A slowdown of the Chinese economy has hurt a number of international firms in Asia as capital markets work has dwindled. But on the flip side, offshore firms have been growing, thanks to an upsurge in dispute resolution work.

Appleby says the firm has seen steady growth in its Asian disputes practice since 2015, the same year when China’s economy grew 6.9 percent – then the slowest in a quarter century. Eliot Simpson, the firm’s dispute resolution head in Hong Kong, and senior associate Stuart Jessup cites China’s relative slowdown as one of the main factors for the practice’s growth.

Ian Mann, a partner at Harneys, agrees. While disputes were less frequent during the startup and growth phases, “various economic pressures in subsequent years, combined with the increasing maturity of the parties involved, has led to a natural conflagration of litigation disputes,” he explains.

In addition to China’s economic downswing, Aisling Dwyer, a partner at Maples and Calder, credits the drop in the value of renminbi and the increase in non-performing loans in the PRC for the boost in disputes work.

“A growing number of financially distressed listed companies will need to engage in some form of capital reorganisation, restructuring and/or insolvency process,” she says, adding that almost half of all listed companies on the Hong Kong Stock Exchange are incorporated in the Cayman Islands with others incorporated in Bermuda and British Virgin Islands (BVI).

BULKING UP

Offshore firms are a lot smaller than other global firms and not known for their hiring sprees, but they have been steadily recruiting dispute lawyers to help handle the increasing amount of work.

Maples, for example, had just one litigator in Asia – John Trehey, who joined in 2005 as the first Asia-based offshore litigator among all offshore firms. Now, however, the firm has a team of nine, and it says it will continue to recruit to meet the demands of clients who require time zone-sensitive advice.

Ogier is another firm that has added headcount, particularly in the Hong Kong office. “As much of Ogier's work involves cross-border disputes, being based in Hong Kong also allows us to work side-by-side with onshore lawyers across the region, and particularly in PRC and Hong Kong itself,” explains partner Nicholas Plowman. 

He continues, “The Hong Kong team works with our teams in our Caribbean offices where the Courts are located to provide clients with 24-hour coverage. As the volume of high-value disputes work from Asia has risen, so too has the importance of being able to deliver our specialist dispute resolution service to clients in the same time zone.”

Appleby, which has just Simpson, Jessup, and an incoming insolvency lawyer, has a different approach. “Our own approach to managing increasing workloads has not been to flood our Hong Kong office with new hires, but to feed work out to our local jurisdictions where appropriate and at an early stage,” share Simpson and Jessup. “This recognises that the real coal face in litigation is at the court, and our role in Asia is to provide client service.” This strategy, they say, also allows the team to work on a 24-hour basis when needed.

Besides bulking up, it could be crucial to have Chinese-language capability in the years ahead, given the dramatic rise in instructions from China, says Maples’ Dwyer.

As she notes, “Not only will this be essential in order for this work to be serviced properly, it will also assist tremendously in business development efforts in mainland China and will encourage those nervous about leaping into offshore litigation to take the plunge, knowing that communicating with their offshore lawyers will be so much easier.”

CONTINUED GROWTH

It’s a good time to be a disputes lawyer in Asia, as the rise of work emanating from China in the past years is expected to continue.

“There has been an expectation for a couple of years now that the increasing volume of maturing offshore debt of Chinese companies will lead to more financial distress, restructuring and liquidations,” say Appleby’s Simpson and Jessup. “Although that in part has occurred, the growth in this area has been relatively limited, and we continue to anticipate that a credit crunch may come in China and that a wave of work may follow.”

Harneys’ Mann predicts that the next big trend will be disputes within the technology, media and telecom (TMT) sectors. “The M&A activity with these groups is simply staggering, and the consequence can only be disputes in the future,” he says. “These disputes will likely take the form of misrepresentation claims, struggles for control or shareholder activism to displace underperforming management.”

He adds, “Private equity may play a role in this, but the liquidity of TMT companies is so vast as to make private equity only a secondary target market for litigators in this arena.”

Mann also forecasts offshore disputes work will continue to climb at around 20 percent per year for the next three to five years. However, the focus will be very different within the next 18 months. “In particular, the offshore courts will need to embrace technology, as well as vastly increase the number of high-quality judges able to hear cases,” he says. “All of the offshore centres could become more competitive by modernising the law in the areas of shareholder disputes, insolvency and contentious trusts, and a dedicated programme of law reform is needed to remain competitive.”

All indicators are pointing to the continuing popularity of incorporating holding and investment vehicles offshore and expects offshore firms to remain busy, says Ogier’s Plowman. As he observes, “Couple that basic demand with an increase in NPLs, difficulties in capital allocations, and the oft-talked about macro-economic headwinds of the commodities downturn, Brexit and geo-political instabilities, Ogier's strong expectation is that offshore disputes work in Asia will grow significantly over the next few years.”