BCI missteps on new rules for opening the market to foreign lawyers

BCI's new rules take immediate effect, with no prior notice, consultation, or transition-raising urgent concerns amid India-US trade talks

In the lead-up to the crucial trade negotiations between India and the US, the Bar Council of India (BCI) has created significant problems by issuing new rules with immediate effect governing the opening of offices in India by foreign law firms that effectively freeze out US law firms, thus reinforcing the Trump administration’s concerns about the lack of openness of the Indian market.

 

In the late hours of May 13, the BCI issued new rules creating a framework by which foreign law firms can open offices in India. One would have thought that, in the interest of meeting the needs of the Indian business community, the BCI would have set rules putting US law firms on an equal footing. Unfortunately, it appears that, when shaping these rules, the BCI did not bother to confer with any counterparts in the US. Indeed, it seems that the views sought by the BCI were only from the UK. As a result, the new rules impose requirements on US law firms looking to open an office in India with which no US law firm can comply. The BCI has single-handedly created a non-tariff trade barrier mere days before the Government of India enters trade negotiations with the US.

 

 

The BCI did this by creating registration requirements under the new rules that have no meaning in the US, where lawyers are subject to bar rules on a state-by-state basis; where the state bar associations govern the individual lawyer who is admitted to the state bar, and not law firms; and where the US has both federal and state laws. All of which differs from other jurisdictions, such as the UK. While it is true that the new rules give a passing nod to the US federal system, it does so in name only, as many of the requirements cannot be satisfied at the state bar level. For example, because a state bar association regulates an individual lawyer, not a law firm, no US law firm can deliver any required good standing certificate. Another example is the fact that US lawyers often advise clients on matters of federal law – such as completing an IPO under the Securities Exchange Act of 1934, or the US antitrust laws, or US federal tax laws. None of these is regulated by a federal bar association. All US law firms are left stranded by their inability to comply with the new rules.

 

In adopting the new rules, the BCI sought to restrict further the “fly-in, fly-out” exception to the registration requirements by needlessly adopting new, onerous rules with which – again – US law firms are unable to comply in many instances. The BCI now wants a US law firm to pay an exorbitant fee merely for the opportunity to visit clients in India to advise on matters of US law. More importantly, the BCI wants the law firm to file an application that needs to be updated continuously and which requires the law firm to disclose, among other things, (i) the nature of the legal work proposed to be done; (ii) the specific legal areas involved; (iii) the details of the client with which the US lawyer is meeting; and (iv) the purpose of the visit, including specifying the “nature of legal work and jurisdiction involved.”

 

Why is this an issue? Picture an India-based corporate needing advice on a large M&A transaction with a US target, or an IPO with a listing on a US exchange, or an FCPA investigation. Can one imagine such a client agreeing that the law firm can disclose this information in detail to the BCI? If such permission is rightfully denied by the client, what is the US law firm to do? Rule 1.6(a)(1) of the DC Rules of Professional Responsibility, for example, provides that “A lawyer shall not knowingly … reveal a confidence or secret of the lawyer’s client.” Rules in other US jurisdictions are essentially identical and all are based on ABA Model Rule 1.6, which is also essentially the same. This means that a US law firm cannot complete the application and, as a result, according to the BCI, cannot travel to India to advise its client. The result is a non-tariff trade barrier.

 

For those who have been following the unfortunate saga to keep the India legal market closed for decades now, we are familiar with the BCI complaining about the lack of “reciprocity.” This change to the fly-in, fly-out exception is a new height in hypocrisy: How is it in keeping with the spirit of “reciprocity” when lawyers from India law firms freely fly in and out of the US for meetings with clients, to participate in conferences, etc., without needing to file anything with anyone, let alone keep records of days in the US for reporting purposes or pay significant fees? And yet the BCI imposes such onerous obligations on US lawyers in the spirit of “reciprocity.” How can this be explained during the trade negotiations?

 

This obvious BCI bias against US law firms is important because these seemingly “technical” rules affect all participants in the India–US bilateral trade. When the BCI favours one jurisdiction, such as the UK, at the expense of the US by effectively excluding US lawyers from the India market, it creates a bias in favour of one jurisdiction over another. If a client in India wants to meet with its lawyers in connection with a major M&A transaction or an IPO or a debt financing transaction, for example, it will select the law firm of the jurisdiction whose lawyers are able to advise the client in person. If US lawyers cannot meet clients in person to advise on matters of US law, then an Indian corporate is not going to undertake an IPO on a US exchange; it will not undertake a financing with a major New York financial institution governed by New York law; and it will not enter into commercial arrangements with US-based companies under the relevant US state law.

 

Keep in mind, the BCI’s new rules are effective immediately. There was no advance notice, no consultation, and there is no transition period. These issues are relevant now.

 

So, what should be done in the lead-up to the trade negotiations with the US to avoid this issue becoming another bone of contention between Delhi and Washington? First, immediately suspend the BCI rules to give the necessary time to correct what is, in the most optimistic hypothesis, an unforced error. Then ensure that an appropriate consultation between the BCI and an appropriate US representative takes place to develop a modified set of rules that achieve the Indian government’s objectives with respect to the opening of the country’s market for legal services in a way that allows US law firms to participate.

 

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(The author is partner, Covington & Burling LLP) 

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