IFLR1000 Asia-Pacific Editor Adam Majeed looks at the challenges and idiosyncrasies of the Macau legal market.
Across the Pearl River Delta from Hong Kong is Macau, a small peninsula in mainland China and a special administrative region of the PRC.
Following the sector’s liberalisation in 2002, gaming—specifically investment in new hotels, casinos and convention facilities—has fuelled Macau’s economy and thus it has been lazily branded as Asia’s Las Vegas. But Las Vegas, despite its reputation, derives less than 40% of its revenue from gaming, while in Macau over 80% of the government’s revenue comes from gambling taxes.
2003 marked the start of Macau’s golden growth, with gaming revenues overtaking the Las Vegas strip in 2007, but in the last year-and-a-half owing to a dipping Chinese economy and a mainland corruption crackdown targeting several high-end junket operators, growth has stalled and the issues facing a non-diversified economy have become painfully clear.
In 2015 gambling revenues plummeted by 34% and the gaming hub is starting to see the social effects as angry high roller investors protest outside casinos and labour strains intensify, with disgruntled casino workers protesting over pay and job losses. Beijing is undermining Macau’s economy in the short-term, as it pushes for it to become more of a diversified entertainment hub.
For financial and corporate lawyers however there are other more intrinsic challenges that they face in the current climate, most born out of the structure of the market.
One country, three systems
When it comes to law, China has ‘one country and three systems’, and while there are differences between Macau and Chinese law, they aren’t fundamentally incompatible as both systems have had similar influences and hybridity is certainly not without precedent. For example, in limited contexts, both the Macau and Hong Kong systems are already influencing the Mainland system.
Macau’s legal system is based on Portuguese law and belongs to the civil law tradition that originated in continental Europe. It has been particularly influenced by German law, but also by Chinese and Italian law alongside limited aspects of the common law.
The Hengqin Island plans to develop seven pillar industries—business services, financial services, leisure and tourism, culture, healthcare, scientific research and development, and high technology—incorporates the island into the Zhuhai Special Economic Zone; and its financial libertarian vision already includes law firms with the three elements, as an extension to the 2013 free trade agreement CEPA—Mainland and Hong Kong Closer Economic Partnership Arrangement.
The enactment of the ‘preliminary measures for the operation of joint law firm formed by law firms of the Hong Kong special administrative region, the Macao special administrative region and Mainland law firms in the province of Guangzhou’ will allow law firms from Macau, Hong Kong and the PRC to form a partnership-like joint law firm in Hengqin alongside Guangzhou and Shenzhen. No doubt that such an arrangement will facilitate the connection between China and the Lusophone and Anglophone world and vice-versa, but it may also show early signs of a trend towards hybridity.
“Judges, lawyers and all legal actors must be prepared for a hybrid system that may well have elements of the three systems—in this case of the Mainland and Macau systems,” says Pedro Cortés, senior partner at Rato Ling Lei & Cortés.
“Those actors must be well prepared and have knowledge of both. The ideal would be to have degrees in Macau and Mainland law and Portuguese language skills. That will be the future of all legal professions in Macau. The Macau legal market needs to be prepared for that.”
There are no law firms in Macau
In theory—as opposed to the reality on the ground—there are no law firms in Macau. According to the letter of the law, there are no partnerships in Macau and all lawyers are individual practitioners despite continued efforts to change the status quo.
Relatively recently, a commission was elected by the law society to press ahead with this matter, and despite approval and the grant of a mandate, the law society has not brought the matter forward to the government.
“I’ve pushed for incorporated partnership in Macau and the new regulations were approved two years ago but we’ve heard nothing,” says João Nuno Riquito, founding and managing partner at Riquito Advogados. “Unless there are regulations the creation of law firms as partnerships is not possible. It’s been over 25 years and there are still no regulations and so we can’t create genuine law firms.”
The city-state’s legal market is Portuguese dominated and made up of ‘firms’ who have traditionally benefitted from a gentleman’s agreement of sorts in the dispersal of mandates. The connection with Portugal helps in tapping and channeling China’s outbound appetite to the lusophone world; however, there is no doubt that traditional stability has been shaken as the market grapples with the changing macro conditions.
Frozen out
Conventionally, the market’s lifeblood came from a protocol it had with the Portuguese Bar Association that allowed Portuguese lawyers to practice in Macau; but two years ago the Macau lawyers’ association decided to unilaterally terminate the protocol.
In 2014 the lawyers’ association proposed renewing the legal protocol with restrictions that meant that Portuguese lawyers seeking to practice law must have three to five years’ experience beforehand. The prospective lawyers would have to first work as an intern for three to six months in Macau before being evaluated through a written examination.
Despite this initiative there has been no reactivation of the protocol and—at least in the short-term—it doesn’t look too promising. The ensuing effect is that there are now a number of Portuguese lawyers in Macau who can’t practice as lawyers and operate under the mark of a consultant.
It’s not altogether clear what the motive behind termination is, but speculation has ranged from mainland Chinese political pressure to a fear of competition among local lawyers, with dissolution being a form of protectionism.
Supply of lawyers
Linked to the above issue is the supply of lawyers in Macau, which is another concern. The first law graduates only emerged from the University of Macau in the mid-1990s and up until then the Macanese legal profession, as mentioned, was the preserve of those trained in Portugal, very few of whom were Chinese. Of course, the Portuguese still dominate the profession as only about a quarter of the 200 or so practitioners are local and tend to be in junior roles.
A number of these young lawyers graduated from the University of Macau’s law school, which is focused on Macau law. However, there is another law school in Macau; one that offers compulsory courses on PRC law and optional courses on Macau law—the Macau University of Science and Technology (MUST).
For quite some time during the mid-2000s graduates from this law faculty faced stiff opposition on admittance by the bar association, who claimed that its curriculum was out of touch with Macau’s judicial system and that graduates were unqualified.
The students felt abandoned by the bar and aggrieved that—at the time—graduates from Lisbon could obtain a license in Macau, while locals were easily rejected. The matter was ultimately resolved at court just last year when it decided that no one should be excluded from partaking in exams and the opportunity to be admitted to the bar. However, it is certainly the case that there are graduates who will never be admitted, and at least in this respect, the city-state might be faced with a lost generation of lawyers.
Superficially, it might appear as if this sorry state of affairs was due to a conflict between Chinese and Portuguese law and language as a consequence of China’s resumption of sovereignty over Macau, and the drive to create legal practitioners suitable for transition. However, concern has been directed at the quality of MUST’s PRC law degrees, which are not recognised in the mainland.
“MUST’s PRC law degrees are not recognised in mainland China and I have not heard of a single PRC lawyer that has attended the law degree course at MUST,” says Cortés. “I am of the view that the concern is the quality of the degrees offered by MUST.”
Skin in the game
All of the above challenges highlight the internal differences in the legal community, but what impact has the wider economic downturn had on the workload?
Despite the importance of gaming, it does not dominate lawyers’ time.
“Gaming law consists of a handful of regulations and doesn’t require a high level of specialisation,” says Nuno Riquito. “No law firm is dedicated to gaming law but all are indirectly linked because of the economy.”
There are only a handful of law firms that work directly with gaming law since casino operators have their own legal teams, and in some cases may poach from the legal market itself, such as when Melco PBL Entertainment hired a number of Manuela António Law Office's lawyers in-house.
However, as is commonly the case with large law firms in small legal markets, their cyclical nature allows them to benefit one way or another. It is likely that while transactional work may decrease, litigation will increase in areas such as corporate litigation and debt recovery. There may also be corresponding litigation in construction as a consequence of plans that might not be realised before concessions expire in 2020, and arbitration related to Macau but not located in Macau might also generate more work.
“Lawyers are very adaptive and the niche of gaming is important, of course, but at the end of the day the areas of law shall be treated with the same high standards and the services provided with the same excellence,” says Cortés.
Diversify
That adaptive spirit may serve lawyers well if the oft talked about economic diversification ever happens.
At the start of 2009 Xi Jinping communicated his desire for the development of Hengqin Island—a prefecture-level city and special economic zone in Guangdong province—to provide new areas for development and diversification in Macau’s economy, but the road to develop a diversified economy will be long and hard.
“I am of the view that the diversification has been a repetitive slogan since 2002. Unfortunately, opportunities have been lost since then,” says Cortés. “Our firm has recently set up an office in Hengqin with PRC and Hong Kong law firms in order to cope with future development and diversification with plenty of transactional work ahead.”
One may state that no genuine liberalisation ever took place in Macau with only three—and later six-casino operating concessions—and sub-concessions granted, and the very real possibility that elements of the old monopolistic system—with ancillary obligations to safeguard civil society—may return when gaming concessions expire in 2020.
Conclusion
When under pressure one tends to go back to what one knows, and while this might be true for Macau’s wider affairs, it seems unlikely for the Macanese legal market.
Other than uncertainty about its direction and how practices may develop, the legal market faces challenges regarding rules of admission and rules for regulating law firms. With all these factors pooled together—termination of the legal protocol; the inert drive to incorporated partnership; and the traditional gentleman’s agreement—we may be seeing some early symptoms of cabin fever in the small Portuguese dominated market.
Young lawyers want to move forward and want prospects of a career, and with no regulatory framework in place they will try something different and that helps explain the spin outs we’ve seen in the market.
Also, in what is already a confined space, the fact that a gaming operator poached a team of lawyers from a leading law firm sent a tremor through the market; and while this is by no means a trend as an operator might—depending on circumstances—reduce its staff and outsource its work to a legal practice, the market certainly cannot afford for it to become one with the current uncertainty surrounding the supply of lawyers.