Legal Market Overview
Once upon a time, Les Bleus captured the world cup, and Emanuel Macron charmed the world. The national mood was jubilant, and leading law firms were celebrating their ‘best year ever’ for revenues.
Next chapter, the Yellow Vest protests bring Macron down to earth, and France has the blues. As Macron’s reforms falter, confidence is dropping: the M&A market does not look as robust; the retail and oil and gas sectors are in a slump; and insolvency lawyers expect busy years to come. ‘Our private equity and LBO colleagues have worked hard for us these past few years, we fear that within the next year, there will be need for LBO restructuring work’ said a partner at one firm.
After another record year for real estate, M&A and LBO work, many see signs of impending financial and economic stress. Still, international investigations and an emerging compliance culture are keeping lawyers busy. Energy transition, data privacy work and pre-Brexit preparations are other sources of growing revenues.
Foreign sanctions and enforcement actions, especially from the US, are taking a toll on French companies. The ‘soft law is becoming a hard law’ commented a partner. French companies are routinely prosecuted by US authorities for activities conducted all over the globe. Société Générale’s $1.3bn settlement to resolve alleged violations of US sanctions on Cuba, Iran and other countries is the most recent striking example.
Renewed US sanctions on Iran have forced French companies to give the country a wide berth.
Foreign governments are now competing, and in some cases collaborating, to bring cases, leaving companies facing investigations from several countries on the same allegations. The US recently opened an investigation into Airbus, which is already the subject of the first ever joint investigation by French and UK authorities. ‘Nowadays, the scale of investigations is international and consequently, there is a strong influence of Anglo-Saxon rules upon the French system’ says a partner who believes French law firms need to develop a set of international capabilities.
In an effort to seize the mantle, an International Chamber within the Court of Appeal was created and the International Chamber of the Paris Tribunal of Commerce was modernised, resulting in a hybrid system. ‘It is the introduction of some common law before the French courts! It is authorized to plead in English, provide proofs in English, question experts in English and decisions are rendered in both languages’, says one lawyer.
But the most significant effort to respond to the new international order came under the form of a new set of preventative rules contained in the Loi Sapin II of 2017 which was adopted by the government of François Hollande.
Arguably the biggest change was the creation of the French Anti-corruption Agency (AFA), which monitors companies’ progress in implementing compulsory compliance programmes and issues corresponding sanctions.
But the imposition of a system of vigilance and compliance inspired by Anglo-Saxon law is already sparking controversies and raising tensions in the French legal community.
The introduction of new systems alongside existing ones is sowing confusion. ‘The Latin and Protestant cultures differ from one another and are now clashing. There is a right in France not to incriminate yourself, a right to remain silent and even a right to lie’ said a lawyer specialising in white-collar crime.
Another well-informed partner added: ‘Compliance, vigilance and monitoring practices are pushing for a culture of self-incrimination, and asking economic players to self-incriminate themselves and stripped themselves naked before foreign government agencies go against their own interest. This new trend is going too far and endangering the business world’.
‘AFA is a political tool’ said another white-collar crime specialist.
AFA began conducting its first audits in 2018 and treaded lightly at first. But some say AFA head Charles Duchaine’s statements have sent the ‘wrong message’. He advised against US and Anglo-Saxon law firms monitoring French companies, suggesting they could report findings to foreign governments and raising the spectre of industrial espionage. His statements sparked controversy at a time when Airbus has retained US and UK firms, and has raised new tensions and divisions among firms in the market. One partner says at least one French company moved its files from an international to a French law firm.
A lot of questions are also being raised about the legal community’s role in this new order. ‘How far are we supposed to go?’ asked one partner, while another declared: ‘I don’t want to do compliance, it is too risky! Colleagues risk being prosecuted. When AFA is auditing a company, they are looking to get results! It is a perverse system. We are advocates; not prosecutors!’.
Macron’s government is also following its predecessor’s lead by tightening scrutiny of business and banking activities and ramping up prosecutions, sanctions and judicial settlements.
The French state requires notification of many foreign investments, especially those touching on strategic sectors like transportation and energy. Money laundering and tax evasion cases are making headlines. In a manner that mimics their US counterparts, French prosecutors called for a record €3.7bn fine for UBS in a case involving tax fraud and money laundering. And in a rare move, a French company was indicted for crimes committed outside the country. Lafarge SA is accused of crimes against humanity, embargo violations and financing terrorist activities in Libya. In December 2018, the French Competition Authority, which has a reputation for severity, fined six domestic appliance manufacturers €189m for price fixing.
And the trend is not about to reverse. Tax lawyers expect more investigations as a result of new EU and French regulations. And while French companies face huge US sanctions, the French government is trying to tax giant US internet companies doing business in France. A new tax law also created a police force within the Budget ministry in addition to several other new schemes which, according to tax experts, will add to the criminalization of tax practices. The ‘current environment is bad. Several tax lawyer colleagues are being indicted and prosecuted. It is now very difficult to be a tax lawyer in France’.
Lastly, the Loi Sapin II also introduced a deferred settlement procedure (CJIP) in the French system. HSBC was the first to experiment with the new scheme and agreed to pay €300m to settle a tax fraud case late 2017. The case also kicked off a new era of judicial mediation, with companies seeking cheaper and quicker ways to resolve conflicts. International arbitration became a viable alternative for some time, but recent controversies and its high cost are making it less popular.
‘In my time, we would pay a visit to the tribunal each passing day’, recalled one partner, ‘it’s not the case anymore, the approach has changed, we write emails to judges instead and don’t plead as much’. Some regret the old time, such as this partner who claims: ‘Settlement is a way for the government to get money. Money buys you peace; it’s the American way!’. Like it or not, the French system is mutating.
The energy market is also experiencing a lot of change. In addition to the development of large-scale off shore wind projects that are attracting bidders and investors, major infrastructure M&A transactions are keeping lawyers busy. Total acquired Direct Energy in an effort to become an alternative supplier of gas and electricity to EDF and Engie. The company is also investing in renewables, with deals such as the acquisition of EREN Renewable Energy. Engie, which is now focusing on non carbon energy, completed several high-profile divestments, including the sale of E&P. New private alternative energy projects are surfacing, giving rise to a high number of disputes as old players try to defend their turf.
Finally, new EU data protection regulation (GDRP) was another major source of compliance work and helped boosted revenues in 2018. Pre-Brexit corporate planning also gave birth to a new workflow. Several UK firms assisted leading financial institutions, including HSBC and Bank of America, with reorganisation and transfer of important workforce to Paris. Hopeful that Paris might become the EU’s new trading centre, lawyers anticipate that first wave will be followed by increasing needs for legal services.
In such context of deep changes at multiple levels, players’ moves were plenty recently. The future launch of Kirkland & Ellis International LLP in Paris took everyone by surprise. Linklaters‘ private equity star partner Vincent Ponsonnaille is set to open the office but little else is known about the firm’s expanding plans in the French capital. It has been a long time since a world’s renowned international law firm of that calibre set foot in Paris and many are wondering what lies ahead.
Another 2019 foreign market entrant is UK firm Signature Litigation AARPI whose Paris office was opened by Hogan Lovells (Paris) LLP‘s high-profile litigator Thomas Rouhette along with long-time colleague Sylvie Gallage-Alwis, in addition to Emmanuèle Lutfalla who was previously at Soulié & Coste Floret.
A high number of partners’ moves can be recorded for 2018. Among the most high-profile, the following should be listed: corporate star partner Olivier Diaz quitted Skadden, Arps, Slate, Meagher & Flom LLP for Gide Loyrette Nouel A.A.R.P.I., antitrust star partner Jacques-Philippe Gunther left Willkie Farr & Gallagher LLP for Latham & Watkins, and two-times managing partner and recognised litigation and arbitration expert Elie Kleiman said goodbye to Freshfields Bruckhaus Deringer LLP to join Jones Day. Other noteworthy moves are private equity and restructuring adviser Saam Golshani joining White & Case LLP from Orrick Rambaud Martel, and highly regarded tax expert Pierre Ullmann leaving Willkie Farr & Gallagher LLP to join young promising tax boutique Cazals Manzo Pichot AARPI.
Arbitration is arguably the practice area that saw the most changes lately. In addition to the recent arrival of Elie Kleiman from Freshfields Bruckhaus Deringer LLP to Jones Day ; King & Spalding LLP attracted two high-profile names: Marc-Olivier Langlois from Hughes Hubbard & Reed LLP and Laurent Jaeger from Orrick Rambaud Martel. Thierry Tomasi left Betto Seraglini to join Herbert Smith Freehills LLP, while Emmanuelle Cabrol left Herbert Smith Freehills LLP to join Ashurst LLP. Curtis, Mallet-Prevost, Colt & Mosle LLP lost its most promising partners: Nadia Darwazeh joined Clyde & Co LLP, while Sabrina Aïnouz and Jérôme Lehucher strengthened DWF (France) AARPI‘s ranks. Pinsent Masons LLP, who earlier lost Peter Rosher for Reed Smith, was joined by Jean-François Le Gal from Brown Rudnick LLP. Arbitration and litigation partner Marc Henry left Hughes Hubbard & Reed LLP for Fischer, Tandeau de Marsac, Sur & Associés.
The litigation and white-collar practices also had their shares of significant moves recently. After loosing star product liability litigator Thomas Rouhette to a new UK entrant, Hogan Lovells (Paris) LLP also saw the departure of another one of its top partners in Antonin Lévy who setup its own independent white-collar boutique Antonin Lévy & Associés A.A.R.P.I. along with colleague Ophélia Claude. In a reverse move, independent white-collar and litigator Loïc Henriot joined Cohen & Gresser LLP, and criminal lawyer Jean Tamalet joined Bird & Bird. White-collar litigator Hippolyte Marquetty left Chatain & Associés for Allen & Overy LLP. Other moves include Xavier Pernot joining Jeantet from Ginestié Magellan Paley-Vincent, which in return took a team of litigators and IT specialists from Bersay & Associés including Yves Ardaillou and Emmanuel Schulte.
After loosing major workforce in 2017, Ashurst LLP renewed its ranks in 2018 by adding a mix of new promising and seasoned partners including well-known energy-sector expert Vincent Trévisani who came from Watson Farley & Williams LLP, top restructuring and insolvency partner Noam Ankri who quitted DLA Piper, arbitration partner Emmanuelle Cabrol who was previously at Herbert Smith Freehills LLP, as well as new tax partner Emmanuelle Pontnau-Faure (ex Pwc Société d’Avocats), new finance partner Ashurst LLP (ex Linklaters), and former Jones Day‘s lawyers: new corporate partner Anne Reffay and new litigator partner Hortense de Roux.
Another firm that went through major changes in 2018 was DLA Piper. On the plus side: the firm hired a new leading private equity fund formation team which is the reunion of the former SJ Berwin Paris’ squad who dominated the market for years before it became King & Wood Mallesons Paris and closed doors. It is made up of tax team members Sylvie Vansteenkiste, Fanny Combourieu and Raphaël Béra – who all briefly joined Reed Smith, and corporate experts George Pinkham (senior counsel), Julien Vandenbussche (formely at Tikehau Capital) and Benjamin Aller (joining from MJ Hudson). On the negative side, Michel Frieh, who can be credited for being behind the firm’s recent growth success in Paris, left to set up Frieh Associés, while the insolvency and restructuring team also dismantled: Pierre-Alain Bouhenic and David Chijner went to Brown Rudnick LLP, and Noam Ankri to Ashurst LLP .
Dentons also strengthened its ranks lately: IP star Marianne Schaffner joined with her team from Dechert LLP; renowned property partner Pascal Schmitz came from King & Spalding LLP; and structured finance expert Julien Bacus left Ashurst LLP. Conversely, the firm saw the defection of corporate partner Didier Fornoni to Hoche Société d’Avocats.
Simmons & Simmons also enhanced its leading healthcare-sector expertise by adding state-of-the-art IP and patent litigation capabilities with the hiring of Marina Cousté, François Jonquères and of counsel Romain Viret from Reed Smith.
In the dynamic French boutique area, there were also interesting developments: two of France’s leading IP boutiques HOYNG ROKH MONEGIER and Véron & Associés are merging. Newly created insolvency boutique Drai, Forget, Boché, Dobelle, which was set up by former Advocacy 4 and August Debouzy‘s members, looks very promising, as well as litigation boutique Fierville Ziadé whose one co-founding member was Orano (ex-Areva)’s former head of litigation.
The podium of law firms in France is made up of the following; French firms Bredin Prat, Darrois Villey Maillot Brochier, Gide Loyrette Nouel A.A.R.P.I. – which remains the largest French international law firm with some 600 hundred lawyers spread across 14 offices worldwide – and De Pardieu Brocas Maffei; UK firms Allen & Overy LLP, Clifford Chance, Freshfields Bruckhaus Deringer LLP and Linklaters; and US firms Cleary Gottlieb Steen & Hamilton – which is widely regarded as the number one US firm in France – Latham & Watkins, Orrick Rambaud Martel, Weil, Gotshal & Manges LLP and White & Case LLP.
Other very strong and well established US and UK firms include: Baker McKenzie, CMS , Dechert LLP, Dentons, Gibson Dunn, Herbert Smith Freehills LLP, Hogan Lovells (Paris) LLP, Jones Day, Mayer Brown, Paul Hastings LLP , Shearman & Sterling LLP, and Willkie Farr & Gallagher LLP .
Also recommended are: Altana, AyacheSalama, BCTG Avocats, Carbonnier Lamaze Rasle, De Gaulle Fleurance & Associés, Franklin, FTPA, Jeantet , LPA-CGR avocats, Lacourte Raquin Tatar and Racine. Many boutique French law firms also rank among leading firms and are notably found in the arbitration, employment, IP, tax and white-collar crime areas.