Dubai Counsel to Counsel: Best Practices in Managing Complex Cross-Border Transactions (Part 2)

In the second part of our two-part summary of a recent Counsel to Counsel seminar in Dubai, we report on some of the particular challenges facing in-house lawyers, who are trying to manage cross-border deals involving Middle Eastern countries.

Running the deal process

As in many jurisdictions, several speakers expressed their frustration in trying to extract information from relevant stakeholders, which will be needed in preparation for a deal. It was suggested that “education” may help alleviate this problem – that is, telling stakeholders why the information was needed, so they did not fear they were being investigated for some unspecified wrongdoing. However, other speakers said it simply was not always possible to be open with employees, because it may be essential that deal negotiations are conducted in secret. In those situations, counsel must simply use their power of persuasion – or rely on senior managers – to extract vital information from reluctant employees.

In any due diligence process, it helps if the acquiring company can clearly articulate which issues it regards as important, so the legal team can focus its efforts on addressing those issues. “Clarity on the scope of what issues are ‘material’ to a transaction can make a huge difference to a company’s legal spend on a due diligence process,” says Vanessa Abernethy, a corporate partner at the Dubai office of Simmons & Simmons,. “If our client comes to us with clear high-level objectives, we can wrap up the due diligence process much more quickly.” Unfortunately, this best practice is not always followed, resulting in a wasted effort and unnecessary costs – and, in a worst case scenario, insufficient time spent investigating issues the acquiring company subsequently decides should be given the greatest attention.

Besides legal due diligence, the issue of tax and suitable tax structures was discussed at length by the Dubai C2C participants. One in-house counsel recalled how their tax advisors had devised a deal structure based on a DIFC-based holding company which, as soon as they heard about, they decided wasn’t acceptable from a local company law perspective. “I told them to go back and find another jurisdiction,” they said. With tax considerations central to the viability of many local deals, the need to devise structures that were both tax-efficient and legally secure occupied the minds of several of those around the table.

During this part of the debate, several speakers lamented the lack of high-quality tax advice offered by local law firms. This prompted a discussion of whether it would be preferable to instruct a local accountancy firm with an in-house legal capacity on major transactions, rather than a traditional law firm. This debate about the desirability – or otherwise – of multidisciplinary partnerships is, of course, a matter that in-house counsel the world over must deal with. For their part, those private practice lawyers at the event were keen to stress their tax law capability within the region. To overcome the challenges of inconsistent legal and tax advice, one speaker recommended carrying out joint conference calls with representatives from the two professions, in order to ensure they were pursuing a consistent strategy.

Some of those around the tables worked in a transaction-driven environment, and offered their own best practices on how to run a successful deal. For example, Nick Hornung, General Counsel of Istithmar World, recalled how his company had a dedicated “investment board”, which was tasked by the company’s main board with reviewing and deciding upon investment- and divestment-related opportunities. The investment board examines all aspect of a potential deal – legal, operational and financial. Deal teams approach the investment board often multiple times during the course of a transaction, and only once key issues have been resolved will the proposal be approved by the investment board. “This could sound like a process tied up in red tape, but it isn’t,” he said. “Deals can be approved in a very short time, and deal teams understand the parameters required to receive an approval. If the investment board does not feel comfortable with a proposal it can be thrown out – even if the deal team has spent months working on it.”

Working with external law firms

The Dubai legal market is currently in a state of flux, with many western law firms now entering the territory. This development poses both challenges and opportunities for in-house counsel operating in the region. On the one hand, Western law firms tend to bring with them innovations such as online deal-rooms and legal news alerts – this second innovation is especially useful in a region lacking in legislative transparency. On the other hand, the arrival of transnational firms also tends to bring with it local market instability – with valued advisors occasionally jumping firms mid-transaction. Here, counsel often have a difficult decision to make – remain loyal to an individual, or to the firm.

One of the main advantages of engaging international law firms is, of course, their cross-border capabilities. International firms can often provide comparative law advice on how the same matter should be handled in multiple jurisdictions. But such law firms do have their territorial limits. Here, the question is what counsel should reasonably expect of international law firms in terms of their legal advice in countries where these firms do not have their own wholly-owned offices.

One speaker lamented paying hundreds of thousands of dollars for legal advice – only for the international law firms to supply a contribution from a third party law firm when asked to provide a vital legal opinion on Yemeni law. “The firm refused to countersign the legal opinion, leaving us with significant legal exposure,” they said. Unfortunately, such scenarios often place international law firms in a “no win” situation. While they may be willing to coordinate and manage the legal advice from a variety of different law firms, and ensure the appropriate quality of legal advice is provided, they may simply not be able to offer formal legal opinions in relation to laws they have no direct capability in. “There are clear risk management issues in relation to providing formal legal opinion letters in relation to those jurisdictions where we do not have qualified lawyers,” said Simmons & Simmons’ Dubai projects partner, George Booth. He added that law firms can resource the expertise and ensure the legal opinion is of the requisite relevance and quality in such circumstances. Another speaker recommended that in-house counsel should actually do a “sense check” on the legal advice given to them by their external advisors. “If I’m not sure about a firm’s advice, it is my duty to get a second opinion from another law firm,” said session Chair, Fadi Hammadeh, who is Head of Legal at the Dubai Properties Group. “The role of in-house counsel should go beyond just managing advisors. Common sense should indicate when a law firm’s advice doesn’t sound right.”

In the first of our two-part summary of proceedings, we reported on some of the regulatory, cultural and economic challenges facing corporate counsel doing cross-border deals in Middle East countries. To access this report, click here.