Aboard the propaganda train – sweat and spin amid a turbulent Russian market
- Author: Vladislav Zabrodin
- Date: 29.10.2015
Whiff of grapeshot
‘The Russian legal market is probably the most open and competitive in the world’, says Pepeliaev, ‘and the competition is about to get a lot more intense.’ The relationship between top-tier Russian law firms and their international counterparts can best be described as one of hostile admiration. With sanctions and currency fluctuations tilting the scales somewhat in the Russian firms’ favour, many lawyers are detecting the first whiff of grapeshot in yet another battle for market share.
‘The Russian legal market is changing,’ notes Andrey Zelenin, founding partner of Lidings, ‘not only because of the sanctions but because of the growing competition between international firms and local firms. Fifteen years ago we had almost two separate legal worlds. The world of international firms, populated mostly by expats, and then the Russian firms. But these two worlds have become less and less distinct. It’s already not so much about the price competition. There is an experience contest now.’
Indeed, Vassily Rudomino, co-founder of ALRUD, argues that international clients increasingly prefer to work with domestic firms. ‘They believe they are better protected by a Russian firm, that Russian firms understand local reality better and that they are less exposed to risk.’
As a result, the suspicion is that many US and UK firms will withdraw from the market in the coming months. ‘I’m not sure the managing partners of Moscow offices are the best people to tell you how viable their practices are’, one partner at an international firm observes. ‘It might be that in the head office they’re looking at the numbers and wondering whether there is any point in having a Moscow office. The talk about town is that the smaller offices of international firms will just give up.’
Unsurprisingly, most international firms put forward a different analysis. Balayan at Hogan Lovells says predictions of international firms leaving the market are nothing new. ‘Every time there is a crisis, the Russian firms say “now we will take the market”, but they’re always wrong. There must be something the international firms are doing right to make themselves so successful in this market.’
Similarly, Victoria Bortkevicha, managing partner of Clifford Chance’s Moscow office, says that for any large deal a firm needs an international network. ‘Even a big debt restructuring would be difficult for a Russian firm. The creditors are not all based in Moscow. Loans and bonds involve international banks. It’s just not the type of work you would send to a Russian firm.’
It should also be noted that Russian firms, many of which denominate their fees in dollars or euros, have been hit nearly as hard by currency fluctuations as international firms.
One of the most interesting recent trends in the Russian legal market has been the formation of new boutiques, spinning out from the Moscow practices of large international firms. Among the new entrants to the market are Tertychny Law, a specialist financial services practice established by former White & Case and Norton Rose partner Ivan Tertychny; Tilling Peters, formed by ex-Baker Botts IP lawyer, Ekaterina Tilling, and tax expert Oxana Peters, formerly of Dechert; and Antitrust Advisory, set up by Evgeny Khokhlov, a competition law expert with experience at various international law firms.
While cynical observers would view this rash of spin-outs as an inevitable consequence of international firms falling out of favour in Russia, according to Maxim Kulkov, who left Freshfields Bruckhaus Deringer in February to set up Kulkov, Kolotilov and Partners, the local market is now ideally suited to these boutiques.
‘Two or three years ago I noticed that we don’t have many good small or boutique litigation and arbitration firms in Moscow. International firms often have to look for Russian local providers, whether because of conflict of interest or for political reasons, but it’s extremely difficult to find the right partner. Big Russian firms are competitors and small firms have poor levels of service. I noticed the niche was quite empty so I thought the best solution was to set up a firm that would be a third cheaper while providing the same level of quality.’
While partners at international and Russian firms are prepared to fight for their share of the country’s legal market, they want to do so on neutral terrain. With few political signs of optimism on the horizon, lawyers on the ground are comforted by the market’s relative resilience. ‘The political situation is undoubtedly bad, but the overall sense I get is that business can’t be stopped completely, no matter what goes on. It’s something to take comfort in,’ says Vladislav Zabrodin, founder and managing partner of Capital Legal Services.
Generally, the feeling is Russia’s lawyers will weather the storm until the next boom emerges. After all, as Dentons corporate partner Richard Cowie says: ‘Looking at the bigger picture, you’ll see 150 million consumers on the doorstep of Europe and a major supplier of the energy market. Russia simply cannot be ignored – it has to continue to be part of the equation. If you look at the companies who have interests in Russia then you realise it’s too big an economy to leave behind.’ LB