Korean’s Appetite for Inept Attorneys
February 12, 2010
Sean C. Hayes (Host of this blog)
I had the pleasure to work with many of Korea’s most entrepreneurial business professionals in outbound investment projects in China, India, Southeast Asia and the United States. Most of these individuals and companies came to me because of the perceived or realized failures of local Korean law firms with outbound departments and branches.
Many of these problems have been directly caused by Korean attorneys they entrusted for their legal services. Many of these attorneys are at firms that have physical presences in China, Russia, Southeast Asia, and the Middle East. The loses were caused mainly because of the attorneys inexperience, lack of adequate education in international business transactions, inadequate English language skills, lack of business savvy, and in some cases an overt arrogance.
Over the past few years Korean businesses have been hit hard by the precipitous decline in the real estate market and numerous unethical business practices by, amongst others, Southeast Asian, Eastern European and Chinese entrepreneurs.
Many of the loses could have been avoided or mitigated by adequate due diligence and a little market and business savvy. However, too many businesses placed their trust in Korean law firms with attorneys with little to no experience in international business transactions. Thus, only the luckiest of businesses succeeded in such situations. Most received inadequate due diligence reports, poorly drafted joint venture agreements, and ill-advised advice.
Many of these attorneys were introduced to these businesses by government sponsored institutions. The institutions, thus, gave an implicit guarantee of quality and accordingly the entrepreneurs were ready and willing to employ their services.
Many of these law firms have now either closed their foreign shops or drastically cut down on their staff. Some, I have heard, have even been threatened with lawsuits by clients.
I have seen my share of interesting practices. For example, I assisted in cleaning up part of the mess caused by a Korean attorney who asserted that he completed the due diligence and drafted a joint venture agreement concerning the joint development of a piece of real estate.
The agreement involved land that was later found to be not owned by the non-Korean venturor. The error occurred because of the Korean attorney’s reliance on an unauthenticated title and the lack of any communication or investigation of the non-Korean venturor. A basic background check would have shown that the individual was under a prosecutorial investigation for fraud and had no apparent assets in his name. In the United States, this may have led to a successful malpractice suit and sanction from the local bar.
Another situation, which I am happy to note was resolved in the favor of the Korean investor, concerned the renegotiation of the sale price of land in Southeast Asia. The retained attorney from a noted large law firm negotiated a land price that was approximately 25% above market. The attorney was unaware of market realities and trusted the determination of a real estate agent that stated the fair market price to be within the range of the anticipated price.
One of the most interesting situations involved a nation that is notorious for this type of trick. The attorney which was a partner at one of Korea’s largest law firm engaged in outbound transactions was obviously unaware of the trick and was impressed, himself, by the background of the counterparty.
The property, in question, had a title that only allowed the land to be used for farming. The non-Korean venturor promised, from his contacts, to get this restriction on use lifted, but could only lift the restriction after the transfer of funds, since he would need to utilize some of the funds to grease the bureaucratic wheels. The wheels were never greased and the counterparty is now nowhere to be found.
Advice that goes a long way when doing business is to first, never hire an attorney for international business transactions that does not have a native-like understanding of English language and international attorney-like contract drafting skills. The English language and an attorney with language tools in his or her hands can utilize these tools to the advantage of a client. An attorney without the skills will only be utilized to the advantage of the counterparty.
Second, never hire an attorney without, at a minimum, reviewing the attorney’s project portfolio. Remember you are hiring an attorney not a law firm.
Thirdly, get a good lawyer involved early on in the deal. A good lawyer will save you money, headaches, and time.
Lastly, don’t trust anyone. A person who is friends with the prime minister, the police chief or appears in international magazines may be useful to your joint venture, but most likely will be only useful to his own interests. A reputation should not preclude a thorough due diligence and any counterparty that is insulted likely has something to hide.
Find this post in Korean here.