Australasian legal business
TECHNOLOGY * INSURANCE LAW * GOVERNMENT TENDERING
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com ISSUE 10.10 NOVEMBER 2012
NOVEMBER 2012 TECHNOLOGY
HOT
INSURANCE LAW GOVERNMENT TENDERING
40
2012
Supported by
Alb hot 40 – The Hottest Lawyers of 2012
ISSUE 10.10
INSIDE HOPGOODGANIM’S PERTH MERGER: A new paradigm for Brisbane?
powEr your carEEr parTnEr wiTh ThE rEcruiTing ExpErTS We are the experts in recruiting lawyers postadmission at all levels, from paralegals and first year solicitors to senior partners, General Counsels and compliance officers. Our clients include blue chip corporates and financial institutions, top law firms and public sector bodies. With our professional know-how we’ll help you achieve lasting impact by bringing the right person to your job. Our extensive database, local market knowledge and fast and accurate response allow us to deliver such a real result. That’s why, for over 36 years, we’ve powered the world of work. Contact your local office: Sydney T: 02 8226 9600 E: legal.sydney@hays.com.au Melbourne T: 03 9604 9699 E: legal.melbourne@hays.com.au
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CONTENTS
Australasian Legal Business ISSUE 10.10
1
“We try and locate those firms that haven’t got a national affiliation when looking at work in a particular market… I find that they have a stronger connection with the local community.” Christian Paech, Santos
40
NEWS 06
DEALS
COVER STORY We unveil the ALB Hot 40: ALB’s showcase of the hottest lawyers of 2012
LEAGUE TABLES
24
FEATURES
Analysis 10 Has HopgoodGanim set a new paradigm for the industry to follow?
Insurance Can insurance firms continue their impressive growth trajectory?
14 Tenders Fancy picking up some government work? Linda Julian reviews the latest trends in government tendering.
Special profile 46 Clyde & Co is ready to take the Australian market by storm – with a little help from Allens.
Chinese investment 22 in Africa The potential of the African resources sector is obvious – but what happens when things go wrong?
Technology A look at M2M, fibre optic cables and litigation software.
40
52
08
Sponsored update Buddle Findlay
09
Profiles In-house perspective Christian Peach, Santos
18
APPOINTMENTS
38
ACLA PERSPECTIVE
56
Australasian Legal Business ISSUE 10.10
2
AUSTRALASIAN
LEGAL BUSINESS
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EDITORIAL AUSTRALASIAN LEGAL BUSINESS NOVEMBER 2012 GOVERNMENT TENDERING
L
INSURANCE LAW
For those who understand, no explanation is needed. For those who don’t, none will do -Jerry Lewis
TECHNOLOGY
KILL THE HYPERBOLE
TECHNOLOGY * INSURANCE LAW * GOVERNMENT TENDERING
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com ISSUE 10.10 NOVEMBER 2012
HOT
40
2012
SUPPORTED BY
ALB HOT 40 – The Hottest Lawyers of 2012 INSIDE HOPGOODGANIM’S
ISSUE 10.10
ast week, I received a copy of a book authored by Marque Lawyers managing PERTH MERGER: A new paradigm for Brisbane? partner Michael Bradley. It was a reflection on the current state of the legal profession, thoughtfully titled Kill All the Lawyers. The title reminded me of the above quote by Jerry Lewis. Some – I hope most – readers of Bradley’s book will understand his humour, use of hyperbole and penchant for, if you’ll excuse the expression, giving the profession a good kick in the balls. No doubt there will be others for whom the Bradley style will not appeal. “It’s not appropriate for a managing partner to talk about killing his lawyers!” I can hear them proclaim. There’s no space here to run through all the themes in the book – I hope to do this at a later point – but I wanted to draw attention to Bradley’s views on one topic which has preoccupied firms for years: how big is too big? At what point does the size of the firm compromise its ability to have a unified culture? Here’s his answer: There are varying theories about the optimum – or, more accurately, maximum manageable – number of people in an organisation. I’ve decided it’s about 60. Below that, communication can occur relatively easily, and a concordance of values, attitude and approach can be sustained. Like a dinner party of more than six people, though, where there will necessarily be more than one conversation in play, an organisation with more than 60 people will struggle to maintain singularity in its outlook. As Bradley notes, there are many variations on this theme. Some might argue that the number 60 could be the upper limit for partner numbers, rather than the overall employee count. Some firms have suggested that the litmus test is the capacity to gather the entire partnership in one room. If the firm’s too big to achieve that, then the firm’s simply too big. I’m not sure how the size of the room fits into this equation, but you get the general point. All this, of course, will be challenged by those firms who have long passed the 60 partner or employee mark. That’s probably most corporate firms that you’ll see featured in the pages of ALB. The truth is that the average corporate firm wouldn’t be able to slim down to 60 people even if it wanted to. That is not, however, a reason to dismiss the issue. We should never forget that the basis of business, of capitalism and of liberalism is the individual and their engagement with the broader group. We should never be too afraid to ask whether the size of corporations and partnerships is having a detrimental effect on that engagement. Consolidation and globalisation may be the buzzwords of the day, but the potential costs bear serious consideration. Renu Prasad Australasia Editor, Australasian Legal Business, Thomson Reuters
AUSTRALASIAN
LEGAL BUSINESS
6
deals
Australasian Legal Business ISSUE 10.10
your month at a glance A$2.4 billion DEBT Origin Energy’s debt raising
• In February Mallesons advised a syndicate of banks providing senior debt financing to support Permira’s US$1.5 billion acquisition of Genesys from Alcatel-Lucent.
A$750 million DEBT CBA’s PERLS VI and concurrent PERLS IV Reinvestment Offer
• This is the first fully Basel III compliant hybrid offering by an Australian bank and one of the largest hybrid offers in the Australian market this year.
Nathan Collins, King & Wood Mallesons Creed and Collins advised Ausdrill on its A$150 million revolving credit facility agreement with CBA earlier in the year.
Your month at a glance Deal
Value
Advisor
Client
Lead Lawyer
Origin Energy’s debt raising
A$2.4 billion
King & Wood Mallesons
Joint lead managers
Yuen-Yee Cho
Origin Energy’s debt raising
A$2.4 billion
Allens
Origin Energy
Alan Maxton
B2Gold’s acquisition of CGA Mining
C$1.1 billion
Squire Sanders Australia
B2Gold Corporation
Neil Fearis, Robert Eastwood and Bennett Greenhalgh
QR National selective share buy-back
A$1.5 billion
King & Wood Mallesons
QR National
John Humphrey, David Friedlander Peter Stirling
QR National selective share buy-back
A$1.5 billion
Clayton Utz
Queensland Treasury Holdings (QTH)
Tim Reid, Stuart Byrne
CBA’s PERLS VI and concurrent PERLS IV Reinvestment Offer
A$750 million
Freehills
CBA
Philippa Stone, Fiona GardinerHill, Patrick Lowden
CBA’s PERLS VI and concurrent PERLS IV Reinvestment Offer
A$750 million
King & Wood Mallesons
Joint lead managers
Shannon Finch, Mark McFarlane,
Wiri Men’s Prison PPP
NZ$840 million
Allens
Syndicate of banks
James Darcy, Ren Niemann
Wiri Men’s Prison PPP
NZ$840 million
Corrs Chambers Westgarth
Fletcher Construction
Simon Ashworth
Ausdrill’s debt facility
A$550 million
King & Wood Mallesons
Ausdrill
Nathan Collins, Nicholas Creed
Bauer Media Group’s acquisition of ACP magazines
A$500 million
Gilbert + Tobin
Nine Entertainment Co (seller)
Rachel Launders, Tim Gole
SCA Property Group’s IPO
A$425 million to A$506 million
Herbert Smith Freehills
Citigroup Global Markets Australia
Philippa Stone, Lauren Magraith
Australia Post and Qantas freight transactions
A$410 million
King & Wood Mallesons
Australia Post
Craig Semple
Shangri-La Asia’s acquisition of the Shangri-La Sydney Hotel
A$352 million
Maddocks
Shangri-La
Lisa Chung, Bronwyn Badcock, Andrew McNee
deals
Australasian Legal Business ISSUE 10.10
7
DEALS REPORTED TO ALB, october 2012. Please note that owing to the limited space in this table, only the higher value deals in any given month will be shown.
Your month at a glance Deal
Value
Advisor
Client
Lead Lawyer
Nufarm Australia’s issuance of notes in the U.S.
US$325 million
Arnold Bloch Leibler
Nufarm Australia
Jonathan Wenig, Genevieve Sexton
Mt Mercer Wind Farm
A$260 million
Allens
Meridian Energy Australia
Anna Collyer, Michael Graves, Chris Schulz
Shandong Gold’s deed with Focus Minerals
A$227.5 million
Minter Ellison
Shandong Gold International
James Philips, Sophie Chen, Adam Handley
CHAMP Private Equity stake in Miclyn Express Offshore
A$199 million
Gilbert + Tobin
CHAMP Private Equity
Peter Cook, Janine Ryan
Bendigo and Adelaide Bank (BEN) preference shares
A$125 million
Freehills
Bendigo and Adelaide Bank Limited (BEN)
Patrick Lowden, Philippa Stone
Bendigo and Adelaide Bank (BEN) preference shares
A$125 million
King & Wood Mallesons
Joint lead managers
Evie Bruce
Drillsearch’s offmarket takeover for Acer Energy
A$118 million
Ashurst
Drillsearch
Bill Koeck, Steve Smith, Erin Cartledge, Peter McCullough
ASPEN Group’s accelerated rights issue
A$101.4 million
Baker & McKenzie
UBS (lead manager and underwriter)
Craig Andrade, Andrew Reilly
Qube Logistics’ acquisition of Independent Transport Group and two rail sites
A$100 million
Minter Ellison
Independent Transport Group
Keith Rovers, Mark Standen, David Pratley, Nathan Deveson, James Beaton, David Crane
Washington H. Soul Pattinson’s (WHSP) acquisition of Exco Resources
A$94 million
Cortona Resources and Unity Mining merger
A$90 million
Ashurst
Baker & McKenzie
Exco Resources
Unity Mining
Roger Davies, Antonella Pacitti
Richard Lustig
Jonathan Wenig, ABL Jonathan Wenig acted for Nufarm in relation to a three year A$625 million syndicated bank facility late last year.
Anna Collyer, Allens Anna Collyer assisted Meridian on its joint venture Macarthur Wind Farm project.
A$100 million M&A ube Logistics’ acquisition of Q Independent Transport Group and two rail sites
• Minter Ellison has previously acted for the vendors and ITG in relation to proposed joint venture arrangements with Hutchison Whampoa for the Port Botany expansion (and its subsequent exit from that venture).
8
league tables
Australasian Legal Business ISSUE 10.10
Top M&A advisors - Australian announced deals, year to date
1
NO.
Top M&A advisors - completed deals, year to date
1
Freehills
12,994.82
NO.
Value ($Mil)
Deals: 55 Market Share: 22.5
Rank Legal Advisor
Value Mkt. Deals ($Mil) Share
King & Wood Mallesons
21,452.07
Value ($Mil)
Deals: 37.7 Market Share: 43
Value Mkt. Deals ($Mil) Share
Rank Legal Advisor
2
Ashurst
9,875.50
17.1
46
2
Ashurst
18,863.03
33.1
40
3
Gilbert + Tobin
7,441.83
12.9
30
3
Gilbert + Tobin
18,750.54
32.9
28
4
King & Wood Mallesons
7,042.65
12.2
50
4
Clayton Utz
16,917.36
29.7
39
5
Allens
6,553.69
11.4
36
5
Freehills
16,851.78
29.6
60
6
Clayton Utz
5,675.13
9.8
34
6
Allens
16,256.57
28.5
28
7
Baker & McKenzie
4,952.96
8.6
29
7
Corrs Chambers Westgarth
11,991.24
21.0
20
8
Latham & Watkins
3,309.12
5.7
1
8
Minter Ellison
8,856.95
15.5
42
8*
Jipyong Jisung
3,309.12
5.7
1
9
Allen & Overy
8,028.62
14.1
25
10
Linklaters
3,248.53
5.6
2
10
Baker & McKenzie
7,602.83
13.3
31
11
Osler Hoskin & Harcourt LLP
3,027.19
5.3
6
11
Norton Rose
4,320.75
7.6
24
12
Minter Ellison
3,000.18
5.2
39
12
Cravath, Swaine & Moore
4,074.33
7.2
2
13
Allen & Overy
2,924.32
5.1
16
13
McCullough Robertson
3,407.92
6.0
19
14
Clifford Chance
2,918.63
5.1
9
14
Clifford Chance
3,150.23
5.5
9
15
Blake Cassels & Graydon
2,510.43
4.4
4
15
Baker Botts LLP
2,739.72
4.8
1
16
Norton Rose
2,277.41
3.9
27
16
Orrick Herrington & Sutcliffe LLP
2,554.96
4.5
2
17
Middletons Lawyers
1,639.97
2.8
5
17
Stikeman Elliott
2,440.81
4.3
3
18
Squire Sanders & Dempsey LLP
1,564.50
2.7
7
18
Osler Hoskin & Harcourt LLP
2,338.40
4.1
4
19
Corrs Chambers Westgarth
1,318.23
2.3
22
19
Kirkland & Ellis
2,083.05
3.7
5
20
Johnson Winter & Slattery
1,313.28
2.3
4
20
Cassels Brock & Blackwell LLP
1,351.86
2.4
3
Gowling Lafleur Henderson LLP
21
Werksmans Attorneys
1,334.61
2.3
1
21
1,305.91
2.3
3
21*
CLS Attorneys
1,334.61
2.3
1
22
Simpson Thacher & Bartlett
1,250.64
2.2
2
23
2.1
1
1,118.41
1.9
1
Lawson Lundell Lawson & McIntosh
1,220.35
23
Lawson Lundell Lawson & McIntosh
23*
Linklaters
1,220.35
2.1
1
24
Herbert Smith
991.54
1.7
3
23*
Kalamba & Associes
1,220.35
2.1
1
25
Kirkland & Ellis
748.44
1.3
4
23*
1,220.35
2.1
1
Subtotal with Legal Advisor
44,955.64 78.0
Davies Ward Phillips & Vineberg LLP Subtotal with Legal Advisor
50,486.07
88.6
350
Subtotal without Legal Advisor
6,484.00
11.4
626
Industry Total
56,970.07
100.0
976
395
Subtotal without Legal Advisor 12,703.00
22.0
960
Industry Total
100.0
1,355
57,658.63
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date:2012-10-16 08:37:40 EDT
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-10-16 08:22:33 EDT
Firm Profile
NZ Commentary
SHAKING UP THE PERMITTING REGIME - PROPOSED REFORM OF THE CROWN MINERALS ACT Government reforms to facilitate greater mineral and petroleum development in New Zealand are continuing. The most recent step was the introduction, following earlier discussion papers, of the Crown Minerals (Permitting and Crown Land) Bill (Bill). This article discusses some of the significant changes proposed by the Bill. The Bill principally amends the Crown Minerals Act (Act), which provides for the granting of permits for minerals owned by the Crown, the collection of royalties by the Crown, and rules for access to land. AIM OF THE BILL
The Bill is stated to have three aims: · Encourage the development of Crown-owned minerals, to increase economic development · Streamline and simplify the permitting regime · Ensure better co-ordination of regulatory agencies. These aims and a corresponding purpose statement to the Act are encouraging. A number of measures in the Bill promote the aims but some amendments could have the opposite effect by increasing bureaucracy for minimum benefit, thereby discouraging investment and the development of Crown-owned minerals. TWO-TIER PERMITTING SYSTEM
The Bill introduces a two-tier permitting system. Tier 1 is for complex, higher-return petroleum and mineral projects. Tier 2 is for a larger number of lower-return industrial, small business and hobby operations. Tier 1 projects are subject to a more hands-on regulatory approach. Tier 2 projects are subject to a simpler and more streamlined management regime. The rationale for the two-tiered approach is to focus regulatory action on operations that have high technical and geological complexity and the potential for significant Crown royalties. However, operators of Tier 1 projects are usually very technically capable and, with the large investments they make, face strong incentives to develop resources properly. It is difficult to see how annual review meetings would lead to better decisions on resource development. Arguably, Tier 1 projects would instead benefit from a more simplified regime.
INITIAL HEALTH, SAFETY AND ENVIRONMENT (HSE) ASSESSMENT
For Tier 1 projects, there is a new requirement that the Minister of Energy and Resources, before granting a permit, be satisfied the operator has or will have capability and systems likely to meet all HSE requirements. The Minister will only be required to undertake a high-level preliminary assessment and is not required to obtain the views of any other regulatory agency, or duplicate any other assessment process. These limitations are intended to ensure that the HSE assessment is high-level and does not duplicate other existing legal requirements. However, the overarching requirement that the Minister be “satisfied” that the applicant meets the HSE standards is demanding, and may end up in exhaustive enquiries in order to avoid successful judicial review. IWI ENGAGEMENT The Government is encouraging permit holders,
and applicants for permits, to develop their own constructive engagement with iwi. As part of this, the Bill provides for Tier 1 permit holders to provide the Minister with an annual report of their engagement with affected iwi. This provision reflects the reality that effective engagement with iwi is necessary in order to ensure success of a project. ACCESS TO PUBLIC LAND Before commencing prospecting, exploration
or mining activities, a permit holder must have appropriate land-access arrangements with the landowner and/or occupier. For Crown land, the consent of the Minister of Conservation (or other land-holding Minister) is currently required. The Government considers that the current provisions are insufficient to ensure that mineral and economic objectives are considered when access arrangements are addressed. Accordingly, the Bill proposes that the land-holding Minister and the Minister of Energy and Resources jointly approve access arrangements. In deciding whether to approve access arrangements, the Minsters will be required to have regard to “the economic and other benefits of the proposed activity”. Another proposal is the introduction of a requirement to publicly notify all significant mining activities in public conservation land.
The Minister of Conservation and the Minister of Energy and Resources will jointly decide whether mining activities are “significant”. When determining whether proposed mining activities are significant, the Ministers will have regard to a range of matters relating to the effects of the activities on the land. The provisions do not, however, give the Ministers any guidance as to what level of effects would make an application “significant”. This broad nature of the matters to which the Ministers must have regard creates considerable uncertainty about which applications should be notified. It will take some time (and possibly litigation) before this is resolved. NEXT STEPS
The Crown has not yet released the revised minerals programmes that it has indicated will complement the Bill, but they are expected imminently. The minerals programmes will provide further important detail to the proposed changes. New regulations are also imminent, relating to royalties. Submissions are due by 2 November 2012. The select committee report (from the Commerce Committee) is due by 30 January 2013.
This article was written by Nick Crang, special counsel, and Julia White, senior solicitor, both based in the Wellington office of Buddle Findlay, a leading New Zealand law firm. Nick specialises in public and commercial law, and Julia specialises in environment and resource management law. Nick can be contacted on +64 4 462 0863 or nick.crang@buddlefindlay.com and Julia on +64 4 498 7331 or julia.white@buddlefindlay.com.
NICK CRANG
Buddle Findlay
JULIA WHITE
Buddle Findlay
10
analysis
Australasian Legal Business ISSUE 10.10
A SKIP AND A JUMP
Will HopgoodGanim’s merger with Q Legal signal the start of a new round of mid-tier consolidation? Report: Renu Prasad
A
s national firms began settling into international mergers and state-based firms began to expand into neighbouring markets, one important question has always remained unanswered over the years: where are the Queenslanders? True, McCullough Robertson has been quietly building its capacity in Sydney and the Hunter, but as a general rule Queensland firms have chosen to remain at home. Many firms have entered the Brisbane market in the past five years – the list of entrants includes Henry Davis York, Johnson Winter & Slattery and Middletons to name a few – but this is mostly one way traffic. There is no corresponding queue of Brisbane firms anxious to crack the Sydney or Melbourne market – or Perth for that matter. Until now. Queensland’s HopgoodGanim and Perth’s Q Legal have announced a merger which
will see the firms operating under the HopgoodGanim name from 1 November. The new firm will have 30 partners and 240 staff in total and HopgoodGanim’s Bruce Humphrys will remain managing partner of the combined entity. The purpose of this merger – to provide a cross-jurisdictional offering for clients and particularly resources clients – is obvious. Perth and Brisbane are a natural fit. It is somewhat surprising, then, to reflect that nothing directly comparable to this merger has been attempted before. Perhaps Queensland firms have been too busy keeping up with the growth in their home state to worry about Perth and vice versa. We have observed over the past two years the haste with which national top tier firms have moved into mergers and alliances. State based firms have not shown the same urgency. While we have seen some firms gradually increasing their national footprint, we have not yet seen one of the large state-based firms – for example Jackson McDonald, Henry Davis York, Finlaysons or McCullough Robertson – merge with another large state-based firm. That is not necessarily a negative criticism and indeed there would be many who would argue that independence is a wise course to maintain. However, it would certainly be instructive to look at the cultural reasons why state-based firms have generally
ANALYSIS
Australasian Legal Business ISSUE 10.10
not sought a “grand slam” merger and instead have contented themselves with more modest measures while their large national counterparts have pursued the opposite strategy. The terminology which accompanies mergers is always of interest. The HopgoodGanim-Q Legal tie up will see HopgoodGanim’s 27 partners joined by three partners from Q Legal, an arrangement which does have the flavour of a takeover. However, Humphrys told ALB that the firm would be going to great lengths to ensure that the merger would not become a takeover and that decisions would be made by consensus. “I’ll tell you this as managing partner – for the important decisions, if we don’t get unanimous buy in by all the partners we won’t do it,” he said. “On this [merger] for example - if there were two dissenters we wouldn’t be here. That’s a cultural thing, not a legal thing and that’s the way we have always operated our practice.” The emphasis on culture and equality is important and resonates with another merger story from King & Wood Mallesons. According to insiders, King & Wood was being courted by several international suitors in 2011 and opted for Mallesons because of the prospect of being an equal partner in the relationship. Apparently the down to earth Aussies were seen as a better cultural fit than other nationalities which were seen to have a more “top down” approach. Crucially, Mallesons was able to demonstrate its bona fides in this regard by agreeing to relegate its brand to second place on the shingle – a compromise which others were not prepared to make. HopgoodGanim will be keeping its name, but the same themes recur with the Q Legal tie up – a merger between two firms who themselves had been targeted by rivals as merger prospects. “Q Legal are like us – they had been courted by others in the eastern states,” said Humphrys. “But like us, Q Legal were just not interested on being on the end of [someone else’s] strategy. Here we felt we could both be in control of our own destiny but be able to do it with like-minded people.” So where is all this heading? Will HopgoodGanim still be a “mid-tier” firm after this merger, or is it time to buy a new pair of
11
boots and get serious about taking on the old top tier? If the old terminology was “top tier” and “mid tier”, what are the new equivalents? If the media statements are anything to go by, HopgoodGanim has solved this problem by introducing a new category: the phrase “upper mid-tier firm” comes up a lot in the firm’s press releases.
That’s a cultural thing, not a legal thing and that’s the way we have always operated our practice. “An upper mid-tier firm is an apt way to describe a large independent law firm that truly has a speciality offering across the full range of commercial sectors,” explains Humphrys “That’s what we well and truly have.” Humphrys said that HopgoodGanim was particularly anxious to compete with national and international firms. “You’ve got to have an offering that is directly in competition with the internationals,” he said. “We love that – we love jousting with those guys.” And ultimately that’s the main point. Firms like HopgoodGanim or Jackson McDonald or McCullough Robertson have always argued that they have the firepower to match the national firms. Now the current market shake-up provides the ideal opening to wreak some havoc on the old foes.
Brisbane – key market developments Date
Firm
Merger
Now operating as
July 2008
Herbert Geer
merged with Nicol Robinson Halletts
Herbert Geer
August 2008
Thynne & Macartney
merged with Biggs & Biggs
Thynne & Macartney
December 2009
Cooper Grace Ward
merged with Bain Gasteen
Cooper Grace Ward
January 2010
Barry & Nilsson
merged with Stubbs Barbeler
Barry & Nilsson
June 2010
Johnson Winter & Slattery
opened new office
Johnson Winter & Slattery
November 2010
Gadens
merged with Maunsell Pennington
Gadens
December 2010
M+K Lawyers
merged with BCI Lawyers
M+K Lawyers
March 2011
Henry Davis York
opened new office
Henry Davis York
June 2011
Thomsons Lawyers
opened new office
Thomsons Lawyers
January 2012
Middletons
merged with Flower and Hart
Middletons
October 2012
TressCox
merged with Macrossans Lawyers
TressCox
October 2012
HopgoodGanim
merged with Q Legal
HopgoodGanim
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analysis
Australasian Legal Business ISSUE 10.10
A CAUTIONARY TALE FROM INDIA History may be able to teach merger-happy law firms a lesson or two, writes Renu Prasad
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f you missed it, a small but interesting setback in the push towards the globalisation of the legal profession occurred last month. We’re talking about India and specifically the announcement that Allen & Overy has parted ways with local alliance partner Trilegal. “Allen & Overy and Trilegal today announce they have agreed, with much regret, to end their five-year referral agreement,” read an announcement from the firms. “The original agreement was intended to take advantage of the anticipated liberalisation of the Indian legal market. Unfortunately, the lack of progress towards legal sector liberalisation in India has led both firms to conclude their existing arrangement is restricting their ability fully to exploit the growing opportunities in India.” There will be some commentators who will see this announcement as further proof that government bungling of fundamental economic reforms is stymieing India’s prospects of matching China’s record of growth. For the Australians, however, there is another interesting angle. A&O’s alliance with Trilegal dates back to 2008 and was one of a number of similar arrangements implemented about that time. Other examples include Linklaters’ “best friends” agreement with Mumbai-based Talwar Thakore & Associates in 2006 and Clifford Chance’s best friends agreement with AZB in 2009. U.S. firms such as Jones Day and Brown Rudnick also entered best friend or exclusive referral arrangements with local firms. There are some parallels between India,
2009 and Australia, 2012. India was a hot market which, it was generally presumed, would only get hotter. A procession of firms made arrangements to access the market. Alliances were signed; firms which failed to follow the push into India were warned that they risked missing out. The unfortunate metaphor “being left with the ugly girl at the barn dance” received some airplay, referring to the diminishing number of attractive Indian merger partners on the market. The same expression has been used in Australia in recent years. And three years later, where has all this led? Well, Clifford Chance split off from AZB last year and now we have the A&O-Trilegal tie up consigned to the same fate. Like A&O, Clifford Chance blamed the split on the stalled liberalisation process and added that both firms had seen fewer referrals than expected. It is interesting that both firms cited the need to broaden their options and work with a wider circle of “friends”. “Both sides agree that, in the absence of liberalisation, each firm stands a better chance of increasing its market share by broadening our options for collaboration in the market,” said Trilegal senior partner Anand Prasad. This position contrasts with that taken by many Australian firms who have been narrowing their options. Non-aligned Australians such as Minters, Corrs and Clayton Utz have been quick to claim a strategic advantage by virtue of this reason. The lessons from India’s developing market should, of course, only be applied to the very different Australian market with caution. However, this story does demonstrate that a rush to enter a particular market or to pursue a particular paradigm is not in itself a vindication of that model. At this stage, there is no safety in numbers. International firms in Australia will not need to contend with the wildcard factor of market liberalisation. They will, however, have to contend with volatility in other forms: commodity prices, hotly contested taxation reforms and regulation will all have their impact on the Australian economy. Presumably international firms took all these risks into account before entering the market – they’re the experts in due diligence. But what the Indian experience teaches us is that common expectations about the future direction of a market can easily be thwarted. Let’s hope that will not be the case for our international friends on Australian soil.
Australasian Legal Business ISSUE 10.10
news
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In case you missed it….. The month’s top headlines from www.legalbusinessonline.com
STORY OF THE MONTH Squire Sanders launches in Sydney
Squire Sanders will open a Sydney office on November 1 and has recruited former senior Allens partner Campbell Davidson to spearhead the new practice, along with three senior lawyers from other firms. Squire Sanders’ initial Sydney-based team will include cross-border M&A specialist Davidson; of counsel Richard Pascoe, a IP and technology practitioner from Truman Hoyle (and previously Gilbert + Tobin); of counsel Louise Boyce, who specialises in taxation and is joining from DLA Piper, and senior associate Anna Elliott, a labour and employment lawyer who is joining from Holding Redlich. The Squire Sanders Perth office was launched last year with a majority of partners from the un-integrated Minter Ellison Perth office. The remaining partners of that practice joined the Minter Ellison east coast group or other firms in the market. John Poulsen, managing partner of Squire Sanders Australia, told ALB that the firm is in continuing discussions with another seven senior practitioners in the Sydney market, in particular project finance lawyers. “We don’t want full service offices,” he said. “Our focus is on being nimble and that is why we are starting small – with this initial team.” Poulsen said that at some point the firm would like to reach between 20 and 30 partners in Australia, but that number was dependant on finding the right people both culturally and professionally. In the past year Squire Sanders has continued its aggressive expansion into the Asia Pacific with new offices in Singapore, Seoul and a doubling in the size of its Hong Kong office.
BRISBANE New boutique Brisbane firm
Former managing partner of Walsh Halligan Douglas, Matt McCormick, has opened his own new firm, known as McCormicks. The law firm focuses on providing litigation and commercial advice to the insurance, music and entertainment, SME and sports arenas; whilst an associated consulting practice provides business growth, coaching and brand building advice to the law firm customers and others that operate in the SME, professional services and entertainment space.
RECRUITMENT Construction, banking and insurance specialists in demand
Legal practitioners specialising in construction, banking and finance and insurance are three of the most in demand practitioners in the Australian legal market at present, according to Hays. Construction lawyers are in demand in response to large infrastructure projects in the mining and resources industry. “We are also seeing demand for planning and environment lawyers from a number of top tier firms within their energy and resources practice,” the report stated. Other legal practitioners in demand as a result of mining and resources projects include corporate lawyers, and banking and finance lawyers, particularly senior project finance lawyers. Litigation, insurance and employment lawyers are also continuing to be in high demand.
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analysis
Australasian Legal Business ISSUE 10.10
What’s going on with government tenders? Linda Julian analyses contemporary trends in government tenders and competitive proposals in Australia and New Zealand.
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egal business continues to change, and how law firms do business with the public sector is a case in point. Amid global financial dramas, continuing economic uncertainty, our multi-speed economy, increasing pressure on budgets for all levels of government, and tough trading conditions for many law firm clients, come plenty of business problems for law firms plus some new opportunities for the agile. The macro environment has made for direct impacts on public sector procurement. Government continues to be a big player in the economy and a highly attractive client for professional services firms. The public sector is still spending: while belts are tightening, in several areas they’re buying more legal services than before. Governments choose their suppliers through formal procurement processes and for law firms this means increasingly rigorous and demanding tenders plus “continuous feedback loops”. “Informed purchasing” is the new name for a sensible old idea: that those buying legal services should draw on experience to make purchase decisions and maximise effectiveness of their sizeable spend. This is a central theme running through legal provider selection and timely recognition of the commercial clout and market power governments can exercise to buy the right services from best-fit firms at favourable prices and then derive maximum value and benefit. It was always a good idea for law firms to get to grips with tendering. Now, it’s essential for any practice which aspires to transact with the public sector. We have observed considerable overall increase in public sector tenders for expert professional services, especially legal services. Public sector purchasing in both Australia and New Zealand is now highly centralised and becoming much more demanding and rigorous. As predicted, capable professional service firms who master the
science and art of tendering are rewarded with good business on terms ranging from fair to highly attractive. Compliance isn’t “trendy” – it’s vital. Show you are the right choice to work with the ultimate client by playing within their rules. Expect almost no latitude. Procurement is in charge of these processes, so don’t depend on old allies to ease your way through, nor can you call in favours to overlook or forgive your failure to play within the rigid (and sometimes complex and confusing) rules of the process. Tender timeframes have contracted. The public sector is working to tight timelines and that flows through to shortened, rapidfire calls for tenders. Even massive, complex bid processes are typically open for only four to five weeks. To succeed, you need to be resourced and organised ahead of time, or to be able to drop everything and bring all hands to the pump (and generally the capable professionals and highly credentialed firms are already busy). Many bid documents are voluminous, complex, demanding and downright daunting. Sadly, some recently issued RFTs have been messy, internally contradictory, confusing and amended by various addenda. Unfortunately, some addenda mid-way or even late in the process
Linda Julian is managing partner of Julian Midwinter & Associates, strategic practice development consultants to the legal and professional services sectors.
Continued on page 16
Unlock your growth potential. Firms using BHL Insight really are more profitable. BHL Insight gives law firms a complete accounting, matter management, document/ email automation, marketing and collections system. At a surprisingly low cost. 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.
Software or more time at home?
Software or bigger premises?
Software or better holidays?
Use BHL Insight and have it all!
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 cmec@bhl.com.au or call 1300 132 385 to arrange a free, no obligation presentation.
Ph 1300 132 385
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Australasian Legal Business ISSUE 10.10
Technology in practice
Q&A with
Damian Huon Damian Huon is a legal technology strategist with over 23 years experience advising Australia’s leading firms. As CEO of Huon IT, Damian and his team achieve business outcomes for professional service organisations with ‘everything technology’.
Is a “Bring Your Own Device” policy a smart move for your firm? iPhone, BlackBerry, Android or Windows? With so many mobile devices on the market, many firms face the challenge of balancing staff’s personal preferences with corporate security. Here, seasoned Legal Technology Advisor Damian Huon shares the do’s and don’ts of “BYOD”.
Q1
First and foremost, is BYOD safe?
Not always. Allowing staff to connect to your corporate system via their personal device can be like opening Pandora’s Box if you don’t have the right measures in place to protect your business. At minimum, passwords should be compulsory on all devices. This is a common standard and should already be in place at your firm – simply check this with IT. The more contentious issue however, is setting up a central console so all data on the device can be remotely wiped if it is lost or stolen. Again this is easy to set up; however it means staff will loose their personal data too – including photos, messages and apps - so this needs to be made abundantly clear in a formal policy.
hat obligations does the firm have if Q2 Wsomething goes wrong with the device?
The last thing you want are iTunes problems, customised settings, or App queries flooding your IT team. It is crucial to draw a line in the sand early as to what your firm will cover, and what individuals are responsible for. When writing your BYOD policy, be clear on the following: i. Define ‘business use’; for instance many firms only support connectivity, Citrix and Email issues. ii. Security; Smartphone viruses are on the rise, and Android and Windows phones are particularly vulnerable. iii. Updates; Who is responsible for software updates, and how often. iv. Damages; Will you cover repair or replacement costs if damaged at work.
Q3
Are the benefits of BYOD really worth these complications?
While BYOD certainly poses a raft of challenges to address, it also offers great advantages for your firm. From a financial point of view, it doesn’t cost the business. If staff choose to invest in devices, why not let them use for work? Staff happiness is also a crucial point to consider, particularly for those who work long hours or from home. Allowing them to work with their technology of choice not only increases job satisfaction, but also promotes flexibility and mobility. Finally, HOW the devices are used is key. Smart phones are capable of much more than simply checking email – you could consider mobility server licensing to access your document management system, or virtualisation software such as Citrix to access applications or even their own desktop.
Most importantly – have a crystal clear BYOD policy! While it might ruffle some feathers within your team, it is essential to your firm’s future. Email your questions to alb@huonit.com.au
have made substantive changes to requirements or response formats, adding to workload, stress, ultimate cost, and arguably disadvantaging those who get to work early. Appointment durations are sometimes shorter as departments and agencies roll out programmes faster to deliver on policies, and government programmes frequently have finite lives. Procurement practitioners and the consultants they call on often demand more of bidders. Specific, explicit responses to questions and evaluation criteria are essential to pass the test. Rarely is a cut and paste of last time what it takes to meet criteria this time. To succeed, tender responses need to be short, sharp and written for each specific occasion. Retire the trusty old boilerplate. Tender evaluation teams won’t spend time hunting through general material for the information they need. Many tenders are now page-limited and sometimes those limits are hard to fathom. The action has moved on from sending mountains of material to focused, for-the-occasion responses within strict space limits. Most tenders have strict limits on content. Only rarely will you be able to add a swag of generally-impressive “brochureware” and that’s a good thing (because it mostly doesn’t help anyway). Page counts and word limits will be enforced. Evaluators, under pressure to produce an objectively defensible outcome on time, are not resourced to read all you might want to write. Plus, standardised procurement finds this much more manageable. Form and content of tenders is increasingly objectified. Opportunities to differentiate many bids through elaborate branding, extensive graphics, formatting and “fluff” factors are now elusive. Specific examples and well-crafted case studies will demonstrate your credentials. Don’t rely on claims and generalities. Re-cut and
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Australasian Legal Business ISSUE 10.10
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In-house Q&A
DAVID FREEDMAN General Counsel – Legal, Compliance & Corporate Affairs
Simplot Australia Pty Limited In your opinion, why have in-house lawyers become an increasingly indispensable part of an organisation?
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In-house lawyers know the relevant laws, risks and challenges of the industry and organisation in which they operate. They understand the business and can demystify legal concepts. They shape and influence key business decisions while at the same time manage risk issues that impact those decisions. In-house lawyers are increasingly exposed to and skilled in considering risks that are not purely legal ones such as financial and reputational risks. By being able to inter-relate closely on a commercial and personal level with a range of people within an organisation, in-house lawyers display organisational agility and bring a balanced, holistic perspective in legal and risk management processes and decision making. In-house lawyers have sound organisational and project management skills and add significant value to achieving project outcomes. In-house lawyers are increasingly fine-tuning their people and “softer” skills to obtain buy-in and become a trusted adviser to many within the business. The focus becomes adding value not cost to the business.
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customise in response to specific requirements and ensure these are contemporary and relevant. Expect your referees to be exhaustively checked. Government buyers are savvy and will not be fobbed off with “feel-good” references that you are nice folk, personable professionals, and good citizens. They demand lots of specific information to support meaningful due diligence with appropriate referees. Electronic submission is the norm, frequently accompanied by hard copy. Remember that much of your content will be loaded into procurement engines and databases – more reasons for the “standardisation” we observe. The public sector looks for strong business practices, process, procedure, and technology as prerequisites for you to scale operations for their new work. “Give us the work and we’ll get more clever people to do it” won’t make the cut. You’ll need to show how you can transition their work into your production platform. We predict increasing interest in transition out, too. It is still true that strong sales messages which resonate with the wider objectives of government must be skilfully woven through your response. Only occasionally now are you allowed an executive summary. Even if you are, don’t depend on it to carry the sales pitch for a win. To win, every sentence of your response must evidence the appropriateness, effectiveness, and efficiency of your work and that you “get” what government is after. As the old saying goes, winners are grinners, and law firms (of all sizes and locations) who get to grips with the new protocols of competition and then deliver on their promises can look forward to streams of great work on commercially sensible terms.
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? Yes, this has definitely increased my risk profile and I myself wear several formal hats including General Counsel and managing Compliance, Corporate Insurances, Corporate Affairs, Company Secretarial and Intellectual Property! Increasingly, there is a blur between the black letter provision of legal advice and some of these less legal roles. The multi-faceted role of the General Counsel automatically necessitates greater commercial focus and vigilance and a level of business acumen. Of course, there is a constant balancing act between maintaining the lawyer’s primary focus on legal duties, professionalism and ethics while adopting a commercial, “can-do” approach. The maintenance of this independence and professionalism cannot be compromised and is, in fact, ultimately respected by the business.
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In your opinion, what do you consider to be the main challenges for inhouse counsel in your particular industry sector (food/ FMCG)?
The current economic situation for Australian manufacturing, including Australian food processors and manufacturers like Simplot Australia, is well documented. Simplot Australia has a wealth of iconic food brands like John West, Bird’s Eye, Edgell and Leggo’s. However, the rise of private label brands and the increasing costs of doing business, such as raw material costs and the carbon pricing scheme, are posing great challenges. There is increasing pressure to import raw materials and finished goods from countries with lower cost bases. From a more legal point of view, there are challenges dealing with social media and sustainability and increasing regulatory requirements like the revamped OHS laws and the carbon pricing scheme. All of these challenges necessarily impact on the advice and support our in-house lawyers provide to the business.
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 Melbourne t | +61 3 9910 6700 Sydney t | +61 2 8249 4730
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Australasian Legal Business ISSUE 10.10
In-house perspective
Making the most of his power Christian Paech, General Counsel at Santos
Santos general counsel Christian Paech returned to his home town and previous client to guide it through a new era of energy production in Australia. Olivia Collings reports on how he’s making the most of his legal resources under increasingly tough conditions.
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nce upon a time the Australian energy sector was focused on one thing and one thing only – coal. But in recent years that has changed and companies such as Adelaidebased Santos are leading the way both here and abroad in bringing to market new, but no less challenging, forms of energy such as liquefied natural gas (LNG) and coal seam gas. For general counsel at Santos, Christian Paech, this new frontier brings exciting opportunities but also plenty of challenges. “It’s been great to be part of something so significant and transformational for the Australian oil and gas industry,” says Paech of the Gladstone GLNG project, a project to convert coal seam gas (CSG) to LNG for export to global markets. “I think it’s going to be an exciting time over the next few years seeing the project materialise and the first shipments of LNG going overseas.” One of the first things Paech worked on when he joined Santos in 2004 was the winning bid for U.S. company Tipperary, which owned the gas exploration and production permits that would later
became the foundation of the PLNG project. “It’s been very interesting, challenging, intense and satisfying,” says Paech of seeing that project come to life. “It will be another legacy asset for Santos and it has reinvigorated our Cooper Basin assets.” Since that acquisition Santos and the legal team have grown to accommodate the additional work that such an endeavour requires. “The whole legal team has been involved with that project, from organising financing to make sure the company was able to make capital commitments that it has sanctioned, including the hybrid issue in Europe,” says Paech. “There was a lot of debt capital raising; and then there were contracts with a multitude of contractors and service providers, and of course LNG sale agreements.” However, having successfully seen the project go from a dream to delivery phase, Paech is well aware that the next 12 months will not be any easier. “The execution phase is not any less challenging than sanction phase for a project such as this; in fact, I would suggest it is even more challenging,” he states. “It’s shifted from being transactional to being more operational, but the work is still there. There is also a lot of compliance work, especially around environment regulations and conditions, making sure that at all times we operate safely and responsibly.” He adds: “We advise the business on what is an incredibly comprehensive regime.” Moves and mergers Like many of his colleagues and predecessors, Paech joined Santos following a successful private practice career which included time as a partner at Piper Alderman. Indeed, it was his Adelaide
Australasian Legal Business ISSUE 10.10
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profile heritage that led Paech back to Adelaide and Santos after working at Ashurst LLP in London, and Freehills and Piper Alderman in Melbourne. “My career started at Adelaide firm Kelly & Co which is also where I first began my association with Santos,” says Paech. When a position within the corporate development group at Santos came up, Paech seized the opportunity to be closer to family having just become a father for the second time. Since joining the company he has held a number of roles, which eventually led to him assuming the general counsel position in an acting capacity before being confirmed as the new general counsel in late 2010. When Paech joined Santos the legal team consisted of 10 lawyers, today it is a team of 30 located in Adelaide, Brisbane, Perth and overseas. “We map our legal structure to the structure of the company,” says Paech. “We have a legal manager responsible for each business unit and we try to align ourselves with the business as much as possible.” Although lawyers are aligned to the business, reporting is still strictly through Paech. “They are embedded in the business so that they know what the business needs, but they still have enough independence to make sure they execute that governance aspect of the role, which is essential,” he says. “Increasingly governance, particularly for a listed company, is a key concern for investors and I believe an independent legal team is central to good governance.” The legal team at Santos has in recent times picked up more of the workload and on average does a bit more than 50 percent of the legal work required. Paech likes the balance as it is and does not expect it to change any time soon. “There are certain things we should be able to do better than external lawyers, because we do it a lot, and it’s fundamental to our business; but that doesn’t mean we don’t call on external advisers when we need specialist advice or critical mass,” he says. When he does require legal advisers Paech will regularly turn to his old firms Freehills and Ashurst (formerly Blake Dawson) for
if there is one area I think lawyers could use a better understanding, it would be client service. Firms could use some coaching around understanding the business’ needs better, rather than assuming what it is the business needs.
Australasian Legal Business ISSUE 10.10
large corporate or transactional work, and local firms for ad hoc jurisdiction-based work. “We locally try and use firms in each state we operate, which are unique to that market,” explains Paech. “We try and locate those firms that haven’t got a national affiliation when looking at work in a particular market… I find that they have a stronger connection with the local community, and we also find that generally they have some great lawyers and are very cost effective when compared to the nationals that operate in that market.” However, that’s not to say he doesn’t appreciate what the national or international firms have to offer. In particular Paech has been impressed by Herbert Smith Freehills client relationship partner Mike Ferraro who joined from BHP Billiton. “I regularly use him as a sounding board because he has in-house experience, and law firm experience,” says Paech. “He has been very attentive, and because of his time in-house he really does have a much better understanding about client service and if there is one area I think lawyers could use a better understanding, it would be client service. Firms could use some coaching around understanding the business’ needs better, rather than assuming what it is the business needs.” While Santos has withdrawn from some overseas locations such as the U.S. it has increased its interests in Asia and is still very much an international organisation. According to Paech, the international nature of the work will continue to increase, as even when operating in one jurisdiction contracts with suppliers and customers are often cross border. “International conventions and legal regimes must be understood, so the ability for an external firm to be tapped into the broader legal market is really critical,” he says. “In our industry, it is impacted significantly by the super majors that have come out of the U.S. and UK.” As Santos’ business becomes more Asia focused Paech and his team will also increasingly look to utilise those firms with a presence both here and abroad. “I think the mergers have been good for clients and I think they have improved the service offering that we get,” he says. “The Australian firms have good coverage there [Asia] and it has been interesting to see what has happened with the mergers. Again, most of the UK firms also have a good Asia presence, and UK law is still predominantly how business is governed in that region.” Getting down to business Santos does not have a panel arrangement with firms and Paech has no desire to introduce a panel as he enjoys the freedom to appoint individuals rather than firms. “I am attracted to having flexibility around which law firms we use, and we have established relationships, which are very important to us, but certainly, we like to be free to use who we think is the best for that job,” he states. “Ultimately law firms are made up of individuals, and the strength of their brand depends on the strength of those individuals over time.” Another reason for not having a panel is that Paech is keen to pursue the best possible value out of firms undertaking work for the company. “There is a huge amount of discussion on costs at the moment, particularly within the energy and resources industry, and part of that is what you pay legal advisors,” says Paech. “I will be looking at any way I can to keep costs down... I think that in the Australian market there is a wealth of talent in terms of lawyers, so I don’t think it is hard to find a good value proposition, but it is something that we keep an eye on.” While he concedes that the traditional time billing methodology is flawed, he is also aware that as yet, there are limited options for him and his legal providers. “One of the problems with time
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Australasian Legal Business ISSUE 10.10
charging is often that there is nothing tangible to show at the end of that month,” he says. “If a transaction gets completed or a contract signed, then that is straight forward, but in the lead up it is not as easy to demonstrate tangible value. However, it’s very difficult to find an alternative billing arrangement that works outside unique transactions.”
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Paech regularly uses retainer styled arrangements, but ultimately, hourly billing is the norm when engaging external advice and he does not see this changing any time soon. “I think until there is a real trust between clients and firms, fixed fee arrangements are going to be very difficult,” he says.
some Key Santos projects: GLNG The GLNG project in Gladstone Queensland is a pioneering project to convert coal seam gas (CSG) to liquefied natural gas (LNG) for export to global markets. The estimated gross capital cost of the project is approximately US$16 billion (including US$2 billion in contingencies) from the final investment decision until the end of 2015, when the second LNG train is expected to be ready for start-up.
Fletcher Finucane The Fletcher Finucane oil project is located in the Carnarvon Basin, offshore Western Australia. The project involves the development of a three-well subsea tie back to the existing Santos-operated FPSO at Mutineer-Exeter. The project is expected to extend the economic life of Mutineer-Exeter by up to four years. Gross proved and probable reserves are estimated at approximately 14 million barrels.
Joint venture partners:
Joint venture partners:
Santos (operator)
30%
Santos (operator)
Petronas
27.5%
Kufpec Australia
Total
27.5%
JX Nippon Oil & Gas
Kogas
15%
Current status: The Santos GLNG project was sanctioned by the joint venture partners on 13 January 2011.
44%
Current status: The $490 million Fletcher Finucane project was sanctioned by the joint venture partners on 13 January 2012. First production: First oil production is expected in the second half of 2013, at an estimated average gross production rate of 15,000 barrels per day for the initial 12 months.
+ Queensland Floods
+ New Zealand Earthquakes
+ Centro Properties class action
+ Lehman Brothers Australia class action
+ Black Saturday Bushfires
+ Hanover Group Ltd
+ Great Southern class action
+ Storm Financial
+ Special Commision of Inquiry into sale
+ Trio Capital
of NSW Electricity Assests
+ RiverCity Motorway Pty Limited
The common factor?
www.wottonkearney.com.au
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Australasian Legal Business ISSUE 10.10
Chinese investment in Africa: managing the risks Chinese investment in Africa is on the rise – but there’s an Australian element too, write David Eliakim and Apoorva Suryaprakash of King & Wood Mallesons.
O
ver the last twenty years, Africa has emerged as an investment hotspot, driven mainly by mining and resources. Chinese investment has led the charge, reaching an aggregate level of $15 billion over the past decade. In 2011 alone, China’s direct investment in Africa grew 59 percent driven by the desire to diversify commodity sources, concerns with energy security and the availability of competitive financing from Chinese banks. This has implications for Australia because one of the ways China invests in Africa is through buying Australian companies with African mining assets. Recent examples include Taurus Mineral’s acquisition of Extract Resources, BCX Gold’s takeover of Gold One, and the proposed acquisition of Sundance Resources by Hanlong Mining. In the current environment of falling commodity prices and a tightening credit market, Chinese investment is integral to new project development and the expansion of existing projects. For example, ASX-listed African Petroleum has been negotiating with PetroChina to take a 20 percent stake in an oil well in order to take the project to the next stage of production. Purchasing Australian companies allows Chinese investors to take advantage of the groundwork which has been laid by these entrepreneurial entities, notably pre-existing mining licences. China also benefits from the managerial expertise of Australian staff, who are renowned for their success in developing start-up mining projects. The recent Africa Down Under conference in Perth highlights the depth of Australian involvement in Africa, with around 200 Australian companies involved in 650 projects in 37 countries in the region. A sound appreciation of the risks involved has been central to Australia’s success in Africa. Whether based in Australia or China, all investors in Africa face the challenges of limited infrastructure, skills shortages and importantly, the risk of resources nationalism. While Africa has been relatively benign on resources nationalism this year (compared, for example, to Mongolia and South America), there have been several concerning developments. Guinea’s new government is currently reviewing mining rights granted by the previous government. It recently passed legislation allowing the state
a free carry interest of 15 percent in all new mining projects. In Zimbabwe, the willingness of investors to invest has been dampened by the introduction of measures to transfer 51 percent of foreign owned mining companies to indigenous Zimbabweans in accordance with domestic legislation. So what can Chinese and Australian investors do to manage the risks of long term projects in a region where the economic and political landscape is still developing?
The recent Africa Down Under conference in Perth highlights the depth of Australian involvement in Africa, with around 200 Australian companies involved in 650 projects in 37 countries in the region. One of the most effective ways is to take advantage of bilateral investment treaties (BITs) and free trade agreements which contain investor protections. These treaties give investors the right to compensation for expropriation of their assets. They also require governments to treat investors fairly and to allow the repatriation of profits. BITs are an effective avenue of risk management because they grant investors a direct right of arbitration against host states. To assist with this process, the Washington Convention has established a neutral dispute resolution body, the International Centre for the Settlement of Investment Disputes (ICSID). Parties to
resources
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the Washington Convention are bound to enforce awards as final judgments of the highest court of their own state. Importantly, the award is enforceable against the country’s foreign assets. At present, there are at least 143 nations who have signed the Washington Convention. A staggering 44 out of 54 African countries have signed and ratified the Washington Convention, enhancing the enforceability of treaty protections. Being a signatory to the Washington Convention, however, is not enough. To benefit from the enforcement provisions under the Washington Convention, investors need to be able to access BITs between their home countries and the countries in which they are investing. There are several instances where BITs have been used to hold African nations to account for breaching investor rights. To date, at least 84 ICSID proceedings have been brought against African countries. Approximately 40 percent of concluded arbitrations have been settled, resulting in some measure of relief for investors. One of the limitations of the Washington Convention is that the obligation to enforce an award is restricted to its pecuniary obligations. This means it is not possible to enforce an award ordering specific performance eg, restoring property which has been unlawfully expropriated. Another limitation is that awards are only enforceable against the commercial assets of a State (for example, this does not include bank accounts held overseas by diplomatic missions). So, if an African state with limited commercial assets nationalised a mine, an investor would not gain much benefit from arbitration. Despite these limitations, states still have good reasons to comply voluntarily with arbitral awards. ICSID is set up as an institution within the World Bank. Failure to comply with awards may potentially draw the unfavourable attention of the World Bank in relation to financing, which could be a concern for developing African nations. Additionally, non-compliance with arbitral awards is likely to have an adverse impact on the willingness of investors to invest in the country.
Since April 2011, the Australian Government has resisted entering into BITs that give investors direct rights to arbitration, effectively making the protections contained in these BITs useless and unenforceable. The Government’s position is motivated by concern arising from claims by foreign investors, but ignores that these treaties would also facilitate claims by Australian companies investing overseas and that, in many cases, foreign investors have already structured their investments to take advantage of our existing treaties. Egypt is currently the only African nation with which Australia has an investment treaty. In comparison, China has entered into 30 BITs with African states, 13 of which are in force. As a result, in order to benefit from treaty protection, Australian companies investing in Africa have to structure their investments through other countries such as the Netherlands, which has treaties with seven African nations. The sheer magnitude of untapped resources in Africa means there are big rewards for investors who take on the risks of operating in the region. BITs are an important tool in the risk management arsenal of foreign investors in Africa. As the African market develops in areas beyond mining and resources, BITs may come to play an increasingly important role in protecting and enforcing investor rights.
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David Eliakim is a partner and Apoorva Suryaprakash is a law graduate at King & Wood Mallesons. King & Wood Mallesons is currently acting for Hanlong Mining in relation to the takeover of Sundance Resources and specialises in structuring and advising on cross-border transactions involving China, Australia and Africa. The firm has acted in the only known investment treaty claim brought by an Australian investor in which its client was successful against the Republic of India.
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hot 40
Australasian Legal Business ISSUE 10.10
HOT
40
2012
Supported by
The Hot 40 is ALB’s annual showcase of Australian and NZ private practice lawyers who have particularly distinguished themselves throughout the year. They may have done this by advising on genuinely ground-breaking or novel transactions, offering leadership or original and provocative insights on matters of relevance to the legal profession or maybe they’ve invented a new kind of raspberry jam. That’s the Hot 40 for you – sometimes surprising, sometimes predictable but always (we hope) entertaining and a reminder of some of the individuals who have added colour and character to the legal profession throughout the year.
HOT
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HERE COME THE MEN (AND WOMEN) IN SUITS....
What’s with all the blokes in the Hot 40, one reader wrote in to ask last year. We acknowledged the problem, but explained that part of the background was that the Hot 40 traditionally has had a weighting towards partners and senior management – the most male dominated sectors of the profession. We can improve the diversity of the partner mix in the broader 40, but when it comes to managing partners...well, there just aren’t that many women in those positions at this point. You’ll have to excuse us for the “blokes in suits” feel to this opening stage of the 40. This section is an acknowledgment of the deep changes which have occurred in the market in 2012 and the law firm CEOs and managing partners who have been responsible for bringing this change about. Mergers have been the most visible development in the market, but there are also leaders who have been impressive in other aspects of their firm stewardship. We don’t have room for everyone we would have liked to include – so here’s our best attempt at a representative selection. We start this year’s Hot 40 by acknowledging the gentlemen behind the biggest story of the year: the arrival of Herbert Smith, Linklaters, King & Wood and Ashurst on Australian shores via mergers and alliances with local firms. A great deal of passion and personal sacrifice has gone into these mergers; we understand some of these four men have spent more of the last year abroad than they have at home. Travel might be fun in short doses, but we have no doubt that they have had enough of airports and check-in queues to last a lifetime. Raise a glass, then, to the leadership of this quartet – this is just the start of the journey.
1
Gavin Bell, CEO, Herbert Smith Freehills
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John Carrington, Australia Managing Partner, Ashurst
2012 HOT 40 – by firm Ken Jagger
AdventBalance
Michael Rose
Allens
Robert Pick
Allens
Nic Tolé
Allens
John Carrington
Ashurst
Belinda Findlay
Ashurst
Tony Denholder
Ashurst
Martijn Wilder
Baker & McKenzie
James Gibson
Bell Gully
Brian Clayton
Chapman Tripp
Stuart Byrne
Clayton Utz
Brigitte Markovic
Clayton Utz
Teresa Handicott
Corrs Chambers Westgarth
Melinda Upton
DLA Piper
Anthony Whealy
Gadens
Neil Pathak
Gilbert + Tobin
John Schembri
Gilbert + Tobin
Michael Harmer
Harmers Workplace Lawyers
Sharon Cook
Henry Davis York
John Cain
Herbert Geer
Murray Dearberg
Hebert Smith Freehills
Gavin Bell
Herbert Smith Freehills
Rebecca Maslen-Stannage
Herbert Smith Freehills
Tony Damian
Herbert Smith Freehills
Graeme Smith
Herbert Smith Freehills
Philippa Stone
Herbert Smith Freehills
Bruce Humphrys
HopgoodGanim
Stuart Fuller
King & Wood Mallesons
Berkeley Cox
King & Wood Mallesons
Nicholas Pappas
King & Wood Mallesons
David Friedlander
King & Wood Mallesons
Sue Kench
King & Wood Mallesons
John Mann
Middletons
John Nerurker
Mills Oakley
Virginia Briggs
Minter Ellison
Bill Papastergiadis
Moray & Agnew
Ernest van Buuren
Norton Rose Australia
Robert Milbourne
Norton Rose Australia
Brett Burns
Rockwell Bates
Pip Greenwood
Russell McVeagh
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hot 40
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Michael Rose, CEP, Allens
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Stuart Fuller, Global Managing Partner, King & Wood Mallesons
John Nerurker, CEO, Mills Oakley This year we’ve chosen Mills Oakley to represent the cohort of outstanding mid-size firms in the Australian market. As we noted in the ALB 30 survey earlier this year, the majority of Australian firms are continuing to grow year on year – but the really remarkable growth is at the mid-size level. Mills Oakley has had double digit fee growth for eight consecutive years and a more than 20 percent increase in partner numbers to nearly 40 since 2011. But what we find particularly convincing about the
Mills Oakley and the Nerurker approach is the stance on the quality and sustainability of growth: boosting the figures means nothing if the firm drops the ball on quality of service and personnel. Mills Oakley provides the template for discerning quality growth.
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Bruce Humphrys, Managing Partner, HopgoodGanim Mid-size firms have been busy with mergers and alliances too. Each of these tie ups has their own merits, but the merger between Brisbane’s HopgoodGanim and Perth’s Q Legal is, in our view, a stand out. The synergies between the Brisbane and Perth market are obvious and Humphrys and his team should be commended for being the first – and perhaps not the last – to take the plunge. It’s good to see a Brisbane firm planting the flag nationwide.
Sharon Cook, Managing Partner, Henry Davis York They didn’t think it was possible to win it three years in a row, but HDY was indeed named the Sydney Firm of the Year at the 2012 ALB Awards for the third consecutive year. Under Cook’s leadership, HDY has branched out into new markets in more ways than one – best known as a top Sydney insolvency and restructuring practice, HDY has been busy expanding into new practice areas such as public sector work and it now has a presence in Brisbane too.
HOT
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John Cain, Managing Partner, Herbert Geer One of the more interesting senior appointments of the year was the recruitment of former Maurice Blackburn managing partner John Cain to the top role at Herbert Geer. Cain was managing
partner at MB for 10 years until 2002 and then served five years as Victorian Government Solicitor before returning to Maurice Blackburn as a consultant last year. We’ve already seen Piper Alderman pursue more plaintiff litigation
work in recent years – will Herbert Geer go down the same path? Interesting times indeed for this Melbourne stalwart.
Ken Jagger, CEO, AdventBalance Last December, ALB’s Fast 10 survey identified two “alternative model” firms as among the top 10 fastest growing firms in Australasia. These were Balance Legal (52 percent revenue growth) and Advent Lawyers (105
percent growth). Things have progressed rapidly since then: under the guidance of Balance MD Jagger, the two firms merged to form AdventBalance in July. This is a unique secondmentbased operation spanning the major Australian capitals and Singapore and Hong
Kong and, in a market ripe for economies, there is little reason why the heady growth should not continue. We’ve said it before and we’ll say it again: alternative model firms are here to stay. Ignore them at your peril.
Bill Papastergiadis, Managing Partner, Moray & Agnew (Melbourne) We’ve previously noted the progress of Moray & Agnew’s Melbourne operations under the stewardship of Papastergiadis and it appears that this former member
of the Victorian Schoolboys Champion Soccer team has continued kicking goals for his firm. Revenues grew by 44 percent to A$20.5 million last financial year and lawyer headcount is up by 51 percent, courtesy of the recruitment of established insurance teams from Monahan & Rowell and
other senior appointments. Morays, of course, is best known as an insurance specialist but watch out for this firm in other areas – particularly construction and infrastructure.
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hot 40
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A WELL BALANCED DIET Despite M&A volumes being well down in 2012, most Australian law firms grew their revenues. Why? We think the explanation lies with the rise of certain other practice areas: the famed counter-cycle has finally kicked in and practices such as workplace relations, dispute resolution and other previously lower profile areas are having their day in the sun. And it’s not just a question of practice areas either: we suspect some firms are also rediscovering the joys of mid-market work. The days of gorging on mega-deals are over: a well-balanced diet of front end and counter-cyclical work is just what the doctor ordered .
Belinda Findlay, Partner, Ashurst Intellectual property is back in the spotlight following the breakout of global hostilities between Apple and Samsung. While much of the attention has been on the California case, let’s not forget the many corresponding courtroom battles happening across the world between these parties, including in Australia where Findlay and her colleagues at Ashurst have been acting on behalf of Samsung. This is the biggest piece of IP litigation this country has ever seen, with Apple claiming
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that Samsung has infringed 22 patents and four designs with its phones and tablets, and Samsung countering with allegations of infringement of its standard telephony patents by all of Apple’s iPad and iPhone products.
Graeme Smith, Partner, Freehills Revenue-wise, Freehills was one of the fastest growing Australian top tier firms in FY2012 and there can be little doubt of the role played by Smith and the workplace relations team. As ALB has previously noted, Smith’s team has acted on every high profile and significant industrial dispute across the country, including the infamous Qantas lockout. Other firms also played a part – we understand Ashurst were in the mix too – but this has been an outstanding year for the Freehills team in which we have
seen industrial relations come to the fore with renewed vigour - and if the antics on certain Melbourne building sites are anything to go by, IR will continue to ride high on the national agenda.
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Martijn Wilder, partner, Baker & McKenzie Wilder was this year awarded the Medal of the Order of Australia for his service to environmental law, particularly in relation to climate change. He’s well known for his expertise in this area, most recently leading the Baker & McKenzie team advising the Australian Government on the Clean Energy Act which came into play in July. We seem to recall commenting in previous years that Wilder was probably hoping for some more certainty around the future
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of Australia’s carbon trading policy – it seems that with the current partisanship in Canberra, that wish won’t be granted anytime soon. Perhaps a year in politics is not such a long time after all.
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40
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2012
Supported by
Brigitte Markovic, Partner, Clayton Utz The in-house profession has no doubt been thoughtfully digesting the implications of May’s High Court decision relating to the separation of the company secretary and general counsel roles at James Hardie. Chalk this one up as a significant win for ASIC and the Clayton Utz team which advised ASIC over a five year period, under the guidance of Markovic. Other members of the Clutz disputes team have also had a notable year – partner Doug Jones was made an Officer
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of the Order of Australia for distinguished service to the law, inter alia in the areas of arbitration and alternative dispute resolution.
BARANGAROO AND BARRY-DO Need some advice on a major property redevelopment? Try giving one of these lawyers a call. We’ve added a distinctly NSW perspective to this section in honour of Premier Barry O’Farrell, who was recently described as a “do nothing” leader by Sydney’s Daily Telegraph. We’re not sure what Barry’s grand plan is either, but we do think there are some notable things happening in NSW – here are some examples.
John Mann, Partner, Middletons It has been a busy year for Mann and his team at Middletons, who have worked on nearly 20 transactions during the year – not a bad run rate at all considering the relative size of the firm. The year commenced with Mann and his team acting on the $375 million sale of the Ascent Pharmahealth Group to Watson Pharmaceuticals which saw the deal documented and completed in less than a month and in one instance with a stretch of 48 hours without sleep!
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Murray Dearberg, Partner, Herbert Smith Freehills When it comes to property deals, they don’t get any bigger than Sydney’s Barangaroo development, valued in the vicinity of A$6 billion and Australia’s largest urban renewal project. This project has been a boon for Freehills, who are advising Lend Lease on all legal aspects of this major property development. That includes the original bid to develop the site, the project agreements, launching a new wholesale property trust
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and subdividing the site among other tasks. Key personnel here include senior projects partner Murray Dearberg and funds M&A expert Justin O’Farrell.
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hot 40
Sue Kench, Partner, King & Wood Mallesons Other firms have also had involvement in Barangaroo. Heading the list is KWM’s Sue Kench, who was the lead partner acting for Canada Pensions Plan Investment Board and Australian Prime Property Fund in respect of their A$2 billion investment in the site’s first two towers. Kench has also acted on a number of the market’s high profile real estate transactions, including RREEF’s acquisition of the iconic ASX building at 20 Bridge Street, Sydney. One
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Anthony Whealy, Partner, Gadens Another quiet achiever in the NSW market has been the Gadens’ planning, environment and government group which, under the guidance of Whealy has been picking up more than its fair share of high profile planning and environmental matters including securing the recent approval of the $200 million+ mixed use redevelopment of Kirrawee’s former Brick Pit Site. Someone at Gadens is obviously aware of ALB’s penchant for a good cliché and
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Australasian Legal Business ISSUE 10.10
publication has ventured to suggest that Kench is “one of the top three real estate lawyers in Australia.” It’s always brave to make a call of that order, but it’s consistent with the other accolades she’s received.
Virginia Briggs, Partner, Minter Ellison There’s an interesting rivalry going on in NSW between two of the heavyweights in the government infrastructure space, Clutz and Minters, and we’re reliably informed that Briggs has been making some valuable headway in winning new work from the O’Farrell government. Minters has secured what are arguably the NSW Government’s most significant recent projects, including the re-financing of Port Botany and Port Kembla and the franchising of
Sydney Ferries. Briggs was also key adviser to the NSW Government on the development of Terminal 3 at Port Botany and the extension by Patrick Corporation of its stevedoring operations into Terminal 3.
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has quietly slipped us the pun: “Anthony’s personal passion for boxing is demonstrated in his calm and friendly demeanour, but once in the courtroom…he pulls no punches,” reads the bio. Smack!
TOPICAL PARADISE One of the leading criterion for choosing our Hot 40 is involvement in topical matters which have broken into the national discourse in Australia and New Zealand. All of the Hot 40 are topical in their own way, but here are some lawyers who have had involvement in some particularly headline-catching matters.
HOT
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Michael Harmer, Chairman, Harmers Workplace Lawyers Harmer’s client list includes names such as HSU’s Kathy Jackson and former Commonwealth staffer James Ashby and the high profile exposure this
generates must make Harmer and his firm one of the few names which is readily identifiable not just to the business community, but the broader public too. Still, we’re assured that Harmers has no intention of transforming itself into a plaintiff-only
practice. We would also draw attention to this firm’s record in the community – in excess of 25 percent of the firm’s profits in its first 15 years of operation have been contributed to the promotion of human rights and justice internationally.
Ernest van Buuren, partner, Norton Rose Australia
Last October, New Zealand experienced its worst ever maritime environmental disaster when the container ship MV Rena ran aground off the Bay of Plenty. Volunteers were called in to
counsel the penguins and the lawyers arrived soon after to untangle the knot of salvage and liability issues which have inevitably surfaced alongside the oil slick. Playing a key role is Norton Rose’s van Buuren, who is advising Costamare, the owners of the vessel, and The Swedish Club, their
insurer. It’s an ideal alignment for lawyer and client – van Buuren was at sea for 12 years and became a Master Mariner before turning his talents to the practice of law.
Robert Milbourne, Partner, Norton Rose Australia In August, the PNG government approved one of the world’s first deep sea mining projects which will see Canadian company Nautilus mine the ocean floor for copper
and gold. This novel project certainly presented some unique challenges, including a JV structure spanning five jurisdictions and former Vale GC Milbourne was in the box seat to help guide the process. Winning work of this complexity is an endorsement of the Norton Rose global
resources strategy. The firm might be plumbing the depths, but we mean it in the nicest possible way.
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hot 40
Berkeley Cox, Partner, King & Wood Mallesons It’s got to be bonds. Earlier this year, ALB noted the domination of the fledgling Australasian covered bond market by Allen & Overy and KWM. KWM – under the guidance of partners Berkeley Cox and Greg Hammond – played a key role in the three of the first five deals, including the ANZ issue which went on to win Debt Market Deal of the Year at the 2012 ALB Law Awards. This is an area where the Kiwis have done some pioneering work – and KWM has
Australasian Legal Business ISSUE 10.10
been at the forefront of this story in Australia.
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Tony Denholder, Partner, Ashurst Queensland is a fascinating place to be these days, thanks to a feisty new state government, an equally feisty resources sector and (of course) the ever-quotable Clive Palmer. There are many resources lawyers who could admirably represent the state in this year’s Hot 40 and our pick is Ashurst’s Tony Denholder. He’s had involvement with LNG mega-projects in Gladstone, the Surat Basin Rail project and Hancock Coal’s transformational
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James Gibson, Partner, Bell Gully Last year, the Hot 40 acknowledged the efforts of the lawyers who contributed to the definitive agreements for Australia’s National Broadband Network, a deal which went on to win Australian Deal of the Year at the 2012 ALB Law Awards. The Kiwis have also been undertaking some major restructuring in preparation of what is there known as the Ultra Fast Broadband Network. As is the case in Australia, there are plenty of lawyers and
firms involved, but we have chosen Bell Gully and Gibson – advisors to Crown Fibre Holdings, the entity tasked with managing the rollout – to represent this milestone project here.
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DEALMAKERS Alpha mine among other things, but he’s also stayed close to the community – he’s guided Ashurst’s long term pro bono relationship with Noel Pearson’s Cape York Partnerships on Cape York.
According to the statistics, it’s been a lousy year for M&A, but lawyers report that there’s activity bubbling away under the surface – not to mention capital raisings and some heavy duty restructuring too. Here are some leading lights:
HOT
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2012
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Teresa Handicott, Partner, Corrs Chambers Westgarth Tony Damian, Partner, Herbert Smith Freehills Macarthur Coal’s A$5 billion acquisition by Peabody won Energy & Resources Deal of the Year at the 2012 ALB Awards. It represented a number of M&A milestones, such as Australia’s largest ever hostile joint takeover and our largest ever coal deal. It’s appropriate therefore to acknowledge two of the lawyers that played a leading role: for Corrs, Teresa Handicott (acting for Macarthur) and for Freehills, Tony Damian (acting for Peabody). Damian and his colleagues in the Freehills M&A/Corporate team went on to win the Australian Deal Team of the Year award.
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Philippa Stone, Partner, Herbert Smith Freehills Readers will notice the high representation of Freehills in this year’s Hot 40. In our view, this is a fair reflection of the notable work this firm has conducted this year and it might even be arguable that Freehills has pulled ahead of its top tier rivals in winning the cutting edge work. No doubt rivals will have their own opinions on this question. Philippa Stone, of course, continues to epitomise the Freehills brand of deal making. Her deals for this year include
advising Yancoal Australia on its successful A$8 billion takeover of Gloucester Coal, advising Aston Resources on its A$5.1 billion merger with Whitehaven Coal and AGL Energy on its A$3.1 billion acquisition of Loy Yang A.
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Pip Greenwood, Partner, Russell McVeagh Greenwood was named New Zealand Dealmaker of the Year at the 2012 ALB Awards and one doesn’t need to look too far to see why: some of her recent work includes complex work for Telecom New Zealand – advising both on that company’s demerger and its bid to participate in the NZ Government’s Ultra-fast Broadband initiative and, in 2011, advising Trade Me and Fairfax on the NZ$1 billion Trade Me IPO. Greenwood has now won the
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NZ Dealmaker award in 2008, 2010 and 2012 – so keep an eye on this category in 2014!
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hot 40
Stuart Byrne, Partner, Clayton Utz Interesting times indeed to be an ECM lawyer. Still, there have been some highlights for Byrne and the Clutz team this year, including the fact that Origin’s A$2.3 billion capital raising was the Equity Markets Deal of the Year at the 2012 ALB Awards. This was a deal which was notable for its use of the PAITREO structure. “We were the lawyers on the PAITREO structure so don’t let anyone else tell you they invented it,” Byrne modestly told Lawyers Weekly earlier this year. This
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David Friedlander, Partner, King & Wood Mallesons Readers who have been following the Dulux – Alesco saga this year will be aware that the A$200 million battle for the garage door maker has been no (ahem) open and shut case. The man with the Controla-Door is KWM’s David Friedlander, who is advising Alesco on the matter. As usual, you can find Friedlander’s name against many of the other high profile deals of the year: these include the long running Hanlong MiningSundance
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is a practice area where journalists are known for mixing up their issuers, arrangers and other parties, so it’s not a bad idea at all to explicitly state your role on these deals.
Resources bid and capital raisings for AGL ($650 million subordinated notes), Colonial ($500 million hybrid securities) and Westpac ($500 million subordinated notes).
Nicholas Pappas, Partner, King & Wood Mallesons Now, what was the latest on that Glencore and Xstrata megadeal? At the time of writing, the press were reporting that a final outcome was imminent – mind you, they’ve been saying that for a while now. It was one of the transformational deals of 2012 and KWM has taken its place alongside a distinguished list of global advisers including Linklaters (for Glencore) and Freshfields (for Xstrata). In Australia, KWM acted for both Glencore and
Xstrata by agreement by both parties, with Pappas leading a diverse team of M&A, competition and employment experts. Pappas also advised on Glencore’s acquisition of Canadian based grain handler Viterra.
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Neil Pathak, Partner, Gilbert + Tobin Speaking of Alesco, the lawyer on the other side of that transaction for Dulux was Gilbert + Tobin’s Neil Pathak, who has been a leading light in the firm’s M&A practice since joining in 2011. Some of his other recent work includes advising Westpac/Hastings on the management internalisation of the $1.9 billion Australian Infrastructure Fund, Orica on its Pilbara joint venture with Yara and Apache to build a US$800 million ammonium
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nitrate plant. The bigger point here is that G+T is continuing to build M&A depth in Melbourne, three years after opening this office.
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John Schembri, Partner, Gilbert + Tobin 2008 has been dubbed “year zero” for G+T’s banking & finance practice – this was the year Schembri arrived at G+T from Freehills. Since then, the group has grown revenues by 243 percent. A highlight of 2012 for Schembri and the team was advising on the privatisation of the Sydney Desalination Plant - with a sale price of $2.3 billion, this was one of the largest privatisations in Australia’s history. Schembri was the lead lawyer representing
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Brett Burns, Principal, Rockwell Bates “Law firm rescues Anzac Biscuit.” That was one of the quirkier headlines of the year as Melbourne’s Brett Burns dived headfirst into troubled waters to save floundering biscuit maker Unibic Australia. The eventual rescue deal saw the company sold to a consortium of managers and local investors, who were represented by Rockwell Bates and as News Ltd solemnly informed readers, it ensured the supply of Anzac biscuits ahead of Anzac Day 2012.
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the global banking syndicate that financed the privatisation of the plant. And the work doesn’t stop there: all eyes in NSW and beyond are now on the next big privatisation play: electricity generation.
Unibic, of course, does not have a monopoly on Anzac Biscuits – but this deal did manage to save 170 jobs in the troubled Victorian economy.
Rebecca MaslenStannage, Partner, Herbert Smith Freehills Centro. Centro. Centro. What more can we say? Maslen-Stannage was the lead lawyer advising Centro on this high profile restructure, which completed this year. The complexity of this deal saw one senior hedge fund manager dub it the “deal of the century” – somewhat premature given that it’s only 2012, but we understand the sentiment. Negotiated in a five day lockdown in Freehills’ Melbourne offices, the deal included a cross border
$9 billion US shopping centre portfolio sale to Blackstone private equity fund and creating a new $3 billion clean Centro Retail Fund and a debt to equity conversion eliminating $5 billion of debt.
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Robert Pick, Partner, Allens Corrs may have acted for Foster’s when the well known brewer demerged its beer and wine businesses in 2011, but it was Allens which scored the prize gig of advising Foster’s on the A$12 billion acquisition by SAB Miller, a deal which went on to win M&A Deal of the Year at the 2012 ALB Law Awards. When ALB caught up with Foster’s GC Dan Last earlier this year to ask about the allocation of work, he said it was simply a case of horses for courses – he was pleased with his experience
37
with Corrs and also praised Ewen Crouch and Robert Pick, the lead lawyers for Allens. Raise your glasses, if you will, to Corrs, Allens and the spirit of competition. Allen & Overy acted for SABMiller on this deal.
36
hot 40
Australasian Legal Business ISSUE 10.10
HOT
40
2012
Supported by
THE BIG MOVES Sometimes lawyer movements are indicative of not just personal career choice, but the strategic direction of the hiring firm. We could create an entire Hot 40 from this criterion alone – but here are some moves to keep a particular eye on:
Nic Tolé, Partner, Allens We always thought it would take a top flight M&A expert to navigate the complicated web of partnerships and alliances Allens and Linklaters have constructed in Asia – and fortunately, it appears that’s what will be happening, with the well regarded Tolé making the move from Perth to Hong Kong to head up the Linklaters/ Allens resources joint venture. We use the term “joint venture” cautiously – there are actually three structures operating between these
39
firms in Asia and we’re still a bit hazy on the details of how Tolé will be working with each. The main point here: he’s a great lawyer, he’s a former ALB Dealmaker of the Year and he’s coming to an Asia-themed resources deal near you.
Melinda Upton, Partner, DLA Piper An interesting strategic move has been DLA Piper’s decision to pursue intellectual property and technology as a global focus area. It’s a move which has seen the firm win the services of Upton, previously of Blake Dawson and apparently one of the key attractions for Upton was the opportunity to join a global firm with a specific interest in building a global IP/ technology practice. Will other international firms be in the position to make a similar commitment
and invest accordingly? Some firms appear to have shown their cards with some important strategic hires in the past 12 months; only time will tell if others will follow.
38
Brian Clayton, Partner, Chapman Tripp Chapman Tripp is an NZ firm which has always had an eye on the bigger picture and one of its more interesting hires of late has been construction law expert Brian Clayton from Shearman & Sterling’s Abu Dhabi office. There are a couple of good reasons why this is a smart move: clearly we should be expecting the Christchurch build to gain some traction in 2013 – progress has been slow to date – and secondly the much underrated NZ
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resources industry is ripe for investment, notwithstanding the current gloom surrounding global commodity prices.
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Australasian Legal Business ISSUE 10.5
Lateral partner appointments Name
Practice area
From
Going to
Mark Elvy
Disputes
Consulting
Ashurst Australia
Stewart James
Government, IP and technology
DLA Piper LLP
DLA Piper Australia
Daniel Livingston
Corporate
Gadens Lawyers
Mills Oakley
Michael Markowitz
Property
Rigby Cooke
Moray & Agnew
Michael Montgomery
Corporate
HWL Ebsworth
Truman Hoyle
Justin Senescall
Intellectual property
Middletons
Truman Hoyle
Gerard Timbs
Environment and planning
McInnes Wilson
Norton Rose Australia
Scott Wedgwood
Family law
Woollam Constructions
Barry Nilsson Lawyers
Steven Wulff
Intellectual property
unknown
Middletons
Middletons adds Wulff Unknown
Middletons
Middletons has appointed Steven Wulff as a special counsel within the Melbourne intellectual property team. Wulff works across a wide range of technology areas including software, information and communications, medical, mechanical and electrical-related technologies. He has extensive experience in representing international and domestic clients who have both Australian and foreign patent portfolios and spent time at specialist IP firm Davies Collison Cave.
Norton Rose Australia McInnes Wilson
Herbert Geer builds in QLD Crown Law
Herbert Geer has added Sharon O’Toole as special counsel in the firm’s property services group. O’Toole, who is based in Brisbane, joins Herbert Geer from Crown Law where she was a senior principal lawyer in the property and infrastructure team, acting for various government departments in relation to their property and infrastructure dealings throughout Queensland.
Two new partners for Ashurst Consultant
Ashurst Australia
Santos
Ashurst Australia
Norton Rose Australia
Norton Rose Australia has added an environment and planning partner in Brisbane. Gerard Timbs has joined the firm from McInnes Wilson where he led the environment Gerard Timbs and planning practice. His appointment follows that of senior associate Wilfred Finn and associate Dave Skerrett who recently joined the practice.
Herbert Geer
Former Ashurst LLP international commercial litigation specialist Mark Elvy has joined Ashurst Australia’s dispute resolution practice, based in the firm’s Sydney office, as a partner. Elvy Mark Elvy, who was a partner at the UK Ashurst for 16 years, has been consulting to Ashurst as well as other international organisations since he returned to Australia in 2010 following a 23-year stint working overseas – all at Ashurst.
Former Blake Dawson (now Ashurst) alumni Jeremy Chenoweth has also rejoined the firm in Brisbane as a partner after an in-house stint at Santos where he was legal manager and lead Jeremy Chenoweth construction lawyer on the $US18.5 billion Santos GLNG Project. Chenoweth’s practice at Ashurst will be built on the three pillars of construction, commercial and regulatory disputes, with a focus on high-end strategic issues including international arbitration.
Barry Nilsson adds former construction manager Woollam Constructions
Barry Nilsson Lawyers
Brisbane law firm Barry Nilsson Lawyers will welcome new partner Scott Wedgwood to the firm on October 8. A former McCullough Robertson partner, Wedgwood will be Scott Wedgwood located in the firm’s family law practice. Wedgewood comes to the firm after a period of five years working for Woollam Constructions in senior management roles. Wedgewood’s appointment to the firm’s partnership takes the total number of partners at the firm to 12.
made easy Moray & Agnew appoints property head Rigby Cooke
Moray & Agnew
Moray & Agnew has recruited senior Victorian property lawyer Michael Markowitz to head its property practice in Melbourne. Markowitz joins from Rigby Cooke, where Michael Markowitz he was a partner for 20 years. Markowitz has more than 30 years’ property experience including implementation and development of large complex projects across a range of industries, in particular the alpine and water sectors. He has been instrumental in many landmark property developments at Victoria’s ski resorts including Mount Buller, Mount Baw Baw, Mount Hotham and Falls Creek.
Rigby Cooke adds Gadens partner Gadens
Rigby Cooke
Rigby Cooke Lawyers has appointed form Gadens partner Howard Chait as a partner in the litigation and insolvency practice. Chait has been practising in the areas of insolvency, corporate Michael Markowitz reconstructions, banking litigation and commercial litigation since 1988 and was at Gadens in Melbourne for 10 years. He has extensive experience in providing litigation and insolvency advice to liquidators, administrators, receivers and financial institutions. He has also been involved in a wide range of commercial litigation on behalf of both individuals and companies and undertakes work in a variety of areas, including directors’ duties, shareholder complaints, property disputes, contractual disputes and intellectual property. Former Holding Redlich senior associate Radhika Kanhai has also joined the firm as a special counsel in the insolvency area.
Truman Hoyle boosts senior ranks HWL Ebsworth
Truman Hoyle
Middletons
Truman Hoyle
Sydney-based firm Truman Hoyle has added two new partners, Michael Montgomery and Justin Senescall, and two senior lawyers, Sally Barber and Jonathon Corlett. Michael Montgomery Montgomery joins from HWL Ebsworth where he was a partner and is an experienced corporate and commercial lawyer specialising in technology, intellectual property and telecommunications law. Justin Senescall Senescall joins from Middletons where he was a partner and is a specialist intellectual property lawyer who brings to the firm a particular focus on trademarks and brand strategy, copyright and domain name disputes. Barber joins the firm as a senior litigation and dispute resolution lawyer with 15 years’ experience in both Australia and Singapore. Corlett has worked in the industrial relations sector since 1996 and has extensive experience across all facets of employment and industrial law.
Mills Oakley recruits partner in Melbourne
Mills Oakley Lawyers has recruited Gadens’ corporate partner Daniel Livingston to its Melbourne office. The addition takes the firm’s total partnership to 38, an increase of more than 20 percent in 12 months. Livingston has been a trusted adviser to such leading brands as Tabcorp, Echo Entertainment, Fosters, ANZ, Westpac, Philip Morris, Incitec Pivot, Exxon Mobil and AWB Limited.
Over 45 years experience
HopgoodGanim lures ex-Grocon GC Grocon
Hopgood Ganim
HopgoodGanim has welcomed a new senior construction and infrastructure lawyer to its ranks. Most recently general counsel, construction at Grocon for four years, Charles Sullivan has extensive experience advising on commercial and residential, resources, roads and social infrastructure projects.
empirecareers.com.au
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insurance issue
Australasian Legal Business ISSUE 10.10
Insurance: a sure thing
insurance issue
Australasian Legal Business ISSUE 10.10
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Insurance legal market snapshot - selected firms Name
Number of partners
Number of lawyers + partners
Key focus
Carter Newell
8
56
Property & injury, liability insurance, construction insurance, engineering insurance, aviation, directors’ & officers’ liability insurance, professional liability insurance, marine insurance
Colin Biggers & Paisley (CBP)
13
51
Directors & officers, financial institutions, health and medical, product liability, professional indemnity, reinsurance
Curwoods
13
98
Directors & officers, public risk, professional indemnity, property & industrial, motor vehicle (CTP), workplace insurance, life and disability, financial lines
DLA Piper Australia
40
200
Insurance, reinsurance and litigation
Herbert Geer
7
30
Accident compensation, Commonwealth compensation, common law liability, dust diseases and “toxic tort” litigation, employment law, disability, discrimination and equal opportunity, administrative law, privacy, risk management and compliance.
Lander & Rogers
14
81
Professional indemnity, directors’ & officers’ liability, property and industrial, special risks, medical indemnity, public and product liability claims, reinsurance
Moray & Agnew
66
224
Directors & officers, catastrophic claims, motor vehicle law, financial lines, professional indemnity, property & industrial special risks claims, public & product liability medical negligence
Sparke Helmore Lawyers
21
155
State compensation, Commonwealth compensation, professional indemnity and D&O liability CTP & Majors
Wotton + Kearney
13
75
Construction and contract works, directors and officers, professional indemnity, property, public and products liability, reinsurance and regulation, trade and transport, industrial special risks (ISR)
Insurance firms and practices continue to grow and expand as a result of increasing workloads within the sector, and practitioners are expecting that to remain the case for some time, reports Olivia Collings
S
ince the global financial crisis insurance lawyers have witnessed a growing demand for their skills and expertise, leading to more work and larger teams. According to Lisa Newcombe, joint insurance practice group leader at Lander & Rogers, the firm’s insurance practice has grown on average by 15 percent every year for the past 10 years. Similarly, Paul Spezza a partner at Wotton + Kearney says there has been a consistent flow of instructions across a number of insurance classes over the past 12 to 18 months, particularly in the public and products, professional indemnity and contract works space. “There have been noticeable spikes in discrete work types over the last couple of years,” says Spezza. “The GFC in 2008 gave rise to a considerable increase in professional negligence claims against financial planners and we’re continuing to see those types of claims.”
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insurance issue Recent natural disasters including the New Zealand earthquakes, the Victorian bushfires, the Brisbane floods and the cyclone activity in far north Queensland have also resulted in a large amount of property, industrial special risks insurance (ISR) and professional negligence claims, and thus, more legal work. “We are still seeing a high frequency of work in the property liability space, and I think that is a continuation on the work arising from the catastrophic events that have occurred in the past couple of years,” says Sparke Helmore partner Rhett Slocombe. Similarly, the Sparke Helmore insurance practice has also seen an increasing amount of work in the workers compensation space, as a result of the changes to the legislation that were passed in June in New South Wales. “There has been a spike of workers compensation work come through. When there is legislative change, the plaintiff lawyers are rushed to get their cases through before the new laws are introduced,” says Slocombe. In addition, announcements by various state governments of job cuts within the
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Australasian Legal Business ISSUE 10.10
public sector as well as a slowdown in the economy could also lead to more workers compensation-related insurance claims according to Slocombe. Curwoods Lawyers managing partner Scott Kennedy says that the firm has seen ongoing steady growth as a result of steady increase across all areas of insurance. Compulsory third party (CTP)-related work has increased by 13 percent, workers compensation by 10 percent and liability by 30 percent. “Work increases in the statutory classes appears to be driven by plaintiff solicitors focusing on these areas at the expense of personal injury liability,” says Kennedy. “The growth in liability work is due to consolidation of panels, and receiving work from a greater spread of clients.” He adds that fanatical lines claims and D&O claims are increasing slightly due to the current economic conditions. Curwoods recently acquired the Government Insurance Legal Department (GILD) from Suncorp, which will provide the firm with new capability in the areas of health and government work and an additional 37 lawyers. International insurers undertaking more work in Australia has also added to the workload at Lander & Rogers. “There are an increasing number of London insurers who are writing business in Australia, compared to 10 years ago,” says Newcombe. “Australia is a growing market for those insurers and there is not enough capacity locally to meet all of the insurance needs in the market.” Paul Hopkins, senior partner, Carter Newell Lawyers says his firm has also seen a steady increase in workflow from London-based clients and aviation related matters. “Aviation-related work also continues to be a very busy area for the firm,” he says.
Francesca Menniti Health & Government Partner
Renée Sadler CTP Partner
Lesley Bush Health & Government Special Counsel
Rosslyn Cooke Timothy Hackett Sarah Henry Health & Government Health & Government Health Special Counsel Special Counsel Special Counsel
Cathy Hogan Health Special Counsel
Karen McMahon Health Special Counsel
Lynne Organ Health Special Counsel
insurance issue
Australasian Legal Business ISSUE 10.10
Panels and tenders The insurance industry has been utilising panel arrangements for some time, but in recent months there has been an increasing amount of tenders for panel appointments within the sector. “In the past six to 12 months, W+K has been appointed to the legal service panels of a range of insurers, their insureds and certain government agencies,” says Spezza. The election of the Barry O’Farrell government in New South Wales in March 2011 appears to have prompted a number of state government agencies to revisit the way in which they procure legal
reappoint with an expanded appointment across all lines for the Westpac panel ranging from corporate to insurance work. “We have also picked up work on the Zurich panel for the ACT and Western Australia,” says Slocombe. The Federal Government’s highly anticipated multi user list (MUL) was announced mid-year, which included Curwoods, Lander & Rogers, Sparke Helmore and Wotton + Kearney.
We are constantly involved in tenders, the level of evaluation and compliance is constantly evolving and something we need to stay conscious of. Rhett Slocombe, Sparke Helmore services, the nature of the legal services required, and the rates at which those services are provided. “This has resulted in a number of government agencies calling for tenders for the provision of legal services over the last six to nine months,” adds Spezza. Sparke Helmore has also recently been appointed or reappointed to a number of legal panels. “We are constantly involved in tenders, the level of evaluation and compliance is constantly evolving and is something we need to stay conscious of,” says Slocombe. The firm was reappointed to the NRMA CTP panel and was also recently
Insurers have typically used panels to negotiate more attractive rates from legal service providers, and this trend has not changed in recent times. “Irrespective of whether your client is an insurer, an underwriting agency or third party claims administrator, a private company or a government agency, there is always pressure to appropriately price legal services – and
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insurance issue
to make alternate pricing options available depending on the nature and type of work being offered,” says Spezza. Kennedy adds that as a result of the catastrophic claims events of the last few years the insurers are focusing on cost reductions and delivering more efficient service to their clients, which means that they are also looking to their service providers to deliver the same level of efficiency and service to them. “Rates have remained flat and at the same time costs are increasing,” says Kennedy. “Add ons are now also part of a law firm’s standard service offering.” However, while prospective clients are interested to know what alternate pricing options firms are prepared to offer during the tender process, Spezza says the insurance market generally appears
Australasian Legal Business ISSUE 10.10
reluctant to adopt alternatives to hourly billing. “The billable hour tends to remain the preference for many clients,” he says. “Whether that changes in the years ahead remains to be seen; there is likely to be a change in mindset at some stage given that our clients are sophisticated purchasers of legal services who desire commercial outcomes at the right price.” Slocombe however disagrees. He says he is seeing action and “genuine movement” away from the hourly fee model to event costing or fixed fee models across all lines. “There are more and more clients asking or inquiring about alternative options. I think they are starting to take up those options more and more,” he says. In addition to alternative fee models, Spezza says clients are increasingly focused on what else the panel firms can bring to the table, when undertaking the tender process. For example, according to Newcombe there is greater demand from insurers for continuing legal education (CLE) than there was previously. “Other things that clients want to see from specialist providers are industry participation and knowledge,” she says. Hopkins has also witnessed this focus from clients: “There has been an increased focus for training and development of staff, and to provide in-depth regular trainings sessions and workshops.” he says.
The billable hour tends to remain the preference for many clients Paul Spezza, Wotton + Kearney
Rhett Slocombe, Sparke Helmore
Paul Spezza, Wotton + Kearney
Looking ahead While it is impossible to predict what events might shape the insurance industry in the future, all practitioners ALB spoke with expect the sector to remain active and busy for the foreseeable future. “Insurers are hoping that given the U.S. had a quiet summer, that Australia also has an uneventful summer, but we will have to see what happens,” says Slocombe. “The one thing that concerns insurers greatly are large hail storms, particularly in metro areas. The other concern is fire, as it becomes drier and drier. If we have a quiet summer here, that will mean less work in a year.” Spezza expects claim numbers and work flow generally in the contract works and public and product liability space to remain fairly consistent during the next financial year. As for property, ISR and professional negligence claims, work flow will ultimately depend on developments in the domestic and international economy, as well as the impact of any climatic events or natural disasters. “While hopefully things remain stable on the economic and climatic fronts, one cannot help but acknowledge the events in the global economy and the prospect of a flow-on effect in the domestic market,” he says. “And the fact that a hot summer is predicted, which heightens the risk of bushfires and extreme weather patterns, will have a clear impact on work flow across those classes of business.” The increasing activity within the plaintiff sector and the media attention regarding increasing numbers of class actions, will drive activity in financial lines, property, public liability, office bearers and EPL areas according to Carter Newell’s Hopkins. In addition, he predicts that the next phase of the infrastructure work and construction work, including resources/mining related construction, will see this area faced with additional claim activity.
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Queensland’s award-winning Specialist Law Firm
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Insurance constructIon & engIneerIng resources corporate commercIal property lItIgatIon & DIspute resolutIon avIatIon cn/191-alB
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Insurance
Australasian Legal Business ISSUE 10.10
Clyde & Co arrives down under Will HopgoodGanim’s merger with Q Legal signal the start of a new round of mid-tier consolidation? Report: Renu Prasad
T
he influx of international firms to Australian shores has not slowed as evident by insurance specialist firm Clyde & Co’s arrival on October 1. The firm has launched in Sydney and Perth with a team of insurance partners from Allens. Senior Clyde & Co partner James Burns says that the firm had been looking at the Australian market for quite some time. “We were looking at opportunities in Australia because so many of our clients are either here, coming here or expanding here,” he told ALB. “We see a lot of potential here.” Clyde & Co Sydney managing partner and former Allens partner John Edmond previously worked at Clyde & Co in the UK. He says he and his colleagues were attracted to joining his prior firm because of the growing conflict issues he was experiencing in a full-service law firm. “We had to turn away nearly every other matter, roughly 45 percent,” says Edmond. “You can get tremendously de-motivated because you spend a lot of your time building rapport with clients, and then, when they send you something, you have to say you can’t do it because of a conflict within the firm.” The conflict issues he was coming up against were mainly related to the banking clients at Allens. “They were not headon conflicts,” says Edmond. “We were constantly coming to logger heads in a very indirect way, which resulted in us not being able to act for that client.”
We had to turn away nearly every other matter, roughly 45 percent.
John Edmond, Clyde & Co
He adds: “It is a problem with the model, and when it continues to grow it becomes more of a problem for management. What I like about Clyde & Co’s approach is that we
are all moving the same direction, the sectors that we work within fit perfectly.” Clyde & Co has built an international legal practice based on insurance and reinsurance, transport-related work, energy infrastructure work, professional practices, shipping trade and commodities. “We are very much focused on the core areas,” says Burns. “We have a corporate service team to facilitate a transaction for an insurer, but the corporate teams are focused on the same sectors that the litigation teams are as well.” According to Burns, because Clyde & Co focuses on specific complimentary areas of law, they don’t run the risk of needing pre-approval to act for a client. “What we have seen is because we are geared around specific sectors, we are able to act quickly for the companies within those sectors. We don’t need to worry about getting pre-approval,” he says. In addition, as a result of the conflict-free model, there is less necessity for top-heavy management within the firm, according to Burns. “If you are trying to run a broad full service model without clear sector differentiation then one of the clear challenges is conflicts,” he says. “That leads to centralised control – our model is different – we know which sectors we focus on, we share profits on an international basis and we delegate a lot of the decision making to the management in each office; which is an attractive proposition for firms in this space, as they have common branding, a single profit pool, but we leave them to get on with it.” Similarly, the firm’s clients are increasingly delegating work to regional headquarters. “A lot more of the UK and European companies we work for are looking to do more of the management locally,” says CEO Peter Hasson. “There is a trend towards our clients wanting to have specialist service from people who are continuing to work in that area on the ground in that jurisdiction.” In addition, Australia has become an increasingly attractive market for U.S. and UK insurance organisations because of the strength of the economy and significant investment being made in the energy and resources sectors. “Cleary the Australian economy has been doing fantastically and the resources boom has presented insurance companies with an opportunity to increase premium income,” says Burns. “The larger players in the U.S. and Europe are looking for new markets to grow their business, and Australia fits that criteria.” Burns says that prior to the Allens team joining Clyde & Co they were already referring a significant amount of local work to Australian lawyers, including Edmond. “It is a nice aspect of setting up in Australia that the network can self generate work in Australia, and I think the best is yet to come,” he says. “One of the major insurers in the U.S. with who we have a deep relationship with, picked up the phone and said that they were familiar with the
Insurance
Australasian Legal Business ISSUE 10.10
Sydney team and were impressed by the merger. Even if they don’t increase spend as a result of the merger we are deepening the relationship with them.” According to Edmond he only lost one matter as a result of the move to Clyde & Co which was as a result of that matter having come through a referral from another UK firm. However, that has been well and truly compensated for by the addition of two new clients who rang him following the announcement to inform him that he and the Clyde & Co Australia team were now on their offpanel panel as a result of international arrangements. “We have also had three other companies call us and invite us to tender for their panel and one of the tenders had already closed, but because of our announcement they were holding the panel open for us,” states Edmond. In addition to panel appointments Edmond says he is expecting more work both from international referrals and local clients because of the more competitive rates they can now offer. “When a firm joins a global firm, the theory is that the rates will increase; but ours have not, they are now more competitive,” he says. The main challenge for Edmond and the Clyde & Co Australia team is not finding work, but rather finding staff, particularly in the talent scarce market of Perth. To address the issue the firm is relocating a partner from London to Perth and is in discussions with lawyers already in the market. “The Perth market has an extreme shortage of talent, but we are in fairly active discussions with a couple of partners there and in Sydney,” says Hasson. However, in Sydney the firm has had no trouble recruiting new staff and will in the coming weeks add a significant number of junior
47
lawyers to the team. “We expect that by Christmas time we will have approximately 14 lawyers here in Sydney and by March we would expect to have about 30 staff,” says Edmond.
Even if they don’t increase spend as a result of the merger we are deepening the relationship with them. James Burns, Clyde & Co
The office is keen to grow not only the insurance capabilities but also talent in the firm’s other key sectors, which will ultimately require some strategic poaching. “Getting the best partners from firms is normally quite difficult,” says Burns. “But, we are in no rush. We want to get the best people and often that takes time.” Edmond adds that if necessary the firm will look at opening offices in other locations if that is where those best practitioners for that area of law are. “If we can find the best people and they are in a different location, then we will look to open there. But we don’t have a mandate for where we must have offices by a set date.”
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insurance
Australasian Legal Business ISSUE 10.10
The Shaky Isles The Christchurch earthquakes had special significance for insurance practitioners. Adam Chylek and Kristine Vale of Wotton + Kearney explore the key ramifications.
T
he earthquakes that rocked Christchurch in September 2010 and February 2011 and the attendant catastrophic consequences which have cascaded throughout the Shaky Isles have exposed a difficult clash between commerce and law which will inevitably change the way insurance is placed in this part of the world. One thing is clear: the region has never seen an insurance event quite like it, and some tough lessons have been learned. For almost 18 months, W+K have had a team of lawyers picking through the colossal range of legal issues unsettled by the Christchurch earthquakes. While the juggernaut of claims work from natural catastrophes over recent years has been boggling – bushfires, floods, cyclones – there has never been such a brutal reality between expectation and entitlement as manifested in Christchurch. It is hard to escape the sense that, even on their best day, many of the policies in the market were never designed to deal with catastrophes with this entanglement. That isn’t surprising to anyone who has worked in Property/ Energy insurance. The Australasian market generates a myriad of wordings, many of which have now been asked to respond to earthquake-related losses – some are capable of performing, others are not. The enormous difference in policy language – ranging from plain English and SME driven, to bespoke programmes prepared for global corporate Insureds (many of which are still derived from the classic Mark IV ISR wording, and some unfortunate “cut
and paste” versions of it) - has crystallized for insurers that there is no one answer or global fix to any particular policy problem. That creates a challenge when insurers, as they so valiantly do, seek to mobilise and coordinate catastrophe responses. Getting on the ground and providing an immediate presence is critical. But the differences in policy wordings make a consistent industry-wide approach challenging. The breadth of policy response is so vast that insurers have naturally all been lumped into the same basket - one woven out of despair and criticism. So, even when the reaction from the insurance industry has been powerful and at times impressive, much of the time critical progress has stagnated because of paralysis in the rebuild/reinstatement process. Local and Central government intervention has been urgent and magnanimous, yet plenty of insurers have taken an ego hit on the back of unhappy
While the juggernaut of claims work from natural catastrophes over recent years has been boggling – bushfires, floods, cyclones – there has never been such a brutal reality between expectation and entitlement as manifested in Christchurch. press. Some criticisms have been justified, but as often occurs many horror stories have been exaggerated. W+K act for many of the significant players in the market and have watched the evolution of legal troubles in Christchurch. Many threshold policy problems regenerate with every significant catastrophe. Others are earthquake-centric. Our work has focused on large scale commercial buildings, infrastructure assets, significant academic and health services, body corporates, retail facilities and the hotel industry. We have been regularly asked by local and home office executives
Australasian Legal Business ISSUE 10.10
Standards imposed by councils in the rebuilding process generally do not reflect the entitlements under insurance policies and as it stands, there is currently a large uninsured cost of rebuilding in Christchurch. to identify some of the key “lessons” to be learned from the Christchurch catastrophe and to make recommendations for change. The list is long, but here it goes. 1 Building legislation in NZ has been in a state of perpetual uncertainty since the 22 February 2011 event. While some changes have been made to the building code and to local council policies, the significant changes are yet to come. The “code” compliance issues have impeded many recovery and reinstatement projects and the lack of certainty has crippled many Insureds. Standards imposed by councils in the rebuilding process generally do not reflect the entitlements under insurance policies and as it stands, there is currently a large uninsured cost of rebuilding in Christchurch. 2 Many Insureds have found that they have chosen grossly inadequate sum insured levels for both material damage and business interruption, leading to systemic under-insurance. 3 The transition between indemnity (actual cash) value and reinstatement in policy language is often unclear. The complexity of the reinstatement language in the wordings means that many Insureds do not fully appreciate the circumstances in which they are entitled to sums greater than indemnity value – that is, when an Insured actually undertakes repairs or rebuilds. 4 Many policies provide Insureds with generous and sensible alternatives to repairing or reinstating damaged property, including “greenfields” site options, and the ability to apply funds to other unrelated capital expenditures. Some policies are silent on these benefits. It creates a potential disparity between 2 commercial Insureds depending on the policy wording. One building owner gets the benefit, the other doesn’t. 5 One of the significant features of the Christchurch earthquakes is the extent to which land has been affected by lateral spread and liquefaction. Most (if not all) policies exclude costs to remediate land, however in many cases the land remediation is inextricably linked to reinstatement of the building. 6 Immediately after the major earthquake on 22 February 2011, public authorities established a cordon around Christchurch’s CBD, preventing access to all buildings and services within this area – later known as the “red zone”. At the time it was established there was no expectation in the industry that it would still be in place today. The size of the red zone has gradually reduced, but there are still tracts of the CBD cordoned off. 7 The red zone is unique to Christchurch and has generated rather unusual – and unanticipated – policy responses, particularly for business interruption losses. This has been manifested in a number of ways, but one of the most problematic issues is determining what “triggered” the business interruption loss ie the damage to the building, the prevention of access, or both? 8 Insureds in the red zone who have not sustained damage, or where damage is minor, have found that their losses might be adjusted under a contingent business interruption clause. These clauses are usually sublimited and generally not designed to
insurance cover an extended period of exclusion. The issue is further complicated depending on whether an insured has cover for gross profit or gross rentals: while the adjustment methodology is the same under each item of cover, the application of the trends clause and the contractual relationship between Insureds and their tenants often means the outcome is vastly different. The lack of real and current economic data to analyse business interruption claims has hampered the adjustment process. 9 Policy and programme structure has come under heavy scrutiny, with particular focus on the adequacy of building data used to underwrite risks, whether asset schedules form part of the policy and guide policy limits, and whether policy benefits which are captured in separate items of cover can be “stacked”. 10 The multiple earthquake events have generated debate around reinstatement of policy limits and how to properly allocate damage to each individual event. While there is now some level of sophistication in NZ to allow insurers to more accurately undertake this allocation, it remains a difficult process. 1 1 Environmental and political pressures overlay these policy issues. Christchurch faces a long rebuild. There are many actors, each with a role to play in the recovery and rebuild process. There is a fascinating and at times robust interaction between the Insurance Council of New Zealand, the Canterbury Earthquake Recovery Authority, Local and Central government, Insureds, Insurers and brokers. The devastation in Christchurch has propagated a number of legal issues which have impacted on policy entitlement. Naturally, many Insureds have had to temper their expectations about policy coverage. It is also an event which has generated almost unprecedented interest and inquisition from reinsurers. What is surprising is the stunning absence of litigation on key insurance issues. Deals are being done every day in New Zealand for many hundreds of millions, and the percolating principles of good faith seem to be guiding negotiations. It is fair to say that an event like this in Australia would by now have seen us with a voluminous suite of case law to rival the late notification/ section 54 obsession of the 90s. Maybe those Kiwis are onto something . . .
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Adam Chylek, Partner
Kristine Vale, Senior Associate
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Will computers soon replace your lawyer? Will predictive coding be the next leap forward in the legal industry’s computer revolution? Timothy P Harkness and Dana L Post of Freshfields Bruckhaus Deringer investigate.
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ver the past few decades, the technology revolution has profoundly changed the marketplace as machines have replaced humans in virtually every sector in the global economy. The impact of technology was particularly felt in sectors such as the automobile industry where skilled workers were replaced by automated labor in the forms of computers and robots. Many attorneys, however, felt that the legal profession was insulated from the changes that had rocked other industries. They were wrong. Indeed, those paying attention to the practice of law in recent years have witnessed signs that the legal profession is about to experience the same sort of transformative change that revolutionized the automobile industry towards the end of the 20th century. Computers, once thought of as tools for lawyers, are well on their way to replacing much of the work that lawyers do altogether. This profound change took a giant step forward recently when two courts endorsed what is cryptically called “predictive coding” —the use of sophisticated algorithms to enable computer software to determine the relevance of documents. Predictive coding is not something most lawyers think about much. Many probably have not even heard of it and you likely will not see it featured anytime soon on your favorite law-themed television shows. However, attorneys unwilling or incapable
of adapting to the shift towards the use of e-discovery technology may find their jobs in peril. Twenty years ago, big law firms used to staff their major litigation matters with teams of eager associates who would spend a significant amount of time in conference rooms and warehouses reviewing documents. Turning pages was drudgery, but important drudgery. It was how law firms learned their cases and found the evidence that drives big corporate lawsuits. It was also how firms made piles of cash. Copying services did well in this era, as did a host of other support services. Ironically enough, as the years marched on, computers actually increased the manual review of documents. The volume of documents exploded with the advent of e-mail. A case that might have had a few hundred documents in the 1970s had thousands, maybe even millions, of documents in the 1990s. Law firms were literally drowning in documentation. The onslaught of documents was good news for law firms and bad news for clients. Costs and complexity skyrocketed. With it also came the era of the “smoking gun” e-mail. While driving big cases and making headlines, this also required e-mails to be scrutinized line by agonizing line. Technology companies responded to this boom in discoveryrelated expenses by developing review tools that made document review easier and more efficient. Still, people, representing billable hours, had to click through each e-mail and document to search for relevant evidence. To contain costs, an industry of temporary lawyers and offshore review services sprang up. This helped control spending somewhat, but did not solve the core problem — the proliferation of electronic data was making each new case more document-intensive than the one before it. The next stage in the evolution of litigation management was the use of search term and other crude data-limiting techniques, designed to cull data sets and make them more manageable. Lawyers being lawyers, we have found ways to fight about and litigate search term lists and the like. So, although these tools helped simplify some cases, they were hardly a panacea.
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For years, people have been saying that the next step for the law would be the use of artificial intelligence to review documents. No more search terms or armies of expensive associates. We will let computers do the job once done by eager new lawyers. But, the law being the law, something new is hard to introduce. Someone — ideally a judge — would need to rule on whether this new approach is acceptable. With such a precedent in hand, more clients can expect, and likely demand, the use computers to replace their lawyers. Well, that day is here. On April 26, in Da Silva Moore v. Publicis Groupe, U. S. District Judge Andrew Carter of the Southern District of New York adopted an order by Magistrate Judge Andrew Peck that specifically approved the use of predictive coding. Judge Peck’s decision in Da Silva Moore was the first to recognize predictive coding as an acceptable method of searching for electronically stored information. In his opinion, Judge Peck recognized the obvious — that manual review of documents has become too expensive — especially where millions of documents are involved. He also stated that “while some lawyers still consider manual review to be the ‘gold standard,’ that is a myth, as statistics clearly show that computerized searches are at least as accurate, if not more so, than manual review.” With respect to keyword searching, Judge Peck took a dim view stating that this technique is often “over-inclusive,” “not very effective” and that “[i]n too many cases . . . the way lawyers choose keywords is the equivalent to a child’s game of ‘Go Fish.’” Accordingly, provided that suitable protocols are in place, Judge Peck found that predictive coding was a reliable method of reviewing documents. Interestingly, Judges Peck and Carter both acknowledged that there are risks inherent in any method of reviewing electronic documents and that no review tool guarantees perfection. Litigants must thus do what is reasonable and proportionate under the circumstances and not meet some standard of perfection. The very first Federal Rule of Civil Procedure codifies that view, reminding us that our court system is meant to “secure the just, speedy, and inexpensive determination” of lawsuits. The Da Silva Moore opinion undoubtedly paves the way for a new era in the legal industry. Shortly after the issuance of the decision, a Virginia state court judge issued a decision in Global Aerospace Inc. v. Landow Aviation LPthat allowed defendants to use predictive coding for processing and producing electronic data. Thus, to stay ahead of the curve, law firms would be well served to train attorneys on, and educate clients about, this recent court-endorsed technology. While many attorneys fear the changes in store for the industry, there are tremendous benefits associated with predictive coding. Predictive coding will enable attorneys to cull through documents more quickly to perform an early case assessment. Inconsistencies inherent in subjective manual review conducted by numerous attorneys will also be eliminated. Attorneys will also be able to focus more on important legal documents and issues in a case as opposed to spending countless hours reviewing hundreds of thousands of irrelevant documents. For attorneys not yet ready for the evolution to come, the good news is that predictive coding, in its existing state, does not entirely replace humans. Attorneys will still need to take the time to customize predictive coding software to cull the wheat from the chaff. With that said, the legal profession is on the verge of profound technology-driven change. Those who embrace this change will be the most effective advocates of the future.
The speed which business interacts is accelerating and rapidly changing. In a dynamic technology marketplace, the value goes to those who lead the conversation. So let’s start talking. www.hgmlegal.com Technology & Intellectual Property Lawyers Level 8, 2 Commerce St TEL +64 9 308 7300 PO Box 105900, Auckland City FAX +64 9 308 7301 Auckland 1143, New Zealand info@hgmlegal.com
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An “indefeasible right of use” in capacity – a pauper dressed up as a princess? Anchali Anandanayagam of Hudson Gavin Martin explains how contractual principles operate in the world of fibre optic cabling.
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merging new technologies and Government initiatives such as the Ultra Fast Broadband and Rural Broadband initiatives in New Zealand and the National Broadband Network in Australia have brought fibre optic cables into sharper focus in recent times. Fibre optic cables are used to transmit voice and data communications. Over the years, fibre optic cable networks have increased in popularity as they offer the ability to transmit more data and are less susceptible to interference when compared with traditional copper wire networks. A fibre optic cable is made up of a bundle of glass strands. Each glass strand within the cable is as thin as a human hair and is capable of transmitting vast amounts of voice and data communications, in the form of light signals, over long distances. In essence, equipment on one end of a fibre optic cable transforms voice and data communications into light signals that are sent down a glass strand within the cable.
Once the light reaches the other end of the cable, the equipment at that end transforms the light back into the communications (eg emails) that you and I receive. The glass strands within the cable work in pairs – one strand in the “fibre pair” sends light from point A to point B while the other strand sends light back from point B to point A. Each glass strand within the cable is numbered and can be individually identified. Over long distances, such as those covered by subsea fibre optic cable networks between countries, the light signal becomes weak as it travels down the length of the cable and needs to be amplified using equipment called “repeaters”. The repeaters are attached to the length of the cable at frequent intervals and are powered by electricity located on the land segments of the cable network. It is the ability to power these repeaters that dictates the number of fibre pairs within the cable. As a result, subsea fibre optic cable networks usually contain no more than four fibre pairs. In contrast, terrestrial cable networks, which cover much smaller distances and therefore do not require repeaters, can contain up to 20 times that number of fibre pairs. Telecommunication network operators and ISPs who do not own their own cable network but wish to provide services to their customers using fibre optic cables have several options to procure the rights they need. The simplest of these is to obtain rights to use the amount of bandwidth required as lit (or activated) capacity on a
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While there are circumstances in which a dark fibre IRU has been found to be a property interest 1 , these circumstances can be easily distinguished from the sale and purchase of capacity. One of the key factors affecting the determination of whether an IRU conveys a property right is whether or not there is a precisely identifiable asset to which the IRU relates 2 . For example, in the case of a dark fibre IRU, the purchaser’s rights of use are in respect of fibres numbered 3 and 4 (using the example above) – a precisely identifiable asset. Even then, the dark fibre IRU would need to have a variety of other characteristics before a determination as to whether it conveys a property right can be made. This includes, among other things, being a grant of rights
In effect, a capacity IRU is simply a set of contractual rights and obligations.
third party’s fibre optic cable network. In this way, the purchaser of capacity does not have to “light” the fibre using its own equipment and instead can start transmitting voice and data communications via the fibre on day one. Often, parties looking to procure such rights to capacity on a fibre optic cable network insist on purchasing the capacity pursuant to an “indefeasible right of use” or “IRU”. Under an IRU, the purchaser of capacity has an exclusive right to use a specified amount of capacity or bandwidth on the cable system for an agreed period of time. Payment is usually made upfront, with some on-going operational and maintenance fees payable over the life of the contract. The insistence on the use of an IRU to purchase capacity is, at least in part, based on the view that, unlike a services contract, a capacity IRU conveys a property right on the purchaser that cannot be set aside in the event of insolvency of the supplier. Unfortunately, the instances where an IRU has been held to convey a property right are limited to very specific circumstances and purchasers should be careful not to place too much reliance on this idea when entering into a capacity IRU. The use of IRUs is not limited to the purchase of capacity. IRUs can also be granted in respect of specific fibres within a cable. A “dark fibre” IRU, for example, gives the purchaser an exclusive right to use identifiable strands of un-activated or “dark” fibre within the cable (e.g. the glass strands numbered 3 and 4 in a cable that contains, for example, three fibre pairs). The purchaser would then need to attach its own equipment at each end of the fibre to activate or “light” the fibres before it could start transmitting communications over those fibres.
for the useful life of the cable system that cannot be revoked even in the event of breach by the purchaser (although a claim for damages could still be made). In the case of a capacity IRU therefore, where it is the supply of capacity rather than a precisely identifiable asset to which the IRU relates, it is much harder to argue that a property interest is conveyed. In effect, a capacity IRU is simply a set of contractual rights and obligations. To understand what the purchaser’s rights are (say, for example, in the event of insolvency of the supplier), you will need to look to the terms contained in the IRU agreement. As with all contracts, purchasers of capacity will need to ensure that the IRU agreement contains the rights and protections they require to address their concerns. If there are concerns about the solvency of a supplier, purchasers could negotiate payments over the life of the agreement rather than paying upfront to protect their position. In this way, purchasers of capacity who enter into a capacity IRU can minimise the chance of surprises if issues do arise.
WorldCom, Inc. and MCI WorldCom Network Services, Inc. v PPL Prism, LLC (United States Bankruptcy Court, Southern District of New York, 2006). 2 Ibid. 1
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About the author: Anchali Anandanayagam is the recently appointed Senior Solicitor at Technology and Intellectual Property law firm, Hudson Gavin Martin. With extensive experience, Anchali advises clients on arrangements in the telecommunications, media and technology sectors including technology procurement, outsourcing, commercialisation and services arrangements.
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Implementing M2M technology – commercial and legal issues for business Joshua Gray and Peter Waters of Gilbert + Tobin look at the key issues to consider when implementing an M2M solution.
M Peter Waters
Joshua Gray
achine-to-machine communications (M2M) are said to be the next big thing in the communications world: a step-change increasing productivity, innovation and the richness of information about a business’ activities. This article evaluates the key commercial and legal challenges business faces when considering the promise of M2M. 1. What is M2M? M2M encompasses a range of technology with broad application. In general terms, M2M refers to connecting multiple devices and applications that communicate with each other and action certain tasks without human involvement. While this can take place over any communications platform, the most interesting applications are over mobile networks capable of harnessing the tracking functionality in an M2M solution. Potential applications of M2M solutions include: • vehicle tracking and telemetrics, for example where a car will automatically communicate information in relation to the manufacturer regarding servicing requirements or fuel efficiency, electronic
tolling or general tracking in the event of theft; and • health based applications, such as the remote monitoring of a patient’s medicine usage which ensure prescriptions are renewed or vital health metrics. M2M has the potential for many sophisticated deployments in addition to the above. For such reasons, M2M advocates often describe the technology as ‘a solution looking for problems’. 2. Key issues to consider in implementing an M2M solution (a) Monetising M2M: a high volume, low value game Making M2M pay is a key challenge. M2M business models are likely to be high volume low value transactions. This turns the current mobile business models on its head as these tend to be based on high value charges and an assumption that the end user pays for data traffic. Some M2M applications may struggle convincing customers that they should pay for the data charges associated for a particular service. M2M must deliver additional benefits, whether savings, efficiency gains or valuable information, to present a business case for adoption. The person who realises the value may not be the end user: for example, the health system may save on the costs of face to face visits by using remote monitoring. Who pays will be a big issue in many M2M applications. Achieving sufficient scale is critical. The interconnected nature of M2M solutions also means that network effects will play an important role in M2M take up and viability. Network effects are a fundamental economic characteristic of communications
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and technology markets, occurring where the value of one thing increases with the number of people who purchase or use a good or service (for example a mobile phone or even Facebook). (b) Commercial application It is critical to consider whether the risks associated with an M2M solution are outweighed by the commercial gain. For example, M2M may not support mission critical services. M2M solutions are likely to run over mobile and wireless networks that do not support certain availability or reliability standards. For example, a particular remote health monitoring application may require close to 100% availability, a metric network operators may not be able to offer. Further, the typical M2M business model with relatively low value for an individual transaction may not correspond to the risks in delivering a particular service. (c) Managing complex supply relationships Back to backing supply arrangements is essential. M2M solutions will require expertise that many organisations will have to source externally. Some communications companies are positioning themselves are vertically integrated providers of M2M solutions. In other cases, business may need to contract separately with network providers, application developers and M2M hardware manufacturers. In all cases, successful deployment of an M2M solution requires an effective legal and practical ‘back to backing’ of each step of the supply chain. (d) Privacy, data security and surveillance laws Privacy is a major reputational issue for business. Individuals have an increasing set of expectations about how business uses, manages and protects their information. A spate of recent activity by lawmakers supports these expectations. In 2012, a number of changes were made to the Privacy Act 1988 (Cth) including enhancing the enforcement and information gathering powers of the Privacy Commissioner. There are indications that legal changes make also impact the deployment of M2M solutions in Australia. A range of proposals, including the rather controversial issue of data retention, are currently before a Parliamentary Committee. Each State and Territory also has its own surveillance devices legislation that can affect the implementation of an M2M solution – for example, although each of the acts varies, many of them contain a prohibition on the installation of tracking devices used to determine geographic location. It is crucial that business obtain adequate consent, whether from employees or end users (as the case may be), to the use of personal information and/or tracking of an individual or object required to deliver a M2M solution. Such consents should not be limited to the minimum required to deploy the M2M solution in a particular instance, but also contemplate the aggregation of multiple sources of data so that businesses can further analyse and use such data for purposes unrelated to the primary purpose of delivering the M2M solution. 3. Conclusion M2M provides a means to deliver an incredible range of technological innovations. In future, we can expect significant proliferation of swarms of M2M devices in all aspects of life. The success of those deploying M2M solutions will depend on who can best navigate the complex commercial and legal issues outlined above.
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IN-HOUSE COUNSEL REPORT ON BENCHMARKS AND LEADING PRACTICES By Tony de Govrik, Legal Affairs & Communications Director, Australian Corporate Lawyers Association, the professional body for in-house lawyers.
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Tony de Govrik
hat do in-house lawyers think about the ubiquitous billable hour? And what do they think about their law firms? Well, only four percent of in-house lawyers think that hourly billing by law firms is the best approach when it comes to legal fees yet they are not being presented with suitable alternatives. And while 34 percent of legal departments were extremely satisfied with their principal external law firm and 50 percent said they were satisfied, 86 percent do review the law firms they use either on an ad hoc or regular basis. These enlightening statistics are just a few of the many issues highlighted in the 2012 ACLA/CLANZ In-house Counsel Report: benchmarks and leading practices, released last month. Based on solid research foundations, the comprehensive report provides crucial benchmarking data, thorough analysis of what makes a leading in-house practice and practical tips for in-house counsel. It is the result of an in-depth survey of the legal departments of nearly 350 organisations across Australia and New Zealand. Organisations of all types gave detailed responses on everything from staffing, to pressures faced, to measuring and proving value, and to managing work internally and externally. ACLA CEO, Trish Hyde, said “This has been a major research project that has culminated in, what we believe, is the essential resource for in-house counsel. Given the dramatic evolution we have seen in the in-house legal profession to date, this research highlights that evolution will continue. Importantly, no matter where an organisation is on the evolutionary path today, tomorrow they could be leading the way.” The statistical report is supplemented with helpful “real life examples” which divulge some of the more innovative practices being adopted by the leading legal teams on both sides of the Tasman. One such case study of a New Zealand organisation highlights an innovative strategy in which the legal department stores up non-urgent legal work and buys time, in advance, from a law firm in its quiet period thus getting this type of work done at minimal cost to the organisation. A number of trends are highlighted in the report. Legal departments will look more towards insourcing in the future by building up internal expertise and capacity. This will entail a certain amount of up-skilling – with a need to increase skills and the development of tools to assist the legal function. There are already examples of some legal departments tackling all types of legal work in-house, including litigation. Looking at outsourcing and who can offer the best value for effort in the provision of the service (law firm, barrister, legal process outsourcing or contract labour) features as a trend in best practice. Legal process outsourcing is
starting to find traction in the market with six percent currently using LPO and over the next two years another seven per cent plan to use it – either in partnership with a law firm or through an independent LPO provider. Other trends include informed purchasing and partnering. With 91 percent of surveyed legal departments forecasting an increased workflow, informed purchasing in areas such as project management and the use of law firm panels will need to be considered. When pitching for work, law firms will need to break down the complexity of legal matters and look at them as projects that need to be properly managed so they come in on time and on budget. And with 50 percent of legal departments forecasting an increase in their legal budget, partnering with law firms becomes crucial. Law firms and the in-house legal function will need to collaborate to show value to the business. These revealing insights are just the tip of the iceberg with the full report, industry sectors and a law firm supplement available to help better understand the needs of in-house. The report, specifically designed for in-house counsel, outlines the behaviours of leading practice, provides benchmarks for tracking and, importantly, tips and insights to help in-house counsel achieve and demonstrate value. The report can be purchased at www.acla.com.au.
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The problem with high frequency trading It’s time to start cracking down on highfrequency trading, vows Reuters’ Felix Salmon
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ne of the many consequences of global warming is that it’s now, for the first time, possible to drill under the sea bed of the Arctic ocean. The oil companies are all there, of course, running geological tests and bickering with each other about the potential environmental consequences of an oil spill. But they’re not the only people drilling. Because there’s something even more valuable than oil just waiting to be found under the Arctic. What is worth so much money that three different consortiums would spend billions of pounds to retrofit icebreakers and send them into some of the coldest and most dangerous waters in the world? The answer, of course, is information. A couple of days ago, I called a friend in Tokyo, and we had a lovely chat. If he puts something up on Twitter, I can see it immediately. And on the web there are thousands of webcams showing me what’s going on in Japan this very second. It doesn’t look like there’s any great information bottleneck there: anything important which happens in Japan can be, and is, transmitted to the rest of the world in a fraction of a second. But if you’re a City trader, a fraction of a second is a veritable eternity. Let’s say you want to know the price of a stock on the Tokyo Stock exchange, or the exact number of yen being traded for one dollar. Just like the light from the sun is eight minutes old by the time it reaches us, all that financial information is about 188 milliseconds old by the time it reaches London. That’s zero point one eight eight seconds. And it takes that much time because it has to travel on fiber-optic cables which take a long and circuitous route: they either have to cross the Atlantic, and then the U.S., and then the Pacific, or else they have to go across Europe, through the Middle East, across the Indian Ocean, and then up through
the South China Sea between China and the Philippines. But! If you can lay an undersea cable across the Arctic, you can save yourself about 5,000 miles, not to mention the risk of routing your information past a lot of political flash points. And when you’re sitting in your office in London and you get that dollar/yen exchange rate from Tokyo, it’s fresh from the oven, comparatively speaking: only 0.168 seconds old. If everybody else is using the old cables and you’re using the new ones, then you have somewhere between 20 milliseconds and 60 milliseconds when you know something they don’t.
But if you’re a City trader, a fraction of a second is a veritable eternity. Those are periods of time so short that humans can barely notice them. This essay, for instance, is about 900,000 milliseconds long, and it takes me hundreds milliseconds just to say the word “cable”. Which is a word with more than one meaning. To you, it probably means some kind of wire. But to City traders, it means 1.6254, or
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Nathan Rothschild built a significant chunk of his fortune by using a system of couriers who told him the result of the Battle of Waterloo a full day before anybody else in London knew it. something very close to that number. Because in the City, “cable” means the pound/dollar exchange rate. And it’s named that after a transatlantic cable which was used to telegraph the exchange-rate information from London to New York as far back as 1858. So what we’re talking about here is nothing new, in terms of kind. Nathan Rothschild built a significant chunk of his fortune by using a system of couriers who told him the result of the Battle of Waterloo a full day before anybody else in London knew it. And my own employer, the Reuter news agency, was founded on sending financial information between Brussels and Aachen using carrier pigeons. What’s new is that billions of pounds can be made by having access to information not a day in advance, or an hour, or even a second, but even just a millisecond or two. Stock exchanges aren’t physical places where human beings bargain with each other any more: they’re racks of computers in places like Mahwah, New Jersey, where the cables are carefully measured to be exactly the same length so that no one has an infinitesimal advantage thanks to the amount of time it takes information to travel an extra few millimeters down a wire. Obviously, only computer algorithms can make money from an information advantage which is measured in milliseconds. It’s computers which are making the decisions to buy and sell: if they had to wait for a human to sign off on those things, they’d never make any money at all. That’s a little bit scary, and not only because of the classic science-fiction stories where computers become so
NEW RELEASE:
sophisticated that they gain consciousness and start waging battles against the humans who built them. The more obvious problem with exchanges run by computers is that computers don’t have any common sense. We saw this on the 6th of May, 2010 — the day of the so-called “flash crash”, when in a matter of a couple of minutes the US stock market plunged hundreds of points for no particular reason, and some stocks traded at a price of just one cent. It was sheer luck that the crash happened just before 3pm, rather than just before 4pm, and that as a result there was time for the market to recover before the closing bell. If there hadn’t been, then Asian markets would have sold off as well, and then European markets, and hundreds of billions of pounds of value would have been destroyed, just because of a trading glitch which started on something called the e-mini contract in Chicago. Most of the trading on U.S. stock exchanges is done by something called algobots, these days. These are algorithms: they’re computers which are programmed to put in orders, take out orders, trade in big size,
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Code: 9780455229997 Price: $450.00
Human Rights Law Conference 22-23 November 2012 Intercontinental Sydney
The Human Rights Law Conference aims to address topical issues including: The right to a fair trial and the protection of human rights when police and justice are involved The rights of Aboriginal and Torre Straight Islanders Children’s rights and immigration issues Discrimination Sexual orientation and gender Equal opportunity for women The interaction between media and Human Rights The interaction between culture and Human Rights Every delegate will receive a free copy of the upcoming Contemporary Perspectives on Human Rights Law in Australia (RRP $85) Claim up to 12 CLE/CPD points
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AUSTRALASIAN
LEGAL BUSINESS
Secure your seat today! To register, please call Kemi on 02 8587 7675 or email kemilembe.kaijage@thomsonreuters.com
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equities
trade in small size – all according to very sophisticated rules, called algorithms. And one of the ironies about the flash crash is that it was actually caused in large part by algobots not trading. The U.S. has over a dozen different stock exchanges, places where stocks are bought and sold. Most of us have only ever heard of the listing exchanges, the New York Stock Exchange and the Nasdaq. But there are many more you probably haven’t heard of, with names like Arca and BATS, as well as sinister-sounding things called Dark Pools. What happened in the flash crash is that when the trading got completely crazy, the algobots just switched themselves off. This was something they weren’t used to, they didn’t know how to react, and so they just went away. And there was suddenly no liquidity in the market. No one was offering to trade. And with
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no one offering to trade, the prices just plunged, all the way down to one cent. Because there were no bids in the market any more. The algobots can be very useful, on a day-to-day basis. If a normal person like me buys a few shares in some company or other, that trade doesn’t even happen on any stock exchange at all. It just happens directly with a broker, an algobot, who’s happy to take the other side of my trade because small individual investors like me are normally pretty stupid, and tend to buy high and sell low. In any case, if any given stock exchange is an incredibly complicated thing, the fragmentation of the stock exchanges has created a much more complex system yet. Most big banks and stockbrokers — and the algobots they control — have access to all of the different exchanges, and they trade wherever they think they can get the best prices. Since the best
one of the ironies about the flash crash is that it was actually caused in large part by algobots not trading. prices tend to be found wherever the most traders are trading, you end up with something a bit like six-year-olds playing football: everybody’s running towards the ball at the same time. And the result is these huge waves of activity, where traders move en masse, from one stock exchange to the next, in very unpredictable ways. If you layer that unpredictability on top of the complexity inherent in any system of multiple stock exchanges, you end up with something which will almost certainly break in a pretty catastrophic manner at some point. We don’t know how, and we don’t know when, but there’s an ironclad rule of any system: the more complex it is, the less predictable it is, and the more likely it is to fail catastrophically in some unforeseeable manner. If Twitter fails, that’s fine. A bunch of people get annoyed, and then they want to express how cross they are on Twitter, and then they remember that they can’t, and that makes them even more annoyed. But little actual harm is done. If the stock market fails, on the other hand, or the bond market, or the foreign-exchange market, or the oil market, that’s really, really bad news.
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Billions or even possibly trillions of pounds could evaporate. And that’s the biggest reason why it’s time to start cracking down on high-frequency trading. Virtually every major financial center in the world is trying to work out what to do and how to do it: these decisions aren’t easy, partly because any crackdown on the algobots is likely to have its own significant up-front costs. After all, high-frequency trading has been genuinely wonderful for small investors like you and me. We might not be particularly clever, but when we put in an order to buy this or sell that, the order gets filled immediately. We pay almost nothing in trading costs — just a few pounds, normally. And we get the very best price in the market: something called NBBO, for “national best bid/offer”. If you look at all the prices being quoted on all of the stock exchanges in the country, we get the lowest price of all if we’re buying, and the highest price of all if we’re selling. That wasn’t true 10 years ago. During the dot-com boom, especially, small investors generally had no idea how much they were going to end up paying for a stock they wanted to buy, and all too often their trades could take minutes or even hours to get filled. Today, all individual investors get filled in a fraction of a second: we’ve never had it so good. So if anybody tells you that high-frequency trading is bad for the little guy, and that it means there isn’t a level playing field any more, they don’t know what they’re talking about. Yes, high-frequency traders do make money from small investors, but they do so honestly, just by assuming that whatever those small investors do, the opposite thing is likely to make money. As a result, there’s always someone willing to take the opposite side of the trade whenever you want to buy or sell a stock. This is a real improvement, which means that the rise of highfrequency trading had genuinely beneficial effects between, say, 2002 and 2007. In those years, the computers helped markets to become ever more efficient and liquid — and they were just in time, too. When the financial crisis came along in 2008, bond markets seized up, but the world’s stock markets actually came through with flying colors. They did what markets are supposed to do: they went down when people were selling, and they kept on falling until they were so cheap that people started buying again. If you wanted to sell, you could always sell, and if you wanted to buy, you could always buy. We take these things for granted, but creating a system which stays that liquid, all the way through such a big crisis, is a real achievement, and the algobots deserve a lot of credit there. After all, imagine what would have happened if you had to phone up your broker at Lehman Brothers in order to sell your shares. But if you look at what’s happened over the past five years, since 2007, the benefits of high-frequency trading have pretty much plateaued. And the downsides are becoming more and more obvious. There was the flash crash, of course, and then there was the implosion of Knight Capital, one of the biggest and most respected high-frequency trading shops, which released a faulty algorithm one morning and was almost bankrupt an hour later, after losing somewhere in the region of $10 million per minute. If that could happen to Knight, it could happen to anybody. Then
the algobots are getting so sophisticated at sparring with each other that they’re not even trading with each other any more.
equities there was the botched flotation of one of the stock exchanges, BATS. Once again, its algorithms turned out to be not up to the task. And this was in an expected, rather than an unexpected, situation. There are more subtle signs, too, which are if anything even more worrying. For instance, look at stock-market volume — the amount of money which changes hands every day. That’s going nowhere: if anything, it’s going down, even as highfrequency traders get bigger and bigger. That says two things. The first is that real-money investors, the people who the market needs the most, are being scared away by the algobots, because even if the bots are good for the little guy, they’re really bad for big, institutional investors. For big investors, the stock market is more of a rigged game now than it has been in a long time – and they’re taking their ball and they’re going home. The second reason that volumes are dropping is that the algobots are getting so sophisticated at sparring with each other that they’re not even trading with each other any more. They’re called highfrequency traders, but maybe that’s a misnomer: a better name might be highfrequency spambots. Because what they’re doing, most of the time, is putting buy or sell orders out there on the stock market, only to take those orders back a fraction of a second later, and replace them with new ones. The result is millions of orders, but almost no trades. I’ll give you one example from a stock with the ticker symbol EFZ. It doesn’t matter what that ticker represents: the computers certainly don’t care. On September 11, between 6:51 and 7:08 in the morning, the U.S. stock markets saw more than 280,000 quotes to trade EFZ. And how many times did it actually trade? Zero. There’s no value being created here. If the economics of high-frequency trading means that fiber-optic cables get laid under the Arctic ocean, that’s good for everybody. But if it all just devolves into meaningless noise, then something has gone very, very wrong. Especially since the more noise and complexity you have, the bigger the danger that everything could just implode for some unforeseeable reason. Any one of these notes has the potential to be the butterfly wing-flap which results in global disaster. If they’re not doing anybody any good, it makes sense that regulators should crack down on them.
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