ALB 11.11

ISSUE 11.11 DECEMBER 2013

www.legalbusinessonline.com

AUSTRALASIANLEGALBUSINESS

SYDN

EY AN

D C

AN

BER

RA

REP

OR

T

LITIGATIO

N FU

ND

ING

BA

KER

& M

CK

ENZ

IE A

USTR

ALA

SIAN

LEGA

L BU

SINESS

DECEM

BER

2013ISSU

E 11.11

PLUS... SYDNEY AND CANBERRA REPORT LITIGATION FUNDING SHIPPING

COLIN BIGGERS & PAISLEY IN BRISBANE LATERAL HIRES ALL THE LATEST DEALSwww.legalbusinessonline.com

BETTER ALIVE THAN BREADWhy rivals are taking aim at Bakers

BPL2

894

www.bplr.com.au Paul Burgess 0414 687 629 Doron Paluch 0438 004 445 Paul Garth 0434 113 355 Erin Kefalas 0413 581 739 [email protected]

Melbourne

Property Partner · Realistic targets· Established Property Practice

This mid-tier fi rm has been quietly moving ahead and growing its Melbourne offi ce in an otherwise lacklustre market. It now seeks a capable local partner to add value and ultimately to take on a leadership role within the fi rm’s property practice.

Clients of the fi rm include corporates and high net worth individuals, as well as developers and SME’s. The fi rm backs its lawyers with full marketing, quality administrative support and reasonable fees, enabling lawyers from larger practices to achieve greater results and work across a broader range of clients without fearing fi nancial pressure.

To discuss this and other options call Paul Burgess or email [email protected].

Melbourne

Family Law Partner · Relaxed and modern offi ces· High-end clients

This fi rm would suit a partner who is already established within Melbourne. The advantages of working here include a stable, profi table and supportive partnership group, high level support for marketing and strategy planning and fl exibility with working arrangements. The fi rm has a superlative reputation among its clients and an excellent reputation among the legal profession. The Melbourne offi ce enjoys a turnover average that is well below the market, which is testimony to the quality of the work and the culture.

To discuss this and other options call Paul Garth or email [email protected].

London

Corporate 4+ · Global transactions· Cutting edge

Join this global juggernaut in their leading M&A practice and enjoy large and complex cross-border transactions that will set you up for your career. As part of a team of switched-on corporate lawyers and reporting to leading partners you will love the challenge of this dynamic practice. With a brand that will light up your CV and with the chance to relocate globally over time, this is a rare option for the pick of Australian M&A lawyers.

To discuss this and other options call Paul Burgess or email [email protected].

Singapore

In-House · Finance sector

· Global organisation

Experienced commercial litigator sought for a plum role in Singapore, within a major multinational company that operates mainly in the fi nancial services sector. Ideally suited to a 4-8 year PAE lawyer, the successful applicant is likely to have had fi rst class technical training in at least the early stages of their career and experience working in-house within a tier one bank will be highly regarded. The culture is open, friendly and rewarding of high performers.

To discuss this and other options call Paul Garth or email [email protected].

Burgess Paluch has had substantial success recruiting for this leading company over the past few years. We have a new role for a 3-6 year lawyer to join the friendly, dynamic team.

Our client is one of Australia’s most high profi le companies with offi ces in cities around Australia. The company operates in the commercial, mining, construction, and infrastructure spaces. This is a diverse, interesting and challenging in-house legal role.

With a positive outlook, this role will appeal to a capable corporate, construction, or commercial lawyer looking for an in-house counsel role in which they can enjoy assisting with the development and management of legal functions and commercial contracts.

This role is broad and will provide substantial responsibility and

opportunity. You will work alongside a highly respected and down to earth ex-top tier General Counsel.

You will enjoy applying your commercial acumen as well as your technical skills in this legal role. With the chance to work on complex and signifi cant contracts and projects, and with excellent support systems on offer this is a rare opportunity in the Perth market. You will possess about 3+ years (and up to about 6 years) experience.

This role is exclusive to Burgess Paluch Legal Recruitment. Any direct or third party applications to the company will be forwarded to Burgess Paluch for review.

To discuss this role in confi dence or be considered email a CV to [email protected] or call Doron Paluch on 0438 004 445.

IN-HOUSE Commercial / Construction PERTHEXCLUSIVE

Leading company Excellent small team environment Perth based role

1CONTENTS

16

COVER STORYBAKER & MCKENZIEBaker & McKenzie has once again been named the top global law firm brand – but not everyone is happy with the referee’s decision.

FROM SYDNEY TO CANBERRA28Lawyers in Sydney and Canberra have one thing in common –

they’re both patiently awaiting that elusive post-election surge in business. As it turns out, one city is distinctly more bullish than the other.

“IF YOU KEEP HIERARCHICAL SYMBOLS, YOU’LL NEVER CHANGE. COMPROMISE DOESN’T WORK – IT BECOMES HIERARCHICAL.”Corrs CEO John Denton on why open plan offices are an “all or nothing” proposition.

AUSTRALASIAN LEGAL BUSINESSISSUE 11.11

28

TRANS-TASMAN DEAL MAKING 12How Australian and New Zealand firms share work in an equity markets perspective.

PROPERTY 14A look at one of the more innovative property deals in the market of late.

COLIN BIGGERS & PAISLEY 20If you’re in Brisbane and you’ve got a quality practice, CBP wants to hear from you.

CORRS CHAMBERS WESTGARTH 34More on Corrs’ unique open space philosophy.

FEATURESLITIGATION 38The story of litigation funding – a modern classic in the making.

GAME ON 48Who represents the interests of absent members of a class action?

FINANCIAL CRISIS 50What have we learned from the financial crisis… and will history repeat itself?

SHIPPING 54Private equity has begun sniffing around the shipping trade, reports Reuters.

REGULARS

DEALS 06

SPONSORED UPDATE 09Buddle Findlay

LEAGUE TABLES 10

IN-HOUSE OBSERVATION 19

NEWS 22

APPOINTMENTS 26


01 That Thomson Reuters shall at no time pass into the hands of any one interest, group or faction;

02 That the integrity, independence and freedom from bias of Thomson Reuters shall at all times be fully preserved;

03 That Thomson Reuters shall supply unbiased and reliable news services to newspapers, news agencies, broadcasters and other media subscribers and to businesses governments, institutions, individuals and others with whom Thomson Reuters has or may have contracts;

04 That Thomson Reuters shall pay due regard to the many interests which it serves in addition to those of the media; and

05 That no effort shall be spared to expand, develop and adapt the news and other services and products so as to maintain its leading position in the international news and information business.

Please contact Andrew Smart with any [email protected]

THOMSON REUTERSTRUST PRINCIPLES

www.legalbusinessonline.com

www.thomsonreuters.com

AUSTRALIALevel 5, 100 Harris Street Pyrmont, NSW 2009

AustraliaT (61) 2 8587 7000

THOMSON REUTERS PROFESSIONAL AUSTRALIA (LIMITED)

EDITORIAL ENQUIRIESRenu Prasad

T (61) 2 8587 [email protected]

ADVERTISING ENQUIRIES

EVENT ENQUIRIESAUSTRALIA

George SengulovskiT (61) 2 8587 7701

[email protected]

HONG KONGJessie CheungT (852) 3762 3267

[email protected]

SINGAPOREMohammed AliT (65) 6870 3736

[email protected] KeungT (65) 6870 3917

[email protected]

CHINAYvonne CheungT (852) 3762 3266

[email protected]

Paul FerrisT (61) 2 8587 7114

[email protected]

Peter RatcliffT (61) 2 8587 7543

[email protected]

AUSTRALIA

SUBSCRIPTIONS Australasian Legal Business is available by subscription.Please call 1300 304 195 or visit www.legalbusinessonline.com

COPYRIGHT is reserved throughout. No part of this publication can be reproduced in whole or part without the express permission of the editor.

CONTRIBUTIONS are invited, but copies of work should be kept, as Australasian Legal Business can accept no responsibility for loss.

ISSN 1839-0382

ALB ENJOYS ALLIANCES WITH THE FOLLOWING ORGANISATIONS

Shanghai In-houseCounsel Forum

Corporate Lawyers Association of New Zealandwww.clanz.org

ALB is a sponsor of the International Bar Association Annual Conference DubaI 2011 www.ibanet.org

www.ipba.orgINTER-PACIFIC BAR ASSOCIATION

Inter-Pacific Bar Association Corporate Counsel Forum

www.scca.org.sg

www.cla.org.au

www.mlaanz.orgwww.apsma.com.au

Asia-Pacific Professional Services Marketing Association

www.beijinginhouse.com

Association Of Corporate Lawyers Sri Lanka www.aclsrilanka.com

Indonesian Corporate Counsel Association

http://w3.icca-indonesia.com

ALB is the Asia-Pacific Legal Media Partner of the IPBA Annual Conference Japan 2011

PANTONE 185C PANTONE 186U

GRAYSCALE VERSION


MANAGING DIRECTORAndrew Smart

MANAGING EDITORKevin Stokes

AUSTRALASIA EDITORRenu Prasad

AUSTRALASIA JOURNALISTGina Dombosch

PRODUCTION EDITORImogen Tear

ASIA JOURNALISTS Ranajit Dam

Kanishk Verghese

DESIGNERMichelle D’Souza

PHOTOGRAPHERThilo Pulch

ADVERTISING SALES MANAGERSPaul FerrisPeter Ratcliff

TRAFFIC COORDINATOR Emily Ings

MANAGING DIRECTOR ASIAAndrew Smart

“I was lucky that my former boss had succesfully completed Governance Institute’s Graduate Diploma of Applied Corporate Governance. She recommended I do the same.

“Not only did the course provide me with the tools to give quality advice to the board, it gave me the foundations to tackle complex governance matters that I might come across in my career.

“The Graduate Diploma and membership of Governance Institute has also increased my business networks. Now, whenever I have a complex situation, I can call on other company secretaries for advice.”

Sean Ward FGIA

Group Company Secretary, Mirvac Group

Nothing can replace real world experience, but there’s only so much you can learn on the job.

Visit governanceinstitute.com.au/GraduateDiploma or call 1800 251 849Semester 1 commences 10 March 2014 Formerly Chartered Secretaries Australia

Open doorswith the Graduate Diploma of Applied Corporate Governance

Grad Dip-ALB-Sean-FPSean Ward original.indd 1 29/10/13 4:21 PM

AUSTRALASIAN LEGAL BUSINESSISSUE 11.114 EDITORIAL


Last month, I had the pleasure of chatting briefly with Corrs boss John Denton during a tour of the firm’s new offices in Sydney. The talking point was the entirely open plan nature of the operation, which sees partners sitting at desks alongside their more junior colleagues. Given the territorial instincts of human nature, it can’t have been an easy decision to implement.

“Expenditure of political capital” was the phrase modestly used by Denton to describe the process. I believe “politically courageous” is the description preferred by Sir Humphrey Appleby.

Still, that courageousness is admirable. This is a firm and a CEO with a reputation for doing things differently and, whether you agree with open plan or not, the fortitude required to introduce controversial change should be acknowledged. It’s a quality which would serve us well in other facets of Australian and New Zealand life, particularly the political arena.

I wanted to make some more general observations about open plan; observations which should not in any way be taken to be directed at Corrs. Many companies – including Thomson Reuters, the publishers of this magazine – have experimented with open plan and the subject warrants some analysis on a broader level.

There is no doubt that there has been a trend towards a more open use of office space in recent decades. Many organisations, however, stop short of mandating open plan for their entire workforce and have retained offices for their senior staff. Today’s critical question, then, is not whether organisations will go open plan. That question has already been answered, largely in the affirmative. The more interesting question is to what extent the office of the future will be open plan. Will we see more of the ambiguous hybrid model, or will such compromise be seen as the antithesis of a true “open door” culture?

Frequently associated with the open plan movement is the notion that open plan somehow democratizes or flattens organisational hierarchy, a rather intriguing viewpoint. There is an understated irony about a professional earning a seven figure salary sitting at a same sized desk as the bloke who does the photocopying. If there is an argument that, ideologically, a person with a higher status in the organisation is not entitled to a nicer office than his or her subordinates, then one wonders whether that ideology might also extend to salary. Or indeed is the narrative of manager and employee, of supervisor and subordinate, consistent with the flat hierarchy? Presumably the answer lies in how that particular relationship is conducted, particularly at the senior end.

That concludes this month’s thought experiment. It’s not really about Corrs, or politics or the next socialist revolution. It’s about something more practical: how do we reconcile Australian egalitarianism with an entrenched and stubbornly triangular corporate model?

RENU PRASAD Australasia Editor, Australasian Legal Business,Thomson Reuters

TWO WALLS GOOD, FOUR WALLS BAD

DEALS AUSTRALASIAN LEGAL BUSINESSISSUE 11.1166

YOUR MONTH AT A GLANCE


Deal Value Advisor Client Lead Lawyer

Boral Limited JV with USG Corporation

US$1.6bn Herbert Smith Freehills

Boral Stephen Dobbs

Boral Limited JV with USG Corporation

US$1.6bn Jones Day USG Corporation Chris Ahern

Sumitomo/ Glencore Xstrata stake acquisition of Clermont coal mine

US$1bn Clifford Chance

Sumitomo Mark Pistilli


US$1bn Allens Rio Tinto Richard Malcolmson


US$1bn King & Wood Mallesons

Glencore Nicholas Pappas

Virgin Australia enhanced equipment notes

A$797m Herbert Smith Freehills

Virgin Australia John Angus, Rod Howell

Nine IPO A$697m Gilbert + Tobin Nine Peter Cook, Rachael Bassil

Nine IPO A$697m King & Wood Mallesons

Joint lead managers David Friedlander and Shannon Finch

OzForex Group IPO A$440m Herbert Smith Freehills

Goldman Sachs Australia Pty Ltd and Macquarie Capital

Philippa Stone

OzForex Group IPO A$440m Clayton Utz OzForex Group

Cockatoo Coal senior secured project finance package

A$255m Minter Ellison Cockatoo Coal James Philips

US$1 billion M&A

SUMITOMO/GLENCORE XSTRATA STAKE ACQUISITION OF CLERMONT COAL MINE

• Clifford Chance and its Australian predecessor firm have been involved in the acquisition and disposal of coal projects in which Sumitomo and Glencore have had interests for over 15 years.

A$797 million DEBT

VIRGIN AUSTRALIA ENHANCED EQUIPMENT NOTES

• The enhanced equipment notes offering structure is a form of aircraft financing commonly used by U.S. airlines and known as enhanced equipment trust certificates (EETC).

Philippa Stone, Herbert Smith Freehills

DEALSAUSTRALASIAN LEGAL BUSINESSISSUE 11.11 7

DEALS REPORTED TO ALB, OCTOBER AND NOVEMBER 2013. Is your firm missing from this table? Please help us keep this table current by emailing deals information to [email protected]. You can also view weekly updates to this table on the ALB website at www.legalbusinessonline.com.

A$250 million EQUITY INDUSTRIA REIT IPO

• Hall & Wilcox has acted for APN Property Group for many years and has assisted with numerous significant transactions including the IPO and listing of APN Property Group, the establishment, IPO and listing of the APN European Retail Fund and numerous fund establishment and capital raising transactions.

A$77 million EQUITY SEALINK TRAVEL GROUP IPO

• Minter Ellison has a strong relationship with SeaLink, having acted for them for over 20 years, advising on day to day legal issues, strategic issues and on numerous transactions including the acquisition of Captain Cook Cruises, which now forms its New South Wales business unit.



Cockatoo Coal senior secured project finance package

A$255m Ashurst SK Networks (Cockatoo shareholder)

Ian Williams

Industria REIT IPO A$250m Hall & Wilcox APN Property Group

Tony Macvean

Industria REIT IPO A$250m Herbert Smith Freehills

APN Property Group

Michael Ziegelaar

Industria REIT IPO A$250m King & Wood Mallesons

Australand

Industria REIT IPO A$250m Clayton Utz UBS/Macquarie

FKP Property Group 'low doc' pro-rata entitlement offer

A$232m Minter Ellison FKP Property Group

Gary Goldman, Daniel Scotti

FKP Property Group 'low doc' pro-rata entitlement offer

A$232m Herbert Smith Freehills

Goldman Sachs Australia

Philippa Stone

Pura Vida Energy farm-out of 52 percent operating interest in Mazagan asset to Freeport McMoRan

US$230m Gilbert + Tobin Pura Vida Energy Chris Flynn

Cockatoo Coal equity raising


Cockatoo Coal equity raising

A$153m Ashurst SK Networks (Cockatoo shareholder)

Ian Williams

Galileo Japan Trust recapitalisation

A$147.5m Clayton Utz Macquarie Capital (Australia) Limited and Moelis Australia Advisory Pty Ltd

Brendan Groves

SeaLink Travel Group IPO A$77m Minter Ellison Sealink Louisa McClurg


A$50 million DEBT PMP HIGH-YIELD BOND ISSUANCE

• The issue is PMP Limited’s first debt capital markets transaction and one of the growing number of high yield note issues in the Australian market.



ISPT sale of Southgate Plaza Centre to Charter Hall Retail REIT

A$60m Holding Redlich

ISPT Corinne Wells

ISPT sale of Southgate Plaza Centre to Charter Hall Retail REIT

A$60m Coutts & Co Lawyers

Charter Hall Retail REIT

Christine Coutts

Perpetual Mining Holding Limited (PMHL) proposed JV with Mindax

A$52m Allion Legal Perpetual Mining Simon Rear

PMP high-yield bond issuance

A$50m Ashurst PMP Paul Jenkins


A$50m King & Wood Mallesons

FIIG Securities (lead manager)


A$50m Chapman Tripp

PMP (NZ counsel)

Medusa Mining two tranche placement

A$34m Ashurst Medusa Roger Davies

Cockatoo Coal bid for Blackwood Corporation


Metlifecare ASX listing Chapman Tripp

Metlifecare Roger Wallis

Metlifecare ASX listing Herbert Geer Metlifecare Michael Truelove

Quadrant Private Equity investment in Estia Health

King & Wood Mallesons

Quadrant Private Equity

Mark McNamara

JX Nippon Oil & Gas Exploration farm in agreements with Tap (Shelfal) Pty Ltd

Allens JX Nippon Oil & Gas Exploration

Anthony Patten

Simon Rear, Allion Legal

Anthony Patten, Allens

Paul Jenkins, Ashurst

DEALS REPORTED TO ALB, OCTOBER AND NOVEMBER 2013. Is your firm missing from this table? Please help us keep this table current by emailing deals information to [email protected]. You can also view weekly updates to this table on the ALB website at www.legalbusinessonline.com.

Without question, economic factors affect the development of the law. That legislative and case law is a product of the prevailing environment at the time has been demonstrated by the development of New Zealand GST law over the past few years.

Having historically struggled with issues of substantive priority for GST given that recipients’ statutory entitlements to claim GST credits are in no way dependent upon Inland Revenue having collected the corresponding GST payable by suppliers, Inland Revenue has initiated legislative amendments post GFC which have made inroads on the ability of secured creditors to receive and retain funds ahead of the Commissioner.

The most significant of these has been the introduction of the compulsory land zero rating rules for GST.

Introduced in 2011 to combat so-called “phoenix transactions” whereby insolvent vendors sold property on a “plus GST” basis to a GST registered purchaser (who would then claim an input tax credit for the GST notwithstanding that the insolvent vendor had not paid any GST to the Inland Revenue), the rules treat all transactions between registered persons as zero rated if they include a supply of an interest in land not intended for private/non taxable use. In effect, this provides Inland Revenue with an in substance super-priority for GST on virtually all major transactions by ensuring that Inland Revenue cannot ever be in a net paying position in respect of GST attributable to a particular supply (eg by a secured creditor having priority to “GST” funds paid by the purchaser to the vendor).

More targeted amendments have also been made. In late 2012 the GST Act was amended to prevent liquidators, receivers or administrators from claiming input tax credits (and therefore GST refunds) for supplies for which payment has not been made, by prohibiting the changing of an incapacitated person’s accounting basis from a payments basis to an invoice basis.

The courts have also been influenced by the prevailing economic conditions.

Despite having shown no hesitation in finding that the Commissioner ranked behind a secured creditor in pre-GFC cases such as Rob Mitchell Builder Ltd (in liq) v The National Bank of New Zealand Ltd (2004) 21 NZTC 18,397 (CA), the courts have more recently shown a clear reluctance to prefer banks and other secured creditors over the Commissioner.

Rob Mitchell Builder concerned the priority of the Commissioner’s claim for GST on a sale of property treated as having been made by the taxpayer under the GST ‘time of supply’ rules but settled by liquidators. Stating that “priority of a tax depends on what is dictated by the taxing statute”, Blanchard J in the Court of Appeal noted that “considerations of equity or fairness have little or no weight in a tax case”. The Court of Appeal held that the supply was outside the scope of the administrators’ “personal liability” provisions in section 58 of the GST Act (equivalent to Division 58 of the Australian GST Law) and therefore that the gross proceeds of sale could be paid to the secured creditor ahead of the Commissioner.

By contrast, post GFC cases such as Simpson and Downes as Receivers of Capital + Merchant Investments Limited (in receivership) v CIR (2012) 25 NZTC 20,119 (CA) (CMI), and Stiassny v CIR (No 2) (2012) 25 NZTC 20,154 illustrate a more recent willingness of the courts to look beyond the scope of the statutory tax provisions where necessary in order to determine matters of priority in favour of the Commissioner.

Notwithstanding that in CMI and Stiassny the courts held that in each case the receivers did not have a “personal liability” to pay the tax under section 58 of the GST Act, the courts nevertheless held that the receivers were obliged to pay the GST to the Commissioner in priority to the secured creditor:

• InCMI this was because amounts charged to purchasers as GST on mortgagee sales of property undertaken by the receiver of a GST exempt finance company “simply [did] not reach the general funds of the mortgagee” (as the

company was liable under the mortgagee/forced sale provisions of sections 5(2) and 17 to account for GST, and the GST was an expense of the sale deductable from the sale proceeds under section 185 of the Property Law Act 2007).

• InStiassny the amount paid as GST but subsequently challenged by the receivers (following the accepted practice of filing conservatively and then challenging the correctness of the position taken so as to mitigate penalties and interest) was a “debtor-initiated payment” and therefore taken by the Commissioner free of any security interest under section 95 of the Personal Properties Securities Act 1999 (PPSA).

With the economy now showing signs of recovery and the impact of legislative amendments such as land zero rating working through, it might be expected that issues of the Commissioner’s priority for GST will now largely be relegated to the margins.

However, the courts’ efforts to give effect to perceived notions of fairness and public policy could yet have wider implications, and whether the implicit trust approach to GST underpinning the court’s finding in CMI is expanded upon or upheld in future cases will be of interest to tax and insolvency practitioners. Additionally, the extent to which receivers and liquidators will be prevented from recovering payments made to a creditor from funds subject to a prior security as a consequence of Stiassny remains to be seen.

IRD PRIORITY FOR GST - A LEGACY OF THE GLOBAL FINANCIAL CRISIS

NZ Commentary

Firm Profile

JO GIBONEY Buddle Findlay

This article was written by Jo Giboney, a senior associate based in the Auckland office of Buddle Findlay, a leading New Zealand law firm. Jo is a member of the tax team and can be contacted on 64 9 363 0634 or [email protected].

AUSTRALASIAN LEGAL BUSINESSISSUE 11.1110 LEAGUE TABLES

TOP M&A FIRMS - ANNOUNCED DEALS, YEAR TO DATE 2013

RANK LEGAL ADVISOR VALUE ($MIL)

MKT. SHARE DEALS

2 King & Wood Mallesons 13,397.82 22.7 50

3 Minter Ellison 13,277.18 22.5 44

4 Allens 11,378.84 19.3 41

5 Corrs Chambers Westgarth 8,621.68 14.6 28

6 Gilbert + Tobin 8,341.84 14.1 23

7 Ashurst 6,886.26 11.7 39

8 Allen & Gledhill 4,160.43 7.1 6

9 Baker & McKenzie 3,965.66 6.7 37

10 Johnson Winter & Slattery 3,578.26 6.1 11

11 Deloitte 3,028.62 5.1 1

12 Clayton Utz 2,253.20 3.8 30

13 Linklaters 2,111.59 3.6 10

14 Simpson Grierson 1,507.54 2.6 3

15 Thomsons Lawyers 1,267.22 2.1 9

16 Jones Day 1,196.65 2.0 3

16* Paul Hastings 1,196.65 2.0 1

16* WongPartnership LLP 1,196.65 2.0 1

19 Chapman Tripp 1,180.53 2.0 3

20 Allen & Overy 1,141.32 1.9 12

21 Skadden 1,057.35 1.8 2

22 Debevoise & Plimpton 904.11 1.5 1

23 Stikeman Elliott 895.75 1.5 4

24 Squire Sanders LLP 800.00 1.4 1

25 Norton Rose Fulbright 667.12 1.1 20

Subtotal with Legal Advisor 47,236.80 80.1 365

Subtotal without Legal Advisor 11,755.16 19.9 917

Industry Total 58,991.96 100.0 1,282

Based on Ranking Value inc. Net Debt of TargetSource: Thomson Financial Date: 2013-11-04 08:27:28 EDT

NO.1 HERBERT SMITH FREEHILLS

VALUE ($MIL)

DEALS: 55 MARKET SHARE: 27.6

16,280.05TOP M&A FIRMS - COMPLETED DEALS, YEAR TO DATE 2013

RANK LEGAL ADVISOR VALUE ($MIL)

MKT. SHARE DEALS

2 Corrs Chambers Westgarth 9,657.02 24.9 24

3 Gilbert + Tobin 9,637.43 24.9 18

4 King & Wood Mallesons 8,962.65 23.1 40

5 Minter Ellison 8,671.25 22.4 39

6 Allens 4,619.69 11.9 34

7 Baker & McKenzie 3,287.76 8.5 32

8 Ashurst 3,287.59 8.5 29

9 Clayton Utz 3,138.88 8.1 29

10 Paul, Weiss 2,280.19 5.9 1

11 Blake Cassels & Graydon 1,959.10 5.1 4

12 Skadden 1,831.47 4.7 4

13 Linklaters 1,820.80 4.7 9

14 Simpson Grierson 1,739.91 4.5 4

15 Allen & Overy 1,186.88 3.1 12

16 K&L Gates 1,167.38 3.0 6

17 Stikeman Elliott 1,099.80 2.8 5

18 Thomsons Lawyers 1,088.92 2.8 7

19 Gowling Lafleur Henderson LLP

1,080.95 2.8 2

20 Dorsey & Whitney LLP 1,078.75 2.8 1

20* Squire Sanders LLP 1,078.75 2.8 1

20* Lawson Lundell Lawson & McIntosh

1,078.75 2.8 1

23 Norton Rose Fulbright 923.57 2.4 20

24 Chapman Tripp 906.62 2.3 2

25 Debevoise & Plimpton 904.11 2.3 1

Subtotal with Legal Advisor 32,054.79 82.8 299

Subtotal without Legal Advisor 6,676.31 17.2 607

Industry Total 38,731.10 100.0 906

Based on Ranking Value inc. Net Debt of TargetSource: Thomson Financial Date: 2013-11-04 08:15:54 EDT

NO.1 HERBERT SMITH FREEHILLS

VALUE ($MIL)

DEALS: 41 MARKET SHARE: 26.9

10,435.10

1. BHL Insight costs less. Firms use Insight for between $60 and $100 per user per month. You choose a subscription model or traditional licensing.2. Insight requires fewer computer servers than most other systems. It is fast and reliable. This is important if you decide to use a cloud-based or hosted platform.3. Insight does not need external consultants to connect and configure different components. IT and consulting costs exceed software costs in most firms, so reducing them is a major contribution to law firm profitability. CFOs and Partners love it.4. Insight is a secure, long-term platform for your business growth. It is not subject to sudden price increases or termination of support. BHL has increased the support costs for Insight by 4% per annum for the last eleven years. We don’t lock clients in with long contracts or closed databases.5. Your investment of staff time in your own systems and processes is safe. At BHL we have been developing and supporting practice management systems for 35 years. Insight is our fourth generation product. No BHL client has ever been denied ongoing support or obliged to move to a new system until they were ready to make the move.6. BHL Insight is easy to learn and use, so it is learnt and used. This delivers the promised productivity benefits of software and lets you manage more matters with the same number of staff.7. Clients who want to have the system modified to suit their needs can have that done swiftly and at reasonable cost. Insight adapts to your needs, so you can differentiate your firm and grow your practice groups.

8. The “Paperless Office” is here: BHL Insight is fully developed and very functional. We often hear that practice management software is all the same. Not so. Firms who examine prospective systems in detail usually buy BHL: “Mate, I don’t want to float your boat but the comparison between “________” and Insight is chalk and cheese.” Statement of the CFO of a mid-sized law firm.9. Many law firms have taken the word of their software vendor or consultants for the effectiveness of their accounting software. To their cost. Insight automates accounting as well as document assembly, document management, workflow and legal project management. Releasing the accounts staff from mundane data entry might seem like a trivial cost saving, but experience shows it has a material impact on the quality of firm management, cash flow and profitability.10. Using the same system for all of your firm automation initiatives reduces costs and speeds the adoption of automated processes. Control your IT costs and give your people the tools they need. It’s money in the bank.11. The people at BHL care about the results you get. We are not ‘incented’ by ROI or ROE, we are motivated by client satisfaction and building strong reputations as law firm automation specialists. We help you make it all happen.12. Insight has been developed in collaboration with a wide variety of law firm clients in Australia and New Zealand, it suits large and small firms, from 1 to 1000 users, and can make a significant contribution to your profit per partner. Contact [email protected] or call 1300 132 385 to arrange a free, no obligation presentation.

Software or more time at home? Software or bigger premises?

Software or better holidays? Use BHL Insight and have it all!

Ph 1300 132 385

BHL Insight gives law firms a complete accounting, matter management, document/ email automation, marketing and collections system. At a surprisingly low cost.

Unlock your growthpotential.Firms using BHL Insight really are more profitable.

BHL FULL PAG AD_ALB_COL2.indd 1 13/07/12 9:31 AM

A RECENT INCREASE IN NEW ZEALAND COMPANIES LISTING ON THE ASX RAISES THE QUESTION OF HOW NEW ZEALAND FIRMS GO ABOUT SHARING WORK WITH THEIR AUSTRALIAN COUNTERPARTS. CHAPMAN TRIPP’S ROGER WALLIS SPEAKS WITH ALB’S RENU PRASAD.

ALB: NZX-listed Metlifecare has become the most recent NZ company to list on the ASX and it did so under the guidance of two firms – Chapman Tripp and Herbert Geer. Can you tell us about how Herbert Geer became involved in the transaction?RW: We’d worked with Herbert Geer on some other transactions…the client tendered the role to three or four firms and for a variety of reasons went with Herbert Geer.

ALB: Does the NZ firm have some influence on which Australian firm gets the role in these situations?RW: Often that’s client led; often that’s a function of individual relationships. So for example on the Summerset [2013 ASX listing] we had some influence on Allens getting involved; again the client wanted to tender it to make sure the pricing was competitive but Allens had a good track record and we’ve had a good relationship with Allens over the years. So it was a bit

TRANS-TASMAN COLLABORATION

12 ANALYSIS AUSTRALASIAN LEGAL BUSINESSISSUE 11.11

Roger Wallis, Chapman Tripp

13AUSTRALASIAN LEGAL BUSINESSISSUE 11.11 ANALYSIS

of both – we had some influence, but the client wanted to ensure it was price competitive.

ALB: Do NZ firms have particular preferred relationships with Australian firms for sharing work?RW: It’s an interesting dynamic. Minter Ellison Rudd Watts and Minter Ellison are obviously the most overt alignment and I guess DLA NZ, until they broke out of the more formal grouping, most people would assume anything they did would be with their Australian cousins.

Most of the big NZ firms tend to operate with a range of Australian firms and vice versa. There’s no formal tie ups between any of the top tier firms here and there to my knowledge. In any year we’d work closely with Allens, King & Wood Mallesons, Herbert Smith Freehills, Allen & Overy and a range of the others.

ALB: And presumably NZ corporates have their preferred Australian advisors too. RW: Meridian for example, have used Allens in the Australian market so when it looked to do its IPO in Australia I’m sure the fact that Allens was their usual advisor was highly relevant. The case of Mighty River, they didn’t have [pre-existing relationships in Australia] so they went to market and ended up selecting KWM for that role. So it’s a combination of personal relationships between partners and client preferences and pricing has been relevant too.

NZ is a relatively small market; you don’t want to burn your bridges. We get on well with our domestic colleagues and the same with our relationships with Australian firms. We’ve got deep relationships and have for many years.

ALB: On your recent transaction, NZX-listed Metlifecare’s listing on the ASX – would it be accurate to describe this as a dual listing?RW: I guess when some people talk about dual listing, they hark back to the BHP Billiton type of arrangements. So it’s not one of those, it’s basically a listing on both exchanges but both of them are primary listings; the ASX one is on equal footing with the NZX one.

ALB: So dual listing might not be the precise phrase here?RW: Dual listing can mean some things to some people and something else to others; dual primary was the label given where you had two different companies [and each] listed in the other’s market and paired up along the lines of what BHP did; secondary listing is sometimes used where one exchange is subservient to the

other. Dual listing is probably a reasonable proxy, but it has a slightly different meaning for some people. The essential point [with this deal] is that it’s a full listing; we don’t treat the Australian listing as some kind of second rate listing.

ALB: What’s the motivation for NZ corporates to list on the ASX?RW: We’ve got pretty attractive market conditions here at the moment for equity raising. Some of the [corporates] have been exploring ASX listing to ensure that some of the Australian fund managers who are required to invest in stocks on the ASX can participate in NZ capital raisings. So the actual volume of trading through the ASX on some of them is relatively light but you need to be on the [Australian] exchange for some to participate. So that’s a driver for some of them, for others it’s a profile exercise as well.

ALB: And there have been several of these listings?RW: There’s been quite a pattern, at least two or three a year. It’s also been a prevalent feature of the larger IPOs we’ve had in the market – Mighty River Power, Z Energy and Fonterra Shareholders’ Fund have all gone down that path as well; fully compliant listings on both exchanges.

ALB: Has it been an easy process?RW: There’s an increasing alignment between the two markets; our NZX listing rules are broadly the same; there are a handful of waivers that ASX give to [eliminate the need] for double compliance in some areas; it’s not that onerous for corporates as most have sophisticated legal teams that are able to manage the requirements of each exchange. It’s quite an attractive option and as far as legal process goes, relatively low cost. It’s quite an effective avenue for them to get more liquidity in their sharemarket trading.

ALB: How have you found local capital raising activity?RW: There’s definitely a pipeline; NZ capital markets are open and there’s been some significant transactions; something we haven’t seen for 10 or 12 years; we’ve probably never seen the depth that we’ve had this year in our equity capital markets. ASX itself has been quite active in sending their BD team over here to get in front of some of our larger listed corporates.

NZX/ASX CAPITAL RAISINGS – RECENT EXAMPLES

Date Entity Amount raised ($NZ)

April 2013 Mighty River $1.7 billion

August 2013 Z Energy $840 million

November 2012 Fonterra Shareholders’ Fund

$525 million

July 2013 (ASX) Summerset $124 million

A recent securitised lease deal involving Wesfarmers and hardware chain Bunnings Warehouse has provided an insight into how Australian corporates can release capital from their balance sheets – if they’ve got the

right pedigree. The transaction combined the sale and lease-back of 15 Bunnings

Warehouse properties with a structured debt capital raising of approximately $304 million for Bunnings owner Wesfarmers. The transaction is the first of its kind in Australia and was significantly over-subscribed.

Interestingly, this deal involved a collaboration between two firms working on different aspects of the transaction. Herbert Smith Freehills handled the securitisation, issuing of bonds, structuring and tax advice while Lander & Rogers worked on the property components, including the sale and triple-net leasing of the properties. Lander & Rogers has worked with Bunnings as their property legal services provider for over 20 years. The teams from both firms worked very closely together over a significant period of time to complete the deal.

On the HSF side of the deal, the lead partners were Justin O’Farrell, Patrick Lowden and Lachlan Roots working with teams from across the firm’s corporate, debt capital markets, securitisation and real estate offerings. Lander & Rogers, led by Nick Stocks and Lee Wolveridge advised on the property aspects of the 15 Bunnings warehouses sold to debt investors, with a triple-net lease back component allowing Bunnings to keep operational control of its stores. The Wesfarmers Corporate Solicitors Office team, led by Sheldon Renkema, Stephen Kubicki and Nicky Giovkos, was also heavily involved.

The capital raising involved the sale to fixed income investors of around $271 million of A- rated partially amortising 12 year floating rate senior bonds, together with around $33 million of residual value notes, half of which were sold to high net worth investors. The transaction continues Wesfarmers’ strategy to release capital from its balance sheet.

“Under the securitised lease deal, Wesfarmers and Bunnings will have ultimate long term access to the properties, but have been able to release capital, accessing value from those properties at excellent pricing through the issue of long term bonds and residual value notes,” said HSF partner Patrick Lowden. “The structure of the leases in the deal also allows Bunnings to retain far greater operational flexibility in relation to those properties than would apply in a conventional deal.”

This deal was more than just a standard sale and lease back and contained features not previously seen in this market. “The bonds are underpinned by the creditworthiness of the tenant – a Bunnings entity, guaranteed by Wesfarmers – rather than the value of the

HERBERT SMITH FREEHILLS AND LANDER & ROGERS HAVE JOINED FORCES ON ONE OF THE MORE INNOVATIVE DEALS SEEN IN THE AUSTRALIAN MARKET OF LATE.

RE-LEASE ME

properties. This allowed Wesfarmers/Bunnings to effectively capture value from the properties at excellent pricing in a way that might not have been realisable through an outright sale,” explained HSF’s O’Farrell. “The structure of the deal allows Wesfarmers and Bunnings continuing access to the properties and operational flexibility, but with various features that result in Wesfarmers being able to release capital from its balance sheet without the consequences that would arise from a third party sale. The transaction also included a subordinated tranche of residual value notes, which had a number of innovative features including exposure to the value of the properties. The debt issued under the structure is long term, and backed by long term lease commitments.”

The deal is also an example of how Australian corporates and their dealmakers are increasingly looking off-shore for innovative solutions. “This deal was effectively a hybrid of a bond issue backed by triple-net leases which had never been done before in Australia. It was based loosely on a Tesco transaction in the UK, and Bunnings and Wesfarmers felt that it could also be successfully achieved in Australia given the strength of their respective brands,” said Lander & Rogers partner Lee Wolveridge.

There were multiple stakeholders

Justin O’Farrell, Herbert Smith Freehills

Nick Stocks, Lander & Rogers

Lee Wolveridge, Lander & Rogers

Patrick Lowden, Herbert Smith Freehills

AUSTRALASIAN LEGAL BUSINESSISSUE 11.1114 PROPERTY

THIS DEAL WAS MORE THAN JUST A STANDARD SALE AND LEASE BACK AND CONTAINED FEATURES NOT PREVIOUSLY SEEN IN THIS MARKET.

weighing into the deal, with senior bondholders seeking to obtain access to the benefits of the leasing stream and the residual value noteholders motivated by property-based objectives. “The structure is long term and we needed to grapple with how things would work for all parties if circumstances changed over time,’ said Lowden. The interests of Bunnings itself added an additional layer of complexity. “The leases needed to be specially modified to suit the structure and this was complex. Ultimately it was no small task to bring together the requirements of all the different disciplines on the deal,” said Lowden.

This deal is another example of how top corporates can leverage their brand. “This deal shows that the market has an appetite for securitised lease transactions where

they are backed by the strength of brands like Wesfarmers and Bunnings,” observed Landers partner Nick Stocks.

O’Farrell agrees: “It is likely people will look at this deal, as people in the market have been talking about it,” he said. “We would be surprised if it is not explored by others now that Wesfarmers has paved the way. It won’t suit everyone, but may suit those with significant property holdings with good credit quality and who have an interest in realising some value while maintaining long term operational access.”

• A-ratedpartiallyamortising12yearfloatingrateseniorbonds,together with around A$33 million of residual value notes

• long-termrentalstreamguaranteedbyWesfarmers• residualvaluenotesareseparatedebtinstrumentsgivingexposure

to the value of the properties over time• dealwillreleaseapproximately$304millionworthofcapitalfor

Wesfarmers• proceedswillassistWesfarmersinfundingtherolloutofBunnings

warehouses across Australia

FEATURES OF THIS DEAL

AUSTRALASIAN LEGAL BUSINESSISSUE 11.11 15PROPERTY

“THIS DEAL SHOWS THAT THE MARKET HAS AN APPETITE FOR SECURITISED LEASE TRANSACTIONS WHERE THEY ARE BACKED BY THE STRENGTH OF BRANDS LIKE WESFARMERS AND BUNNINGS.”

BAKER & MCKENZIE HAS CONSISTENTLY WON THE COVETED TITLE OF TOP BRAND IN THE GLOBAL LEGAL SERVICES MARKET – BUT COMPARISONS WITH A CERTAIN OTHER FAMOUS AMERICAN MULTINATIONAL PERSIST. REPORT: RENU PRASAD

For many years, Baker & McKenzie has been labeled by the unkind as the McDonalds of the legal profession. It’s not clear where exactly this association comes from. It may have been inspired by the firm’s dominant size and

appetite for expansion into new jurisdictions. It may relate to the firm’s deep relationships with American multinationals. It may be a reference to the firm’s famous Swiss Verein structure. It could be all of the above. But what we do know is that the firm has endured a fair bit of name calling in its time, a good deal of it in recent years occurring around October. That’s the month that an organisation called Acritas releases its annual survey of the top global law firm brands. Bakers has won this survey for several consecutive years now, provoking much ironic fast-food related commentary from its prestigious rivals.

What are we to make of all this? According to the Acritas survey, Bakers is a long way ahead of its nearest rivals, Clifford Chance and Freshfields. A very long way. That’s a finding which does not sit easily with the prestige usually accorded to the Magic Circle. Another notable outcome of the survey was DLA Piper being ranked ahead of Allen & Overy. A&O in turn achieved a similar score to Norton Rose Fulbright.

These results have been welcomed by those who argue that the new global paradigm pays no heed to tradition and the future belongs to those who are most prepared to embrace it: DLA, Norton Rose, King & Wood Mallesons and K&L Gates among others. These firms all performed well in the survey, although it is arguable that this could be attributable to the surge in publicity surrounding their various mergers.

But these firms are also a long way behind Baker & McKenzie on the brand stakes. According the survey, it’s Bakers first and daylight second. It’s worth stepping into the role of devil’s advocate to see whether the methodology of the survey may have influenced this result.

The Acritas Sharplegal Global Elite Brand Index was based on responses from 815 senior general counsel in multinationals with revenues of $1 billion and over. The surveys, which were conducted in the local language across 55 countries, asked the respondents to comment on which firms “first came to mind”, which firms respondents were most favorably disposed towards and which firms were most likely to be considered for cross-border deals

MAC ATTACKand litigation. Seventy Australians were involved in this year’s survey.

Certain aspects of this methodology work in Bakers’ favour. The geographical diversity of the respondent base is likely to favour firms with a larger global footprint. The first question relating to brand awareness is likely to favour firms who have had more time to establish themselves in a given market.

Bakers Australia managing partner Chris Freeland concedes that size is a factor in brand perception. “There’s no question we benefit from being a very big firm,” he told ALB. “But it’s not just about size, there are four factors [the survey] looked at. One of those four things is awareness - that’s helped by size - but the other things are not so much about size, they’re about how well you operate across different countries. So you can be in a lot of places, but if they don’t like working with you in those places you’re not going to rate well. But sure [size] definitely helps, it doesn’t hurt.”

Acritas is also planning on releasing brand indexes for specific markets, which will help answer one of the most important questions arising from this exercise: is there a correlation between the “global elite” and the “London elite” or “Wall St elite” or even “Australian elite”? Would the survey produce the same result if it were confined, for example, to purely the ASX100? Freeland frankly concedes that he is not sure. “I don’t know – but I’d be interested to see the results,” he said. “But it’s fair to say that our strength is the package of Baker & McKenzie globally. We have outstanding offices in the Asia Pacific particularly, most would be top in their market. As a package


BAKER & McKENZIE - QUICK FACTS2013 GLOBAL FEE INCOME: US$2.419 billion (up 5%)NET GLOBAL INCOME: US$862 millionPPP: US$1.2 million (up 10%)GLOBAL FEE BREAKDOWN: EMEA 37%, Asia Pacific: 28%, Americas: 35%TOTAL LAWYERS: 4,100+OFFICES: 74COUNTRIES: 46AUSTRALIAN MANAGING PARTNER: Chris FreelandACRITAS BRAND SURVEY RESULT: Ranked first with index score of 100; nearest competitors (Clifford Chance and Freshfields) scored 66 and 60. See issue 11.10 for full chart.

“ACCORDING TO THE ACRITAS SURVEY, BAKERS IS A LONG WAY AHEAD OF ITS NEAREST RIVALS, CLIFFORD CHANCE AND FRESHFIELDS. A VERY LONG WAY. THAT’S A FINDING WHICH DOES NOT SIT EASILY WITH THE PRESTIGE USUALLY ACCORDED TO THE MAGIC CIRCLE.”

17ANALYSISAUSTRALASIAN LEGAL BUSINESSISSUE 11.11

collectively we offer something that is unique.”

Which brings us to a key question: is the survey telling us that Bakers is brilliant in every jurisdiction, or is this a case of the whole being greater than the sum of its parts?

TEN YEAR STARTFreeland has spent the past few years observing the analysts discussing the globalisation of the legal services market as though it were a new phenomenon. That can’t have been easy when you’re running a firm which started to globalise back in the 1950s and arrived in Australia in 1964. One gets the impression it’s a point that he feels bound to make. Repeatedly. As often as it takes.

“Being the first and I’d argue the only true global firm it definitely helps,” he says when asked about Bakers’ brand recognition. “The key point is that you can’t just rebrand yourself and think you’re a global or even an international firm. It takes a long time to work out how to run a global firm.”

For this reason Freeland is averse to the label “first mover advantage” being applied to Bakers’ international expansion. “If you say ‘first mover’ it implies that next year the others will suddenly have caught up with how to operate globally,” he says. So realistically, how long will it take the chasing pack to catch up? “I’d argue we have a 10 year plus head start and I’m not sure anyone else can catch up,” says Freeland. “If they can, we’re talking in a very long time. It takes years and years to get it right. Is it 10 years? Maybe it’s eight, maybe it’s 15. But it’s not one year, it’s not

“IF YOU’RE COMBINING TWO QUITE CULTURALLY DIFFERENT ORGANISATIONS OR REBRANDING YOURSELF THAT’S GOING TO TAKE YOU A LONG TIME. TO THINK THAT YOU CAN SUDDENLY BECOME PART OF ANOTHER FIRM WITH PARTNERS YOU’VE NEVER MET BEFORE, IT’S GOING TO TAKE YEARS AND I’D SAY 10 YEARS IS A GOOD BENCHMARK.”


even five. It’s more like 10 years to get those things right.”

That’s bad news for organisations such as King & Wood Mallesons and Ashurst who were no doubt planning on coming of age somewhat earlier than 10 years. Freeland says there will be a rite of passage of sorts. “If you’re combining two quite culturally different organisations or rebranding yourself that’s going to take you a long time,” he says. “Our partners have been meeting each other and working with each other for decades in some cases. To think that you can suddenly become part of another firm with partners you’ve never met before, it’s going to take years and I’d say 10 years is a good benchmark.”

Freeland provides some examples of the kind of measures which need to be put in place to support a global practice. “We have global client teams and have global business development support across our offices,” he said. “We have particular incentives in place to support [international] clients well across multiple offices. There’s a measure in place to measure how much we are increasing work from global clients – that is being tracked and rewarded.”

“We have a very rigorous and regular client feedback programme and that includes doing client feedback in places where others might question whether it’s appropriate; like in Asia, even though there’s a predisposition to think that getting client feedback in Asia is a more challenging thing to do – we do it there and it is received well. We have client conferences coupled with our regional and global meetings; we bring in clients and expose them to a whole range and parts of the firm.”

But there’s an elephant in the room: financial integration. Baker & McKenzie is the best known example of a law firm with a Swiss Verein structure and a substantial portion of the profession continue to insist that a firm without a single unified profit and remuneration system is nothing more than an alliance with common branding. It’s an argument which is ventilated regularly and Freeland is accustomed to it.

“We operate seamlessly globally, we have [integrated] systems – it’s not just the financial stuff,” he said. “It’s about global client teams; our executive committee has two representatives from each of our

regions. We are different from other international firms which are run out of London or New York. But those are the mechanics that operate behind the scenes and are hopefully largely lost on our clients – all we want them to see is that we’ll work with them wherever they are.”

Freeland adds that the market does not always split cleanly into domestic and international clients. “It’s fair to say that there are still clients in Australia that are largely domestically focused so for them having local experts is 80 percent of the answer for them,” he says. “However, I would still argue it’s not 100 percent [of the answer] for even clients who are doing work domestically – you still want to draw on global best practice. Increasingly of course clients are becoming global.”

SHOW ME THE MONEYBrand is sometimes seen as a “soft” metric by those who argue that the only true measures of a firm’s performance are financial measures, most notably the famous “profit per equity partner” metric. If a firm is well regarded and well run, the argument goes, the results will be reflected in the firm’s profit and revenues. It is those results and not brand perception, aguably, that count.

But a study can only achieve what it set out to do. The Acritas survey was a study about brand. Not revenue growth. Not profitability. It appears to have demonstrated some solid methodology in the process and Bakers are entitled to take credit for what has been a very strong positive response from the market.

As far as Freeland is concerned, financials are not the sole measure. “The most important measure is what our clients think,” he said. “The best measure is what your clients are saying about you and whether they continue to work with you. We have incredibly high repeat business and that’s the best hallmark of success I think.”

But that’s repeat business which, presumably, will show up in the firm’s revenues.

Maybe brand perception and revenues are just two sides of the same coin.

Sex and the workplaceBY TONY DE GOVRIK, FORMER NATIONAL PRESIDENT, AUSTRALIAN CORPORATE LAWYERS ASSOCIATION.

– A new meaning to ‘on the job’ injury?

In a decision that would make even Carrie Bradshaw of Sex and the City fame blush, it has taken six of the most esteemed judges in the land to

enlighten us that an injury sustained by one of two consenting adults during sexual intercourse did not arise in the course of employment. Even then, only a majority decision could be reached with two of the six High Court judges hearing the appeal dissenting. One can only imagine the musings of the High Court judges who were called upon to consider the somewhat delicate facts of this cause celebre.

The facts of the case are reasonably straight forward. The employee in question was a Canberra-based public servant who, in 2007, was required by her employer to work for two consecutive days in Nowra, a south coast town in NSW. She stayed overnight at a local motel which had been booked by her employer. Apparently the woman, in her late 30s who worked (some might think appropriately) in the “human relations” department of a Commonwealth government agency, had met a “male friend” while undertaking her work assignment. The two had dinner together and then went to the woman’s motel room and had what has been described as “vigorous” sex. During this “interlude”, as sensitively described by the courts, a glass light fitting on the wall above the bed became detached and apparently hit the woman in the nose and mouth causing not only physical injuries to her face but also psychological injuries including post-traumatic stress disorder. Comcare, the federal government workplace safety body, denied the woman’s compensation claim for workplace injury.

At the hearing before the Administrative Appeals Tribunal (AAT), her male “acquaintance” gave evidence the pair were “going hard. I do not know if we bumped the light or it just fell off. I think

Tony de Govrik

she was on her back when it happened but I was not paying attention because we were rolling around” he told the Tribunal. The AAT rejected the employee’s claim for compensation holding that the woman’s injuries were unrelated to her employment. But last year the Federal Court overturned the decision of the AAT. In setting aside the Tribunal’s finding and upholding the woman’s claim, Judge John Nicholas in the Federal Court said the fact she had “engaged in sexual activity rather than some other lawful recreational activity while in her motel room does not lead to any different result.” The Federal Court’s decision was then upheld by the Full Court of the Federal Court. The Full Court held that the employee’s injuries occurred in an “interval or interlude” during an overall period of work and therefore arose in the course of her employment.

Before the lower courts and tribunals many an amusing analogy was argued as to why the claim should or should not be met by Comcare. These included injuries that might be sustained in a motel room from playing a game of cards, to doing push-ups, to choking on a sandwich while at work.

Following the granting of special leave, Comcare appealed to the High Court. The 4-2 majority said three questions needed to be asked. Was the injury suffered in the course of employment? What was the employee doing when the injury occurred? Did the employer “induce or encourage” the employee to engage in that activity? According to the summary of the Court’s decision, a “majority of the High Court held that in order for an injury sustained in an interval or interlude during an overall period of work to be in the course of an employee’s employment, the circumstances in which the employee was injured must be connected to an inducement or encouragement by the employer. If the employee is injured whilst engaged in an activity at a certain place [such as a motel room away from the normal workplace], that connection does not exist merely because of an inducement or encouragement to be at that place. When the circumstances of an injury involve the employee engaging in an activity at the time of the injury, the relevant question is: did the employer induce or encourage the employee to engage in that activity? On the facts of the respondent’s case, the majority held that the answer to that question was ‘no’.” (See Comcare v PVYW [2013] HCA 41).

While some commentators, in the reporting of the decision, might be tempted to indulge in some levity and salacious headlines such as High Court required “to rule upon a case of coitus interruptus” under the headline “Happy ending for Comcare in woman’s sex injury case” (SMH 31 October 2013), your columnist will try to refrain from such indulgences. Suffice to say that the decision does bring a whole new meaning to “on the job” injuries!

AUSTRALASIAN LEGAL BUSINESSISSUE 11.11 19IN-HOUSE OBSERVATIONS

Colin Biggers & Paisley (CBP) has announced a merger with Brisbane firm Hemming+Hart. The merged firm, which operates under the CBP brand, launched on 4 November 2013.

CBP operates a series of targeted specialist practice areas which include construction, corporate, property, insurance and insolvency/restructuring. The Brisbane merger will see the firm add six new partners and 39 staff, taking the combined firm to a total of 53 partners.

The merger did not involve any acquisition fee passing between the two entities. “It’s a proper merger. We’re not buying their firm, we’re just integrating the equity in both firms,” managing partner Dunstan de Souza told ALB. “Those who had equity in Hemming+Hart have it in our firm.”

GROWTHCBP has flagged plans to expand beyond the six partners who have joined as part of the merger and a statement from the firm predicted that the Brisbane office would “double in size within the next two years.”

However, de Souza told ALB that the current pace of negotiations could see the firm reach its target size earlier than 2015. “My guess is we’ll have 12 partners [in Brisbane] within 12 months,” he said. “I already am talking to other partners in the market place there; I am fairly confident about three of them [joining] fairly quickly, I’m fairly confident about others six months after that. It’s rare for me to be so adventurous, but I’d almost guarantee that we’ll have 12 partners there.”

He added that CBP’s spread of practice areas went beyond counter-cyclical areas and that the firm’s move was a genuine vote of confidence in Queensland. “We have a great deal of confidence in the Queensland economic outlook; we have a great deal of confidence in the Queensland market and unlike some of the others that have gone to Queensland, we have no difficulty in saying openly to the market that we will double the size of the firm within 12 months. Even some of the biggest firms don’t have that many partners in Brisbane for some reason,” he said.

De Souza said that the firm was still interested in hearing from

A PROMINENT MELBOURNE AND SYDNEY BASED FIRM HAS ANNOUNCED THAT IT WILL BE ENTERING THE BRISBANE MARKET VIA A LOCAL MERGER – AND IT’S VOWING TO DOUBLE ITS PARTNERSHIP SIZE IN 12 MONTHS.

BRISBANE OR BUST

potential recruits. The firm is hiring in Melbourne and is particularly anxious to secure people in Brisbane.

“For us it will be construction and property and insurance and restructuring – those are the four areas for us in Queensland, so if there’s anyone reading your article and wants to join a specialist firm in each of those areas, please do talk to us,” he said.

De Souza said that the firm was proud of its commitment to Queensland. “I can’t say it strongly enough,” he said. “There are large firms who have been in the Queensland market for decades who have 10, 12, 15 partners in Brisbane. That perhaps tells you what they think about Queensland. But we are backing the Queensland economy and saying our office will be as big as those in a very short time.”

BEYOND BRISBANEDe Souza said that CBP had no plans to open more offices in other centres such as Perth and Adelaide. “In terms of geography that’s it for now. The plan always was to cover the Eastern seaboard and the timing of it happened fairly quickly. We’ve been lucky to find a [partner] who was willing to merge with us,” he said.

He explained that there were two considerations at play when it came to opening a Perth office. “We won’t be doing that in the near term,” he said. “Perth is a fantasic market, it’s not that it wouldn’t be worth doing something there but there are two things: we have a really good associate

FIRM: Barry & NilssonMERGER: merged with Stubbs BarbelerNOW OPERATING AS: Barry & Nilsson

JAN 2010

FIRM: Johnson Winter & Slatteryopened new office

JUN 2010

FIRM: GadensMERGER: merged with Maunsell PenningtonNOW OPERATING AS: Gadens

NOV 2010

FIRM: M+K LawyersMERGER: merged with BCI LawyersNOW OPERATING AS: M+K Lawyers

DEC 2010

FIRM: Henry Davis York opened new office

MAR 2011THIS MERGER CONTINUES A NOTABLE STREAM OF CONSOLIDATION ACTIVITY IN THE BRISBANE MARKET. HIGHLIGHTS ARE AS FOLLOWS:

AUSTRALASIAN LEGAL BUSINESSISSUE 11.1120 ANALYSIS

firm there Kott Gunning; we work with them and secondly the logistics of doing something in Perth as opposed to Brisbane, Sydney and Melbourne together is a lot different. The way we do it is that there’s a lot of interaction, people are flying between the offices; on a daily basis, there would be someone going from one office to the other – that’s not to say that we might change our mind, maybe in five years time we might talk to Kott Gunning about getting together but for the moment we want to get the interaction between the three offices right.”

NATIONAL OUTLOOKJon Meadmore, the managing partner of Hemming+Hart, will assume the national role of Head of Commercial in the new firm. “We see this merger as a vital strategic step in servicing national clients with multi-state operations. Hemming+Hart is a proud Queensland firm and we look forward to the natural progression to an eastern seaboard firm in the new entity,” he said.

This merger will continue CBP’s notable growth spurt, with the firm managing to double its partner count since 2011. Last year the firm grew its revenues by 26 percent to approximately A$50 million. Current projections are that the Brisbane merger will see the firm’s revenues exceed the A$80 million mark.

Dunstan de Souza, CBP with Jon Meadmore, Hemming+Hart

FIRM: Thomsons Lawyers opened new office

JUN 2011

FIRM: MiddletonsMERGER: merged with Flower and HartNOW OPERATING AS: Middletons

JAN 2012

FIRM: TressCoxMERGER: merged with Macrossans Lawyers NOW OPERATING AS: TressCox

OCT 2012

FIRM: HopgoodGanimMERGER: merged with Q LegalNOW OPERATING AS: HopgoodGanim

OCT 2012

FIRM: Wotton +Kearney opened new office

JUL 2013

FIRM: Colin Biggers & PaisleyMERGER: merged with Hemming+HartNOW OPERATING AS: Colin Biggers & Paisley

OCT 2013

AUSTRALASIAN LEGAL BUSINESSISSUE 11.11 21ANALYSIS

NEWS AUSTRALASIAN LEGAL BUSINESSISSUE 11.1122

A UK based firm has unveiled plans for an ambitious Australian launch which will see it appeal directly to the market to fill up to 75 lawyer vacancies - and it plans to lure talent with a promise of allowing lawyers to earn up to 75 percent of their billings.

The firm is known as Keystone Law, one of the new generation of alternative model firms which use the “dispersed” model of practice: a network of senior lawyers working remotely but supported by a central office and a common IT platform. Clients can also opt to have Keystone’s lawyers work at their own premises. The firm, which has a full service commercial offering as well as some private client services, has about 140 lawyers and recent expansion has been at a rate of approximately 30 lawyers per annum.

The firm has a policy of only hiring lawyers with at least 10 years experience in the “most respected” law firms and the average duration of experience across the firm is 18 years.

Keystone lawyers are permitted to retain 75 percent of fees which they generate themselves and 65 percent of fees which

UK firm to open Sydney office, hire 75 lawyers

are referred to them internally. Lawyers referring fees to colleagues earn 15 percent of the resulting fee. “It’s a very simple matrix that’s worked across the board. Percentages are self regulating in many ways because they are transparent and fair and of course much higher than a normal law firm structure which would be around 30 percent,” said managing director James Knight.

Keystone uses an hourly rate which is expected to be similar to rates charged by traditional firms operating in the same market segment. Keystone’s client base is largely private owner-managed companies, individuals and SMEs, so the firm is looking to the mid-tier Australian firms for recruits.

In Australia the firm hopes to initially hire 25 senior solicitors in time for commencement of operations in March 2014. Fifty more hires are expected to follow thereafter as the firm ramps up its business. The head office will be in Sydney, although the firm will operate nation-wide.

The firm intends to make a heavy pitch to senior lawyers, offering “a large degree of freedom, flexibility and autonomy combined with a high degree of support and infrastructure.”

The value proposition for clients will not necessarily be reduced hourly rates, but a more efficient service. “We tend not to market dramatically on cost - it’s the lack of duplication in our structure and giving clients senior lawyers to deal with without juniors and billing targets that gives particularly good value to clients, more so than looking distinctly at the hourly rate. It’s the lack of waste,” said Knight.

Other local firms which used a dispersed or partially dispersed model in Australia include AdventBalance and Bespoke Law.

NEWSAUSTRALASIAN LEGAL BUSINESSISSUE 11.11 23

General CounselMSS Security

IN-HOUSE Q&A >>

Melbourne t | +61 3 8102 1900 Sydney t | +61 2 8228 7680

2 In recent times, the role of the General Counsel has diversified into a multi-faceted role, (where the General Counsel can wear the ‘hat’ of Lawyer, Legal Manager, Compliance Manager, and Company Secretary). In your opinion, do you believe this has increased your risk profile?

As the role of General Counsel has shifted from a purely technical advisor to a business partner, the risk has expanded proportionately with the role. You need to be constantly aware of the risk in the role (or roles!) you are playing at any one time. The bottom line is always to be aware of professional ethical responsibilities, know where to draw the line, and make it clear to your client which hat you are wearing.

3 In your opinion, what do you consider to be the main challenges for inhouse counsel in your particular industry sector?

The main factors don’t change - facilitating business, reducing legal risk, providing quality advice and managing costs. The critical challenge has been to maintain this balance and at the same time deliver value adding processes and tools to boost future team efficiency and performance. Constant re-assessment of risk and priorities, while staying flexible have been fundamental in achieving this.

JLegal is a global specialist legal recruitment consultancy focused solely on providing recruitment solutions to the legal profession. For a confidential discussion about your career, contact one of our senior consultants today.

www.jlegal.com

1The legal function (whether internal or external) has probably always been an indispensable part of an organisation even if this was not always acknowledged. In response, in-house teams initially spent time and effort looking internally to work out how to prove their value, relevance and usefulness to organisations as technical business advisers and to justify their cost.

As an evolutionary process we have transitioned past just being business advisers to becoming true business partners. But to make this transition we needed to create value through deep understanding of our organisation’s commercial business and be innovative in delivering solution focussed business outcomes.

Once you place the organisation and their goals at the centre of your legal support model the organisation tends to respond really well.

In your opinion, why have in-house lawyers become an increasingly indispensable part of an organisation?

ANDREW KINTONIn case you missed it…..

MELBOURNEAitken Partners on the moveMelbourne based Aitken Partners has announced its first office move in 37 years.The firm has relocated to Level 28, 140 William Street in a move that managing partner Andrew Blogg says will provide more benefits than new desks.

“We started out at 114 William Street in 1976 with a legal staff of 11 on part of one floor; we leave with nearly 35 legal staff over most of two floors,” he said, adding that the move presented the opportunity to review the firm’s technology. “We decided to improve our business by upgrading to the latest platforms, pushing further into electronic storage and archiving, all of which leads to more efficient delivery of service for our clients’ benefit.”

PERTHNew digs for HopgoodGanim HopgoodGanim has announced it will be moving its Perth premises to the Allendale Square development in mid-December 2013.

The firm will take 862sqm of space on Level 27 of Allendale Square, in the centre of the business district in St Georges Terrace and with 360 degree views across Perth. Other notable tenants in the building include ANZ, WA Bar Chambers and Hess Exploration.

Fit out is presently underway at the new premises under the guidance of architect Bernard Penhey of Maxwell Penhey, and construction and fit out contractors, ISIS.

PRO BONO

Clayton Utz in global top 10 for pro bono: surveyClayton Utz has been named among the 10 leading pro bono firms in the world in the inaugural Who’s Who Legal Global Pro Bono Survey. Clutz was the only Australian firm on the list.

The survey recognises firms that are leading the way in their pro bono contributions, level of participation and efforts to institutionalise pro bono work.

In the 2013 financial year, Clayton Utz provided 42,985 hours of pro bono legal services and exceeded the National Pro Bono Resource Centre’s aspirational target of at least 35 hours per lawyer per year in all six of the firm’s Australian offices during FY2013.

Other firms in the top 10 were U.S. international firms WilmerHale, White & Case, Vinson & Elkins, Sidley Austin, Orrick Herrington & Sutcliffe, Kirkland & Ellis and DLA Piper; Mexican firm Von Wobesery Sierra, and South Korean firm Kim & Chang.

THE MONTH’S TOP HEADLINES FROM WWW.LEGALBUSINESSONLINE.COM

Presented by

NEWS AUSTRALASIAN LEGAL BUSINESSISSUE 11.1124

King & Wood Mallesons may have claimed the mantle of the best known Australian-Chinese firm, but who is the top Australian-Indian firm? A low key New Delhi and East Coast Australian operation is hoping to claim that title.

The firm is called Kaden Boriss and it has offices in New Delhi, Sydney and Canberra. The firm has also recently entered the Brisbane market with the acquisition of local firm MVM Legal, welcoming MVM partners Jamie McPherson and Damien van Brunschot into the fold.

The firm uses a verein structure and has 13 partners and about 100 staff. Five of those partners are in Sydney and five are in New Delhi and the firm has also foreshadowed the opening of a further office in Dubai.“We hope to open Dubai within six months, but we need regulatory sign off,” said chairman, Sunil Lal.

Lal, formerly a partner at Hunt & Hunt, joined forces with a contact in New Delhi in 2008 to establish the firm now known as Kaden Boriss. The Australian arm of the firm originally had a strong insurance focus while the New Delhi operation was a full service commercial entity. However, the Australian firm has since developed a reputation for assisting corporates – ranging from

HopgoodGanim is building its China practice in anticipation of a full liberalisation of the Chinese legal services market, the firm has revealed.

The firm already has a notable China practice which includes Chinese and Chinese-owned clients such as Norton Gold Fields Limited (majority owned by Zijin Mining Group); SinoCoal Resources (the Australian wholly owned subsidiary of China National Coal Group); and Bank of China. The firm has cooperation agreements with local firms Dacheng Law Offices and Zhejiang T&C and also has premises in Shanghai, although this does not operate as a full HopgoodGanim branded office.

The firm is positioning itself for an anticipated liberalisation of the market. “Our peers in the UK have predicted that in the next five to 10 years, the China market will open up entirely,” said managing partner Bruce Humphrys. “This is reflected in [last week’s] appointment of a number of local and international firms to the Chinese Government’s Ministry of Commerce panel, including our partner firm Dacheng Law Offices. By building on our service offering, we will be in a great position when that time comes. In the

Indian firm opens in Brisbane, eyes Dubai

HopgoodGanim eyes China market liberalisation

private investors through to blue chip ASX listed entities – to establish businesses in India. The Australian firm provides consultancy services in this context while the Indian firm takes over when legal advice is required.

It’s a reminder of how large emerging markets present opportunities for those with the knowledge and ambition to penetrate them. “The big end of town likes to boast of alliances, but really there’s no competitor in our space,” said Lal. However, he adds that the firm’s objective is not to compete with the large national firms. “We are here to provide simple, personal service. In India, it’s who you know that gets you through – there’s no textbook [on doing business in India],” he said. “As someone who grew up here in Australia, I know both sides.”

meantime, we will focus on continuing to provide a high quality service to our existing clients and attracting new clients with the HopgoodGanim approach, which is of course business mateship at its best.”

However, the firm is taking a cautious approach and said it did not have any current plans to open its own China office. Humphrys said that any future moves would be client driven. “This strategy…follows the firm’s strategy to go it alone as we did when we expanded in Perth in 2012, rather than engaging in the national and international merger trend,” he said. “Furthermore, much like our approach in Perth, we are very careful to not assume we understand the Chinese market better than the locals themselves. This is why we have also very carefully carved out strategic alliances with

NEWSAUSTRALASIAN LEGAL BUSINESSISSUE 11.11 25

Q&A with Damian HuonDamian Huon is a Legal Technology Strategist and CEO of Huon IT. With over 24 years supporting Australian law firms, Huon IT deliver business-wide outcomes with ‘everything technology’.

What does your IT say about your firm?Good IT is not just about internal operations and productive, happy staff. The quality of technology can say a lot about a firm – for all the right (or wrong) reasons. So is IT driving or damaging your firm’s reputation? Seasoned strategist, Damian Huon, shares his insights on the business-critical function IT performs in securing and keeping clients for the long haul.

TECHNOLOGY IN PRACTICE>>

First and foremost in this digital age, clients need assurance that their sensitive information and trade secrets are in reliable, trusted hands. As guardian of their confidential information, it should be no surprise if your clients – potential and current – evaluate how you store their records, right down to inspecting your application updates, record-keeping procedures, disaster recovery protocols, and IT infrastructure capabilities and weaknesses especially pertaining to data security.

Q1 What do clients look for in a firm’s IT system?

In the simplest of terms, your systems should make working with your firm EASY. Too often however, as firms grow and implement new processes convoluted by red tape, they risk becoming too rigid and unresponsive to clients’ needs. Amidst fierce competition, innovation and flexibility can make a big difference in securing a successful tender. Some firms have won major deals based on simple subtleties that proved indispensable in making the client’s in-house legal team’s job that little bit easier, such as the ability to run reports in a certain format. So as you grow, globalise and update your IT systems, focus on flexibility so you can meet your clients’ needs – rather than having them fit your mould.

Q2 How can we transform our internal IT into our competitive edge?

Focus on quality, not quantity – so whatever you do, make sure you do it well. When it comes to IT, you want to ensure your investment will drive business, not deter it. Opting for the least expensive or “good enough” options can end up costing you more in the long run.

Take video conferencing for example. Whilst you don’t have to pay the earth to get an effective solution for your firm, cheap or even free, low-quality systems can be susceptible to poor connections, line drop outs or have clunky interfaces which quickly lead to frustrated, disengaged clients. The initiative may end up doing more harm than good, and sooner or later you may either drop the idea all together or end up having to reinvest in a new system.

My advice when it comes to upgrading your IT is to allow the research time it truly deserves to ensure you get the most effective option. And never scrimp on quality.

Q3 We can’t always budget for the biggest and best of everything, so where should we focus?

Email your questions to [email protected]

some very powerful local firms, including Dacheng Law Offices.Humphrys’ comments came as he announced the firm’s first

on-the-ground representation in China through the appointment of senior China consultant, Michael Wadley, who will be focusing on servicing the interests of HopgoodGanim’s Chinese clients investing offshore.

Wadley, a resident of Shanghai for 13 years, has extensive experience over the past 20 years of providing corporate advisory and legal services to foreign investors throughout China and to Chinese groups investing offshore.

Wadley is admitted in the Supreme Court of Queensland, the High and Federal Courts of Australia, and is admitted as a foreign lawyer in both China and Hong Kong. He is on the board of directors of the Australian Chamber of Commerce in Shanghai and is a Co-Chair of the Chamber’s Financial Services Industry Working Group.

“We are delighted to welcome Michael to our growing team and to confirm to our clients that we have on-the-ground support in China,” said Humphrys.

Ashurst announces global board appointmentsElections for the Ashurst global board have now been completed and the firm has announced the election of eight new board members.

The new members are:• Peter Armitage, Competition, Sydney• Simon Beddow, Corporate, London• Cristina Calvo, Real Estate, Madrid• Roger Davies, Corporate, Perth• Reinhard Eyring, Corporate, Frankfurt• Robert Ogilvy Watson, Corporate, Hong Kong• Mark Vickers, Banking, London• Ian Williams, Corporate, SydneyThe Board also comprises Chair Ben Tidswell, Vice Chair Mary

Padbury, Managing Partner James Collis, CFO Brian Dunlop and Independent Board Members Robert Gillespie and David Turner.

Exigent acquires mLegalGlobal LPO provider Exigent has acquired specialist technology and legal services provider mLegal.

The move means that Exigent adds a bespoke contract building and management tool to its offering. “This allows increased coverage and efficient delivery of corporate contract compliance while also tackling the core of the litigation problem through ensuring risk is minimized at the very start of the contract lifecycle,” the company said in a release.

The acqusition brings together the teams of Exigent and mLegal to create a 400-strong global workforce offering services which include process reengineering and optimisation, litigation support, end to end contract lifecycle management and a range of shared business services.

Exigent clients include Anglo American Mining, Schlumberger, Linklaters, Pinsent Masons, Hogan Lovells, McCarthy Tetrault, Seyfarth Shaw, Corrs Chambers Westgarth and Ashurst.

LATERAL PARTNER APPOINTMENTS

NAME PRACTICE AREA COMING FROM GOING TO

Damian McNair Banking & finance DLA Piper Gilbert + Tobin

Ivan Medak Insurance DLA Piper HWL Ebsworth

Jenne Tzavaras Insurance DLA Piper HWL Ebsworth

Joanna Apostolopoulos

Insurance DLA Piper HWL Ebsworth

Michael Perez Tax AllensKing & Wood Mallesons

Sarah Davies Litigation & insolvency McMahon Clarke ClarkeKann Lawyers

Tim Lange Workplace relations Hunt & Hunt Piper Alderman

Tony Holland Banking & finance DLA Piper Gilbert +Tobin

CLAYTON UTZ PARTNER PROMOTIONS (Effective January 2014)

NAME PRACTICE AREA

CITY

Anna CasellasWorkplace relations

Perth

Scott Grahame Disputes Sydney

Orla McCoy Insolvency Sydney

APPOINTMENTS

TRIPLE BLOW FOR DLA AS G+T RAIDS MELBOURNEThree banking & finance lawyers have made the switch from DLA Piper to Gilbert +Tobin in Melbourne, a move which has attracted considerable attention because of the high profile nature of the lawyers involved.

The new recruits include former DLA Piper managing partner Tony Holland; Damian McNair, previously head of the Asia Pacific finance and projects group at DLA Piper and special counsel Luke Westmore.

This development highlights G+T’s strategy to build its Melbourne practice in earnest and follows the recruitment of high profile M&A partner Craig Semple from Mallesons, effective January 2014.

TEAM OF 23 LEAVES DLA FOR HWL EBSWORTHIt’s been a busy month in the DLA exit lounge, with a team of three partners and 20 staff having made the switch from DLA Piper to HWL Ebsworth.

The HWL-bound team is an insurance team led by Jenne Tzavaras, Joanna Apostolopoulos and Ivan Medak, all of whom will become partners in the HWL Sydney office.

The team has particular expertise in statutory workers compensation insurance across the full range of employer indemnity schemes operating in New South Wales. The new appointments mean that HWL now has a national team of 35 insurance partners.

Russell Adams, Asia Pacific leader of DLA’s litigation & regulatory group, told ALB that the firm remained committed to its insurance practice; a full interview on this topic will run in issue 11.12

THREE NEW PARTNER PROMOTIONS AT CLUTZClayton Utz has announced three new partner appointments, effective 1 January 2014. The new partners are Anna Casellas of the workplace relations, employment and safety team in Perth; Scott Grahame of the litigation and dispute resolution team in Sydney and Orla McCoy, also of the Sydney litigation and disputes team. McCoy has particular expertise in the area of complex external administration while Grahame is a commercial litigator with a particular focus on the energy & resources sector.

“The promotions of Anna, Scott and Orla to the partnership reflects our commitment as Australia’s leading independent law firm to excellence in all that we do,” said Clayton Utz CEP Darryl McDonough.

MALLESONS DEDUCTS TAX PARTNER FROM ALLENSKing & Wood Mallesons has appointed tax expert Michael Perez from Allens.

Perez will join the firm’s Melbourne office in January from Allens where he established a successful practice advising a range of high profile clients such as Rio Tinto, Tabcorp, BHP Billiton, Ford and Shell on a broad spectrum of matters including reorganisations, demergers, financing arrangements and mergers and acquisitions.

Perez is the third partner appointment to the KWM tax practice this year.

MELBOURNE: GADENS ADDS TO BANKING & FINANCE TEAMGadens Melbourne has appointed a new special counsel to their banking and finance team.

Jacqueline Browning has over 25 years’ experience as a practising lawyer, including 17 years as an in-house counsel with the Commonwealth Bank. During the course of her career Browning has acted for both borrowers and lenders in a broad range of transactions including major commercial and residential property developments, aged care and retirement village funding and funding for the acquisitions of hotels with gaming and liquor licences.

MELBOURNE: GADENS RECRUITS ASHURST WORKPLACE SPECIAL COUNSEL Gadens in Melbourne has announced the appointment of special counsel Gina Capasso in its workplace & safety team. Capasso, previously an SC at Ashurst, has extensive experience in advising companies on matters in workplace relations and IR.

“Gina’s appointment forms part of our strategy to significantly grow our workplace & safety team,” said Grant Scott-Hayward, Gadens’ Chief Executive Officer in Melbourne. “Positioning Gadens as a premier provider of specialist workplace and safety legal services is one of our key objectives.”

WA MINISTER JOINS MINTER ELLISON IN PERTHA former Western Australian politician in favour of the state’s secession from the Commonwealth has joined Minter Ellison in Perth.

Norman Moore, previously a WA state member of parliament for 36 years, has joined the firm as a consultant. Moore is a former Minister for Mines and Petroleum, Fisheries

and Electoral Affairs, and government leader in Western Australia’s Legislative Council.

Moore has been critical of Commonwealth intrusion into state responsibilities.

“Increasingly, the states are becoming simply service deliverers of Commonwealth government policies because the Commonwealth has the money,” he said in his final speech to parliament.

Moore’s remit with the firm will focus on assisting with issues relevant to mining and petroleum legislation and providing guidance on parliamentary procedures and processes at both the local and federal level.

FORMER AUSTRADE CEO TAKES CORRS POSTINGCorrs Chambers Westgarth has appointed former Austrade CEO and former Australian Ambassador to Japan, Peter Grey, as co-chair of the Corrs Japan Business Group.

Grey will provide strategic advice to Corrs’ clients doing business with or in Japan.

“Peter Grey is a senior figure in trade and commercial policy in the Asian region,” said Corrs CEO John Denton. “His deep relationships in North Asia, with APEC and the World Trade Organisation will bring significant benefit to our clients and people by providing a unique offering to strengthen our relationships and facilitate doing business in Japan. We are delighted to welcome him to Corrs.”

Grey will be at Corrs alongside Dr Geoff Raby, who is serving in a similar capacity in relation to Corrs’ China practice.

ADELAIDE: COWELL CLARKE ON EXPANSION PATHSouth Australia’s Cowell Clarke has announced the appointment of two new special counsel to the firm, part of an expansion involving six new recruits.

Andrew Dunncliff, previously of Thomsons Lawyers, joins the the commercial practice and private client group. Dunncliff, a specialist in asset, estate and succession planning, said that he was attracted to Cowell Clarke because of the firm’s “strong and dedicated private client practice group.”

Meanwhile Rod Lindquist, previously at Hunt & Hunt, has joined the commercial litigation and dispute resolution practice group. He has a strong track record in more complex commercial litigation acting for financial institutions, administrators, liquidators, receivers and individuals involved in business disputes.

The firm also noted in a statement that a new associate had been appointed to the energy,

resources and environment group, two new lawyers had been added to the tax and revenue group, and a new lawyer to the property group.

HUNT & HUNT PARTNER MOVES TO PIPER ALDERMANPiper Alderman has announced a new recruit for its Melbourne employment relations team.

Partner Tim Lange joins the firm from Hunt & Hunt. His areas of expertise encompass a wide range of employment and industrial relations matters including the drafting and negotiation of enterprise agreements and awards, resolving industrial disputes, terminations and unfair dismissals.

“I am excited to be joining Piper Alderman. I am looking forward to the great opportunities involved, and I’m grateful for the strong support of clients in making this move to such a well-regarded national team,” said Lange.

SA: TINDALL GASK BENTLEY MANAGING PARTNER TO LEAD LAW SOCIETYTindall Gask Bentley Lawyers managing partner Morry Bailes has been appointed president of the Law Society of South Australia.

Bailes’ role was officially confirmed at the Law Society of SA annual general meeting last month. Bailes specialises in criminal law and association matters and he is principal legal advisor to the Police Association of South Australia and has represented numerous police members at coronial inquests.

In his 11 year tenure as managing partner at Tindall Gask Bentley, the firm has grown to become the state’s largest plaintiff law practice.

MELBOURNE: HUNT & HUNT ADDS INSURANCE SCHunt & Hunt has announced that Hubert Wajszel has joined the firm’s national insurance team in Melbourne. He was previously at Lander & Rogers.

Wajszel is an insurance law specialist both in Australia and the UK. He has a focus on professional indemnity and has acted for private corporations, insurers and reinsurers.

“I am especially pleased to have Hubert join us,” said Peter Ewin, Melbourne office managing partner. “As the firm continues to grow, we have been lucky enough to recruit experienced practitioners to help us maintain a high level of service. Hubert’s work with a major national insurance client will go a long way to contribute to this growth and quality of service.”

The firm’s Melbourne office has a total of eight insurance lawyers; nationally Hunt & Hunt has 54 insurance lawyers.

BRISBANE: CARTER NEWELL BOOSTS CONSTRUCTION Carter Newell has added Mark Kenney, previously of Minter Ellison, to its team. Kenney joins the firm’s construction & engineering team as a special counsel, bringing over 12 years of experience in the areas of construction, infrastructure and resources. This experience has included working in both private practice and in-house roles.

In addition, Carter Newell has welcomed senior associate Katherine Hayes to the financial lines team and associate Allison Haworth to the property & injury liability team.

PERTH: SQUIRE SANDERS BOOSTS ENERGY PRACTICE WITH FREEHILLS HIRESquire Sanders has announced a new senior appointment in its corporate and energy practice in Perth.

Clare Pope joins the firm as Of Counsel and was previously at Herbert Smith Freehills in London, Tokyo, and Singapore. She also spent time on secondment to the upstream exploration and access team at British multinational oil and gas company, BP plc, principally focused on its successful Uruguay access.

She is an experienced, dual-qualified English and Western Australian corporate lawyer, with considerable transactional and advisory experience in the oil and gas and hard rock mining sectors and has advised clients on their activities in a number of jurisdictions worldwide including South East Asia, Africa, South America, and Eastern Europe.

Other Squire Sanders hires this year include partner Tom Lennox and a team of financial services lawyers who joined the firm’s office in Sydney in September; construction partner Avendra Singh; corporate and technology partner Richard Horton; construction and projects of counsel, Fabio Fior and Josh Clarke, Of Counsel in project finance.

RESTRUCTURING EXPERT MOVES FROM NORTON ROSE TO K&L GATESThe Sydney office of K&L Gates has added Danielle Funston as a special counsel in the restructuring and insolvency practice. Funston joins the firm from Norton Rose Fulbright.

Funston has extensive experience in corporate restructuring, corporate litigation, secured recoveries, managed investment schemes and general corporate transactions. She has been involved in a number of cross border transactions, primarily between the U.S. and Hong Kong and also has experience in the area of insurance.

APPOINTMENTS

WITH A NEW GOVERNMENT IN POWER, LAW FIRMS IN SYDNEY ARE FEELING THE PULSE OF THE CORPORATE MARKET QUICKEN, WRITES BEN ABBOTT.

WINNER IS...And the

AUSTRALASIAN LEGAL BUSINESSISSUE 11.1128 SYDNEY 2013

AUSTRALASIAN LEGAL BUSINESSISSUE 11.11 29SYDNEY 2013

The long wait for a corporate market renaissance in Sydney may soon be over.

In a year that has seen an extended federal election campaign retard the pace of business decision-making, prospects for corporate lawyers are now improving.

“We are generally positive about New South Wales,” says Herbert Smith Freehills Sydney office managing partner Juliana Warner. “We have a number of international clients seeking to invest in New South Wales, as well as domestic client interest. There seems to be a stirring going on now in the corporate market – there has been some IPOs happening – and it now looks like the corporate world is starting to move along a bit.”

Warner says this marks a turnaround in fortunes for Sydney lawyers. “The corporate world hasn’t been as busy as it could have been in the last 12 months or so,” she explains. “A number of firms have found corporate conditions very quiet for quite a long time. But we are finding things are really picking up.”

A number of IPOs are scheduled to follow foreign exchange company OzForex’s October success in raising $439 million from investors. The most anticipated of them include credit reporting agency Veda Advantage and Nine Entertainment.

Herbert Smith Freehills, which advised the joint lead managers on the OzForex IPO, is upbeat on this ‘strong pipeline’ of IPOs. “This can always change at any time, but things are looking positive for the first time in a while,” Warner says.

Having just opened the doors of his firm’s new Sydney office, Allion Legal principal David Walker says he too is positive following the first few months of business.

“Since we arrived things haven’t stopped, so that has been good,” Walker told ALB at the end of October. “Projects that have been in the pipeline for a long time and haven’t really got traction are starting to get traction. We are also beginning to talk to clients more about M&A transactions and deals.”

A recent report from Deloitte Access Economics argues that NSW is well placed to harness the ‘next wave’ of post-mining boom economic growth in Australia. It named sectors including construction, agribusiness, wealth management, gas, tourism and education, based on the increased impact that Asia is likely to have on the economy.

This is good news for Sydney’s corporate

Juliana Warner, Herbert Smith Freehills

David Walker, Allion Legal

law firms, who are already beginning to see their projects, infrastructure and construction practices take a leading position. BIS Shrapnel estimates show that the value of non-resources civil construction activity in NSW will total $85 billion between 2012 and 2017, thanks largely to headline projects including the $9 billion North West Rail Link, the $1.6 billion Sydney Light Rail, multiple Pacific Highway upgrades and the $10 billion WestConnex road project.

“There is a lot of infrastructure work happening in NSW,” says Warner. “We have an incredibly strong projects group, and they seem to have their finger in most of the pies.” Herbert Smith Freehills is advising one of the bidders on the North West Rail Link Project and another on the Sydney Light Rail Project. It was also tapped by the NSW State Government to advise on the Northern Beaches Hospital development.

Like Deloitte, Walker singles out agribusiness as a strong area for potential growth in NSW, citing potential Chinese interest in agribusiness assets, including local dairy assets. He also has hopes for a thaw in the coal seam gas (CSG) market.

“That is one sector where the impact of the O’Farrell government’s stance on CSG has caused a major freezing of


activity,” he says.Walker suggests that this revival will need to happen in time,

as NSW faces the challenge of meeting the inevitable growth in its future energy needs. Walker says that figures which suggest a spike in global energy demand to 40 percent above where it is today by 2030 means an “awful lot of energy” needs to be found somewhere.

“There will be activity in this sector over the next one to five years. There is a need for the [NSW] Government to find a solution that balances the interest of the farmers and the miners and the townspeople in terms of CSG development,” he states.

Overall, Allion Legal is so upbeat about the prospects for the Sydney market that it is proceeding with plans to aggressively expand its local presence over the next three years, with a view to becoming a cross-discipline corporate and energy boutique.

“PROJECTS THAT HAVE BEEN IN THE PIPELINE FOR A LONG TIME AND HAVEN’T REALLY GOT TRACTION ARE STARTING TO GET TRACTION.”

- DAVID WALKER, ALLION LEGAL

Selected Sydney leasing activity

Tenant Address District Area (sqm)

Date

Ashurst 5 Martin Place Core 14,000 Q2 2014

Corrs Chambers Westgarth

8 Chifley Square Core 8,080 Q3 2013

K&L Gates 1 O’Connell St Core 5,400 Q4 2012

Mills Oakley Lawyers 400 George St Midtown 1,803 Q3 2012

Allen & Overy 85 Castlereagh St Midtown 4,500 Q2 2012Source: Knight Frank

AUSTRALASIAN LEGAL BUSINESSISSUE 11.11 31SYDNEY 2013

Boutique. Specialised. Astute....and focussed on the corporate, energy and resources sectors. Sydney | Perth

www.allionlegal.com

LOCATION, LOCATION, LOCATIONAllion Legal is just one firm that has recently faced a difficult question in relation to Sydney. Where to locate an office to best assist with future business growth?

With Sydney’s Barangaroo development now well underway, the options for law firms with leases under review are set to bourgeon over the next few years.

ALB’s 2013 Sydney Law Firm of the Year, Gilbert + Tobin, is one Sydney firm that has already committed to a move from its Park Street office in downtown Sydney, just opposite Sydney’s Town Hall, to new horizons at Barangaroo. The firm has signed a memorandum of understanding with developer Lend Lease to take 9,500 square meters of space in International Towers Sydney at Barangaroo South.

With expectations Barangaroo will become Sydney’s answer to Canary Wharf in London – now a banking and financial services hub in its own right – law firms are weighing their options as to where the new Sydney client nexus will be.

Allion Legal’s David Walker says the rationale behind its recent leasing decision was to find a quality, functional CBD location for its first foray into the Sydney market. “We never even contemplated locating on the CBD fringes or in North Sydney, as that would send an entirely wrong message to clients about who we are,” he says.

With only two partners, their legal teams and some admin staff housed permanently in Sydney at present, Allion Legal’s decision to take up 530 square meters worth of renovated ex-Lander & Rogers space at 123 Pitt Street for just three years was all about client positioning, and giving the firm the time and space for growth.

Professional and accessible from the CBD, Walker says the office meets client expectations when it comes to facilities, “without going over the top”. “In the market where we sit we know what clients think about walking into an office with acres of marble floors, in terms of who is paying for what,” he says. Walker expects the firm would be unlikely to relocate to Barangaroo, due to the centrality of its clients and the abundance of good quality space likely to be available in three years time.

Firms have traditionally wanted to locate themselves close to the courts for the sake of convenience. However on a firm-wide basis, corporate law firms are more than willing to sacrifice ultra-convenience for litigators in favor of a better building.

Herbert Smith Freehills is one firm where disputes lawyers are now facing a longer walk. In October, the firm left behind its 30-year-plus housing at MLC Centre in Martin Place, in favor of new lodgings at ANZ Tower at 161 Castlereagh Street.

However, Juliana Warner says there were a number of advantages over MLC Centre. Now housed together with major client ANZ, the firm occupies a central Sydney location, which provides good

transport links for staff and is surrounded by clients.

The move has also vastly improved on the ambience of its office space for staff. The new tower boasts abundant natural light, an already popular knowledge center and in-house café floor, as well as the integration of three half-client floors in the center of its 13-floor ‘stack’. Though lawyers were tied to the lifts at MLC Centre, a staircase now connects all of its floors, which combines with a more egalitarian open plan design to encourage greater interaction and collaboration between staff.

THE GLOBAL LAWYERBeing a Sydney lawyer isn’t what it used to be. And there is nowhere clearer to view this changing reality than from inside one of its global law firms.

“It is such a different world than when I started practicing, and that really wasn’t all that long ago really,” Warner says. “The major firms in Australia were all domestic then, locally based and were concentrating on the domestic market.”

However, a Sydney lawyer’s business is now more likely to be international. “When clients moved offshore, and international clients started arriving, it was inevitable that we would follow our clients and get into that more global world,” says Warner.

Firms like the recently merged Herbert Smith Freehills have been busily connecting clients up with international expertise, and benefitting locally from the combination.

“There has been a huge amount of work we have tapped into as a result,” Warner says. “We are leveraging the client base we have and providing what our clients are looking for by satisfying their needs offshore, as well as servicing inbound clients.”

A recent example was the firm’s advice to Australian client Virgin Australia Holdings Limited on a US$797.2 million enhanced equipment note offering for aircraft financing, which the firm says was a first of its kind in the Asia Pacific. The team was jointly led by Sydney-based partner John Angus and Singapore partner Rod Howell, supported by a team of partners in Sydney, Brisbane and Singapore.

“The aim is for us to be able to make sure we follow clients wherever they go, and receive work from wherever they are coming from,” Warner says. “It means that daily life is quite different. There is a lot of interaction with other people in the network.”

WITH EXPECTATIONS BARANGAROO WILL BECOME SYDNEY’S ANSWER TO CANARY WHARF IN LONDON – NOW A BANKING AND FINANCIAL SERVICES HUB IN ITS OWN RIGHT – LAW FIRMS ARE WEIGHING THEIR OPTIONS AS TO WHERE THE NEW SYDNEY CLIENT NEXUS WILL BE.


AUSTRALASIAN LEGAL BUSINESSISSUE 11.1134 OFFICE DESIGN

OPEN SEASON as Corrs ditches traditional offices

The Sydney partners of Corrs Chambers Westgarth have moved into open plan office seating alongside their support staff and

junior lawyers at their new offices at 8 Chifley Square.

Corrs has signed a 12 year lease at 8 Chifley and is occupying ten floors of the Mirvac-built development. Other tenants include QBE, who occupy four floors.

The move is being billed by Corrs as the first example of a major Australian law firm moving to a fully open plan environment. “[This] is a deliberate step away from the outdated concept of a ‘closed door’ office and hierarchical mentality,” said CEO John Denton.

All Corrs staff, including Denton himself, sit in open plan areas at work stations of identical size. Modest sized cabinets are provided at each desk and lawyers are expected to minimize their use of paper. “It will require a rethink of how you practice,” said Denton.

Other firms which have recently invested in new premises, such as Herbert Smith Freehills, have opted for a hybrid office layout which incorporates both open plan and personal offices. However, Denton said that such compromises tended to undermine the spirit of an open plan environment. “If you keep hierarchical symbols, you’ll never change,” he said. “Compromise doesn’t work – it becomes hierarchical.”

Denton admitted that the open plan scheme was not initially embraced by all stakeholders and that the implementation took “a little expenditure of political capital and a little bit of bruising.”

“We did have a vigorous debate about whether it would be too noisy or a disincentive for people to join the firm,” he said. “But if you’re going to be pioneering, you’ve got to live it.” He added that he thought that the open plan would be an attraction for potential recruits because it provided an indication of the firm’s culture. “What people find most engaging about the firm is that we have a clear strategy, we are prepared to be different and we live up to that culture,” he said.

The firm has attempted to anticipate some potential issues with the open plan environment. Meeting rooms have been provided on a ratio of approximately one room per five persons, to ensure that there is adequate space for confidential discussions and conferences. Protocols are in place to prevent individual lawyers from “owning” particular meeting rooms. The building systems, such as air-conditioning, are expected to be completely silent and the firm expects that some form of ambient noise may need to be artificially generated if the environment proves to be too quiet.

The size of Corrs’ tenancy – 8000 square metres – is similar to the firm’s previous tenancy at Governor Phillip Tower and Denton says that there has been no reduction of space in anticipation of any slimming down of firm headcount. He added that there were no plans to further reduce the graduate intake of 45 people, which was five fewer than last year. “Firms have an obligation to continue developing practitioners,” he said.

Denton said there were no plans for “hot desking” which he described as creating unnecessary uncertainty. However, he conceded that the first few days of the move would be challenging. “The lived experience will be different from the contemplated experience,” he said. “There will be teething problems, but generosity of spirit is one of our qualities. We’ll get through it.”

Similar concepts are expected to be introduced in other cities as Corrs moves to new premises in Melbourne in 2015 and Perth in 2016.

John W.H. Denton, CEO, Corrs Chambers Westgarth

THE PHRASE “POST ELECTION SURGE” HAS EXTRA SIGNIFICANCE IN CANBERRA, WRITES BEN ABBOTT.

WAITING GAME

TheAUSTRALASIAN LEGAL BUSINESSISSUE 11.11 35CANBERRA 2013

Alexandra Wedutenko, Clayton Utz

Paul Vane-Tempest, Ashurst

It’s been a very long year for Canberra’s community of lawyers.

Veterans of the Canberra market would be familiar with the timeframes

involved in any election year. First, there’s the obligatory caretaker period after an election is called, when campaigning dominates the agenda. After an election, either a government is returned and hits the ground running, or a newly elected government takes slightly longer while it reviews the policies of the old.

However, 2013 has been different. With former Prime Minister Julia Gillard naming an election date early, law firms have faced a much longer wait.

“The lead up to the election has been quite a tight time for firms,” says Maddocks Canberra managing partner Simonetta Astolfi. “With Labor flagging the election date, there has been a quasi-caretaker period from February which has contributed to a slowdown in work. Following the election, the government is taking its time to carry out reviews and is not rushing – it is taking more time than it normally does.”

“I think it’s fair to say it has been a bit slower,” agrees Clayton Utz partner Alexandra Wedutenko. “The new government is still bedding down structural changes and getting the departments in order – that’s not all finished yet.”

While lawyers hope for a November ‘kick-along’ when Parliament begins sitting, the Coalition government’s repeated commitment to ‘measured, methodical’ government may in reality mean something entirely different for firms.

“We don’t expect a significant increase in activity until early next year in February or March,” Wedutenko says.

Law firms have this year had to make the most out of their existing pipelines. They name litigation as an important holdover, while real estate, workplace relations and some procurement matters have also kept teams occupied.

Astolfi says a growing source of work during the mini-hiatus has been ‘second counseling’ arrangements with in-house teams, who may have teams of junior lawyers without the available senior lawyer resources to supervise them.

“The needs of the various agencies are changing. People are thinking of other ways

AUSTRALASIAN LEGAL BUSINESSISSUE 11.1136 CANBERRA 2013

ANU College ofLaw

S T U D Y T H I N G S T H A T M A T T E RStudy things that matter at a university that cares about what’s going on.

Our Master of Laws program will equip you with independent thinking and critical analysis of a range of legal issues.

We offer specialist Masters programs in:

> Environmental Law > Law, Governance and Development > International Law > International Security Law > Government and Commercial Law

Extensive use is made of online student support systems allowing for lecturers and students to interact beyond the classroom where ever you may be around Australia or the world.

Don’t just watch change – be part of it! Study with the specialists.

law.anu.edu.au/masters-program

to get things done and law firms need to anticipate that,” Astolfi says.

BEYOND THE AXEExternal counsel in Canberra are still unsure what a Coalition government means for their businesses in the years ahead. With an agenda that has revolved around dismantling key Labor government initiatives including the carbon and mining taxes, as well as budget responsibility, policy direction has been opaque.

However, there are a number of areas that will be targeted by law firms in the coming months and years – not least projects and infrastructure work.

“It would appear the government is keen on the idea of infrastructure and that combined with the need to be careful and creative in the way in which it is funded gives rise to opportunities for us,” says Ashurst’s Paul Vane-Tempest. He cites the possibility of PPP-style projects, which

“WE DON’T EXPECT A SIGNIFICANT INCREASE IN ACTIVITY UNTIL EARLY NEXT YEAR IN FEBRUARY OR MARCH.”

- ALEXANDRA WEDUTENKO, CLAYTON UTZ

the firm has experience in. Clayton Utz is also well positioned to capture a share of any new projects work, with extensive experience housed in its Eastern seaboard offices.

Workplace relations has also been flagged as an area for reform. Vane-Tempest, who is Ashurst’s workplace relations practice head in Canberra, says it is clear that changes to the regime are afoot. “Whether or not there is going to be a lot of that is pure speculation at this point, but it is fair to say there are areas of the Fair Work Act that may need to be clarified or reconsidered,” he says.

There is little detail so far on what the new government’s climate change-focused direct action policy will mean in terms of new legal work. However, there are already suggestions that the government may consider pursuing a privatisation agenda. “The Commonwealth might want to realise the value of some of its assets through a divestment program,” says Vane-Tempest.

AUSTRALASIAN LEGAL BUSINESSISSUE 11.11 37CANBERRA 2013

AUSTRALASIAN LEGAL BUSINESSISSUE 11.1138 LITIGATION

LITIGATION FUNDING HAS CHANGED THE LANDSCAPE OF LITIGATION IN AUSTRALIA. HOWEVER, THE INDUSTRY HAS REMAINED LARGELY UNREGULATED IN THE LAST SEVEN YEARS AND NOW THE NEW GOVERNMENT HAS PROMISED TO TAKE A CLOSER LOOK. GINA DOMBOSCH REPORTS.

LITIGATION FUNDING:

COMING?Is change

AUSTRALASIAN LEGAL BUSINESSISSUE 11.11 39LITIGATION

Susanna Khouri, IMF Australia

Recently, Attorney General George Brandis expressed the view that litigation funding is an area ripe for abuse and that the prior government let grass grow under its feet in not anticipating the extent to which abuses and

opportunistic class action claims could be brought. “It is my view ... that this is an area which should be carefully examined with a view to determining whether there is sufficient protection of parties, potential defendants who may be the subject of opportunist claims,” said then Senator Brandis. “That consideration, plus the broader social consideration of the undesirability of fostering a litigious climate resembling that of the U.S., persuades me that greater regulation of litigation funding of class actions should be examined.”

The litigation funding industry has remained a controversial fixture in class action litigation for the last seven years. But under the previous government, the industry went largely unregulated. It appears times are changing and the new Attorney General has put litigation funding squarely on his radar. There is much uncertainty faced by the courts, the parties and the litigation funding industry itself. Can a regulatory makeover answer everyone’s concerns? What do leading plaintiff and defendant lawyers who work in the class action space think of the current and potential regulatory overhaul surrounding litigation funding? And how does Australia’s biggest litigation funder like being in the crossfire of it all?

LITIGATION FUNDING HISTORY Prior to 2006, litigation funding was simply a cottage industry. Available only to insolvency practitioners as exceptions to the rules of maintenance and champerty, the idea of ‘profiting’ from the business of law and litigation was both offensive to many and pie in the sky for entrepreneurs interested in expanding this cottage industry. But the High Court’s 2006 decision in Campbells Cash & Carry v Fostif changed everything. The decision gave the green light to litigation funders’ control of litigation in order to profit from the result.“ The Fostif decision opened the door to a completely different business model than previously thought,” says Susanna Khouri, an investment manager at IMF Australia, the country’s largest and most successful litigation funder.

So while there were vociferous critics of the industry who see law as a system to deliver justice and not an industry for investment and profit, it appeared in 2006 that those policy considerations were heard and rejected. As offensive as it might have appeared to some, the litigation funding industry was here to stay.

After the Fostif decision in 2006, a series of events then occurred creating the “perfect storm” for litigation funding. Jason Betts, partner at Herbert Smith Freehills, says that in addition to the GFC, several planets aligned from 2006 to 2010 which sparked absolute growth in the litigation funded class action industry: “Australia has a regulatory environment uniquely suited to class action litigation; we have strict statutory prohibitions on misleading and deceptive conduct as well as a comprehensive continuous disclosure regime for listed entities; we have strict liability for manufacturing and supplying products with defects; in some senses we are a more plaintiff friendly jurisdiction for class actions than the United States as our pleadings and forensic thresholds for commencement are less severe,” he says. “We also have close to the highest rate of adult share ownership in the world, creating an enormous base

“IMF HAS A GENUINE BELIEF THERE DOES NEED TO BE SOME CHECKS AND CONTROLS BECAUSE HARM CAN BE CAUSED, SO REGULATION WILL NEGATE THE RISK OF THAT….IF A FUNDER FAILS IT HAS A NUMBER OF CONSEQUENCES TO THE SYSTEM.”

- SUSANNA KHOURI

Ben Slade, Maurice Blackburn

Jason Betts, Herbert Smith Freehills

to draw from in the shareholder class action space.”

The large number of spectacular collapses of listed companies post GFC spurred a long series of class action activity – many of which IMF backed. These investor class actions represented a significant percentage of IMF’s company value and produced “super profits” for the publicly traded company. Betts says that funding from 2006- 2010 definitely changed landscape of litigation in this country. “Litigation funding has been the driver of class action growth since 2006. Australia is a small market but has the most developed litigation funding industry in the world and without that funding the class action industry in this country would be a shadow of what it is today,” Betts says.

Despite the ‘green light’ given to litigation funding by Fostif, there was a clamor for more regulation of this industry. Were they a managed investment scheme? Should they have an Australia Financial Services License (AFSL)? The courts and regulators grappled with these questions for the first time, often producing contradictory opinions. In 2012, the High Court determined, in Int Litigation Partners v Chameleon Mining, that litigation funders did not require an AFSL as the funding arrangements were “credit facilities” and the Corporations Act of 2001 provided that these facilities were not a financial product. New questions were raised and regulations


regarding litigation funders, which were due to take effect on January 1, 2013, were delayed until 13 July 2013. “ASIC has struggled in a conceptual way to work out what litigation funding is,” says IMF’s Susanna Khouri.

So where do things stand now? The new regulations apply to all forms of funding and not just class actions or other grouped proceedings. Funding arrangements are “financial products” and not “credit facilities” and providers of services associated with funding arrangements are exempt from holding an AFSL provided they have appropriate processes in place to manage conflicts of interest. It seemed all the questions were settled. However, the ASIC Commissioner recognised inherent tension between interests of funders, lawyers and participants. Even IMF admits the new regulation is very “light handed” and makes little practical difference to the way their business has been conducted in the last seven years.

NEW REGULATORY FRAMEWORK– COMING SOON TO A THEATRE NEAR YOU?What would a new regulatory framework for litigation funding look like? Is it needed? IMF explains that from the beginning they believed were involved in the selling of a financial product and went to ASIC requesting a license – therefore, imposing licensing requirements at this stage would not come as a shock for Australia’s biggest litigation funder.

There are a number of possible regulatory responses involving registration, licensing, capitalisation requirements that will most likely be examined. Are any of these a worry for IMF? “We have a view about regulation which involves capital adequacy, licensing and imposes compliance conflicts of interest,” says Susanna Khouri. “Proper regulation is the way to ensure consumers of these services are properly looked after. IMF has a genuine belief there does need to be some checks and controls because harm can be caused, so regulation will negate the risk of that….if a funder fails it has a number of consequences to the system.”

The prior discussion principally surrounded requiring litigation funders to obtain an AFSL. Is that a key safeguard that will answer most concerns? Ben Slade, partner at Maurice Blackburn does not think this is the cure-all it is portrayed to be. “I’m not sure that requiring litigation funders to hold a financial services license will necessarily change anything. The main reason relied on by those calling for an AFSL to be imposed on funders is to give consumers confidence that a funder will meet prudential requirements. This can be resolved in Australia, not by requiring these entities to hold an Australia financial services license, but by the courts imposing a security for costs order,” Slade says. He points to a recent decision in the Federal Court (Kelly v Willmott Forests) which held class claimants would have to give security of $6 million to prosecute their class action suggesting that prudential concerns could be met by orders for security and not giving ASIC even more responsibilities.

Betts believes that is time for a change in the litigation funding landscape. “We have an unregulated funding market and the issue is whether it appropriate now to introduce something modest by way of regulation such as the licensing regime used for the very close cousin of litigation funding – managed investment schemes – that is already in place and able to be easily embraced in the class action space,” Betts says. He doesn’t subscribe to the “if it

“... THE LITIGATION FUNDER IS TRANSFERRING SIGNIFICANT WEALTH AT THE EXPENSE OF MAJOR CORPORATE AUSTRALIA AND THEIR CURRENT SHAREHOLDERS, SO WE HAVE TO ENSURE WE HAVE THE RIGHT PEOPLE MAKING THE RIGHT DECISIONS, AND THOSE DECISION OCCUR IN A TRANSPARENT AND REGULATED ENVIRONMENT.”

- JASON BETTS

ain’t broke don’t fix it” theory. “Before our problems arise, let’s introduce this modest call for change,” he says. “All of the requirements for the registration and licensing of the litigation funders as a financial services provider are in place within the Corporations Act and would be appropriate to regulate and avoid potential areas of uncertainty in the growing funding market.” Why is it important that litigation funders meet some type of minimum standards? “At the end of the day, the litigation funder is transferring significant wealth at the expense of major corporate Australia and their current shareholders, so we have to ensure we have the right people making the right decisions, and those decision occur in a transparent and regulated environment,” Betts says.

“Without this step of regulation, problems will certainly arise in our funding market and it is no answer to suggest that funded group members are not complaining about the conduct of litigation funders. Remember that in the U.S., group members rarely complained about the now infamous practice of certifying ‘coupon’ class action settlements, until that was exposed as a money making venture for class action lawyers rather than a real compensation vehicle for the aggrieved. We have to take appropriate prophylactic steps now to avoid problems later.”


Over the last 10 years, IMF has recovered over $1 billion in damages for its clients in high profile class actions against defendants such as Aristocrat, Centro, Pan Pharmaceuticals, AWB and the major banks. It has a gross return on investment of 290 percent. So how does IMF operate?

“IMF has a very proactive model,“ IMF’s investment manager Susanna Khouri explains. “We have a team of over 20 commercial managers scouting opportunities every day. We are looking at instances where there is poor corporate behavior, who that has impacted and what the causes of actions are.” Of the pool of opportunities IMF sees, they fund only one to two percent but they have a very high success rate of what they call “good picks.” They have criteria that must be met before IMF will take the risk of a multi million dollar litigation onto its balance sheet.

The key is in the due diligence. “We do a huge amount of due diligence and we do it in-house very well,” Khouri explains. “We all have a high level of expertise in the types of claims and analysing whether the action would be a good use of time.” Hebert Smith Freehills partner Jason Betts agrees that the business models of current litigation funders is about identifying opportunities. “Successful funders of shareholder class actions have quite sophisticated relationships with institutional investors and obtain information not just from what is in the public space but also from the ‘inside view’ of those institutional investors. The model is finding the right opportunity and most of the time the funder is driving that due diligence process,” he says.

With all of this success in the last seven years based on shareholder class actions in Australia, what is the key to continuing this strike record for IMF? “We need to make sure we continue to grow which is why we have gone to the U.S. as there are limited opportunities in Australia,” says Khouri. “While we will continue to find strong claims to enable IMF to build its investment portfolio in Australia, our growth model is not here.” In addition to growing their presence in the U.S. and UK, IMF sees the future challenges as competition from law firms seeking to offer funding services, contingency fee arrangements, and of course, the shape of future regulation.

CASE STUDY: HOW IMF DOES IT

Are there other ways the concerns regarding litigation funders can be addressed other than through regulation? Slade, who has handled a multitude of high profile class actions, believes the courts could play a role in this situation. “The courts, at least when approving the settlement of class actions, have a supervisory role over the distribution of any settlement monies and when doing so can ensure that there are no excesses by litigation funders,“ Slade says. “This is not to say that politicians and the courts should not consider the activities of litigation funders and whether or not they are, in all circumstances, in consumers’ best interests, but there have been limited suggestions for reform that would actually help consumers.”

Slade is cautious in his views on reform. “The only suggestion that I accept might make a difference is for a legislative requirement for a claimant to reveal to the court the fact that a claim is being funded by a third party. This could be done in a manner that doesn’t disclose the terms of the funding arrangement to the defendant and it would be for the judge to consider the terms of funding agreement to ensure they are fair and reasonable,” he says.

Slade believes the courts have not taken such an active supervisory role as of yet but they most likely have the power to consider the content of litigation funding agreements and rule on their fairness. “If this was to occur the courts, defendants and consumers may feel more comfortable about litigation funding,” Slade says.

UNCERTAINTIES OUTSIDE THE REACH OF REGULATIONWill a regulatory overhaul address all of the concerns surrounding litigation funding? While it appears that there are a variety of options to allay the fears concerning capital adequacy, licensing and monitoring the fairness of funding agreements, there are some issues that might be considered beyond the scope of potential regulation.

One of the most interesting aspects of the funded securities class actions is the complete lack of case law on the topic. Every single one of these cases has either settled prior to or during trial before any judgment could be written. How does this lack of precedents affect counsel for plaintiffs and corporate defendants? “The lack of certainty worries both teams,” says Slade. “Politicians could resolve the lack of certainty but I can’t really see the previous or current regime would resolve it in any smooth manner. One day there will be a resolution, but the system is working pretty well with defendants getting away with a substantial reduction in ultimate liability by not being willing to test waters.”

Betts believes that the lack of uncertainty contributes to class actions vaulting to a top three agenda item for corporate clients. “We have seen an exponential growth in the advice we are giving to clients around class actions and director/officer liability risk in the disclosure context,” he says. “There are a few things that drive settlements prior to trial or judgment, the first of which is the inherent risk if the law is tested and it’s determined against defendants’ interests. You add the significant cost of defending the case itself, the potential damage to the reputation of the defendants being sued, who


LR ALB CD Ad 0913_final.indd 1 20/9/13 12:26:10 PM

are trading on that reputation as corporate citizens, and the result is that merely commencing the case regardless of the merits can be an incentive to settle.” It is apparently quite rare to see a quantum of less than $100 million in these class actions and more common to see multiples of that figure, which is very significant in the Australian market. Having no precedent to guide this area of the law is a very risky proposition for both sides of these mammoth class actions.

The other controversial issue is the emergence of closed class actions and “remaindering” - the potential for a competing class action by those class members who did not sign funding agreements. “Shareholder class actions with closed classes test the ‘access to justice’ argument,” says Betts. However, advocates of litigation funding argue that the industry and liberal regulation promotes better access to the courts and justice for those who otherwise could not afford to pursue their claims.

Betts believes that the litigation funders are targeting not the retail shareholders but the large institutional investors. “The benefit is workload, of course, as you only need 50-100 institutional class members to make a critical mass and the burden on the promoters and funders of the class action of dealing with the retail shareholder who are excluded is entirely removed,” he says. The issue of remaindering comes to the forefront when there is a settlement looming. “If you are a defendant faced with this, do you resolve the closed class action and take the risk that the class members who are not part of the class will also sue?” asks Betts. “This is one of the top five issues we have to consult and advise on in a major class action and there are not a lot of commercially attractive solutions for this.”

How do the plaintiffs’ counsel feel about the issue of closed class actions and remaindering? “This is a red herring that top end of town lawyers for big defendants throw at lawyers who spend their lives working for people who otherwise cannot afford to pay for access to the courts,” says Slade. “Class closure process is purely commercial so that the funder, at the outset, can be confident that at end of the day the return on investment makes the risk worth it.”

Slade says that in all the cases Maurice Blackburn has run, there are always large numbers of retail shareholders. “It may well be the substantial value of losses is concentrated in a fewer number of institutional shareholders because of their size and purchasing power, not because there is a bias against retail shareholders,” he says. Slade says that in both shareholder and other class actions such as the Victoria bushfires, flood or equine influenza cases, a substantial portion of the clients are both small and large businesses. He also believes that except for one or two class actions, once a settlement is close, the class has been opened. “Defendants generally want us to do that so their client is protected from a copycat claim post settlement,” he says.

Lastly, Slade’s position is that the defendants ultimately benefit from a large class action settlement. “I challenge you to ever find an entity who settled a shareholder class action and share price hasn’t increased on settlement. Why? Because the market values honesty and trustworthiness very highly,” he says.

“I CHALLENGE YOU TO EVER FIND AN ENTITY WHO SETTLED A SHAREHOLDER CLASS ACTION AND SHARE PRICE HASN’T INCREASED ON SETTLEMENT. WHY? BECAUSE THE MARKET VALUES HONESTY AND TRUSTWORTHINESS VERY HIGHLY.”

- BEN SLADE


FOR STRENGTH AND EXPERIENCE TALK TO THE LEADER IN LITIGATION FUNDING

IMF SPECIALISES IN FUNDING:

• Multi-party litigation, including cases involving securities fraud, cartels, financial services and product liability

• Commercial litigation, including breach of contract, breach of duty, and patent infringement

• Insolvency claims

IMF has an outstanding track record of success for its clients. It funds matters in major markets around the world.

IMF PROVIDES:

• Solid financial resources for long and costly legal battles

• Swift and objective assessment of your client’s claim without obligation

• Effective working relationships with the litigation team

• Proactive investing approach for an early, cost effective and successful result

IMF’s team of professional investment managers brings diverse expertise to help your clients prevail on their claims.

For more information or to discuss an application for funding contact IMF’s Sydney office on +61 2 8223 3567 or visit our website.

www.imf.com.au

ALB: WHAT KIND OF WORK IS YOUR TEAM SEEING?TJ: We are seeing activity in the intellectual property space, infrastructure, competition and antitrust litigation. Clients are also seeking out assistance with regulatory proceedings. Business ethics and corruption are hot topics and we are working with clients on these matters also. ALB: IS THERE A TREND TOWARDS LITIGATION OR ARBITRATION OR A PARTICULAR METHOD OF DISPUTE RESOLUTION?TJ: Clients remain sensitive to the cost of the litigation process and much of our work includes pre-litigation advice as well as conflict resolution. Whether a client elects to proceed by way of litigation or arbitration depends upon the client’s strategy and commercial imperative. Each alternative has its own merits.

Parties are increasingly turning to arbitration to resolve their disputes. Organisations usually turn to arbitration when there is a dispute in a country or concerning a country that does not have a common law legal system, [when] there are issues about the enforceability about any judgment or award or [when] the determination of the dispute will depend upon the correct assessment of highly complex and technical expert evidence.

ALB: WHAT TRENDS ARE YOU SEEING IN THE CLASS ACTION SPACE?TJ: There are a lot more plaintiff firms specialising in the class action area which leads to more claims with a greater number of matters supported by litigation funders. We are seeing a growing number of claims related to price fixing, market rigging, corporate behavior affecting shareholders or the conduct of major banks and financial institutions. I would expect the number of personal injury class actions will remain constant, but there is no doubt about the growth in such actions in the last five to seven years where the loss is purely financial.

ALB: WHAT WOULD SAY ARE THE MOST SIGNIFICANT DISPUTES IN THE MARKET AT THIS POINT?TJ: NRFA are involved in the Victoria Bush Fires litigation (related to Black Saturday 2009) which is probably the largest civil proceeding under way in Australia at the moment. These matters will shape the law relating to emergency response to this devastating but

TOM JARVIS, NORTON ROSE FULBRIGHT’S AUSTRALIAN HEAD OF LITIGATION AND DISPUTE RESOLUTION, AND A MEMBER OF THE NORTON ROSE FULBRIGHT’S GLOBAL EXECUTIVE COMMITTEE SPEAKS WITH ALB’S GINA DOMBOSCH ABOUT SOME THE PREVAILING TRENDS IN HIS PRACTICE AREA.

Q&A: TRENDS IN DISPUTE RESOLUTION

ever present aspect of Australia life. Another high profile dispute involves property developer Sunland and our client Matthew Joyce, who has been under house arrest in Dubai since 2000. The matter is before the courts in Australia and Dubai. The proceedings involve allegations of fraud and deception in connection with a proposed property development in Dubai. While NRFA is not involved in the Rinehart family litigation, it has certainly attracted considerable media attention.

ALB: CLEARLY THE CLASS ACTION SURROUNDING THE 2009 COLLAPSE OF GREAT SOUTHERN IS A NOTEWORTHY PIECE OF LITIGATION. WHAT’S THE SIGNIFICANCE OF THAT CASE?TJ: While NRFA is not involved, I think the matter is significant as Great Southern was Australia’s largest promoter of managed investment schemes. Apart from the scale of the insolvency in terms of investor/creditor numbers, it involves many complex issues and the insolvency of managed investment schemes is a largely untested area of the law.

ALB: WHAT TRENDS HAVE YOU SEEN IN RELATION TO BILLING?TJ: Clients are increasingly looking for more innovative solutions to pricing legal services focusing on value and transparency. As a general proposition clients are requesting more and more risk sharing. In today’s market, a firm cannot be reactive or have a ‘one size fits all’ mentality to pricing. We are working with our clients to determine the best fee structure for the work and their organisation to make sure we deliver value.

Tom Jarvis, Norton Rose Fulbright


WHO REPRESENTS THE INTERESTS OF ABSENT MEMBERS OF A CLASS ACTION? AN ACTION IN THE UNITED STATES PRESENTS A CASE STUDY IN COMPLEXITY. ANALYSIS: ALISON FRANKEL, REUTERS

A class action involving the supposed misappropriation of images of college athletes by the videogame maker Electronic Arts

has provoked a thorny question about who truly represents the interests of absent class members. Is it the name plaintiff who filed the case on behalf of everyone who allegedly suffered the same injury as him? Or is it the lawyer who has been acting on the class’s behalf – even if he’s been fired by the name plaintiff?

This sticky wicket comes courtesy of Ryan Hart, who played quarterback for Rutgers between 2002 and 2005. Back in 2009, Hart and his lawyers at the firm then known as McKenna McIlwain filed a class action in state court in New Jersey, asserting that Electronic Arts had violated Hart’s privacy rights when it made use of his image in the NCAA Football videogame series. EA removed the case to federal court in New Jersey, where it argued that it has a First Amendment right to transform the images of college athletes like Hart into virtual players for its videogames. U.S. District Judge Freda Wolfson agreed. She granted summary judgment to EA in September 2011.

Hart and his lawyers appealed to the 3rd Circuit. Last May, a split appellate panel vacated Wolfson’s judgment for EA. The two judges in the majority held that EA had not sufficiently transformed Hart’s image to trigger its First Amendment protection against his privacy rights. The blockbuster ruling, which was followed in July by a 9th Circuit decision that applied similar reasoning to reinstate other class action litigation by college athletes against EA, reopened the prospect of the videogame maker’s enormous potential liability to thousands of former college athletes.

Hart’s lawyers at McKenna McIlwain split up before the 3rd Circuit revived his case. When the as-yet-uncertified class action returned to Judge Wolfson on remand last summer, Tim McIlwain remained as counsel to Hart. Keith McKenna was terminated in July. In August, McIlwain brought in the well-known plaintiffs shop Lanier Law Firm as co-counsel. Soon thereafter, McIlwain and Lanier lawyers traveled to California for mediation with EA and its counsel at Keker & Van Nest.

The end result of that mediation was a proposed global settlement between EA and former student athletes in the Hart case and three other class actions filed on their behalf, one more in New Jersey and two in California. Terms of the settlement were confidential, according to a press release issued on Sept. 26 by the firm leading the California cases, Hagens Berman Sobol Shapiro.

So confidential, in fact, that name plaintiff Hart didn’t know the terms of the deal his own lawyers struck. He didn’t even know they’d settled his case until he read the announcement on The Wall Street Journal’s website. He certainly didn’t approve the settlement before his lawyers agreed to it, Hart said in a declaration filed with Wolfson on Oct. 21. According to the declaration, McIlwain told Hart that he didn’t need to attend the mediation and texted Hart on Sept. 10 and 11 to say there hadn’t been a deal. Hart claimed that he heard nothing else from his counsel until after he discovered the settlement news on the Journal’s website. “Neither McIlwaine nor the Lanier Firm had previously advised me of any settlement offer made by Electronic Arts,” Hart said.

Hart and his wife spent a couple of days in late September trying to get answers from McIlwaine and Lanier lawyers, to little avail. According to his declaration, McIlwaine continued to insist to Hart that he didn’t know the settlement terms, when he wasn’t ducking Hart’s calls. Eugene Egdorf of the Lanier firm generally described the deal to the Harts in a conference call, but refused to supply them with a term sheet.

By Oct. 2, Hart had had enough. He rehired McKenna, a family member and McIlwaine’s onetime partner. McKenna brought in another New Jersey firm, Lum, Drasco & Positan. They demanded that McIlwaine and Lanier turn over to them the Hart case files.

That precipitated the issue now before Wolfson: Who controls the fate of the Hart class action, Hart or his former lawyer?

McIlwaine contends that he, and not Hart, has been acting in the interests of class members. On Oct. 4, McIlwaine asked Wolfson to remove Hart from the case. “Counsel helped reach a potentially historic settlement in principle for a significant amount of money to resolve this putative class action,” he wrote. “Now, because the

GAME ONAUSTRALASIAN LEGAL BUSINESS

ISSUE 11.1148 LITIGATION

“THE MOST LENIENT SYSTEM WILL REQUIRE STRONG PERSONAL PERFORMANCE AGAINST BUDGET WITH GENERAL COMPLIANCE WITH FIRM KPIs.”

current lead plaintiff no longer adequately represents the class, and because irreconcilable differences have developed between Hart and counsel, proposed class counsel moves the court to withdraw from representing Ryan Hart and for leave to file a third amended complaint to replace the current proposed lead plaintiff with newly proposed and representative lead plaintiffs who will adequately represent the interests of the proposed putative class.” The lawyer said that Hart had “chosen not to communicate” with his lawyers, but Hart’s father-in-law had “communicated information” to the lawyers suggesting “that Hart’s narrow personal interests now conflict with the absent class members.”

The brief argued that Hart does not have the right to terminate lawyers who have been acting on behalf of the class, “particularly where, as here, such attempted termination comes after proposed class counsel have invested significant sums of time and money on behalf of the entire class to assist in arriving at a historic settlement.” Hart, the brief said, had abdicated his duties as a representative of the class by putting his own interests first. (The Lanier Law Firm was on the brief with McIlwaine but formally withdrew as Hart’s counsel on Oct. 16.)

In their opposition to Hart’s removal, Hart’s current lawyers countered that the former quarterback is the only legitimate representative of the class. The class in this case has not yet been certified, wrote McKenna and Dennis Drasco of Lum Drasco, so Hart’s previous lawyers were never designated class counsel. They represented only him, so he has the authority to terminate them. Moreover, the lawyers ignored their duties to their client when they purported to settle his case without his permission, Hart’s brief said.

“Hart was deprived of his right to provide meaningful input and oversight of the counsel for the putative class during the proposed settlement process,” they wrote. “Hart was also deprived of his right and obligation, as proposed class representative, to determine whether seeking the court’s approval of this settlement was in the best interests of the class as a whole…. Former counsel, seemingly for his own pecuniary benefit, is seeking to wrestle control of the suit away from the named party who has remained actively involved in the case since its inception.”

McKenna told me in a phone interview Wednesday that Hart doesn’t necessarily oppose the settlement his previous lawyers struck, but wants to know the details. “How do you comment on something you don’t know?” he said. The lawyer also said that he looks forward to confronting anyone who submits sworn testimony about Hart’s supposed conflict of interest. (McIlwaine didn’t return my call requesting comment, and Lanier lawyers Egdorf and Mark Lanier didn’t respond to my email.)

Will the Hart mess affect the global EA settlement, which must still receive court approval? Hagens Berman partner Steve Berman said in an email that the California plaintiffs lawyers are trying to figure that out. “We were quite surprised to learn that the lawyers at the Lanier Firm had not received Mr. Hart’s consent,” Berman

said. “Doubly so, given all the press statements they made about the case. We might have to rewrite (the) agreement so it excludes Mr. Hart and lets him pursue his individual claims.” EA counsel Robert Van Nest declined to comment via email.

Judge Wolfson has ordered additional briefing by Hart’s new counsel and a response from McIlwaine was pending at time of publication.


THE TOP 5UNLEARNED LESSONS OF THE FINANCIAL CRISISWHAT HAVE WE LEARNED FROM THE FINANCIAL CRISIS… AND WILL HISTORY REPEAT ITSELF? OPINION: BETHANY MCLEAN, REUTERS.

In capital we trust. Capital is our savior, our holy grail, our fountain of youth, or at least health, for banks. Seriously, how many times have

you read that more capital will save the banks from another Armageddon? Even the banks point to capital as a reason to have faith. “Financial institutions have also been working alongside regulators to make themselves and the financial system stronger, more transparent, more resilient and more accountable,” wrote Rob Nichols of the Financial Services Forum, which is made up of the chief executive officers of 19 big U.S. financial institutions. “Specifically, capital, which protects banks from unexpected losses, has doubled since 2009.” If you were a cynic — who, me? — you might say that the mere fact that the banks are pointing to capital is proof that capital is not all that.

Everyone seems to be ignoring the basic fact that capital isn’t a pile of cash. It’s an accounting construct. On his Interfluidity blog (which I found courtesy of Naked Capitalism), Steve Waldman writes, “Capital does not exist in the world. It is not accessible to the senses. When we claim a bank or any other firm has so much ‘capital,’ we are modeling its assets and liabilities and contingent positions and coming up with a number. Unfortunately, there is not one uniquely ‘true’ model of bank capital. Even hewing to GAAP and all regulatory requirements, thousands of estimates and arbitrary choices must

be made to compute the capital position of a modern bank.” In other words, even if you give bankers credit for good intentions, the accounting that would truly capture “capital” may not exist. Or as Waldman writes, “Bank capital cannot be measured.” Layer in some real world realities. The next time things get tough, will regulators once again practice forbearance and allow firms to overstate their capital, which has the perverse effect of making no one trust reported capital? Let’s not forget Lehman, which according to Lehman had a very healthy Tier 1 ratio of 10.7 percent on May 31, 2008 and a total capital ratio of 16.1 percent. This didn’t matter, because no one believed Lehman’s capital was real.

On the list of cures for the sick financial system, the concept of “risk retention” ranks right behind capital — but there are a couple of neat little twists here. The narrative of the crisis is that because mortgages could be sold off to banks, who would turn them into securities and sell those on to investors, who thought they were buying triple-A paper courtesy of the rating agencies — well, no one had any incentive to care about credit quality. In a piece in the Wall Street Journal entitled “How to Create Another Housing Crisis,” MFS Investment Management’s former chairman Robert Pozen writes, “With ‘no skin in the game,’ the originators had little incentive to determine whether the borrower was likely to default.” As a result, one provision of Dodd-Frank requires securitisers of any asset, not just mortgages, to retain five percent of the risk of loss. Barney Frank has said that the risk retention rules are the “most important aspect” of the legislation that bears his name.

The first twist is how risk retention became risk liberation. The housing-industrial complex went to work. Into Dodd-Frank went a provision that certain “safe” mortgages, called qualified residential mortgages, or QRMs, would be exempt from the risk retention requirement. “Safe” was left to the regulators to define. Cue more lobbying. The rules finally proposed in late August would exempt, according to a Wall Street Journal piece by Alan Blinder, some 95 percent of mortgages from the risk retention requirement. In other words, the very asset that most people believed led to the credit crisis is also the asset that is pretty

AUSTRALASIAN LEGAL BUSINESSISSUE 11.1150 OPINION

much exempt from the new rules! Classic. In the joint announcement on August 28, the regulators wrote, “The Commission acknowledges that QM does not fully address the loan underwriting features that are most likely to result in a lower risk of default. However, the agencies have considered the entire regulatory environment, including regulatory consistency and the possible effects on the housing finance market.” (That last bit is super scary.)

That said, the real twist here is that risk retention is no silver bullet. After all, firms like Countrywide, Washington Mutual, Merrill Lynch, AIG and Citigroup went under or almost went under precisely because they retained so much risk on their own balance sheets. Malevolence

is only part of the problem with our financial system. The other problem is sheer stupidity.

Which leads to the next issue. So much of the safety of the financial system still depends on the Street’s ability to manage risk. But if the last years have taught us anything, it’s that risk management might be an oxymoron: Maybe risk is risk precisely because it can’t be managed. Just for the fun of it, I searched Merrill Lynch’s 2007 10K. They used the phrase “risk management” 76 times. “Subprime” was mentioned 11 times.

Next, I searched JPMorgan Chase’s 2012 10K and found 166 mentions of risk management. (Give or take — I got a bit dazed.) But while JPMorgan was busy talking about how great they were at risk management during the crisis, and while we were busy listening, the bank’s chief investment office was busy making crazy bets that ultimately cost the company more than $6 billion — bets that the CIO was valuing at different prices than the same positions were being valued in the investment bank, thereby violating a cardinal rule of Risk Management 101. And no one inside the bank seems to have noticed!

AUSTRALASIAN LEGAL BUSINESSISSUE 11.11 51OPINION

So now, JPMorgan is spending $920 million to settle civil charges brought by a host of regulators. A criminal probe is ongoing. As part of its settlement with the SEC, JPMorgan agreed that its trading losses “occurred against a backdrop of woefully deficient accounting controls” in its chief investment office; the OCC said in its consent order that the bank’s oversight “did not provide an adequate foundation to identify, understand, measure, monitor and control risk.” And according to the Wall Street Journal, JPMorgan is spending an additional $1.5 billion and committing 500 extra employees to get better at what it was supposedly already great at. “Fixing our controls issues is job No. 1,” CEO Jamie Dimon told the Journal. “This is a huge investment of people, time and money … but it will make us stronger in the long run.” Oh, I sure do hope so. But big banks are very subversive places.

Speaking of subversive, I think that both risk management and new regulations are set up to be subverted if the incentives aren’t right, too. (Put rules, regulations and incentives in a 2 on 1 Ultimate Fighting Championship, and incentives will score a knockout every time.) Yes, there have been lots of changes to incentives after the crisis. There’s more disclosure, and firms often have “clawback” provisions, meaning that bankers who do bad things have to give the money back. (Three JPMorgan traders were hit by this.) And bankers are getting a smaller percentage of their pay in upfront cash. A chunk, which is often in the firm’s stock, is held back, or deferred.

This is all well-intentioned and I’m trying to be optimistic. But the history of attempts to align individual compensation with a firm’s results is a case study in unintended consequences. (See stock options.) And there are warning signs about the current “fixes.” Take deferred compensation, which often means that bankers get a small part of their bonus in upfront cash, and the rest in stock, which can only be cashed out over a period of years. One problem is that for bankers to cash out their deferred stock, they often have to remain employed at the same place. One of the good things about the old system was that people moved on. Now, people are encouraged to stick around even if they’ve already checked out, thereby clogging up the system. “The inefficiency generated by the current

illiquidity of people moving now can not be underestimated,” a former senior banker tells me.

While we’re on the subject of inefficiency, let’s talk about our regulatory system. In 2007, before most people realised there was a crisis brewing, Hank Paulson, then the Secretary of the Treasury, released the Blueprint for a Modernized Financial Regulatory Structure. You can dismiss this as writing reports while housing burned. Fair enough. But one of Paulson’s key ideas was to streamline the regulators, and he was right. As he later wrote about regulators in a Financial Times piece, “It is clear that their overlapping jurisdictions, gaps in jurisdictions and authorities, uneven capabilities and competition among themselves created the environment in which excesses throughout the markets could thrive.” We did get rid of the worst regulator, which was the Office of Thrift Supervision. But if you think the problem has been solved, just read the Wall Street Journal’s excellent piece on the skirmishing over the Volcker Rule (which seeks to ban proprietary trading by banks). According to the Journal, Treasury department officials had to bribe staffers from other agencies like the SEC with Bojangles fried chicken to get them to make the trek across D.C. History repeats itself, first as tragedy, second as farce.

AUSTRALASIAN LEGAL BUSINESSISSUE 11.1152 OPINION

GAIN 10 CLE POINTS IN A DAY!

Sydney | 28 MarchInterContinental Hotel

ABOUTThe annual Sydney CLE Conference covers key legal and practical areas for NSW practitioners, including mandatory units. The one-day conference provides legal practitioners with an opportunity to complete their entire CLE requirements (10 points) for the year.

PROGRAM HIGHLIGHTSCOMPLETE 10 CLE POINTS INCLUDING THE COMPULSORY;• Regulation 176: OH&S, Discrimination, EEO & Employment

Law (1 CLE Point) Employment in the legal profession: Compulsory unit on EEO,

OH&S Employment Law

• Ethics and Professional Responsibility (1 CLE Point) Solicitors’ conflict of interest, duties and negligence entwined

• Practice Management and business skills (1 CLE Point) Getting the job done without having to be there!

• Professional skills (1 CLE Point) The things you get for free – Legal research in the digital age.

SPEAKER HIGHLIGHTS• Jan Alewood, Barrister, Maurice Byers Chambers• Chris McArdle, Principal Lawyer, McArdle Legal• Chris Freeland, National Managing Partner, Baker & Mckenzie• Stefan Balafoutis, Barrister, 10th Floor Selborne Wentworth

Chambers

2014 CLE CONFERENCE

PLACES ARE LIMITED, BOOK NOW! VISIT: www.thomsonreuters.com.au/eventsCALL: 02 8587 7960EMAIL: [email protected]

AS THE DOWNTURN IN THE SHIPPING INDUSTRY CONTINUES, AND OWNERS LOOK FOR NEW SOURCES OF FINANCE, PRIVATE EQUITY FUNDS HAVE BEGUN ENTERING THE INDUSTRY IN A SIGNIFICANT WAY. WHAT STARTED AS A TREND IN NEW YORK IS NOW MOVING TO ASIA, FIND KEITH WALLIS OF REUTERS AND RANAJIT DAM.

U.S. private equity and investment funds are betting Asia’s shipping industry, hit by a restructuring wave that has already swept

Europe and the United States, is the best spot to ride a recovery from the industry’s worst downturn in three decades.

Sturdy commodity demand growth and slower new ship deliveries will help balance fleet and cargo demand for the first time since 2004, analysts say, boosting freight rates by next year and into 2015.

For private equity looking to buy into the upturn, Asian shipping firms undergoing restructuring like South Korea’s STX Pan Ocean Co Ltd and Indonesia’s Berlian Laju Tanker Tbk PT offer opportunities. The ships investors are looking for are also being built in the region’s yards.

Gregg Johnston, a partner at Stephenson Harwood in Singapore who specialises in ship finance, says that while private equity firms in New York have been striking up shipping deals for about three or four years now, the last 12 to 18 months have seen a greater appetite for Asia-based private equity deals. “One of the reasons for this are geographical,” he says. “Most PE funds are based in New York.

Also, Asian ship owners had a lot of other alternatives for financing; they could rely not just on European banks but on Chinese banks and ECAs, and also Korean banks and ECAs for example. But those avenues

are not open to all ship owners here, and that’s allowed private equity an opportunity.”

More than $3.5 billion has been invested in ships and shipping containers so far this year, according to figures compiled by publication Marine Money, compared with $2.7 billion in 2012 and $4.2 billion in 2011.

“My guess is that unless the public markets open quickly, there will be at least twice as much private equity commitment to the industry by the end of 2014,” billionaire private equity investor Wilbur Ross said at a ship finance conference in New York in June.

Joseph Swanson, managing director of U.S.-based investment bank and restructuring firm Houlihan Lokey, says his company is advising on everything from ship acquisitions to complex restructurings of fleet operators, and some of these projects are in Asia.

Johnston says ship owners in Asia are more open to non-traditional finance today. “There is not enough senior debt finance going around, so ship owners need to go out there and look for solutions,” he says. “Given that shipping has been in a crisis mode for the last four years or so, and ship values have plummeted across most sectors of shipping – with charter rates having dropped significantly – it means that not only are ship owners finding it difficult to tap into traditional sources of finance, they also need the finance more than ever. This is either because their trading capacity is diminished, or the debt that they took on during previous deals needs to be refinanced, or, in some cases, they may have significant loan-to-value breaches under those traditional ship financings and need to come up with a solution to satisfy their existing banks and avoid defaults.”

He adds that with private equity always being on the lookout for a home for its capital, and in search of yield, shipping appears to present a good opportunity. “Private equity houses are looking at shipping as a counter cyclical move with significant upside if ship values or earning recover,” he says. “Some Ship values are now at five year lows. If you see a recovery of 10 to 20 percent on a

PRIVATE INTEREST

AUSTRALASIAN LEGAL BUSINESSISSUE 11.1154 SHIPPING

significant acquisition of ships, there’s a significant gain that private equity can look to realise.”

For those who believe in a general recovery in ship values, then investing now could result in significant capital appreciation if there is a sustained recovery in ship values, adds Johnston.

The shipping industry splurged on new ships in 2007-08 that were delivered just as demand slumped, particularly on once-lucrative oil export routes between the Middle East and Asia.

The spree sent charter rates down as much as 90 percent and halved the value of vessels bought at the top of the market, according to data from maritime consultancy Clarkson Research Services. The list of Asian shipping firms seeking rescue is lengthening.

STX Pan Ocean, which got court

approval to restructure on June 17, is the biggest shipping failure in Asia. It had a total debt of $4.94 billion as of the first quarter of 2013, its main creditor has said.

“Anybody who owned a ship for three or four years and still owns it is a candidate for restructuring,” says Paul Leand Jr, chief executive of AMA Capital Partners, a New York-based maritime merchant bank. “People are running out of money to pay operating costs and interest.”

With European banks facing stricter capital requirements at home, traditional ship financing is harder than ever to obtain, further boosting the allure of private equity investment.

Bank lending to the shipping industry via syndicated loans at $52 billion last year was nearly half the $91.8 billion in 2008, just before the financial crisis, according to figures from Dealogic and Marine Money.

RAFT OF DEALSThe interest from private equity is being driven by expectations that the shipping industry will finally pull out of a prolonged slump.

Barclays Bank estimated in a June report that the volume of

AUSTRALASIAN LEGAL BUSINESSISSUE 11.11 55SHIPPING

seaborne dry cargo will start to outpace fleet growth by next year, increasing by 6.3 percent against a 3.8 percent uptick in vessel supply.

The price of new dry bulk and container ships has risen by up to 2.5 percent in the last three months, according to Clarkson data, after falling since 2010. Over the same three-month period, prices for second-hand dry cargo ships have climbed by up to 18 percent.

“Lots of funds are running around and ordering new ships, or at least trying to,” says Tim Huxley, chief executive of Hong Kong- based ship-owner Wah Kwong Maritime Transport.

“It will need patience as there won’t be an overnight bounce back, but it’s got plenty of potential if you partner up with the right people.”

U.S. private equity firm Alterna Capital Partners ordered four tankers costing a total of $130 million in June from South Korea’s Hyundai Mipo Dockyard ship brokers in a continuing investment in the tanker sector. Managing partner Jim Furnivall declined to comment.

In May, U.S. investment group York Capital Management struck up a joint venture with Greek-owned container ship operator Costamere to spend $500 million acquiring ships.

Other deals include New York-based Oaktree Capital Management teaming up with German ship owner Rickmers to order up to 16 container ships. The vessels will be built at an undisclosed Asian shipyard for delivery by mid-2015.

Alvarez & Marsal is conducting due diligence on behalf of several private equity funds looking at investments in Asia, according to Ray Dombrowski, a managing director at the corporate advisory firm in New York.

The funds are looking at as many as 20 ships in the dry bulk and tanker sector that have been ordered but are not yet under construction at shipyards in China, South

Korea and Japan, he adds. “They believe the ships that are being built are more economic, with more efficient engines, so the cost of operating them will be significantly lower,” Dombrowski says. “They are large U.S.-based global funds who want to be well positioned when the recovery in the shipping market picks up in earnest.”

A DIFFERENT KIND OF BUSINESSIndustry experts agree that the shipping business is quite different from industries that PE funds traditionally target. “For one, you take on large, unfamiliar, risks including the possibility of high-profile casualties, environmental spills and so on, and as it is a global business, you are exposed to the rules and laws of various jurisdictions,” says Siri Wennevik, Singapore-based partner at Wikborg Rein. “It can also be different in terms of business culture. Imagine a traditional family-owned shipping company, that has been running in a set way for more than 100 years, having to deal with a PE firm that comes in with a radical bunch of new ideas ... I figure the two would have different preconceptions on how to run the business.” As an example, she says traditional ship owners, in particular those that are used to running their business in their own way, aren’t going to like the reporting procedures that PE firms have.

Johnston of Stephenson Harwood notes that there is a limit to what new management that may be associated with private equity can achieve. “It’s a capital-intensive business, so it comes down to how many ships you own and how many of this ships are regularly employed and on what basis,” he says. “If it’s a traditional PE deal where the PE firm acquires a controlling stake, then they would look to take over management control of the company, and perhaps bring in various consultants and management gurus with strategies of how to manage the business, cut costs, and restructure.” While there is scope to do that in terms of other kinds of businesses, there is less scope in shipping. “The best business minds in the world can come into a deal, but if, for example, the dry bulk industry is at an all-time low and you’re a dry bulk player, your vessel values have plummeted and you owe tens of millions of dollars in debt to your ship finance bank and your spot charter rates are at an all time low, there’s not a lot a change of management will do,” he adds.

Johnston says that what PE firms have to keep in mind is that a lot of private equity deals are done on a leveraged basis. “They’re not looking to use solely their own funds but instead, leverage on existing debt to traditional banks,” he says. “They should understand that if they don’t have a name in shipping, or their target company doesn’t have a network of traditional finance banks, they may meet the same problems ship owners face in securing competitive senior finance.”

Wennevik notes that for a PE investor getting into shipping, “you need to have an in-depth knowledge of the industry and all the perils it brings. If you don’t understand the industry, your risk profile could be astronomical, including, for example the environmental risks and associated liabilities that ship owners face.” She adds that operationally, as fuel makes up about 70 percent of the day-to-day expenditures, a small increase in fuel, or constantly changing regulations relating to sulfur emissions potentially have a real impact on margins and profitability.

“IT WILL NEED PATIENCE AS THERE WON’T BE AN OVERNIGHT BOUNCE BACK, BUT IT’S GOT PLENTY OF POTENTIAL IF YOU PARTNER UP WITH THE RIGHT PEOPLE.”

AUSTRALASIAN LEGAL BUSINESSISSUE 11.1156 SHIPPING

Documents

ALB 11.11