.

Headline deals over the past year include the $1.5bn (₤963m) refinancing of Gazprom Neft, with GAzprom advised by Herbert Smith and the top-tier Moscow office of Allen & Overy (A&O) advising the banks.

Currently one of the biggest challenges being faced by international firms is a turnover of talent more familiar during the boom years, with a number of firms said to be unsettled ships after recent cutbacks.

White & Case hired SJ Berwin’s co-head of arbitration David Goldberg in June, who will be based in London but spend a significant amount of time in the US law firm’s Moscow office/ in August, the firm lost capital markets head Simon Morgan, who left to join Chadbourne & Parke in Moscow.

The move came only two months after it emerged that Chadboume banking partner Dmitry Gubarev was to join fellow US firm Dewey & LeBoeuf in Moscow. CMS Moscow, meanwhile, appointed Maxim Boulba as its new head of competition in July following the departure of former head Yevgeny Voevodin to local firm Capital Legal Services.

Regulatory concerns

In a move that may further unsettle the landscape for international and independent firms alike, Russian bar rules governing law firm management are under review, with a possibility that changes will indirectly impact more heavily on foreign law firms.

Under Russian Federation rules, qualified lawyers are entitled to practise within a commercial organisation and foreign lawyers are able to practise without any special restrictions. However, the Ministry of Justice is considering standardising the regulation of the entire profession so that all lawyers must qualify as higher Russian advocates, currently meaning that they can only operate as sole oractitioners.

But Alrud senior partner Vassily Rudomino said: "This problem is recognised by the Ministry and corresponding changes to the law will most probably be adopted as part of the reform."

Deal flow

Independent law firms in Moscow may not dominate the top tiers for international corporate and banking work but they are on a growth track and have enjoyed far more stability than their international rivals over the past yeaf.

Leading local firms attest to the near complete reversal of the 2008-09 dramatic and comprehensive disappearance of non-contentious work in Russia, with deal values almost back to pre-crisis levels.

At EPAM (EPAM), managing partner llya Nikiforov said: "At the end of 2009 there was a flux of non-contentious work and it continues to increase, but work in other areas has also begun to return and we are back to pre-crisis 50/50 contentious and non-contentious work." In June the firm advised Danone on the €1.5bn (£13bn) merger with Russian dairy company Unimilk, which was advised by White & Case.

According to Nikiforov there is a greater demand than supply for full-service law firms in the local market and the firm plans to grow for five to 10 years to fulfil that appetite.

"If you take the size of the national economy and look at the percentage of legal spend, it's about one twentieth of what is spent in Europe and the US," Nikiforov said.

Areas of recent expansion include tax, with September's hire of Igor Schikow from the Moscow office of German Roedl & Partner.

The firm is also responding to the demand for CIS cross-border services, particularly following the Customs Union between Russia, Belarus and Kazakhstan which came into effect in July and turns the region into a single economic area. Last September, EPAM set up a CIS network of nine firms across the region and is looking to further expand to 12, encompassing members from Georgia, Tajikistan and Uzbekistan.

"After the collapse of the Soviet Union the legal community was torn apart and over time we have identified firms of our calibre and doing the same sort of work. The selling is not a problem in this jurisdiction, but delivering and performing may be a problem if you don't have the right contacts," said Nikiforov.

Leading independent Alrud has seen a similar uptick in M&A deals and is expecting an increase in turnover this year of between 15-20%. The firm, which has an all equity lockstep and only grows the partnership internally, has also made a number of associate hires from international firms.

According to senior partner Vassily Rudomino, it is on course to start challenging internationals for higher-tier banking and finance work, "It's not usual for financial institutions to instruct Russian law firms and banking and finance were traditionally the areas where international firms dominated, but we are becoming much more active in this area," he said.