September 25, 2010

Working with Foreign Counsel

For franchisors seeking to expand into foreign markets, selection of local counsel is a crucial decision. Franchising is now regulated in many jurisdictions, and each country has its own legal peculiarities regarding disclosure, trade-marks, tax planning, competition/antitrust law, currency issues and more. Even for large franchisors with in-house legal departments it is essential to retain outside local counsel who are well connected and know the lay of the land of the target market. It should not be assumed that a business model and franchise agreement that works well domestically will work abroad without modification; local counsel is needed to adapt the franchise to the new market. Great care must be taken to find and select lawyers who are experienced in franchise law and will be able to work cooperatively to overcome the specific legal hurdles associated with international franchising. In fact, depending on the country it can be hard to even know where to look for local counsel.

Before retaining foreign lawyers, it is important for franchisors and their domestic lawyers to understand the nature of the legal services local counsel will be required to perform. Will they be required for a long-term relationship dealing with a variety of matters, or for one-time advice on a contractual or litigation matter? The nature of the work required will inform the search process. For more complex, long-term matters it will be preferable to find an experienced franchise lawyer with connections to local industry and government who can guide the client through the process of expanding their business. For one-time legal issues, however, it may be equally effective to retain a well-respected generalist such as an international law firm with experience in the country.

Franchisors can easily find themselves at a loss when searching for local counsel. Assessing the experience and competence of foreign lawyers can be difficult, particularly when thousands of kilometers and a myriad of cultural differences stand in the way. However, there are some basic tools available to aid in the search:

1. Consult as many sources as possible and look for lawyers’ names that keep coming up. Good lawyers tend to maintain a high profile in their home jurisdictions and command recognition among clients and colleagues. Legal ranking systems/directories such as Chambers and Who’s Who Legal, while not the last word, can provide a prospective client with a general idea of who is out there. Good lawyers also tend to appear in trade publications regularly and are actively involved in relevant industry associations such as the International Franchising Association and regional or local trade groups. Clients should review as many sources as possible and try to find out which lawyers are writing articles, delivering seminars and are consistently recommended by their peers.

2. Word of mouth. Clients should speak with their contacts both at home and in the foreign country – they may already have a good idea of who the go-to lawyers are for franchise law in that area. Any lawyer can join an industry association or get listed in a legal directory. Word of mouth helps to weed out counsel who look good on paper but are not well known or well respected amongst those who know.

3. Seek recommendations from other law firms or companies that have experience in the jurisdiction. Chances are good that other franchisors or businesses have tried to move into the same foreign market before and they will have accrued some know-how along the way, either positive or negative. These other businesses may be very willing to share their own experiences. Do not overlook asking other professionals such as accounting or consulting firms for recommendations. Major accounting offices are particularly good sources as they tend to have offices in most countries of the world. Domestic franchise counsel also make a good source of information. Law firms that are experienced in international franchising tend to build up networks of foreign lawyers that they trust and respect.

4. Embassy / Consular Offices/ Chambers of Commerce. Canadian embassies and trade commissions abroad maintain lists of lawyers, bar associations, and other organizations for their respective countries. Similarly, local Chambers of Commerce often provide business directories, including for legal services. Should the franchisor be doing business in the U.S., do not hesitate to tap the U.S. diplomatic or trade office in the target country as they tend to be pro-active in helping businesses establish abroad, and their local business intelligence is often second to none.

Prospective clients will need to consider whether they should opt for a large, multi- national full-service law firm or go with a smaller local firm. In developed countries, a local firm that is familiar with franchising will most likely be the best fit. The wealth of know-how that is associated with a dedicated franchise lawyer simply cannot be beat, where available. In developing countries, however, clients are most likely to get value from a multi-national with extensive knowledge of the country’s laws and culture. Developing countries typically do not have franchise law specialists in the same way developed countries do. Due to sheer depth of transactions multi-nationals are likely to have some experience in the area, and franchisors may feel more comfortable dealing with a well-known western style law firm.

Several factors should be considered when retaining foreign counsel, including:

a) Education. Does the target lawyer possess any foreign training? Standards for legal education vary widely across jurisdictions, so the prospective client should be satisfied that foreign counsel will be sufficiently trained and accredited. U.S. training is also a benefit; the greater foreign counsel’s knowledge of western legal concepts, the simpler it will be to export a franchise into their own unique culture.

b) Profile in the jurisdiction. Is the prospective foreign counsel well known and well connected in the business and government of the country? Beyond merely providing legal advice and services, good foreign counsel can act as liaison to the foreign industry and culture. Franchising is a relatively new concept in some countries and the legal framework is often poorly understood. Good foreign counsel can help bridge the culture gap by making the right connections and translating ideas and concepts.

c) Language skills. Can the prospective foreign counsel communicate well, both orally and in written English? Even where foreign counsel does speak English, cultural differences can nevertheless result in a lack of understanding. A different legal system in a foreign country can lead counsel to consider a whole other set of issues when approaching a problem. It is not uncommon for franchisors or their domestic lawyers to request what they think is a relatively straightforward legal opinion, only to have foreign counsel come back with what appears to be a complete non sequitur. Clients should be sure to instruct foreign counsel with extreme clarity, perhaps rewording the same instruction multiple ways to make sure the meaning is not lost in translation.

d) Understand who will be working on your file. Clients should determine how a file will be staffed and whether any other lawyers will be working on the file. If a franchisor has gone to lengths to select a particular lawyer, they should be satisfied that it will actually be that lawyer working the file. To avoid billing surprises, clients should be clear when they think they are asking for a simple oral opinion versus, say, a complex written analysis. Particularly if English is their second language, foreign counsel may end up spending an inordinate amount of time on something the client considers unimportant.

e) Fees. Understand what the fees are going to be and how they will be charged – and put it in writing. Clients should insist on regular billing. Determine in advance who will be responsible for paying foreign counsel’s invoices. If it is not the franchisor’s domestic law firm, the retainer letter should clearly outline that. Otherwise, the assumption is that the lawyer hiring the foreign counsel will pay those bills.

One factor that is occasionally overlooked by domestic lawyers is differences in how solicitor/client privilege is treated in other jurisdictions. In the U.S. and Canada, solicitor/client privilege is afforded great respect and is rarely compromised. This is not necessarily the case elsewhere. Make sure to understand local rules regarding privilege and include confidentiality provisions in your retainer agreement. Similarly, foreign lawyers may not be bound by the same ethical standards as American and Canadian lawyers are. Clients should clarify their non-competition expectations at the outset and put them in writing.

The importance and potential impact of cultural differences should not be underestimated. Countries have widely varying standards regarding punctuality, etiquette, dress, etc. and these can have a surprisingly big effect on working relationships. Consider the effect that large gaps in time-zones may have, particularly if foreign counsel is unwilling to communicate at odd hours. Furthermore, holiday and weekend schedules will often be out-of- sync, causing yet more difficulties. Ideally foreign counsel will be sensitive to cultural differences and willing to accommodate and adapt to a western style of doing business. Clients should inquire as to whether foreign counsel will be available for early morning or late night conference calls, whether they possess the necessary technology for communication, and whether they are willing to travel.

In short, experienced local counsel forms an invaluable part of a franchisor’s legal team when expanding internationally and should be sought out with great care and diligence. Though it can often be difficult to separate the stars from the rest, careful research will point to those lawyers who both understand franchising and can bridge the language and culture gap between the two countries.