Legal Market Talk: Latest Trends and New Technologies

BBJ: What are the latest trends on the Hungarian/Budapest legal market?

CMS: For quite a few years, there has been market talk about a coming downturn, which may or may not happen. We may experience only a slight slowdown or something more serious. We just don’t know. We have started to experience a range of restructuring and litigation matters, which may be connected, but I can also imagine that they are unrelated.

Dentons: There is a lot of M&A activity in the technology, energy, infrastructure, automotive and hospitality sectors, and the real estate market is still very attractive for investors. In the energy sector, renewable (especially solar) projects kept our lawyers busy in the past year, and we expect this trend to continue into 2019. The new Civil Procedure Act had an impact on our dispute resolution practice, which required us to place greater emphasis on the preparatory stage of disputes. Advising on GDPR-related matters has also become a real strength of the Budapest office in the past year. Legal competition is also increasing; more law firms and service providers compete for the business of a finite number of clients. With the entry of the Big Four accounting firms into the legal market, law firms must improve the scope of their services in the field of business consultancy.

Erika Papp, CMS

DLA Piper: Client demands have increased rapidly and have become more complex and sophisticated over the past few years. The legal market is quite busy; clients with complex, “bet-the-company” type of matters are not so sensitive to fees, but less complex matters require a higher level of efficiency. At the same time, more clients no longer need legal, business or tax solutions, but a one-stop-shop approach; an interdisciplinary solution. The Big Four were the first to deliver such a solution, but established law firms are moving in this direction as well. We are building on our strengths.

Eversheds: Regional cooperation between local law offices is becoming more important. Cross-border transactions and commercial cooperation between different subsidiaries of multinational companies requires a “glocal” approach.

Kinstellar: Although the value of Hungarian M&A fell 17% year-on-year to an estimated USD 3.35 billion in 2018, we experience an upturn in our M&A mandates. There is a particularly strong performance in real estate, banking and energy sector. Hungary’s renewable energy and commercial, retail and office spaces seem to be attracting significant investment, and we expect numerous projects planned or underway in these sectors. While demand for law firm services grows, the market for law firm services is being transformed. Competitive challenges make us question our previous assumptions and strategies, and re-examine traditional business models to suit future challenges and tomorrow’s legal marketplace, to explore and exploit new business opportunities.

István Réczicza, Dentons

Noerr: A new wave of consolidation can be detected following a series of mergers in the international business law firms’ segment. Domestic, or purely national law firms without any major international affiliation are often successful in the government sector, but some still lag in terms of brand recognition. Many of the international business law firms maintain leading positions in the strategically most important sectors and service areas, including financial services, real estate, technology and digital business, and in general, when it comes to cross-border and multi-jurisdictional transactions. In terms of volume of work, real estate and corporate M&A mandates represent the bulk of work for international law firms, together with litigation, regulatory and compliance. The recent rush to deal with GDPR has given huge volumes of work for most law firms.

Szecskay: From a regulatory viewpoint, the new Act on the Legal Profession introduced in 2018 has kept the Hungarian Bar Association very busy. In particular, the HBA has had to redraft and also introduce new bylaws in certain areas. From January 2020, lawyers practicing in Hungary will also need to participate in continuing education, as mandated by EU law. This has already begun to generate a lot of work for the profession, as an accreditation system needs to be set up and official legal education providers established. For nearly 8,000 lawyers in Budapest, this is a huge work, while for smaller, regional bar associations, it will be a challenge to provide a workable set of accessible education opportunities for their lawyers. In any event, as a profession, we understand the need to ensure the quality of the work that our lawyers provide, in line with other more developed parts of the world.

Ágnes Szent-Ivány, Eversheds

BBJ: How are client demands/expectations changing?

CMS: Since many of our clients are responsible for not only local, but also regional markets, we often receive requests for full-service legal advice involving several countries. Clients expect these kinds of mandates to have a single point of contact, someone to coordinate and oversee the work of numerous lawyers in multiple countries. To do this requires high-level legal project management abilities and plenty of resources both locally and regionally from our end.

Dentons: Clients want reliable partners that offer flexible solutions. We offer a wide range of solutions that are not specifically grounded in traditional legal work, including Nextlaw Labs and the Nextlaw Referral Network, which offers members and their clients the benefits of traditional referral networks without the conflicts of the “pay-to-play” system. Clients also increasingly need help with complex cross-border transactions. In recent years, in addition to Hungary, we advised clients on investment projects across the CEE region (Poland, Romania, Serbia and Turkey), as well as in the Nordic and Baltic regions, focusing on the real estate market and regulated markets such as energy, infrastructure, telecommunications and competition law.

Eversheds: Clients require ever more proactivity than in the past, they often want their lawyers to be involved in their daily work. Whenever it is required, we strive to take part in their decision-making processes, in order to ensure that legal aspects are taken into consideration when focusing on the business goals. Clients more often require value added services, such as training, often in webinar form.

Edina Schweizer, Noerr

Kinstellar: The experience is that clients expect dynamic reactions and more flexible solutions, which results in expanding the scope of the services in order to provide practical legal solutions. Many legal problems are business problems with a legal element, which requires multiple skills, not just legal ones. Law firms tend to hire associates with economics, communication, mediation, research, data science and a variety of other expertise depending on which works best to achieve the client’s objectives. Skills beyond law are rapidly becoming core to legal service delivery creating “one-stop shopping” for legal services.

Noerr: Good clients are demanding clients, by definition, and high expectations from their lawyers reflect a degree of trust based on mutual confidence. This also means that the changes we experience in the business environment and in the everyday life around us have an immediate bearing upon the judgement of clients about their lawyers. Responsiveness, technology-savvy, better informed and having a deep-seated knowledge rooted in the practical implications of the ever-changing regulatory and legislative environments are a must these days.

Szecskay: Clients are interested in solutions; therefore, they definitely want us to get to the point as quickly and as efficiently as possible. They are no longer interested in long, complex memos, only easily digestible solutions. Reasonable clients will always appreciate that, although we can get to the point quickly, it may have taken us several hours of work to produce the end result. We understand the expectations of our clients if they in turn understand that lots of work may be needed for us to reach their expectations. This enhances our mutual understanding and cooperation.

BBJ: Governing party Fidesz was suspended from the European People’s Party in part over rule of law issues. Is this ever raised as a concern by international clients? Is reputational damage a professional concern?

Kinstellar: There have been a very few occasions when concerns have been raised by potential investors, but it was mainly due to the lack of information about the details and the legal consequences of certain decisions of the government. We did not experience any substantial downturn in our business due to this effect.

Szecskay: No to both, but on a wider scale, the European Commission Article 7 procedure launched against Hungary has been more of a general concern mentioned by various people we have come across.

András Szecskay, Szecskay Attorneys at Law

BBJ: Are there any areas where you would like to see legal changes in Hungary?

CMS: There are preparations for a new insolvency code, which I would very much like to see in Hungary. This is something that has been planned for several years. Since our current insolvency code is very old (dating from 1991), Hungary’s economy deserves something modern and competitive. Also, new insolvency legislation has been passed on the European level. So Hungary’s new insolvency code and the new EU level legislation will, I hope, introduce a modern insolvency regulation in Hungary that will help both debtors and creditors save troubled companies, or – if it is not possible to save a company – ensure a fair and fast insolvency process.

Dentons: A particular area where we regularly see uncertainty is the installation of photovoltaic power stations and related equipment. In the absence of specific and unambiguous regulations, the various authorities have different approaches to, for example, property-related issues. In particular, it is unclear whether such structures become integral parts of the underlying land or can be legally separated from the land, a question that is crucial in determining whether the landowner can be different from the owner of the structures. These uncertainties cause difficulties in the preparation of such projects, including financing, taxation, and the drafting of relevant agreements between investors, land owners, banks, operators and other parties. We are convinced that legal regulations that take the interests of the stakeholders into consideration, or at least uniform and clear official guidance, would facilitate the realization of such projects. This would also benefit the Hungarian economy as a whole.

DLA: The reform of the Insolvency Act is worth mentioning, especially in terms of enabling institutions to better preserve active, valuable companies or financial assets during bankruptcy or liquidation proceedings. Based on the model of the U.K.’s pre-packaged insolvency solutions, it could serve the interests of Hungarian enterprises very well in the long-term.

András Posztl, DLA

Kinstellar: The Act CXXXII of 1997 which regulates branch offices and commercial representative offices should be replaced or totally reworked. Twenty years have passed since the entry of this Act into force; the lack of comprehensiveness and the increasing number of branches, especially in the banking and insurance sector, create legal uncertainty and needs an evolving legal framework when applying the law. There are quite a few issues where regulation is missing or is not following the market trends and/or practicalities would demand otherwise. One to start with is definitely the issue of how to operate in the legal business: the legal profession remains one of the last where practicing lawyers are still required to operate with unlimited liability. This is absolutely not market-standard; most Western and also Eastern countries have already established a form of operations with limited liability, this is definitely something the legislation should follow.

Szecskay: I think a lot of people would like to see the reinstatement of the democratic checks and balances that have been systematically removed over the last few years.

BBJ: Do clients see benefits from digitization and new technologies in the legal market today, or is this still something for the future?

CMS: We have been using innovative legal technologies for years and we are always looking for ways to develop and employ more of them. We use AI and automated tools to gather, process and analyze a huge amount of data. This technology helps us accelerate the analysis and review of documents, massively streamlining and speeding up due diligence and disclosure exercises. In practice, this saves our clients time and money. In the past, the review of 750,000 documents could take up two weeks. With the help of our legal technology, it takes only two hours.

Dentons: Accelerating digital transformation requires constant changes in the practice of law, and such trends can clearly be observed also in the Hungarian legal market. Dentons was one of the first to recognize the need for technological innovation to ensure that the legal profession also keeps pace with the technological developments of other industries. Dentons was the first law firm to have its own technology development company; Nextlaw Labs was created in 2015 in order to explore opportunities for the use of AI and new communication technologies for improving client services, as well as to find more effective and practical responses to the legal issues raised by our clients worldwide.

Csilla Andrékó, Kinstellar

DLA Piper: Emerging legal technology solutions, especially smart contracting, developments around blockchain, AI-based technologies and auto-filling documents are becoming significant assets in our work. Law firms with advanced legal technologies at hand are at an advantage because they can greatly enhance efficiency, especially in high-volume cases.

Eversheds: Within some years, state-of-the-art technology and AI will have an important effect on the local legal market as well, but it is not the case yet nowadays, tough it has started in Hungary. As part of global law firm, the AI platforms used in the United Kingdom are available for us, but there are still language barriers. Recently, we have seen IT solutions developed locally that may support legal work within law firms or at clients.

Noerr: Most businesses are aware of the dramatic changes brought about by the digital revolution. Some sectors are affected more immediately than others. The reason why digitization is such a central issue for law firms is because lawyers themselves are forced to introduce changes to improve their service delivery practices on the one hand; and also, they need to understand the challenges of digitization facing their clients, in particular in the manufacturing and financial services, for example. The real challenge is to understand when “future” becomes “present” and how to get prepared for the consequences of digitization.

Szecskay: I think the Hungarian market still has some way to go in this regard, but of course we are always open to embrace these things in due course.

Kinstellar: The application of complex law technologies is still very rare. Advisors, of course, use many solutions to simplify operations, but these are usually simple practice management software, supporting billing, accounting, searching for legislation, etc. If we mean software that uses algorithms and is capable of “paralegal style work”, we can think of only a few examples, mainly applied by big law firms and other advisors. In Kinstellar, we believe that this technology, often referred to as “law tech”, will have a very important role in the future. In practice these technologies aim to simplify work such as document review, searching for precedents and relevant legislation, drafting basic documents, etc. Our forensic audit team, for example, is supported by document review software, helping it go through incredible amounts of correspondence, and narrow down the hits for manual review. This is cost effective for our clients, also more compliant with privacy rules, and our colleagues will have more capacity to asses issues which are more relevant. We don’t see this as a threat to our market; this is a great opportunity to open up capacity to new areas.

Legal Panel

• Csilla Andrékó, managing partner, Andrékó Kinstellar Law Firm
• Erika Papp, managing partner, CMS Budapest
• András Posztl, country managing partner,DLA Piper Hungary
• István Réczicza, managing partner, Dentons
• Edina Schweizer, partner, CEE head of banking and finance, Noerr & Partners Law Office
• András Szecskay, managing partner, Szecskay Attorneys at Law
• Ágnes Szent-Ivány, managing partner, Sándor Szegedi Szent-Ivány Komáromi Eversheds Sutherland