Technology law: the brave new world of cloud computing
AustrALAsIAn
LEGAL BUSINESS
www.legalbusinessonline.com ISSUE 10.3 APRIL 2012
Let them eat Blakes Why the Blake Dawson brand had to go
Agribusiness:
Adelaide 2012: Will BHP deliver on Olypmic Dam?
Comprehensive expert analysis
PAGE 20
PAGE 26
PAGE 54
Feeding the world - one deal at a time
Carbon scheme:
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CONTENTS
Australasian Legal Business ISSUE 10.3
16
1
“These organisations can pick and choose their advisors from anywhere in the world, yet they are opting to engage firms such as Minters as they believe Australia is a true global leader for expertise in the tech space” Anthony Lloyd, Minter Ellison
NEWS 06
DEALS
COVER STORY SPECIAL FOCUS: BLAKE DAWSON-ASHURST MERGER ALB analysis John Carrington interview
12 16
Sponsored update Buddle Findlay
FEATURES
LEAGUE TABLES
Agribusiness The next boom practice area?
20
Adelaide 2012 Has South Australia’s much anticipated resources boom hit a speedbump?
26
Private equity Is there a private equity resurgence in the offing?
34
Technology A look at the top technology practices and specialist commentary on IT contracts and cloud computing
36
Carbon A practical look at the impacts of the carbon scheme for Australian businesses
54
09
10
Profiles
Managing partner profile John Carrington, Blake Dawson
In-house perspective Meighan Heard, Thiess
APPOINTMENTS
16
50
32
Australasian Legal Business ISSUE 10.3
2
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4
EDITORIAL
Australasian Legal Business ISSUE 10.3
TeChnology lAw: tHe Brave neW WOrlD OF ClOuD COmPuting
AUSTRALASIAN
LEGAL BUSINESS
On Galileo, the universe and Allens Arthur Robinson One of the most enduring myths of human history was that of the geocentric universe: the belief that the sun, the planets and stars all revolved around planet Earth. Heliocentricity – the view that Earth and the planets revolved around the sun – had been debated since the times of Ancient Greece, but remained very much a minority viewpoint for the best part of a millennium. Geocentricity remained the accepted viewpoint and later became the subject of the famous clash between Galileo and the Catholic Church in the 1600s. Eventually truth prevailed, but reaching the point of a general acceptance of heliocentricity – something which we all today take for granted – was a process which spanned centuries.
www.legalbusinessonline.com ISSUE 10.3 APRIL 2012
LEt thEm EAt BLAkES Why the Blake Dawson brand had to go
Agribusiness:
AdelAide 2012:
CArbon sCheme:
PAGE 20
PAGE 26
PAGE 54
Feeding the world - one deal at a time
Will BHP deliver on Olypmic Dam?
Comprehensive expert analysis
What history teaches us is that humanity collectively – even the intellectual elite – is capable of getting things fundamentally wrong. Mankind, to the best of our knowledge, may be the most intelligent species on this planet, but we are not endowed with the capacity to understand truths whose time has not yet come. In the meantime our judgments are as likely as to be driven by emotion and pack mentality as they are by objective facts. It’s a point worth keeping in mind whenever we consider any trend in the business world. As this edition of ALB goes to print, rumours are circulating that an alliance or merger between Allens Arthur Robinson and Linklaters is about to be formally announced. Depending on how you calculate it, this is at least the fifth such arrangement to be concluded in the past two years. The crucial question: is this pack mentality in action? Lawyers – and particularly those in top tier commercial firms – are in the highest percentile bracket of human intelligence and it seems inconceivable that such a group could collectively act predominantly as an emotional reaction to what others are doing. Yet is this not the same pattern of human behaviour we have seen repeated time and time again over history? Could all these mergers simply be a more evolved example of lemmings chasing each other over the cliff? Our role here at ALB is not to judge, but simply to pose the question. No doubt these are the same philosophical questions which are being pondered within the walls of the top law firms worldwide. The wisdom of our actions today will only be known with the benefit of hindsight. Until then, we only have instinct to guide us. Renu Prasad Australasia Editor, Australasian Legal Business, Thomson Reuters
AustrALAsIAn
LEGAL BUSINESS
! Ne w
6
DEALS
Australasian Legal Business ISSUE 10.3
Undisclosed
A$58 million
Debt
M&A
Macquarie Bank Limited USD hybrid Tier 1 security issue
Tox Free acquisition of DoloMatrix
• Allen & Overy also advised the joint lead managers on both the Santos 2010 offshore hybrid and the Origin Energy 2011 offshore hybrid issues
A$1,000 million
• Addisons partner Michael Ryan has been a regular advisor for DoloMatrix over the past four years
Your month at a glance Firm
Jurisdiction Deal name
Debt
Addisons
Australia
Tox Free acquisition of DoloMatrix
Westpac hybrid notes offer
Allen & Overy
Australia
• Allens Arthur Robinson also represented Tabcorp in its A$200 million hybrid raising, announced in mid February
Macquarie Bank Limited USD hybrid Tier 1 security issue
Australia
Westpac hybrid notes offer
Allens Arthur Robinson
Australia
Gunning wind farm project finance
80
PPP
Australia
Qantas/Vietnam Airlines Jetstar Pacific venture
25
Aviation
Allion Legal
Australia
Western Areas’ acquisition of Kagara’s Lounge Lizard nickel project
68
Minerals and Resources
Australia
Taurus Mineral downstream takeover offer for Extract Resources
Australia
GUNNS restructure and extension of syndicated loan facilities
445
Debt
Australia/ New Zealand
Fletcher Building Limited private placement of notes
120
Debt
Australia
CIMB acquisition of 50 Marcus Clarke Street from Walker Corporation
226
M&A/Real Estate
Australia
Alkane capital raising, entitlement offer and placements
107
Debt capital markets
Australia
Quadrant/APN joint venture
272
Private Equity
Australia
Optus acquisition of Vividwireless from Seven Group
230
M&A
Australia
Kingsgate share placement
Australia/ New Zealand
Fletcher Building Limited private placement of notes
A$68 million Minerals and Resources Western Areas’ acquisition of Kagara’s Lounge Lizard nickel project
• Other resources clients of Allion Legal include Galaxy Resources, Agincourt Resources , Giralia Resources, and Stirling Resources
Ashurst
A$272 million Private Equity Quadrant/APN joint venture
• This equal joint venture structure is unusual for the Australian PE market, where PE usually acquires 100 percent or a controlling stake of a target business
A$230 million M&A Optus acquisition of Vividwireless from Seven Group
• Baker & McKenzie has also been advising Singtel/Optus on its NBN Co negotiations
Baker & McKenzie
Bell Gully
Value ($Am) Practice 58
M&A
Undisclosed
Debt
1,000
Debt
2,100 Resources
70
Debt
120 Debt
A$120 million Debt Fletcher Building Limited private placement of notes
• This was Fletcher Building’s first issue under its multi-currency Australian Medium Term Note Programme. ¥10 billion was raised in long term debt through a private placement of notes offered to Japanese institutional investors
DEALS
Australasian Legal Business ISSUE 10.3
A$230 million
A$80 million
M&A
PPP
Optus acquisition of Vividwireless from Seven Group
Gunning wind farm project finance
• Clayton Utz also advised its long term client Seven Group on the acquisition of free-to-air television rights for AFL from 2012-2016. The transaction was announced in May 2011 and was worth more than A$1.25 billion
Your month at a glance Firm
Jurisdiction Deal name Australia Australia
Optus acquisition of Vividwireless from Seven Group
Australia
Gunning wind farm project finance
80 PPP
Australia
Kingsgate share placement
70
Australia
Tox Free acquisition of DoloMatrix
58 M&A
Australia
Ancon Drilling/Geotech joint venture
Clifford Chance
Australia
Western Areas’ acquisition of Kagara’s Lounge Lizard nickel project
Minerals 68 and Resources
Coleman Greig
Australia
Pandrol Australia acquisition of Intercast & Forge
50
M&A
Australia
Westpac hybrid notes offer
1,000
Debt
Australia
AGL subordinated notes issue
650
Debt
Australia
CIMB acquisition of 50 Marcus Clarke Street from Walker Corporation
226
M&A/Real Estate
Australia
Hot Rock/Energy Development Corporation joint venture
200
Joint Venture
Australia/ Cyprus
Bank of Cyprus Group sale of Bank of Cyprus Australia to Bendigo and Adelaide Bank
130
M&A
Australia
Aviva property acquisitions
83
Property
Australia
Gunning wind farm project finance
80
PPP
Australia
Divestment of 35pct interest in Port of Geelong
25
Equity
Australia
Aviva property acquisitions
Australia
Metminco capital raising
Australia
Ancon Drilling/Geotech joint venture
Freehills
Gadens
2,100 M&A 230
Undisclosed
M&A
Debt
Resources
83.3
Property
40
Capital Markets
Undisclosed
A$68 million Minerals and Resources Western Areas’ acquisition of Kagara’s Lounge Lizard nickel project
• This is the first time Clifford Chance Australia has advised Kagara
• Clayton Utz has advised Origin Energy on numerous past deals, including its March 2011 A$2.3 billion renounceable entitlement offer. The firm has a relationship with Origin dating back to 2006
Value ($Am) Practice
Taurus Mineral downstream takeover offer for Extract Resources
Clayton Utz
7
Resources
A$226 million M&A/Real Estate CIMB acquisition of 50 Marcus Clarke Street from Walker Corporation
• Freehills has assisted on all three Australian transactions conducted by CIMB-Trust Capital Advisors, including the acquisition of 850 Collins St, Melbourne, in late 2011
A$130 million M&A Bank of Cyprus Group sale of Bank of Cyprus Australia to Bendigo and Adelaide Bank
• Freehills previously advised Bendigo and Adelaide bank on its head office lease, in September 2011. The firm also advised the bank on the associated capital raising that accompanied this deal
A$40 million Capital Markets Metminco capital raising
• Gadens has advised Metminco since 2007, and assisted on its 2010 listing on the AIM. In 2011 it advised on an agreement with Barrick Gold Corporation under which Barrick surrendered its ‘buy back right’ in connection with the Los Calatos project in Peru in exchange for shares
8
DEALS
Australasian Legal Business ISSUE 10.3
A$200 million
A$139 million
Joint Venture
PPP
Hot Rock/Energy Development Corporation joint venture
Plenary Group sale of assets to Caisse
• HopgoodGanim has advised Hot Rock since 2007, including advising on its IPO
• This is the first time Herbert Geer has advised Caisse
Your month at a glance
A$650 million Debt AGL subordinated notes issue
• KW Mallesons also advised the arrangers and joint lead managers on Colonial’s A$500 million hybrid securities retail offer and Tabcorp’s A$200 million retail offer of subordinated notes
Firm
Jurisdiction Deal name
Herbert Geer
Australia
Plenary Group sale of assets to Caisse
139
HopgoodGanim
Australia
Hot Rock/Energy Development Corporation joint venture
200
Joint Venture
HWL Ebsworth
Australia
Aviva property acquisitions
83
Property
Johnson Winter & Slattery
Australia
OCP off-market share buyback and capital return
170
Equity
Australia/ Cyprus
Bank of Cyprus Group sale of Bank of Cyprus Australia to Bendigo and Adelaide Bank
130
M&A
Australia
Equity sell-down and refinance of Woolnorth Wind Farms
88.6 Equity
Australia
AGL subordinated notes issue
650
Debt
Australia/ New Zealand
Fletcher Building Limited private placement of notes
120
Debt
Australia
NT Govt Marine Supply Base PPP
Australia
Taurus Mineral downstream takeover offer for Extract Resources
Australia
Quadrant/APN joint venture
272
Australia
Plenary Group sale of assets to Caisse
139 PPP
Norton Rose
Australia
Equity sell-down and refinance of Woolnorth Wind Farms
Reed Smith
Australia
Metminco capital raising
40
Capital Markets
Thomsons Lawyers
Australia
Pandrol Australia acquisition of Intercast & Forge
50
M&A
King & Wood Mallesons
Undisclosed PPP NT Govt Marine Supply Base PPP
• Mallesons also advised the NT Government on its Correctional Services PPP, which closed in late 2012. Outside the Territory, it has advised on other projects including the Gold Coast Rapid Transit PPP and the National Broadband Network
A$2,100 million Resources Taurus Mineral downstream takeover offer for Extract Resources
• Apart from advising Taurus Mineral on all aspects of the upstream takeover, Minter Ellison also has a relationship with Energy Metals Limited - one of the subsidiaries of Taurus Mineral’s part owner, CGNPC Uranium Resources Company.
Minter Ellison
Value ($Am) Practice PPP
Undisclosed PPP 2,100 Resources Private Equity
88.6 Renewables
Does your firm’s deal information appear in this table? Please contact
alb@thomsonreuters.com
61 2 8587 7484
A$272 million Private Equity Quadrant/APN joint venture
• Quadrant is a long standing client for Minter Ellison. The firm recently advised on its investments in Sentia Media and the Independent Pub Group, the sale of Quick Service Restaurants, and the establishment of Quadrant Private Equity Fund III
Firm Profile
NZ Commentary
Turning Water into Wine Producing a world class sauvignon blanc is the dream of many, but those in the wine industry know that owning and operating a vineyard is a hard business. It requires a significant investment of both capital and time, and is subject to the vagaries of the market place. Growing grapes and making wine also requires, among other things, a good supply of water. In a recent decision1, New Zealand’s Supreme Court had to consider how the lack of water rights affected the purchase of land that was intended to be used to develop a vineyard. Altimarloch Joint Venture Limited, purchased 145 hectares of land in the Awatere Valley, a wellknown grape growing area in Marlborough, for the purposes of establishing a vineyard. Things became unstuck for the purchaser when it discovered, after the land was acquired, that some of the water rights associated with the land did not exist, notwithstanding the Council’s records and the vendor’s agent’s representations that those water rights were available. Growing grapes without sufficient water is challenging. The cost of providing reliable water for the vineyard, which included constructing a storage dam, was approximately $1.1 million. As a result, the purchasers sued the vendor for damages based on misrepresentation and also sued Marlborough District Council for negligence. The case considers two key and potentially widereaching matters: • Whether a Council owes a duty of care to those who order and rely on Council-issued Land Information Memoranda (LIM), and is therefore liable for errors in a LIM • The nature of damages to be paid by a vendor in order to put the purchaser back in the position as if the contract had been performed. Some of the conclusions from the case are clear – for example, a Council does owe a duty of care to those who order and rely on a LIM. However, aspects of the case were keenly debated in the Supreme Court, notably: • What level of damages is available to a purchaser who has relied on misrepresentations? • Where there is more than one party who is shown to be in breach of either contractual or tortious obligations, how much each party should pay?
Level of Damages
Lessons to be Learned
The quantum of the loss in this case was viewed in two ways:
At a general level, professional advisors for both the purchaser and vendor need to be vigilant in advising accurately on all relevant resource consents, water rights, and other land rights, particularly if these are likely to be relevant to any future known development. The nature of damages to be applied in each case will be a question of fact, and there are no absolute rules in this area.
• First, what was the diminution in value of the land because of the missing water rights? Typically, for contractual misrepresentation, the level of damages is the difference in the value of the land as transferred and the value of the land had the representation been true. • Second, and in the alternative, what were the purchaser’s costs in remedying the breach? A remedial approach is often used for cases involving contracts for the performance of work on the property. Valuations completed “with water rights” and “without water rights” showed that the difference in the land value was about NZ$400,000. By contrast, the purchaser’s cost of remedy included having to install a dam and this was valued at approximately NZ$1.1 million. A significant sum of money was therefore riding on which interpretation was chosen.
Specifically, however, in an age where water rights are becoming increasingly valuable, any misrepresentation of such rights could have considerable financial consequences for the parties. A LIM will not ordinarily disclose water rights so, given their importance, the purchaser will need to check the position with the requisite level of thoroughness.
This article was written by Rachel Dunningham and Lloyd Davies from Buddle Findlay, one of New Zealand’s leading law firms.
The Court held, by a majority, that the appropriate level of damages was the “remedial approach” and awarded NZ$1.1 million in damages. The fact that the vendor knew that the land was to be used as a vineyard, and that water would be an integral part of that use, made this case more analogous to a contract for the sale of a potential vineyard (i.e. a development), than a simple sale of land.
Rachel is a partner in the Christchurch office and can be contacted on +64 3 371 3535 or email rachel.dunningham@buddlefindlay.com.
Contribution
Buddle Findlay acted for Altimarloch, and Rachel Dunningham, appeared as counsel with Matt Casey QC in the Supreme Court.
The Council was held to be negligent in preparing the LIM, but on the face of the judgment it is difficult to determine what contribution the Council must pay to the purchaser. The Supreme Court did find however that the real estate agents and the vendor’s solicitors could not seek contribution from the Council to the share of the damages that each of them was required to pay. The question of contribution as between the vendor’s agents and the Council was the subject of considerable debate between the judges, given the different legal basis of their obligations to the purchaser (i.e. contractual, as owed by the vendor and tort, as owed by the Council). The judgment also traversed Australian law on equitable contribution and while it provided some assistance, a number of judges nevertheless called for Parliament to fix this situation.
1. Marlborough District Council v Altimarloch Joint Venture [2012] NZSC11
Lloyd is a senior associate in the Wellington office and can be contacted on +64 4 462 0470 or email lloyd.davies@buddlefindlay.com.
Rachel Dunningham
Lloyd Davies
Buddle Findlay
Buddle Findlay
10
LEague Tables
Australasian Legal Business ISSUE 10.3
M&A rankings: Australian announced deals
1
NO.
Top M&A firms - completed deals 2012
1
Freehills
2,622.95
Value ($Mil)
NO.
Deals: 11 Market Share: 20.4
Rank Legal Advisor
Value Mkt. ($Mil) Share
Deals
Ashurst
10,988.68
Value ($Mil)
Deals: 13 Market Share: 62.7
Rank Legal Advisor
Value Mkt. ($Mil) Share
Deals
2
Mallesons Stephen Jaques
9,050.54
51.7
7
3
Clayton Utz
9,044.68
51.6
11
4
Gilbert + Tobin
8,621.41
49.2
7
5
Corrs Chambers Westgarth
8,404.70
48.0
4
6
Allens Arthur Robinson
8,366.35
47.8
4
7
Freehills
3,163.07
18.1
13
5
8
Minter Ellison
2,187.55
12.5
8
2.6
4
9
Allen & Overy
1,301.01
7.4
6
247.11
1.9
3
10
Orrick Herrington & Sutcliffe LLP
1,220.35
7.0
1
205.03
1.6
4
10*
Cassels Brock & Blackwell LLP
1,220.35
7.0
1
141.28
1.1
3
10*
Stikeman Elliott
1,220.35
7.0
1
Vinson & Elkins LLP
100.00
0.8
1
10*
Lawson Lundell Lawson & McIntosh
1,220.35
7.0
1
13
Arnold Bloch Leibler
89.93
0.7
2
10*
Kalamba & Associes
1,220.35
7.0
1
14
Quigg Partners
86.71
0.7
1
10*
Linklaters
1,220.35
7.0
1
15
Allen & Overy
28.80
0.2
2
10*
Davies Ward Phillips & Vineberg LLP
1,220.35
7.0
1
16
Mallesons Stephen Jaques
17.88
0.1
2
17
Sullivan & Cromwell
984.05
5.6
2
16*
Jackson McDonald
17.88
0.1
1
18
Clifford Chance
499.20
2.9
3
16*
Cassels Brock & Blackwell LLP
17.88
0.1
1
19
HopgoodGanim
434.36
2.5
2
20
Anderson Mori & Tomotsune
434.05
2.5
1
19
Chapman Tripp
16.54
0.1
1
21
Blake Cassels & Graydon
428.36
2.4
1
20
Gadens Lawyers
6.96
0.1
1
22
Baker & McKenzie
405.77
2.3
4
23
Hogan Lovells
401.93
2.3
1
24
Middletons Lawyers
394.35
2.3
3
25
Simpson Thacher & Bartlett
278.86
1.6
1
Subtotal with Legal Advisor
16,078.31
91.8
59
Subtotal without Legal Advisor
1,436.00
8.2
133
Industry Total
17,514.31
100.0
192
2
Jipyong & Jisung
1,556.25
12.1
1
3
Allens Arthur Robinson
1,514.67
11.8
6
4
Gilbert + Tobin
594.16
4.6
5
5
Ashurst
432.25
3.4
6
6
Middletons Lawyers
394.35
3.1
3
7
Clayton Utz
390.11
3.0
8
Minter Ellison
330.62
9
Baker & McKenzie
10
Clifford Chance
11
Corrs Chambers Westgarth
12
Subtotal with Legal Advisor
5,845.58
45.5
47
Subtotal without Legal Advisor
6,999.98
54.5
213
Industry Total
12,845.56
100.0
260
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-03-14 08:42:10 EDT
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-03-14 08:21:24 EDT
LEague Tables
Australasian Legal Business ISSUE 10.3
>>
Top M&A firms - worldwide announced deals
1
NO.
11
In-house Q&A
Freshfields Bruckhaus Deringer
59,222.47
►► Australia Law firms in Singapore
Value ($Mil)
Firm
Deals: 20 Market Share: 15.6
Rank Legal Advisor
Value Mkt. ($Mil) Share
Advent Lawyers Allens Arthur Robinson Deals
2
Linklaters
52,038.58
13.7
26
3
McCarthy Tetrault
51,029.43
13.4
11
4
Dewey & LeBoeuf LLP
24,703.25
6.5
22
5
Kirkland & Ellis
18,778.74
4.9
27
6
Davis Polk & Wardwell
18,452.51
4.9
12
7
Skadden
16,240.46
4.3
19
8
Weil Gotshal & Manges
15,464.28
4.1
26
9
Vinson & Elkins LLP
14,703.07
3.9
13
10
Jones Day
14,527.98
3.8
46
11
Sullivan & Cromwell
13,923.24
3.7
20
12
Clifford Chance
13,923.07
3.7
29
13
Latham & Watkins
13,617.08
3.6
16
14
Shearman & Sterling LLP
10,840.36
2.8
16
15
Wachtell Lipton Rosen & Katz
10,438.87
2.7
6
16
Simpson Thacher & Bartlett
9,982.78
2.6
11
17
Fried Frank Harris Shriver & Jacobson
9,760.32
2.6
6
18
Nagashima Ohno & Tsunematsu
9,266.04
2.4
19
19
Allen & Overy
9,197.32
2.4
27
20
Willkie Farr & Gallagher
9,148.92
2.4
8
21
Blake Cassels & Graydon
8,061.40
2.1
14
22
O'Melveny & Myers
7,624.04
2.0
2
23
Locke Lord Bissell & Liddell
7,565.00
2.0
4
24
Hengeler Mueller
7,505.33
2.0
10
25
Debevoise & Plimpton
7,443.00
2.0
2
Subtotal with Legal Advisor
237,647.21
62.5
983
Subtotal without Legal Advisor
142,807.83
37.5
5,458
Industry Total
380,455.04
100.0
6,441
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-03-14 08:42:02 EDT
Model Foreign law practice Dolone Chakravarti Joint Law Venture
with TSMP General Counsel RATCH Australia Corporation Limited Blake Dawson Foreign law practice Freehills Foreign law practice InKanji Group your opinion, why have in-house lawyers become an Foreign law practice increasingly indispensable part of an organisation? Webb Henderson Foreign law practice Wojtowicz Kelly Legal office in giving legal advice. In-house lawyers can take a whole ofRepresentative business perspective
1
Singapore Attorney-General’s Chambers They areSource: embedded within the client, know the corporate strategic objectives, and the risks and the challenges the company is facing. They can tailor their advice accordingly or be very specific in giving instructions to external counsel to obtain meaningful advice which will be received positively and implemented by the company. Usually, legal issues at a corporate level require a multi-disciplinary problem-solving approach involving a number of departments, and in-house lawyers are valuable in building stakeholder engagement and coordinating a feasible company response which sustains or adds shareholder value. Additionally with repetitive legal problems, in-house lawyers have the ability to influence the improvement of systems and processes to ensure the source of any problem is addressed. They are good at having difficult conversations in a polite manner! Effective in-house lawyers are ‘can do’ people who find a way of effectively managing the risks involved without ignoring them. They break down the perception that I’ve encountered many a time that lawyers are generally obstructive in achieving business goals. Overall, the perception of effective inhouse lawyers has moved very much away from the traditional view that the only benefit in having them is they are cheaper than external lawyers.
2
In recent times, the role of the General Counsel has diversified into a multi-faceted role, (where the General Counsel can wear the ‘hat’ of Lawyer, Legal Manager, Compliance Manager, and Company Secretary). In your opinion, do you believe this has increased your risk profile? Lawyer, Legal Manager, Compliance Manager and Company Secretary are all generally aligned with the broad compliance and risk management role that a General Counsel undertakes, so those aspects of the role don’t add to a General Counsel’s risk profile. What does add to a General Counsel’s risk profile is increased involvement in the commercial aspects of the company. If a General Counsel is to be effective, they cannot sit purely in their ‘legal box’. There is a very blurry line between legal and commercial, and General Counsel must be commercially focused, otherwise they risk becoming ineffective. However, General Counsel need to be very cognisant of the type of role they are performing at different times, have the ability to step back where required, and manage the potential erosion of client legal privilege.
3
In your opinion, what do you consider to be the main challenges you will face in 2012?
There are the economic challenges associated with global financial markets, including tight budgets and resourcing, and managing a heavy legal workload. RATCH Australia as an owner and developer of power assets in Australia is a niche player in the energy industry. However, the number of projects or transactions it has had in the first quarter of this year has been significant. From a legislative perspective for RATCH Australia, there are implications with the introduction of a carbon tax, the Personal Property Security Act and the new OHS laws. Carbon tax in particular is a whole of business issue and we have a number of projects running in this respect. 2012 will be a very busy year!
12
ANALYSIS
Australasian Legal Business ISSUE 10.3
ASHURST? WHO ON EARTH IS
ASHURST? Ashurst has embraced Australia with the Blake Dawson merger – but is Australia ready to embrace Ashurst? ALB’s Renu Prasad investigates.
A
few years ago, in a simpler and more innocent age, Blake Dawson Waldron undertook a brand makeover. The “Waldron” disappeared from the name; black and a refreshing pale turquoise were adopted as the official firm colours and stylish cartoons from The New Yorker’s Charles Barsotti were brought in to accompany marketing ephemera. The rebrand was not without its setbacks – it later emerged that there was an adult entertainment industry actor also operating under the name “Blake Dawson” – but the key point was that everyone knew and understood the brand. There was the occasional argument over where exactly the firm stood within the top tier pecking order, but no one doubted that this was a top tier entity with a particularly enviable resources practice and well capable of making its mark in other areas too. Now Ashurst is in town, bringing with it a technicolour palette which symbolises the confused market reaction to the merger. The turquoise has disappeared from the brand, but no one is quite sure what the new official colours are. Insiders in the Sydney offices in Grosvenor Place report that one wall has mysteriously turned purple, while another is green. Business cards are red, except when they are blue or orange. No one can explain why. For outsiders, the firm is equally enigmatic in
matters of substance. Who exactly is Ashurst and what do they represent? The market reaction in Australia appears to be mixed. There are some lawyers who are not only familiar with the firm but also comment favourably on its depth of expertise in certain key specialisations, such as energy & infrastructure. Equally, however, there are others who are underwhelmed by the merger and do not understand the logic behind ceding the Blake Dawson brand. Nor, for that matter, can it be assumed that the firm fares conspicuously better in Asia. “I would describe Ashurst as obscure, but not without strengths,” murmured one source at a rival Hong Kong firm. The firm appears to have acknowledged the brand recognition problem, embarking upon an extensive marketing campaign. There is an endearing honesty about the manner in which managing partner John Carrington has not attempted to spin his way out of the issue, but has instead vowed to work hard to explain the move to the market. But beyond the brand recognition, there is another challenge – building a narrative around the new Ashurst and what it is trying to achieve. This is something Mallesons managed to do with distinction – there can be little doubt about the purpose of the King & Wood tie up – but the Ashurst merger is less easy to characterise. Last year, former Mallesons CEP Robert Milliner warned against what he described as “UK-centric” or “U.S.-centric” mergers in an era where the “old world” is declining in economic relevance. Given that Ashurst derives less than 10 percent of its revenues from Asia, it would be easy to place the Blakes-Ashurst merger within that narrative. Nor is this the kind of UK-centric merger that many were expecting and perhaps more prepared to accept: there is no Magic Circle prestige to soothe away that trademark Australian cynicism. This is a difficult merger to explain, so all the more reason to analyse carefully. Has Blake Dawson seen something which the critics have missed?
ANALYSIS
Australasian Legal Business ISSUE 10.3
Going Shopping | China’s outbound M&A By region, in billions of dollars 2011 2012
Europe Asia
“we started with the proposition that we wanted to be part of an international firm – not just a regional firm.”
North America Australia & New Zealand
John Carrington
South America Africa $0
3
6
9
12
15
Source: Wall St Journal, A Capital
Unfashionable Blake Dawson is a firm which has always followed its own instincts rather than popular sentiment and it has made a number of unfashionable strategic decisions in recent years. It opened an Adelaide office during the GFC in late 2008; it launched in Tokyo in 2009 as the notoriously fragile Japanese economy emerged from the worst recession since the second world war and now it has completed the trifecta by linking with a firm with heavy European exposure at a time when Europe is paralysed by the sovereign debt crisis. The latter two moves in particular run contrary to the usual narrative which consigns Japan, Europe and the U.S. to a bygone era of economic hegemony which has now been displaced by the rising stars of China and India. Much has been written about the fact that the size of China’s economy has already exceeded that of the individual economies of UK, France and Germany and, depending on which set of predictions are used, will overtake that of the U.S. at some point in the next decade. The IMF predicted last year that, on an adjusted measure of purchasing power, China could overtake the U.S. as early as 2016. In the face of these predictions, it is easy to forget that according to World Bank statistics, the European Union and the U.S. have a combined GDP of over US$30 trillion, accounting for nearly half the global economy. China accounts for about US$6 trillion and the much maligned Japanese economy accounts for US$5 trillion. There’s life in the “old world” yet. From the lawyer’s point of view it is the flow of capital, not pure GDP which is key and undoubtedly China remains the safest bet for the international law firm on the expansion path. But chasing the Chinese workflow is not a one-dimensional play: there are at least two sides to every transaction and that is where the “old world” continues to be relevant. According to private equity firm A Capital, Europe was the leading destination for outbound Chinese
investment in 2011, accounting for 34 percent of all M&A activity. That seems surprising given the Chinese fixation with raw commodities – particularly in Australia – however, investors are said to be moving up the value chain with a particular focus on strategic industries such as high end manufacturing and chemicals. Resources still account for half of all outbound investment, but this proportion declined by 10 percent in 2011. In an interview with the Wall Street Journal, an A Capital representative conceded that these trends may be partially opportunistic, but also represented a real shift in Chinese investment patterns. Whether regarded as standalone economies or as part of the Chinese investment story, Europe and the U.S. will continue to be relevant to the aspirations of would-be international law firms. Viewed this way, there is nothing anachronistic about Blake Dawson identifying markets in Europe as an avenue for growth. The emphasis in strategy may be different from King & Wood Mallesons, but the world view is the same. Asia is still the goal, but within a global context. Whether the new Ashurst succeeds in becoming a premium global player and indeed the exact role of Blake Dawson in this pursuit remains to be seen. However, this is a serious attempt to build a truly
13
14
ANALYSIS
Australasian Legal Business ISSUE 10.3
international practice at a time when firms have only their intuition to guide them on the ultimate state of play. Time – and the client – will be the ultimate adjudicator on this enterprise. Full service model Last year ALB used the term “post Norton Rose model” to describe a pattern which was emerging in international law firm mergers of the time. Norton Rose had swallowed Deacons whole, but subsequent entrants Allen & Overy and Clifford Chance proved to be far more selective, adopting only the practices and jurisdictions which suited them. Corporate and banking and finance were in vogue; expertise outside the core focus could be obtained via referral. Large national firms also seemed to sense which way the wind was blowing, slimming down their partner numbers and running the ruler over less profitable practice areas. Suddenly “full service” did not necessarily mean a full service offering. Someone forgot to tell Blake Dawson. The firm has continued to grow its partnership in recent years and has maintained a depth of expertise across a spread of practice
areas. Some clear dividends have emerged – for example, the firm’s native title work with Santos in the early stages of the Gladstone LNG project in Queensland was a factor in it winning a longer term key advisor role on the project. Blakes was a notable high flyer on the FY2011 revenue tables, recording 8 percent growth which is partly attributable to the firm’s diversity of practice areas such as IP, employment law and insolvency. Carrington has told ALB that the firm has no intention of relinquishing any part of its breadth or depth in the Australian market and, if anything, is likely to grow further. All of this runs contrary to the popular theory that top tier firms will slim down and replace their full service national practices with smaller but more lucrative high end specialisation. The midtier firms who have been eagerly anticipating the exit of top tier firms from large swathes of the national market are likely to be disappointed. The post Norton Rose model may be one way of conducting a merger, but it is clearly not the only way. This story carries a minor postscript of interest. The two firms will vote on a full financial integration in 2014 and, reading between the lines, it appears that it is up to the Blake Dawson partnership to close a 10 percent disparity in profitability between the two firms. John Carrington is confident that this goal will be achieved – revenues and profitability are on an upward trajectory – but these are unpredictable economic times. That’s something to keep an eye on come July. John Carrington is this month’s featured managing partner and you can read his account of the merger on page 16.
Familiar faces. New location. Wynn Williams opens a new city centre office in Auckland with two new partners. Rob Noakes Partner
Nick Lodder Partner*
Corporate / Commercial Mergers & Acquisitions International Investment & Trade
Corporate / Commercial Banking & Finance Insolvency & Restructuring
P 64 9 300 2601 E rob.noakes@wynnwilliams.co.nz
P 64 9 300 2602 E nick.lodder@wynnwilliams.co.nz
www.wynnwilliams.co.nz Level 7 | Forsyth Barr Tower | 55 Shortland Street | Auckland 1010 P 64 9 300 2600 | F 64 9 300 2609 Homebase | 195 Marshland Road | Shirley | Christchurch 8083 P 64 3 379 7622 | F 64 3 379 2467
* Nick Lodder will join as Partner on completion of NZ Law Society requirements
NEWS
Australasian Legal Business ISSUE 10.3
15
In case you missed it…..
The month’s top headlines from www.legalbusinessonline.com Australia headlines
Asia headlines
STORY OF THE MONTH
STORY OF THE MONTH
Allens in merger talks with Linklaters Allens Arthur Robinson is in merger talks with Linklaters, sources have told ALB. ALB understands that the matter is subject to a partner vote in March, however Allens declined to comment on the matter and this report remains unconfirmed at time of printing.
More defections from King & Wood Mallesons Ashurst has announced the hire of former Mallesons Stephen Jaques partner Patrick Phua in Beijing. Phua was previously the head of the derivatives, structured finance and banking practice at Mallesons. Ashurst is in the process of establishing a Beijing office, where Phua will ultimately be based. Meanwhile, Clyde & Co has welcomed former Mallesons energy and infrastructure specialist Lynia Lau as its newest partner in HK. Last year, Mallesons’ Beijing chief representative John Shi and M&A partner Nic Groffman, left the firm to join DLA Piper, not long after the Mallesons/King & Wood merger vote.
10 March
Corrs’ Denton to remain until 2017 Corrs Chambers Westgarth CEO John Denton is to remain in his role for a further five years, with the Corrs partnership having voted unanimously on his reappointment. Denton has held the role since 2001. “I am committed to growing the firm’s scale and capability by at least one third by 2015, with a key focus on the practice areas driving the new economic environment such as energy & resources and projects & infrastructure,” said Denton.
1 March
KW Mallesons, Ashurst officially open for business in Australia Two of the most recent international law firm mergers, King & Wood Mallesons and Ashurst, went live on 1 March. King & Wood Mallesons is a Swiss Verein entity comprising the partnerships of Mallesons Stephen Jaques, China-based King & Wood and a third entity which represents the combined partnerships of both firms in Hong Kong. Meanwhile, March also marked the official demise of the Blake Dawson brand in favour of Ashurst and the full integration of the firms’ Asia practices. Full financial integration of the remainder of the firm will be put to a partnership vote in 2014. Full financial integration will happen, vows Blakes boss Blake Dawson is “very confident” of consummating a full financial integration with Ashurst in 2014, managing partner John Carrington has told ALB. Carrington said that only a shared profit pool would ensure a seamless global service delivery. There is currently a 10 percent disparity in profitability between the two firms in favour of Ashurst, a gap which Carrington says he is confident will disappear by 2014.
28 Feb
ILH lifts profit and revenue following acquisitions Integrated Legal Holdings has announced a half year profit after tax of A$970,123, representing a 28 percent increase on the same period last year. In the six months to December 31 2011 the ASXlisted company had an operating revenue of A$16.92 million, which was 24 percent higher than the FY 2010/2011 first half results of A413.62 million.
9 March
Freshfields: Singapore relaunch reports ‘speculation’ Rumours have emerged that Freshfields is set to reopen its Singapore office, after a five year absence. The firm declined to comment on the rumours. Singapore has recently taken steps to further liberalise its legal services sector.
8 March
U.S. firms queue up for Korea Squire Sanders has joined Ropes & Gray and Paul Hastings in becoming the first group of U.S. firms to apply for approval to open a Seoul office. Liberalisation of the South Korean legal market occurred after Korea’s free trade agreements with the U.S. and EU were ratified in February and November last year. Other U.S. firms, such as Cleary Gottlieb Steen & Hamilton and Simpson Thacher & Bartlett have also revealed plans for Seoul.
6 March
Watson, Farley & Williams teams up with local firm; enters Hong Kong British firm Watson, Farley & Williams (WFW) has ventured into the Hong Kong market with a new office which it opened in association with local firm Lau, Leong & Co. The new outpost is WFW’s 13th global office, and its third in Asia after Singapore and Bangkok.
24 Feb
Olswang relocates London partner; officially launches in Singapore London-headquartered Olswang, which specialises in technology, media and telecoms (TMT), has relocated partner Andrew Stott from London to its recently opened Asia office in Singapore. Stott’s arrival has taken the total number of partners at the Singapore office to four, and the total number of lawyers there to six.
16
Profile: Managing Partner
Australasian Legal Business ISSUE 10.3
ALB 2012 MANAGING PARTNER SERIES
Let them eat Blakes
Ashurst Australia managing partner John Carrington explains to ALB’s Renu Prasad his vision for a global law firm – and why financial integration plays an essential role.
I
t’s becoming a familiar routine across the industry as the mergers keep coming: finalise your deal, then hit the media circuit to explain your new value proposition. When ALB arrives at the Ashurst offices in Sydney, managing partner John Carrington is already in situ, having set aside the full day for a series of individual media briefings. A genuine and likeable personality, Carrington looks energised and keen to talk about the merger. A plate of biscuits – untouched – sits deferentially in the centre of the table. “I can’t tell you the name of the client, but last week we won a pitch against leading international law firms,” says Carrington. “It was a resource infrastructure project in Australia with international aspects to it. We had the local energy and resources infrastructure expertise, we drew upon expertise from Ashurst in New York, Singapore, Hong Kong and London and we’ve won that - and one of the reasons we won it was we were able to provide an absolutely seamless team.” “Seamless” is an overused word in this particular context, but as Carrington continues it is clear that he has a very specific idea of what the term means.
“What we are driving towards is creating a partnership with a single profit pool and that will really set us apart,” he says. “Both Ashurst and ourselves took the view that having a commonality of interest is what enables you to really provide a seamless service. If you end up with several profit pools, whether it’s Australian state based or international jurisdiction based, you do not have a commonality of interest.” Financial integration is subject to a vote by both partnerships in 2014, and Carrington says he is confident that the vote will succeed. There is currently a 10 percent disparity in profitability between the two firms in favour of Ashurst, a gap which Carrington says he is confident will disappear by 2014. “I’m confident that we’re going to do it for a number of reasons,” he says. “If you look at the trend line, in the previous two financial years we’ve increased profitability by an aggregate of 25 percent. Our revenues are up 8 to 9 percent on a year on year basis and our profitability will be up again this year, not withstanding we’re going to have a number of [rebrand] costs.” As far as Carrington is concerned, financial integration is the key to understanding how the global legal services market will
Photography by Thilo Pulch
Australasian Legal Business ISSUE 10.3
Profile: Managing Partner
17
18
Profile: Managing Partner
evolve. “We looked at what would be the trend over 10 or 20 years and we formed a view that there would be a number of truly global law firms over the next 10 to 15 years,” he says. “When we dug into what we thought the attributes of those were, it was the capacity to serve global clients in a very seamless way. What’s an obstacle to seamless service? Lack of commonality of interest.” Carrington says that a shared profit pool was one of three key aspirations for both firms during the merger negotiations, the other two being a common culture and a desire for both parties to operate on an even footing. “I do think it is important that a sense of equality exists,” he said. “You want to know that when you’re discussing an issue around the table, you have a voice which will be both heard and listened to. There’s a real sense of equality in this relationship.” All of which leads to the question which has attracted the most market curiosity: why give up the Blake Dawson brand? Remarkably, it appears that Blakes conceded this ground to Ashurst of its own accord. “When we entered serious dialogue with Ashurst, we were the ones who said we wanted to change our name,” says Carrington. “We did that because we recognised that they have a strong reputation in the UK and Western Europe and a stronger reputation than we did in the parts of Asia where we both practise. And because there’s this connection between the financial centres of Asia and the UK it is very understandable that they’re well known.” It is an important concession that the Blake Dawson brand does not carry the same weight in Asia as Ashurst. “This really goes to why we changed our name,” says Carrington. “We have a really strong top tier brand in Australia, but we really wanted to be part of a leading global firm and it became clear to us that in due course we would be changing names.” Europe Carrington makes no apologies for the decision to merge with a UK-based firm in an era of increasing Asian domination. He says it was always the firm’s intention to improve its exposure to Europe. “Europe and UK make up a substantial part of the world economy,” he says. “While there is clearly a natural tendency to focus on the flow of capital from east to west, there is also a flow of investment capital the other way around – so there are companies in Europe who want to invest over here as much as there are companies in the east who want to invest in the west.” It is also a question of the expertise which can be found in western jurisdictions. “UK law and New York law remain the dominant laws when it comes to international transactions,” says Carrington. “We will have, in the context of the Australian market, an unparalleled access to UK and New York [expertise]. When we were setting out our criteria against which we would benchmark any potential partner, that UK and New York expertise was important.” Carrington acknowledges the importance of Asia, but he also makes a strong case for not throwing the European baby out with the bathwater. “There is no doubt that the [size] of the Asia
Australasian Legal Business ISSUE 10.3
economies is going to surpass that of Europe and the UK, but they are still going to remain very, very important on a global basis. Similarly, the U.S. is the world’s most powerful economy – it will still be a number of years before China overtakes the U.S.,” he says. “We thought it was very important to have that additional coverage and we started with the proposition that we wanted to be part of an international firm – not just a regional firm.” So where does this leave Ashurst in Asia? The firm has announced modest expansion plans for China and South Korea and Asia revenues have growth by 30 percent over the past three years, albeit off a small base. Carrington also points out the scale of the resourcing is not always an indicator of firm strategy – especially where international firms are called upon to compete against well established local operators. “China, for example, is a market which is increasingly well serviced by very sophisticated Chinese firms,” he says. “So the opportunities we see are in terms of outbound investment and that doesn’t require a substantial presence on the ground – more the capacity to service Chinese based clients in the jurisdiction in which they choose to invest.” Ultimately, Carrington says that all of this careful strategic planning will come to nothing if the culture is not right. “Culture is a prerequisite to a successful merger and I make that comment having been involved in the state based consolidation in the 1980s,” he said. “You can get your strategy right and your common practices, but if you don’t have people working together properly it will be a real challenge.” And how does Carrington feel about the combined Ashurst-Blakes culture? “Let me give you an example,” says Carrington. “The GC of one of our major clients has worked with Ashurst in the UK and when we announced the merger, he rang up and described it as the perfect marriage – the ease of communication, the rapport, the way people interact. And that’s been reinforced by clients who have made similar comments - I’ve had emails from clients and the level of excitement is just palpable. It is really uplifting.”
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20
AGRIBUSINESS
Australasian Legal Business ISSUE 10.3
Taking agribusiness to the world Agribusiness is the word on everyone’s lips as investors look to shore up their food security. Brian Healey explains why this is one economic trend that is here for the long haul
T
he Australian agribusiness sector is a leading contributor to the Australian economy. It contributes more than $200 billion in revenue to the Australian economy annually and is expected to increase that contribution to $244 billion in 2015-20161. It includes businesses that are directly engaged in agricultural production or directly benefit from agriculture and includes producers of agricultural products, buyers of agricultural products and service industries which supply in to the agricultural sector. Changes in diet around the world, global food pressures and population increase and increasing foreign and corporate investment are all developments in the agribusiness sector which are current themes of Australian agribusiness. With the increasing world population, competition
with the resources sector for prime arable land also presents challenges. Changing dietary habits, food pressures and population increase Changing dietary habits around the world present significant opportunities for agricultural producers and agribusinesses. As countries become more affluent and the ranks of the middle classes swell in many countries, changing dietary habits such as the increase in animal protein and sugar consumption, will present opportunities for Australian agribusinesses to supply in to those markets. As a reliable supplier and a supplier of clean and green products, Australian agribusinesses are set to benefit from changing dietary demands around the world. Just as diet is changing, the global population, which is expected to grow from 7 billion to 9 billion by 2050, is producing an insatiable demand and strain on the world’s food supplies. As a large exporter of food products, Australian agribusinesses stand to benefit. In the case of China, for example, the rapid urbanisation and burgeoning middle classes have seen demand for animal
Australasian Legal Business ISSUE 10.3
AGRIBUSINESS
Brian Healey – Holding Redlich Brian Healey is National Head of Agribusiness & Rural Industries at Holding Redlich and Director of the Australian Agribusiness Association of Australia
protein soar. To help ease global food pressures, Trade Minister Craig Emerson announced on 20 November 2011 that he and his Chinese counterpart, commerce Minister Chen Deming would work together to ease global food security pressures and that Australia would play its part and aim to increase agricultural production to meet the needs of the extra 2 billion people in the world that would need to be fed by 2050. Increasing foreign investment The changing dietary habits and the increase in the world’s population are, in part, attracting the interest of global food producers and agribusinesses into the Australian agricultural sector either as an investment in itself or as a solution to food security pressures. Increasingly, large global agribusinesses, sovereign wealth funds and pension funds recognise the compelling business case to be involved in feeding and clothing the world and the opportunities that the Australian agricultural industry can play in doing so and in meeting food security requirements. Australia is recognised internationally as one of the most efficient producers of agricultural products and the Australian agricultural sector presents an attractive investment opportunity for sophisticated players in agriculture to take advantage of the business opportunities presented by the sector. Although deregulation has played its part, the business case presented by Australian agribusiness has now seen half of Australia’s 23 licensed wheat exporters become foreign owned, ½ of all milk produced in Australia processed by foreign owned firms and similarly has now seen 3 foreign owned sugar mills now account for half of Australia’s raw sugar produced. (Source Rural Industries & Research Development Corporation 2011 Report “Foreign investment in Australian agriculture”). Whilst debate about foreign ownership of Australian agribusinesses is lively, and sometimes heated, there is little doubt these trends have seen investment and capital injections into the sector by foreign owned firms. Increasing corporate investment Astute investors have recognised the opportunities available in Australia’s agricultural sector, such that the sector is now attracting corporate investors from other sectors of the economy who would once have shunned the agricultural sector. In addition, existing corporate investors already in the sector are expanding and aggregating. Whilst always battling with the perception that agriculture is a volatile investment subject to the vagaries of extreme weather, droughts and environmental disasters, the understanding of the
sector has deepened in recent years. Larry Fink, the CEO of BlackRock, the world’s largest asset manager, has been quoted in the Sydney Morning Herald as stating that he is a “wild bull” on the agriculture and water sectors because of the world’s growing middle-class populations and declining arable land. Canny investors will recognise the opportunities that the sector presents and begin to explore the possibilities it provides. Statements such as those by Larry Fink illustrate the recognition of the broader investment community to the opportunities agriculture now provides. Competition with resources sector At the same time as the world’s population is increasing, thus increasing the demand on food and fibre resources to feed and clothe the population, the population increase is also presenting challenges to provide that increasing population with its fuel sources and energy needs. The result has been, in Australia at least, a loss of arable land to the resources sector. This has presented a challenge for agricultural producers and resource companies in the form of competition for limited resources. How those different industries work together has, in recent times, sparked the interest of those outside those sectors as to the impact on Australia’s land and water resources traditionally used for the production of agricultural products. It is fair to say these issues have not been resolved and the challenge for both industries is to engage in meaningful dialogue to produce agreed outcomes on how both sectors may work together in the same environment.
Footnote: 1. IBIS World Industry Report X0005
21
22
AGRIBUSINESS
Australasian Legal Business ISSUE 10.3
The new
agribusiness challenge
– securing property under the PPSA
The new Personal Property Securities Register has major implications for agribusiness, writes Kemp Strang partner Patrick Dwyer
T Patrick Dwyer – Kemp Strang
ractors, crops, livestock, wool, and plant breeder’s rights. What do they have in common? All are farm related and are also “personal property” under the new Personal Property Securities Act 2009 (Cth) (PPSA), which commenced on 30 January 2012. Just about all property other than land is covered by the PPSA: some important exceptions for agribusiness are fixtures (personal property affixed to land) and certain water entitlements. The PPSA has created a single, national scheme for regulating interests in personal property given as security for payment or other obligations. It replaced a patchwork of over 80 previous state and federal laws, including many laws specific to agricultural property, like those for stock, wool and crop liens or mortgages. In the current economic environment, where the agribusiness sector is facing the combined stressors of increasingly expensive financing and an extremely strong Australian dollar, primary producers
and their suppliers would be well advised to ensure they establish their security interests under this new regime. How does the new PPSA work? Instead of multiple registers for different kinds of property, we now have the Personal Property Securities Register (PPSR) for all of them. Registrations on many of the old registers have been migrated across to the PPSR, and many transactions that would not have been considered a security interest in the past can now be registered. A farmer leasing a tractor may now find that the lessor has registered a security interest in it on the PPSR. Under the pre-PPSA law, an interest of a lessor under a lease would not be considered a security interest, because the lessor owns the goods. Under the PPSA, ownership of the goods is not relevant. Primary producers may also be surprised to see security interests registered against them on the PPSR by suppliers. A sale of goods on retention of title terms, where title does not pass until full payment is made, is also a security interest under the PPSA. When farmers supply their produce for processing, they should think about their security interests in the goods: supplying on bailment terms for an indefinite period is also deemed to be a security interest. While there is no obligation to register a security interest on the PPSR, the benefit of doing so is that it preserves your security
AGRIBUSINESS
Australasian Legal Business ISSUE 10.3
23
crops and livestock when a security interest is being enforced: for example, a right to enter on land where crops are growing, to the same extent as the grantor’s rights.
interest and rights against third parties. In the terminology of the PPSA, this “perfection” of the security interest means that it will have priority over unperfected security interests, which is often crucial if there is a default or insolvency. Both the tractor lease and the retention of title security interest may be a special kind of security interest known as a purchase money security interest or PMSI. When registered it has a superpriority over a non-PMSI perfected security interest. Agribusiness-specific rules Mostly the PPSA applies in the same way for all types of personal property, but some special rules affect agribusiness. There is a variant of the PMSI for crops and livestock - an “agriPMSI”. If a farmer gives a security interest over his crops while they are growing (or within 6 months before planting) to enable them to be produced – eg, to a farming supplier to buy fertiliser – the supplier’s perfected security interest in the crops will take priority over any other security interest. A similar rule applies to livestock. But a prior mortgage over the land that includes the crop will not be prejudiced if the mortgagee has not consented to the supplier’s security interest. These special priorities for PMSIs and agri-PMSIs may help free up access to finance in the rural sector by allowing suppliers of equipment and materials to take security that ranks above “all assets” securities taken by banks]. The PPSA has specific rules about how interests in comingled property (eg, grain stored in silos) are shared between the holders of security interests. There are also special rights that apply to
PPSA impacts on contracts The PPSA is about form over substance. The old distinctions between mortgage and charge, legal and equitable, fixed and floating have all gone out the window, for PPSA property at least. Farmers will notice their banks using new style loan security documents that reflect this change. The “General Security Agreement” replaces the old Fixed and Floating Charge over all assets, and the “Specific Security Agreement” will now be used instead of a Chattel Mortgage or Bill of Sale over specific property. The documents work much like the old ones, but use new PPSA terminology: the “grantor” grants a “security interest” over the “collateral” to the “secured party”. Conclusion Following the commencement of the new PPSA regime, agribusiness operators and their lawyers should consider: • Reviewing arrangements that were not security interests in the past, such as leases and bailments and retention of title sales. As security interests under the new regime, registration on the PPSR will generally be advisable to protect the secured party. • Conducting a periodic review of the PPSR to see if security interests have been registered against you. • Evaluating whether the new PPSA security interests provide an opportunity to obtain alternative sources of finance.
Committed to Queensland “Cooper Grace Ward opened its doors for business on 22 December 1980. During the following 31 years Cooper Grace Ward has committed itself to the Queensland and Australian market place, and continues to do so. Cooper Grace Ward works throughout all of Australia and has a dedicated regional focus.” Chris Ward, Managing Partner Corporate and Commercial Employment and Workplace Relations Health and Medical Litigation T 61 7 3231 2444
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IN-HOUSE ISSUES
Australasian Legal Business ISSUE 10.3
AUSTRALASIAN LA W A W AR D S 2 0 1 2 24 may 2012, Sydney’s prestigious Town Hall
celebrate the achievements of
the legal industry’s finest Now in its ninth successful year, the ALB Australasian Law Awards 2012 is the highlight of the legal industry calendar and ensures your team a spectacular evening of recognition and celebration with over 500 of your peers.
visit www.albawards.com for more info
AGRIBUSINESS
Australasian Legal Business ISSUE 10.3
25
Developments in the
Murray-Darling Basin by Mark Procajlo, Partner, Kemp Strang
L
ate last year, the Murray-Darling Basin Authority (MDBA) released the draft Basin Plan which, essentially, is a high level policy framework for water planning, water management (including trading rules), and sustainable water use (to address over allocation). The draft Basin Plan proposes an annual water reduction of 2,750 gigalitres by 2019 in order to achieve the target (called Sustainable Diversion Limits or SDLs) of 10,873 gigalitres per year. This reduction is to be achieved through various measures and proposals including the Commonwealth Government’s “Water for the Future” programs, which cover voluntary water buy-backs and the funding of water saving projects. Despite MBDA’s claim that there will be no cuts to water entitlements, it appears the Basin Plan may result in reductions in water allocations or the reliability of allocations. Communities in the region, which heavily rely on irrigated farming, are understandably concerned about the social and economic impacts any water
reductions may have. The draft Basin Plan is currently undergoing a 20 week public consultation which will conclude in April. The MDBA will consider submissions and release a summary report. There will then be a further review of the draft Basin Plan before it is presented to the Water Minster, Tony Burke. Subject to the Basin Plan being adopted by both the Water Minister (who has 12 weeks to consider it) and parliament, the Basin Plan could become law around September this year. However, there will be a transitional period until 2019, during which there will be ongoing monitoring and evaluation (as well as time for communities to adjust), and a review of the target SDLs in 2015. Interested parties looking to provide comments on the draft Basin Plan can do so directly at http://www.mdba.gov.au/have-your-say or alternatively by providing input into their industry association submissions.
Holding Redlich is pleased to introduce our three newest partners
Brisbane
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Melbourne
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Michael Grosser
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Corporate & Commercial
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www.holdingredlich.com.au ALB Ad - March 2012 - Corporate - FINAL PRINT.indd 1
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ALB SPECIAL REPORT: ADELAIDE 2012
Australasian Legal Business ISSUE 10.3
ALB SPECIAL REPORT: ADELAIDE 2012
Dammed if you don’t…
Adelaide has Olympic-size aspirations for 2012 – but will South Australia’s most famous mega-project even reach the starting line? Renu Prasad reports
I
n a coincidence of events which must have sent a shudder through the Adelaide business community earlier this year, the seemingly invincible BHP announced a fall in profits for the first time in three years, Rio Tinto announced a $US8.9 billion writedown of its aluminium business and critics eagerly predicted that BHP’s US$12 billion investment in Petrohawk was destined for a similar fate. Why does all this matter in South Australia? Last October, BHP announced US$1.2 billion in pre-commitment capital for the first phase of the Olympic Dam
expansion project to develop an open pit mine – a project which has the potential to create one of the world’s largest open pit mines which would increase copper production from around 180,000 tonnes per annum to 750,000 tonnes per annum and beyond. The site is also said to feature one of Australia’s largest gold reserves and the world’s largest reserve of uranium. The 20 billion dollar question – would BHP hold its nerve in an increasingly uncertain environment and make the final commitment to Olympic Dam? The legal profession has more than a passing interest in this story. It was the potential of this project which prompted Blake Dawson – now Ashurst - to open its South Australia office in 2008 and had local firms eagerly eyeing the spin-off work. Little wonder, then, that partners were quietly choking on the biscuits at morning tea time when they opened the papers to read that, in accordance with
Australasian Legal Business ISSUE 10.3
ALB SPECIAL REPORT: ADELAIDE 2012
the principle of “one bitten, twice shy” the future of Olympic Dam was up in the air. A final investment decision on the project is yet to be made, with BHP CEO Marius Kloppers only prepared to reveal that the executive decision making process was “progressing well.” However, the project appears to be gaining momentum with reports that international fund manager BlackRock has doubled its exposure and the award of an A$100 million contract to Melbourne crane company Boom Logistics to work on the site. Local lawyers are confident that the project is still on course. “BHP is definitely moving ahead with Olympic Dam,” declared Piper Alderman partner Tony Britten-Jones. “It will go ahead – it’s just a question of [to what extent] and when.” He is dismissive of media scepticism . “I think there’s an appetite in the financial media for
negativity at the moment – take interest rates for example, they are always on the front page,” he says. This is the flagship project for South Australia. “It’s very important in terms of local and external confidence,” says Britten-Jones. “It is very real in terms of attracting suppliers and service entities to SA and over time of course there’s the direct benefits - royalties and the like. However, at the moment it’s more about confidence and getting feeder businesses to come here.” And as is the case with just about any South Australian mega-project, there
27
28
ALB SPECIAL REPORT: ADELAIDE 2012 are fears about the extent to which local business will benefit. “Of particular concern is the prospect of fly-in/fly-out staff resulting in South Australia not fully capitalising on the mining opportunities,” says Finlaysons chairman David Martin. “It is recognised within the business community and government that while South Australia has a strong skills base, the size of many of our businesses is not of a sufficient scale to successfully bid for large mining projects.” It’s a crisis, but one not without opportunity for legal advisors. “Local businesses which alone do not have the potential to provide support services to the mining industry could scale up through not only the traditional routes of M&A, but also by considering joint ventures and strategic alliances,” says Martin. “We see this as an area of opportunity for SA businesses and we are particularly well placed to help such businesses.” It’s a parochial line of strategy, but one with which South Australian lawyers are
Australasian Legal Business ISSUE 10.3
well familiar. As reported in ALB’s Adelaide Report in 2011, local firms have become increasingly strident about high profile legal work being won by “fly in” lawyers from the East Coast when the same skills, they argue, are on tap in Adelaide. That’s been the pattern for years and while the likes of Finlaysons won’t be kicking Blake Dawson off the top rung of the BHP panel anytime soon, there’s hope that the fruits of the South Australia resources boom will be distributed more evenly as local enterprise plays a greater role. Market Adelaide has not been immune from the increasingly fluid partner movements between firms of late. Expect some high profile movements in coming months: Ashurst is looking to recruit some extra capacity for its four year old Adelaide presence. Managing partner John Carrington confirmed with ALB that his firm was on the hunt, although he said that no decision had been made as to exactly how many new lawyers would be brought on board. Given that Ashurst followed BHP down to South Australia, it should not come as a surprise that the firm is calling for some extra firepower with the Olympic Dam expansion on the cards. However, Carrington is of the view that Adelaide is ripe for expansion regardless of the fate of Olympic Dam. “I think South Australia is a state which offers potential for growth,” he observes. “ It is not as advanced in terms of resource development as either WA or Queensland, but there are
South Australian economy – overview The latest series of National Accounts show that the South Australian economy was among the weakest performing in Australia, recording a State Final Demand decline of 0.3 percent in the December quarter. This is in contrast to other resource rich states such as Queensland (9 percent growth) and Western Australia (8 percent growth) and very modest growth in NSW and Victoria (about 1 percent each). The National Accounts contrast to more optimistic forecasts from the SA State Government, albeit using different metrics. The South Australia Department of Treasury and Finance estimates that South Australia’s Gross State Product (GSP) will grow by 2.75 percent per annum over the next four years, with employment expected to grow by 1.5 percent this financial year. The state budget is in deficit to the tune of A$263 million, with a return to surplus forecast by FY2013. However, the government has committed to several notable infrastructure projects. The largest of these are the A$2 billion Royal Adelaide Hospital – already in progress, with an expected completion date in 2016 - and A$260 million on regional infrastructure over four years. Most of the
other projects announced by the government are of considerably smaller scale that these projects. ASX listed companies headquartered in South Australia have outperformed their national counterparts. While the S&P/ASX 200 increased by 1.2 percent in the 2011 December quarter, an index of South Australian companies compiled by Deloitte rose by 20 percent and recorded an overall increase of 17.5 percent last calendar year. Leading the charge for South Australia was Santos, recording a 3.8 percent rise in share price following a scrip-based takeover of Eastern Star Gas which saw the company’s market capitalisation increase by A$1.54 billion or 15.5 percent. Other big movers were Flinders Mines Limited (up 124 percent) and Beach Energy (up 14 percent) and Renaissance Uranium Limited (up 133 percent), which gives a clear indication of the resource-related drivers behind the SA economy. Interestingly, a Deloitte study comparing the performance of SA mining & resources companies with their interstate counterparts found that SA companies again came out ahead, increasing by 20 percent in the 12 months to October 2011 in comparison to a 12 percent decline nationally.
ALB SPECIAL REPORT: ADELAIDE 2012
Australasian Legal Business ISSUE 10.3
clearly some substantial projects underway there. I’m very pleased with the fact we have a presence in Adelaide and I can see an opportunity to expand that presence.” Indeed, the absence of the top tier in Adelaide – with the notable exception of Minter Ellison – has been a striking feature of this market for many years. Perhaps Blake Dawson will be the first, but not the last, to see the light. The other important move is that long serving Minters Adelaide managing partner Nigel McBride has flagged his intention to leave the role at the end of the year. His successor is yet to be announced. There was some speculation that the Minters Adelaide/Northern Territory partnership would split from the firm (a la Phillips Fox – Fox Tucker), which the firm has denied. Meanwhile, construction and infrastructure lawyer Manik Meah has joined Minters Adelaide, making the move from Gadens Lawyers affiliate firm Fisher Jeffries. McBride was upbeat about the projects space, stating that there were “many major projects either in the pipeline or underway.” Other national firms have been reorganising themselves. Piper Alderman partners Mark Keam, Tracey Kerrigan, Neville John and John Hiatt departed to form their own workplace relations boutique, KJK Legal. The move reflects a desire by Piper Alderman to pursue a national employment practice, which was thought to be incompatible with the state-based workers’ compensation practice of the KJK partners. Kelly & Co has appointed its youngest ever chairman of partners.
29
Partner Jamie Restas, 38, was last year elected unopposed as chair of the firm, replacing Michael Durrant, who has stepped down to focus on his growing resources practice after almost three years in the position. Economy The National Accounts (see box-out) reveal that the South Australian economy is one of the weakest in Australia, which accords with anecdotal evidence from firms about weak business confidence. “The feedback we are receiving from our diverse client base and from peers in other professional services firms is that business confidence remains flat,” comments David Martin. He attributes this to the state of the global economy. “Despite encouraging signs of recovery in the U.S. economy, the continuing strong performance of the growth economies and the avoidance so far of a sovereign debt crisis in Europe, nonetheless business confidence in Australia is unlikely to pick up significantly
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AMANDA GRIFFITHS
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MATTHEW HAYES
BE (Hons)(Mech), University of Melbourne, Australia (1998)
BA, University of Adelaide, Australia (1996)
BSc (Mech), University of Cape Town, South Africa (1993)
BE (Mech), University of Auckland (2000)
BA, Victoria University of Wellington (1999)
BSc, University of Melbourne, Australia (1998)
LLB, University of Adelaide, Australia (1998)
LLB, University of South Africa (2003)
CertMS, Victoria University of Wellington (2004)
LLB, Victoria University of Wellington (2002)
MIP Law, University of Melbourne, Australia (2005)
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ALB SPECIAL REPORT: ADELAIDE 2012
30
Australasian Legal Business ISSUE 10.3
until the European situation becomes much clearer,” he says. By contrast, Piper Alderman’s Britten-Jones believes the economy has already turned the corner: “There’s a degree of gloom still in residential housing and some parts of retail but at the same time a lot of people are keen to get on with business,” he says. “I think compared to where things were in the early days of the GFC, things are a lot of better. Certainly for us things are improving. I think you can point to a number of industries that had a tough time and say that they appear to be bottoming out. The wine industry in that area and also residential housing is in that stage too.” Several lawyers have noticed more cranes appearing on the Adelaide skyline, a trusty indicator of commercial sentiment. However, another important indicator is also up – the number of companies in distress. “South Australia isn’t avoiding some businesses going into insolvency or administration,” says Kelly & Co CEO Stuart Price. “That is one area we see from the service side of things; we see there has been an increase in those types of activities. That’s not inconsistent with other states.” All of this raises a perennial question: is Adelaide insulated from the worst effects of the global economy, or does it simply lag behind? “I’ve never worked out whether we’re ahead or behind – if someone knows the answer, give me their number!” laughs BrittenJones. For Piper Alderman’s national practice, Adelaide remains the best performing office with Melbourne not far behind. “Does
“I’ve never worked out whether we’re ahead or behind – if someone knows, give me their number!” Tony Britten-Jones, Piper Alderman
Largest South Australian-headquartered companies – December 2011 This Quarter
Last Quarter
1
1
2
2
ARG
Argo Investments Limited
3
3
ABC
Adelaide Brighton Limited
Code STO
Company Santos Limited
Market cap Market cap 31-Dec-11 30-Sep-11 $ million $ million 11,529.1
Change $ million
9,984.6
1,544.5
3,152.5
3,034.1
1,838.8
1,679.8
Change %
Last $ price Month
15.5%
12.24
118.4
3.9%
5.06
159.1
9.5%
2.89
4
5
BPT
Beach Energy Limited
1,373.6
1,202.4
171.2
14.2%
1.24
5
4
BLY
Boart Longyear Limited
1,282.0
1,208.2
73.8
6.1%
2.78
6
6
ENV
Envestra Limited
1,106.7
976.6
130.1
13.3%
0.72
7
9
FMS
Flinders Mines Limited
510.0
227.6
282.3
124.0%
0.28
8
7
RMS
Ramelius Resources Limited
357.6
414.5
(56.9)
(13.7%)
1.07
9
8
HIL
Hills Holdings Limited
279.7
251.6
28.1
11.2%
1.13
10
11
BNO
Bionomics Limited
203.4
165.5
37.9
22.9%
0.59
11
10
CDA
Codan Limited
200.3
205.2
(4.9)
(2.4%)
1.22
12
12
GLG
Gerard Lighting Group Limited
132.8
154.0
(21.2)
(13.8%)
0.75
13
13
ELD
Elders Limited
116.6
130.1
(13.5)
(10.3%)
0.26
14
14
SEA
Sundance Energy Australia Limited
115.0
115.0
-
-
0.42
102.8
101.0
1.9
1.9%
1.17
92.8
60.0
32.8
54.6%
0.45
15
15
KSC
K & S Corporation Limited
16
20
WDR
Western Desert Resources Limited
17
21
ADE
Adelaide Energy Limited
91.4
48.6
42.8
88.1%
0.20
18
16
CXM
Centrex Metals Limited
87.8
98.8
(11.0)
(11.1%)
0.28
19
18
TOE
Toro Energy Limited
85.8
73.4
12.5
17.0%
0.09
20
17
NOE
Novarise Renewable Resources International Limited
74.7
80.9
(6.2)
(7.7%)
0.18
Source: Deloitte
Australasian Legal Business ISSUE 10.3
ALB SPECIAL REPORT: ADELAIDE 2012
that mean Adelaide is yet to feel the brunt? I don’t think so. Are we ahead? I don’t think so either – it’s very hard to pick,” says BrittenJones. Around Adelaide, you’ll hear the same stories of woe which have beset other cities. “I think the best example I can give of what’s happened in the last year is a retail client of mine who has about nine significant stores in shopping centres in South Australia and employs about 350 staff – they called last year the tsunami,” says Lynch Meyer partner Alf Macolino. “They’d done a survey at the start of 2011 and only about 15 percent of staff had gone online to any online store and bought something. By the end of the year nearly 80 percent had. He said that obviously has ramifications for retail landlords who haven’t quite got the message that the landscape’s changed dramatically and the times are tough. That’s the best sort of example I can give of how the market is flat and challenging.” Interstate interest One positive aspect of the South Australian economy are reports of increased investment from overseas and interstate. Finlaysons, for example, now derives 25 percent of its revenues from outside the state, although some of this is attributable to outbound investment and matters without an SA element. “There are a lot of good SA businesses and a fair bit of interest coming in from interstate,” says Martin. However, other lawyers such as Lynch Meyer’s Macolino said that they had not seen any evidence of a new wave of interstate investment. Private M&A is said to be on the rise, although lawyers are declining to comment on the record on the details of these transactions. Price points to an example from 2011 – Japanese trader Marubeni’s 40 percent stake in local desalination specialist Osmoflo for a reported A$50 million. “That gives you an example of the scale and the types of businesses that are investing in Adelaide,” he says. “Many transactions are not visible because they’re private and confidential but I can go on record as saying we have never been busier in that space. We are seeing record levels of activity in our M&A/corporate team.” But if Adelaide corporates are being absorbed by the nationals, what happens to their legal advisors? That was the situation confronting Piper Alderman last year when long term client Eastern Star Gas was acquired by Santos for A$942 million. Does this represent a permanent loss of work for Piper Alderman? Piper Alderman’s Britten-Jones says that this is not a new issue for Adelaide firms and nor is he convinced that it is a problem either. He points out that his firm has had some success in pursuing post-merger work in Sydney and Melbourne with erstwhile Adelaide clients who have spread their wings. However, the crucial point is that when an Adelaide company is sold, the vendors will inevitably look to reinvest their gains. “So normally you’ve got an entrepreneur with a bucket of cash at the end of it,” he says. “We normally work pretty hard in maintaining a relationship with those vendors and those people don’t normally sit around twiddling their thumbs. We work with them to indentify new opportunities. People that start these entities and grow them are not the sort to sit around and do nothing once they’ve cashed in.” It’s a point which will resonate with any firm with an SME client base. It may be the case that one generation of clients might be lost to the “big time”, but the next generation is always waiting to emerge from their shadows. This game is about individual relationships, not necessarily the corporate entity – and that’s a lesson that applies everywhere.
>>
31
Technology in practice
Q&A with
Damian Huon Damian Huon is a legal technology strategist with over 22 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’.
Disaster Recovery Explained Over a year after the Christchurch Earthquake, many firms still can’t access their buildings – or IT systems. Firms of all sizes are now doing their due diligence and asking the tough question - is saving on the cost of Disaster Recovery planning really worth it? Recovery just another insurance policy? 1 IsOneDisaster of the biggest misconceptions about Disaster Recovery planning is that it’s an unnecessary precaution that will never actually be activated. Many businesses avoid investing as they can’t see a tangible requirement or return; however the devastation experienced in the Queensland floods and Christchurch earthquake came as a reality check for many. Even crises on a smaller scale can call for a ‘Plan B’ – such as power outages, failed hardware, malicious staff or even burst pipes. The risks of downtime, information loss, compliance breaches and damaged client relationships are simply too great to leave to chance.
isn’t regular backup enough? 2 Why Many organisations confuse backup with disaster recovery. While your backup rotation might allow your IT team to restore isolated files, databases and servers after a failure, it falls far short of full site recovery. DR is not just about the data itself, but is also about having scalable, standby equipment to host your system at the ‘flick of a switch’. In an outage scenario, you should be able to recover your system as it was 15-30 minutes before the disaster, within just hours. You must have also the ability to test this on a regular basis without interrupting operations to ensure it not only works, but that no important data has been missed. Simply put - without systems on standby, your backed up information has no where to be restored.
do other firms handle Disaster Recovery without it 3 How costing the earth? Gone are the days when Disaster Recovery meant paying for a second set of backup equipment, facility costs, and extra staff overheads. There are now affordable ‘pay as you go’ solutions which deliver Disaster Recovery as a service via the Cloud. This means DR can be funded as a ‘rental’ operational expense rather than a large capital outlay, and is fully managed to ensure guaranteed service levels, maintenance and regular testing. The monthly price point varies depending on restore speeds and archival requirements, so a solution can be customised to suit any firm size and budget.
Ask yourself - how your firm would cope with an extended IT outage, or if you couldn’t access your building for days, weeks or months? While the questions may be tough, they need honest answers to ensure your firm is prepared. Email your questions to alb@huonit.com.au
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recruitment made easy lateral partner hires Name
Practice area
Going from
Going to
Daniel Blue
Corporate & commercial
Freehills
Holding Redlich
Suzy Cairney
Corporate
Allens Arthur Robinson
Holding Redlich
Cheryl Edwardes
Corporate
Hancock Prospecting
Holman Fenwick Willan
Michael Grosser
Corporate
DLA Piper
Holding Redlich
Nick Lodder
Banking & finance
Minter Ellison Rudd Watts
Wynn Williams
Richard Mereine
Litigation
Clayton Utz
HWL Ebsworth
Rob Noakes
M&A
Kensington Swan
Wynn Williams
Paul Tobin
Construction
Pacific National
Sparke Helmore
Robynne Sanders
IP
Watermark Intellectual Property Lawyers
DLA Piper
Angela Summersby
Commercial
Blake Dawson/ Ashurst HWL Ebsworth
Lexia Wilson
Property & projects
Norton Rose
Clayton Utz
HWL Ebsworth
HWL wins Clutz litigation partner
HWL Ebsworth has announced the appointment of senior Clayton Utz partner Richard Mereine as a partner. Mereine has practiced as a litigator for 37 years and has been a partner at Clayton Utz for 22 years. Prior to joining Clayton Utz he was a partner for 11 years at a premier South African law firm. He has extensive experience, nationally and internationally, particularly in commercial, corporate and restrictive trade practices matters. In addition, Mereine has acted for and advised clients who have been the subject of inquiries and charges by regulatory authorities including the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission. Pacific National
Sparke Helmore
Sparke Helmore expands in Newcastle
Sparke Helmore has appointed former staff member Paul Tobin as a partner in the firm’s Newcastle office. Tobin, who most recently held a senior in-house role at Paul Tobin Pacific National’s coal division, has more than 12 years’ experience in construction law, specialising particularly in project delivery and resolving claims and disputes. He previously worked at Sparke Helmore in 2009-2010 and before that in the construction group at Clayton Utz. Tobin was based for five years in Taiwan
Piper Alderman
during his time at Clayton Utz, where he acted for the owner and operator of the Taiwan High Speed Rail Project—one of the largest privately financed infrastructure projects ever undertaken. According to Tony Deegan, the firm’s commercial practice group, Tobin’s appointment reflects the demand for construction and infrastructure expertise in the Hunter region. Norton Rose
Piper Alderman
Piper Alderman recruits Norton Rose partner
Piper Alderman has hired former Norton Rose partner Lexia Wilson to boost its Sydney property and projects team. Wilson acts for Australian and International participants Lexia Wilson in the property sector, advising on a wide range of commercial, residential, industrial and retail transactions – sales, acquisitions, developments, leasing and real estate investment trusts. Wilson is a former national director of the Property Council of Australia and current member of the Property Council’s Sustainability Committee and was actively involved in education within the sector for clients and industry associations. Freehills
Holding Redlich
Holding Redlich welcomes Freehills’ Blue
Holding Redlich has appointed former Freehills partner Daniel Blue as corporate and commercial group leader in its Melbourne office
and co-head of its national energy and resources practice (with David Walker in the firm’s Sydney office). Blue has broad corporate and commercial experience and has advised Australian Daniel Blue and multinational corporations on a range of issues. He has significant energy and resources experience and has worked on a number of large transactions including advising Exarro Resources Limited on the sale of its mineral sands operations to US based Tronox Inc and advising on several transactions with Chinese investors. Blake Dawson
HWL Ebsworth
HWL adds another Blakes partner
HWL Ebsworth has again added a former top tier partner to its new Canberra office. Angela Summersby joins the firm from Blake Dawson (now Ashurst) where she was a partner. Summersby advises on commercial law with a particular focus on Australian Government contracting, information and communications technology contracts, privacy and intellectual property. She has specialised in Australian Government work in Canberra for almost 20 years and has worked on many of the Commonwealth’s most significant projects and programs. She was the principal author of the Australian Government’s ‘A guide to limiting supplier liability in ICT contracts with Australian Government agencies’. Allens Arthur Robinson
Maddocks
Maddocks recruits former Allens partner Maddocks has added again to its commercial team with the appointment of banking and finance partner, Stuart Weir. This is the seventh partner appointment to the firm’s commercial group in the past eight months. Weir brings with him more than 20 years of international commercial legal experience, including 14 years’ banking and finance experience involving transactions in project finance, acquisition finance, leveraged buyouts, debt capital markets, and corporate restructurings and workouts. He joins Maddocks from Allens Arthur Robinson where he has been for the past 10 years, including eight years as a partner. He will remain in Melbourne in his new role. Kensington Swan
Wynn Williams
Wynn Williams adds two partners in new office Former Kensington Swan partner Rob Noakes has joined Wynn Williams as head of the firm’s
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Australasian Legal Business ISSUE 10.3
new Auckland office. Noakes has extensive experience specialising in the areas of mergers and acquisitions, joint ventures, trade practices, competition law, corporate governance and Rob Noakes risk assessment. He was at Kensington Swan for more than 30 years. He is joined at the new office by former Minter Ellison Rudd Watts and Kensington Swan senior associate Nick Lodder who has also joined the firm as a partner. Lodder has extensive experience Nick Lodder advising financiers and borrowers across a variety of banking and finance matters. He is a specialist lawyer in banking and finance and his work has included asset finance, syndicated lending, structured finance, leveraged finance, insolvency and restructuring, regulatory issues and Personal Property Securities Act issues. Watermark
DLA Piper
DLA Piper recruits IP partner
DLA Piper has hired IP law and patent specialist Robynne Sanders as a partner in its Melbourne office. Sanders is a former director of Watermark Intellectual Property Lawyers and she has experience in Federal Court patent litigation cases and dispute resolution, drafting licensing and manufacturing agreements and advising on confidentiality, trade mark disputes and branding. Sanders has also advised clients from a number of sectors, including engineering, building and construction and consumer products and has also worked with members of the biotechnology sector, where she has advised on pharmaceuticals for the treatment of diabetes, high cholesterol and cardiovascular conditions. Sanders is also a Fellow of the Institute of Patent and Trade Mark Attorneys and is the current chair of the IPSANZ Victorian committee. Macpherson and Kelley
Herbert Geer
Herbert Geer recruits M+K principal
Andrew Bristow has joined Herbert Geer as a partner from Macpherson and Kelley where he was a principal (partner equivalent). Prior to M+K he was a partner at Holman Webb Lawyers, and PricewaterhouseCoopers Legal. Bristow has 25 years’ experience in the areas of public and private fundraising, conducting
due diligence investigations, company and business acquisitions, corporate structuring, corporate governance and employee wealth creation. His industry experience covers aircraft manufacture, transport, property development, and mining and agriculture. Allens Arthur Robinson
Holding Redlich
DLA Piper
Holding Redlich
Holding Redlich adds Allens and DLA talent
Holding Redlich has lured DLA Piper and Allens Arthur Robinson corporate lawyers Michael Grosser and Suzy Cairney to its partnership. Before becoming a lawyer Grosser had 17 years’ experience in the technology industry as founder and CEO of Catalyst Interactive, an e-learning company which was established in 1995. Prior to launching Catalyst Interactive Grosser was also a teacher. Cairney specialises in project development and operations. She has extensive experience in Australia and abroad and previously also worked at Minter Ellison. Both will be based in the Brisbane office. Hancock Prospecting
Holman Fenwick Willan
Candidate 1
Candidate 2
HFW recruits senior Hancock executive
Holman Fenwick Willan (HFW) has recruited Western Australia’s former AttorneyGeneral and environment minister Cheryl Edwardes as a partner in the firm’s Perth office. Cheryl Edwardes Edwardes joins HFW from Hancock Prospecting (HPPL), where she was appointed as the executive general manager - external affairs, government relations and approvals, in 2010. In this role, Edwardes helped to secure most of the necessary government and regulatory approvals for the company’s major mining and infrastructure projects, including the Roy Hill Mine Rail and Port, as well as other Hancock coal developments. Earlier in her career she was Western Australia’s longest serving female state government minister (1993 to 2001), including her time as the state’s first female AttorneyGeneral and its minister for the environment. As minister, Edwardes was responsible for a range of reforms in the environment, justice and labour relations portfolios. She was the first female solicitor to serve in the WA State Parliament, following her election as the Member for Kingsley in 1989, a position she held for 17 years, until 2005.
Candidate 3 For a legal recruitment company that likes to keep things simple contact Brisbane Sydney Melbourne Perth
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Private Equity
Australasian Legal Business ISSUE 10.3
Billabong bid fails to make waves for PE lawyers
J
ournalists love a good trend and TPG’s recent tilt for ailing surfwear company Billabong and KKR’s pursuit of Pacific Brands has had several commentators opining on the possibility of a retail-fuelled private equity resurgence. A nice theory, but according to King & Wood Mallesons’ Yuen-Yee Cho, one swallow – or two for that matter – does not a summer make. “It so happens that two of the listed targets that are purportedly being courted by PE currently are in the retail
sector, are well-known Australian brands and hence there has been much media focus,” Cho told ALB. “If you looked at the various transactions and processes which have closed or have recently been reported in the press, most of them are in the non-retail space – for example, CHAMP/oOh! Media, PEP/Spotless, APN/ Quadrant.” However, Cho adds that there is a case for acquisitions in the branded retail sector. “There is no question the sector is currently facing a confluence of various challenges…some of the private equity suitors have deep retail sector experience globally and can use their managerial and operational expertise to effect a turnaround story, away from the distractions of being a listed company,” she said.
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Australasian Legal Business ISSUE 10.3
Despite the prominent headlines, lawyers are generally underwhelmed by the PE dealflow, although the usual mantra of “cautious optimism”applies. “I think there’s a lot of what we would term ‘dry powder’ around,” said Gilbert + Tobin’s Peter Cook. “There’s a lot of money that private equity funds not just here but globally have available to them. The issue is how they’re going to actually invest that money. I think arguably there are not enough opportunities to put the ‘dry powder’ to work.” Private equity firms which have raised money recently include Archer, CHAMP and Quadrant while a number of global funds also have of 3funds. C oaccess n 3 _ to A aL pool B_ 0 0 4 1“Deals 2 . p are d f going P ato g get e potentially 1 1 5 / 0 3 harder to do in one sense, to find a home for the money but that
matching australian business needs
blake dawson is ashurst, australia’s new global law firm. Con3_ALB_030412
Private Equity
may mean it’s a good time for a seller,” said Cook. “There are a number of good assets within private equity that are coming to the end of their natural cycle of four to five years hold. I think you’ll definitely see more secondaries and potentially tertiaries as some funds look to exits with a view to the future and to future fund raising, or have worked the asset as much as they’re prepared to work and want to reap the / return.” 1 2 , 5 : 0 5 PM
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On the cutting edge of law
Australasian Legal Business ISSUE 10.3
On the
cutting edge of law Technology lawyers are on the move again. Renu Prasad investigates the big moves and the key players in this market segment.
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hen Rio Tinto recently announced plans for fully automated trucks and trains in its Australian mines, IT lawyers must have pricked up their ears: this is a practice area characterised by a steady stream of mid-size deals, so there is always interest at the prospect of a megadeal in the offing. “If you go back 10 years, you had the big outsourcing deals along the “all in one” model – now that’s evolved towards more of a multi-source “best of breed” model – so there are less mega deals,” observed Freehills partner Keith Robinson. Frequently bundled into the TMT (technology-media-telecommunications) basket, technology law is primarily about the business of procuring and outsourcing IT services. It’s been the backbone of firms such as Gilbert + Tobin in their nascent years, but equally it’s been a competitive play for the “big six” – and as always, there are winner and losers in the competition for work. Alignment Top tier firms tend to act on the buyer side and it’s easy to see why: the largest purchasers of IT services are banks, miners and other blue chip corporates with whom firms would prefer to align
with over IT vendors. The main exception to this rule appears to be telecommunications companies, where top tier firms appear to act on both sides: Minter Ellison, Baker & McKenzie and Clayton Utz, for example, have acted both on the procurement and the vendor side for Optus and Freehills, Mallesons and Blake Dawson have all acted on the vendor side for Telstra. However, top tier firms are more commonly found acting for the procurer. Vendors, of course, are usually substantial entities themselves and firms such as Henry Davis York, Middletons and HWL Ebsworth have built solid practices around servicing this side of the IT equation. Strategic play Freehills has been a big mover in the IT space of late, adding further capacity to an already well credentialed team. Last year the firm recruited former Minter Ellison technology practice co-head Keith Robinson, former Simmons & Simmons IT and communications head Damien Bailey and Yuban Moodley from CMS Cameron McKenna. Clearly Freehills has earmarked technology as a growth practice area and current clients include Telstra, BHP, CBA, ANZ and AGL. Minter Ellison has responded to the loss of Robinson by embarking on a recruiting campaign of its own which included former Minters partner Geoff Shelley returning to the fold as Special Counsel and several hires from overseas. Group leader Anthony Lloyd told ALB that the team has grown over the past year and that more promotions and senior hires were in the pipeline. Key clients include SingTel Optus, Qantas, Aon, Ausgrid and the Bank of Ireland. Interestingly, the firm has won significant work from overseas corporates, often where the work has little connection with Australia. “These organisations can pick and choose their advisors from anywhere in the world, yet they are
On the cutting edge of law
Australasian Legal Business ISSUE 10.3
Keith Robinson
Cheng Lim
opting to engage firms such as Minters as they believe Australia is a true global leader for expertise in the tech space,” said Lloyd. “For example, my team worked in London with a major international organisation in its global technology restructuring. We were then recommended by that satisfied client to the Bank of Ireland to help it restructure its technology infrastructure throughout Europe and the U.S. Even with the client’s recommendation, we had to compete against Magic Circle firms to win the assignment.” King & Wood Mallesons is also a key operator in the techonology space, however there is a perception of a void which has been left by the departure of long serving partners such as Philip Argy, who is now running his own consultancy and Anthony Borgese, who is now at HWL Ebsworth. However, it should be noted that these partners departed several years ago and Argy is understood to have had a patent litigation focus in his latter years with the firm and hence would have had less involvement with pure IT work. The firm believes that capacity in this area has always remained at full strength. “The difference between King & Wood Mallesons and Freehills is that we have always had a strong practice in this area. Freehills has not and is trying to catch up,” said one KW Mallesons source. Some of the firm’s talent includes Cheng Lim and Mark Weber in Melbourne and Patrick Gunning and Nicole Heller in Sydney and John Swinson in Brisbane. High profile clients in this practice area include AMP and Telstra, for whom Lim and Heller have played a major role in NBN negotiations. The Telstra-Mallesons relationship has been the subject of much industry comment. In previous years, Mallesons was understood to derive up to A$50 million or as much as 10 percent of its revenues from this client, a figure which has been steadily eroded as Telstra pursued more aggressive purchasing strategies. While Mallesons remains an important Telstra advisor, much work has been lost
Anthony Lloyd
over the years, first to Blake Dawson and secondly and more significantly to Gilbert + Tobin pursuant to the famous “all you can eat” retainer. A KW Mallesons source told ALB that the firm continued to be Telstra’s largest legal services provider and continues to undertake major roles in Telstra’s most strategic work. Gilbert + Tobin was acknowledged as another significant Telstra firm, in contrast to Blake Dawson which was not regarded as a key rival in this respect. Blakes has in fact appeared on the other side of the table, acting as lead advisor to NBN Co during last year’s negotiations with Telstra over infrastructure and roll-out. Gilbert + Tobin – a firm which started life as an IT specialist – has been able to consolidate its foothold in the IT space of late and notable partners include Sheila McGregor and Bernadette Jew as well as Peter Waters and Peter Leonard. In addition to Telstra, the firm also acts for banking clients such as Westpac and CBA. Other recent moves of note include new Clayton Utz hire John Dieckmann, formerly of Allens Arthur Robinson, who joined the firm last October.
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IT Contracting: changing with the times
Australasian Legal Business ISSUE 10.3
IT Contracting: changing with the times
Tablets, smartphones and cloud technology are just a few examples of the new kinds of technology flourishing in Australian businesses. Keith Robinson examines the implications for IT contracting models
T Keith Robinson Keith Robinson leads the Technology and Communications practice at Freehills
he availability and capability of new technologies entering the market are changing the way we do business. Organisations across industry sectors are seeking to innovate with new and improved tools that can offer faster, easier and better ways of doing business. As the useable life of technologies shrinks, and they join the rubble of superseded models, traditional service delivery strategies look likely to suffer the same fate. IT delivery is stepping up a level and enterprises are investing significant effort looking into the potential of cloud computing, access and accessibility, and social media. These trends present new legal challenges and priorities and the approach to contracting, and our view of key issues in those contracts, needs to evolve to keep pace.
The tipping point has arrived It has been trumpeted that 2012 will be the year in which we will see significant moves in cloud computing, access and accessibility and social media and that the tipping point has arrived. Cloud computing is expected to finally take off as many companies progress from the planning and assessment phases to implementing real cloud solutions.
However, this is still likely to relate to less critical and complex systems while companies wait for pricing and service delivery models to mature, for concerns over public clouds to be addressed and for cloud computing to prove itself as a truly cost effective and reliable alternative. IT is becoming more and more accessible for the everyday user and the range of affordable, user friendly and highly transportable tablets, smart phones and similar devices is increasing rapidly. As a result, organisations are now facing real challenges in the way that they interface with, and deliver services to, their workforce and customers. Employees want to work from a range of devices, chosen themselves, from which they can access work applications and data, as well as personal content. The trend for bring-your-own-device is becoming much more prevalent and the BYO philosophy is now extending across a range of technologies. More and more employees now want the freedom to choose the applications that they prefer and that help them to perform their work. On the flip side, customers expect to be able to access and use an organisation’s services from their own corporate or personal device. These factors are already driving new service offerings like mobile banking for smart phones. Social media has, and will continue to, change the way people communicate and interact. We have already seen Facebook and Twitter replace chat rooms and, within some organisations, email. This is expected to continue, accelerated by mobile operators’ promotional campaigns offering free social networking services. Businesses are increasingly seeking to adopt these types of applications to reduce cost, increase efficiency, enhance collaboration and as an additional marketing channel. What accompanies all of these developments is the underlying surge in the types and volumes of data that organisations collect
Australasian Legal Business ISSUE 10.3
IT Contracting: changing with the times
and receive as a result of increased IT uptake and utilisation. Collectively, these trends require organisations to adjust their approach to contracting for IT services and to focus their efforts on a series of key issues relating to data, security and service continuity. What do organisations need to be focussing on? Contracting in the cloud The starting point is to acknowledge that contracting for on demand services like the cloud solutions requires a different approach. The underlying business model for these services relies on achieving benefits through standardisation and economies of scale. As a result, that means that cloud computing providers need to be strident in ensuring that customers sign up to their standard service offerings on their set terms. Whilst there is always some degree of flexibility (especially for customers spending large amounts of money), this generally means that for most customers the focus is no longer about getting suppliers to agree to terms favourable to their business, but to conducting detailed due diligence to ensure the solution performs the business function with an acceptable level of risk. Privacy, data protection and data location The key issue arising from all of these new service delivery models is the management, control and security of data. Organisations have to store and manage ever increasing amounts of data and ensure that this is not only accessible at all times, but kept safe and secure. Any technical glitches that lead to data loss or impact service continuity may translate to poor customer experience or reputational damage. This means that not only do organisations
require scalable technology solutions to manage the challenges of this increased data flow, but these solutions need to be highly available and highly resilient. On demand service delivery models can address some of these issues but create their own headaches. When adopting a cloud solution, additional complexities arise from the fact that most suppliers seek to have the ability to move data between multiple jurisdictions as they see fit so that they can address their own demand and yield management imperatives. This means that understanding where data may flow to and from, and the privacy rules and restrictions that apply in those jurisdictions is essential. In addition to the privacy laws relating to transborder data flows, companies need to clearly understand what general and specific export restrictions may apply and what rights regulators and law enforcement agencies have to access corporate data in the relevant jurisdictions. The U.S. Patriot Act and Homeland Security Act are perfect examples as they grant very broad rights where there is any suggestion that there may be information related to terrorism, which has raised significant privacy concerns in a number of quarters. This regulatory awareness and compliance burden on organisations will continue to
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IT Contracting: changing with the times
increase significantly as regulators become more concerned about data privacy and security. Ensuring security is becoming increasingly difficult as the rate of data exchange, through an ever increasing range of devices, connection technologies and interfaces, is rapidly increasing. Added to this, cyber crime and industrial espionage are emerging as real problems in today’s business world. Information privacy laws often include data security obligations, such as obligations to take ‘reasonable’ or ‘appropriate’ steps to protect personal information from misuse and loss, as well as from unauthorised access, modification or disclosure. Legislation in some jurisdictions imposes much more specific requirements. Similarly, organisations are aware that they must ensure that the collection and management of data complies with privacy legislation, but many do not fully understand the ramifications of the fact that they may also be liable for privacy breaches of their provider if the supplier is an agent or ‘in the service’ of the organisation. Therefore it is critical to ensure that both the company and the provider have all necessary policies and procedures in place to ensure compliance and to understand what data protection methods and encryption technologies are being used by a service provider. Some of these issues might be addressed through greater adoption, or imposition of, public standards, but organisations will need to really nail their remote working, security policies and tools, as well as putting in place a comprehensive strategy for addressing IT security issues. This will drive significant thought about how to tread the fine line between maximising the productivity of the workforce, while minimising risk. It also leads to a much greater emphasis on security monitoring, as well as regular security audits and testing. There is also a significant physical security issue as there are now many more devices in use and these are often outside of controlled environments.
Australasian Legal Business ISSUE 10.3
If organisations are using social media, these headaches can be increased as social media platforms are designed for data sharing, not security, and frequently change their rules and settings. You don’t need to look much further than the likes of Facebook or Google for evidence of this continual change. Guaranteed access Whenever an organisation’s data is held by third party, it must to be accessible whenever it is required. As a starting point, this means you need to make a technical assessment of the service provider’s offering. Ensure the provider has the appropriate redundancy and resilience in its systems and architecture and effective disaster recovery and business continuity plans in place. This feeds into a number of key rights and provisions in IT contracts. Primarily these include obligations relating to the maintenance and testing of disaster recovery plans, as well as appropriate service levels that set the performance and availability requirements. Be wary that service providers do not end up with rights to suspend service that are triggered easily as these can lead to significant business interruption or the feeling of living under the sword of Damacles. Exit rights In the more ‘take it or leave’ style world of cloud computing contracts, one of the important rights a customer must obtain is the ability to move if the service or performance does not meet expectations as a result of poor performance or changing business needs. Obviously this is a significant bone of contention as providers wish to lock in revenue to fund their own upfront investments. Hopefully over time, as these services become increasingly commoditised and scalable, this tension will ease. But, having the right to exit is only the starting point. Customers must ensure that on exit they can readily access their data. There must be a commitment that the supplier will either provide the data or access to it, and delete copies it is once returned. Underlying this is a requirement to ensure that the format in which the data is stored and delivered is able to be readily ported to another system or data structure. Liability Providers will often severely limit their liability in contracts. So in the context of any proposed arrangement, organisations need to carefully review the liability that providers will accept and assess their ability to manage or mitigate against the residual risks. In some cases, practical measures can be put in place to defray the risk, but this often means adding to overall costs. Sometimes there are no feasible mitigation measures in place and organisations need to carefully consider if it is appropriate to bear the remaining risk.
Australasian Legal Business ISSUE 10.3
IT Contracting: changing with the times
Unilateral rights to change the contract Most providers’ contracts include the right to unilaterally change the service and, commonly, to vary the terms. This is important to providers as it secures the ubiquitous uniformity which drives efficiency and economies of scale, which is the very heart of the cloud’s business model. But this presents a material risk to customers as simple changes may drive unacceptable risks in their business or lead to a breach of regulatory obligations. Conclusion IT contracting models are evolving rapidly. Reduced costs, enhanced capability and increased expectations from staff and customers alike, are driving the deployment of new products and services that transcend geographical borders. This translates to
significant legal and commercial challenges that need to be addressed when advising the wider business on IT contracts and negotiating with suppliers. As this area continues to evolve, inevitably many services will become commoditised and the emphasis will move from negotiating bespoke contracts aligned to the organisation’s specific requirements, to conducting appropriate due diligence to ensure the solution meets business requirements.
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Cloud technology
Australasian Legal Business ISSUE 10.3
Cloud technology: when location isn’t everything
Australian businesses are looking to store data onshore to avoid the legal minefield of using a global cloud. Macquarie Telecom General Counsel Heather Tropman warns lawyers that vendor due diligence is just as important as data centre location.
C Heather Tropman Hear more from Heather on Cloud Computing at the Technology & Law Masterclass. Check www. thomsonreuters. com.au/events
loud is revolutionising the way we interact with the online world whether at home or in the office. At the infrastructure layer cloud describes ‘Infrastructure as a Service’ which refers to the provision of outsourced computing power and data storage on a pay per use basis. Rather than investing in a hard drive under your desk or a data room full of servers to support your business, when using the cloud, you simply outsource your infrastructure requirements to a data centre provider. Unlike a traditional hosting model where you lease a dedicated number of servers for a fixed term, cloud enables you to pay only for the server capacity that you are actually using. To use a utility analogy – you only pay when the lights are on. Cloud allows the flexibility to quickly scale up or down and avoid investing in infrastructure that in many cases is grossly underutilised. Whilst there are undeniable benefits offered by the cloud, lawyers are often tasked with ensuring that the companies they serve are also acutely aware of the risks. Unfortunately there is a common misconception that the cloud is global
and that by using the cloud for data processing and storage requirements, you are automatically exposing yourself or your business to significant cross border risks. In fact, there is no requirement that servers in a cloud model be located in multiple jurisdictions and that the contents of your filing cabinet be scattered across the globe. Several businesses offer local cloud services which can guarantee that your data will never leave your home jurisdiction thereby mitigating and in most cases dispensing with cross border risks. Keeping data local is not a complete answer when it comes to managing legal risk. A lesser known fact is that a foreign government may still be able to access your data in a local data centre if that data centre is foreign owned or operated. This was the subject matter of a recent whitepaper developed by the author in conjunction with Freshfields Bruckhaus Deringer. Key findings from the whitepaper are as follows: 1. Access to data without a warrant and the broad powers available to government agencies under the USA Patriot Act have no parallel in Australian or New Zealand law. While the intended focus of the Patriot Act was to counter terrorism, its provisions have widely enhanced the US government’s ability to collect data even where the link to terrorism is remote or speculative. Although research indicates a recent increase in FBI requests and that most requests relate to electronic data, it’s difficult to get a firm grasp on the extent of use or misuse of the Act because requests are often subject to gag orders.
Cloud technology
Australasian Legal Business ISSUE 10.3
2. US authorities can exercise extra-territorial powers to gain access to non-US data if that data is stored on servers in any data centre that is owned or operated by a US company or its subsidiary. This means that it is imperative for businesses to conduct due diligence as to the ownership structure of potential data centre providers before handing over their data. 3. Major global cloud providers have admitted that their local data centres are subject to the USA Patriot Act:
(i) At a JAWS-User Group summit held on March 4, 2011, Ojima Hideki, Amazon Data Services Japan KK’s managing director admitted that “because Amazon is a US company, the data centre of Amazon Web Services in Tokyo will fall within the scope of the USA Patriot Act.”
(ii) During the launch of Microsoft Office 365 in June 2011, Gordon Frazer, Microsoft UK’s managing director acknowledged that as a US headquartered company, all data stored on a Microsoft server, irrespective of where that server is located, is subject to the Patriot Act.
(iii) In August 2011, Google’s spokesperson confirmed that data stored by them outside of the US may be subject to lawful access by the US government.
4. Governments around the world are grappling with how to protect their citizens from the threat of access to local data posed by the Patriot Act’s extra-territorial reach:
(i) The Canadian government has instructed its departments to refrain from using computers in the global network that are operating in the US. However, this is not a complete answer. A case brought before the Office of the Information and Privacy Commissioner in Canada held that US subsidiaries located outside the US in Canada cannot protect their customers’ personal data under Canadian privacy laws from being lawfully accessed by US authorities.
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(ii) In September 2011, the Netherlands excluded US providers from bidding on government IT contracts.
(iii) Presently, the European Parliament is considering drastic amendments to its data protection laws which appear to be an attempt to protect European data from the Patriot Act although it is not entirely clear how this could be achieved in practice. (iv) Deutsche Telekom AG’s subsidiary T-Systems IT has been in recent discussions with the Federal Office of Information Security to influence European regulators to forge a certification system that would allow German cloud providers to protect their data against intervention from the US government and certify their cloud as a safe local cloud. (v) In Australia, in April 2011, the Department of Finance and Deregulation issued a cloud strategic direction paper which specifically references the Patriot Act when highlighting risks associated with cloud. At the same time, the Department of Defence also issued a paper on cloud security considerations in which the Defence Signals Directorate stated “[it] strongly encourages agencies to choose either a locally owned vendor or a foreign owned vendor that is located in Australia and stores, processes and manages sensitive data only within Australian borders because foreign owned vendors operating in Australia may be subject to foreign laws such as a foreign government’s lawful access to data held by the vendor.”
In summary, the cloud offers tangible benefits and is revolutionising the delivery of online services, computing power and storage but lawyers have a key role to play in advising their clients to adopt a risk based approach to cloud. This approach should include (i) due consideration of local cloud solutions which might provide a ready way to address cross border risks; and (ii) rigorous vendor due diligence to ensure that the local solution will not result in information being accessed by a foreign government.
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cloud contracts
Australasian Legal Business ISSUE 10.3
Some down to earth advice on
cloud contracts Alison Cook provides some practical advice for corporate counsel seeking to negotiate the (literally) nebulous world of cloud contracts
C Alison Cook Alison Cook is Corporate Counsel at Alphawest, a wholly owned subsidiary of Optus.
loud computing is becoming a mainstream way of supplying data storage and software solutions. In practice, it is important to recognise that a service labelled as a ‘cloud service’ does not always include uniform features and qualities. The ‘cloud’ label is used for infrastructure and software offerings as well as adaptations of existing managed service offerings. Accordingly, there is no one-size-fits-all approach to cloud contracts. This article considers, from the perspective of a customer acquiring a cloud service, some practical ways to manage issues that can arise with the use of cloud services. An important issue for in-house counsel to understand is that because cloud offerings use an ‘on-demand’ delivery method, technology projects have undergone a change in the way they are funded. What was previously a capital project might now be paid by credit card and contracted by way of ‘click-through’. It is prudent for the in-house legal team to check that cloud contracts are being appropriately reviewed in light of the
change to the way resources are to be delivered. A second tip is that it can be helpful to start with a trial period, or a short contract term. The trial, which would ideally use test data, is an opportunity to explore issues of service interruption, access to data and to see how responsive the service provider is to your business needs. After the trial, the business will be better equipped to understand if the service levels provide adequate protection against interruptions. A pure cloud service generally has ‘minimal management effort’ and may not include any service-desk assistance. A trial will inform your business as to whether this is really what they want, and whether a service desk is needed. The trial will also help the business to ascertain, based on the data, what security is required. Determine your data security requirements based on the data. A highly secure service may not be necessary for ‘at-rest’ data. You should want to know whether the security is better or worse than your existing arrangements. The location of the data is a commonly raised concern. If you are storing personal information, a pragmatic approach is to choose a service provider that stores the data wholly in Australia. This will help compliance with National Privacy Principle 9, which governs trans-border data flow. This will also provide better comfort in relation to risks of third-party access to the data. It might not always be possible to determine how the data will be stored. If the purchase is Software-as-a-service (SaaS), the software itself will often be the compelling reason for the purchase, rather than the method of delivery. There may not be an alternative
cloud contracts
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product considered viable by your business and the vendor may decline your request for negotiation of the terms. In such circumstances it is useful to consider what you can control. Often, the cloud is like a black box. Generally, you can choose to take responsibility for the data you put in the box. For example, your business is best placed to understand your legislative obligations relating to your data. The obligations are dependent upon your industry and the type of data that will be stored. It is not as simple as requiring a broad warranty from the service provider that it will comply with all legislation. The service provider will have a variety of customers all with different legislative obligations, and often won’t know what sort of data you will be storing. So, for example, under the National Privacy Principles, the service provider’s security will be relevant to your obligation to take “reasonable steps to protect personal information” (see NPP 4.1), but you can also look at what your business can do in relation to the obligations, such as taking steps to de-identify personal information, using encryption
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and notifying customers about disclosure and use of the data in question. A final tip is to plan ahead. What is the exit strategy? How will the business get the data out from the cloud? If necessary, build some time into the contract term to allow for data retrieval. Use your trial to test how easy and effective data retrieval actually is. There are very real legal issues that can arise when acquiring cloud services, where the nature and magnitude of the issue depends on the type of cloud offering and the sort of data that will be stored. In addition to ensuring the underlying contracts properly reflect the arrangement, the practical considerations outlined above can also work to effectively manage projects that involve a cloud service. Optus Business, in partnership with Alphawest, launched its suite of cloud computing solutions in 2010.
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Technology – Gilbert + Tobin
Australasian Legal Business ISSUE 10.3
Technology transforming business R
apid technological advancements, device consolidation and an increasing number of fast, reliable communication channels are transforming the business world. Corporate and government leaders are being forced to reconsider their information technology infrastructure and adapt business models to respond not only to the demands of the market, but also to employee led demands. Investing in new technology is expensive. Not only is there the upfront capital expenditure, but also costs associated with systems roll-out, data transfer and potential employee up-skilling. For these reasons, businesses need to ensure they are making smart investments. In this article, we take a look at some of the technological trends that are shaping business and consider ways enterprises can maximise return on investment, while minimising risk.
Towards a mobile workforce With the rapid growth in smart devices and cloud-based services, an increasing number of employees are seeking to use personal devices at work or to access corporate networks from remote locations. According to an International Data Corporation study, the worldwide mobile worker population is set to increase from 919.4 million in 2008, accounting for 29% of the worldwide
workforce, to 1.19 billion in 2013, accounting for 34.9% of the workforce. While the potential benefits are obvious: workforce productivity, flexibility and motivation, some challenges remain, such as data security. An obvious way to minimise the risk of a security breach is to minimise the amount of sensitive material that is available on portable devices. When this is not possible, information security policies should be reviewed and adjusted to establish acceptable use, and to define any specific restrictions related to mobile computing devices. The delivery of effective and regular security awareness training for the mobile workforce is also a critical success factor. Companies will need to increase these activities to keep pace with the changing environment. Business continuity and disaster recovery capabilities can also be challenging. Ways to combat such issues include: security policy adjustments and the implementation of encryption techniques and access management controls. Up in the clouds Cloud computing continues to dominate discussion in the IT industry. Cloud computing is a broad term used to describe a range of different technologies – from web-based services like Google Docs, to hosted enterprise applications like Salesforce.com, through to bare server capacity provided in dedicated virtual private environments. At its very essence, cloud computing provides access to a shared pool of computing resources. It presents a raft of potential benefits to business, government and consumers extending beyond tangible cost savings – facilitating easier access to corporate data and more agile applications development. Cloud computing has generally been viewed with caution by business and government users due to issues such as data security, service reliability and privacy. Numerous statistics show that the
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use of cloud computing is significantly increasing, although we are still seeing a hesitation from large data-centric businesses to move to the cloud, particularly in heavily regulated industries such as financial services. The challenge for lawyers is to devise practical ways for customers of all sizes to mitigate these risks - or at the very least to understand the risks and accept them where appropriate, depending on their industry and business drivers. Many of the legal issues surrounding cloud offerings are about control, or rather the lack of control customers have in the cloud. With this in mind, data protection and privacy recognition is a key issue to manage in your cloud agreement, particularly where the cloud solution is multi-country. Data masking may provide a solution to certain privacy concerns. But it may not necessarily mitigate adequately against data protection risks and, in any event, may skew the transfer and ongoing transactional costs to the extent that perceived financial benefits are eroded. Performing due diligence on cloud providers and their offerings will enable a customer to better understand and manage potential risks. It is important to understand how a cloud offering transmits and stores data, how it segregates and secures data and how data may be retrieved. For larger customers, the ability to put in place robust contract governance structures with cloud providers can be a powerful
Technology – Gilbert + Tobin
tool in dealing with service concerns. Contractually embedding clear and robust channels of communication between the customer and cloud provider will assist in the resolution of day-to-day issues and in the management of both the customer and cloud provider’s expectations. Data centres Data centres are linked to cloud computing developments and the increasing demand for digital storage. In the Asia Pacific, data centre demand is heavily outweighing supply. Lead times for data centre construction are estimated to be approximately 3 years, while customers are working with very short decision-making timeframes and demanding minimal lead times (as little as 12 weeks) for the delivery of new or increased capacity. When establishing a data centre or a relationship with a data centre supplier, key issues are location and security. Stability remains a key factor in the selection of a particular data centre location – whether in
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Technology – Gilbert + Tobin
Peter Jones
Sheila McGregor
Tim Gole
Australasian Legal Business ISSUE 10.3
Ken Saurajen
relation to the regulatory, infrastructure, financial or geographical features of the location. For example, local data storage is required to manage the risks arising in relation to the US Patriot Act, privacy and other regulatory obligations in local jurisdictions. Customers need to know exactly where their data is, right down to the server level. Regulatory requirements may mean that it is necessary to build managed services in the cloud “in country”. Changing face of outsourcing Emerging technologies and services and the consumerisation of IT are changing traditional outsourcing models, which are moving from fixed to variable or utility-based pricing models. We are also witnessing the fragmentation of the “whole-of-business” service arrangements, with organisations preferring “best of breed” panels that provide the optimum fit for particular services. Along with these changes, there is a growing focus on the “people aspects” of vendor management. Traditionally, the focus of the corporate customer has been on micro-managing the vendor – limited to monitoring and managing the vendor’s dayto-day delivery, and measuring performance against prescriptive requirements and hard metrics. However, businesses are starting to realise the importance of the “soft skills” in vendor relationship management to achieve optimum outcomes and extract the best service from vendors. Near field communication From retailers to financial institutions, telecommunications operators, hardware manufactures and payment scheme providers, near field communication (NFC) permeates a wide variety of industries. In simple terms, NFC is a technology that is designed to enable secure wireless data exchange between compatible devices over a short physical distance. NFC technology has received significant attention recently in the context of electronic payments, because of its potential to re-invent the physical point of sale experience and appeal to the modern consumer’s desire for convenience, device consolidation and better security. As with many new technologies however, the wide-spread adoption of NFC is faced with a number of challenges, including modernisation of merchant point of sale (POS) networks and device upgrades. When it comes to documenting the requirements of an NFC solution in contractual terms, the primary challenge becomes defining solution outcomes in a way that is acceptable to all stakeholders. This is because near field solutions encompass a wide range of unique technology aspects and specific demands:
Michael Caplan
Bernadette Jew
for instance, integration of the NFC chip with a potentially vast array of manufactured proprietary handsets with different firmware and operating systems; interoperation between the chip and handset; further interoperation between both chip and handset with various point of sale devices; expansion of SIM card and device capability to support different applications and store information for multiple banking accounts; and, of course, robust information security and authentication features to protect the sensitive personal data that will be contained on the mobile device. There is no doubt, however, that NFC and other new payment technologies will significantly change the way in which payment systems operate in the future. Conclusion While the dot com boom heralded a rapid change in business models adapting to the explosion of internet usage, in many ways today there is as much technological change happening with the potential to equally impact business models, revolutionise the way in which transactions occur and shift the value drivers underlying modern business relationships. These developments offer tremendous opportunities for designing intelligent legal solutions – ones that not only manage traditional legal risk, but promote the commercial success of a variety of rapidlychanging activities.
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IN-HOUSE PERSPECTIVE
Australasian Legal Business ISSUE 10.3
In-house perspective
Building bridges to the Bar Being a construction lawyer might not have always been on Meighan Heard’s agenda, but now she’s heading straight for the top as an award winning, billion dollar legal project manager, writes Olivia Collings.
M
eighan Heard never dreamt of being a construction lawyer when she graduated from law school, but she considers herself lucky to be one now. “I love construction. I love to be involved in something that is tangible, that you can see, that gets built in front of you,” she says. She is currently overseeing three projects in Brisbane which collectively represent the largest undertaking of its kind in Australia in the past 20 years as the legal and insurance manager of the Airport Link, Northern Busway and Airport Roundabout Upgrade Projects, a A$4.6 billion series of developments being undertaken by Thiess and the John Holland Group. Heard is employed by Thiess but seconded full time to the joint project team. The Airport Link and Busway projects involve 15km of tunnelling including the road (5.7km of twin tunnels), busway tunnels and connecting ramps, as well as 25 bridges. The project is set to provide a vital link between the northern suburbs of
Brisbane and the city and airport. “One of the main issues with the project is that it is in the middle of suburban Brisbane,” says Heard. “It’s not like a lot of infrastructure is being built today in beautiful greenfield locations where you don’t have to worry too much about community issues and existing land uses.” Heard has been working on the project almost since its inception in 2008 when the Queensland Government awarded the project to the BrisConnections consortium, composed of Macquarie Group, Thiess and John Holland. She joined the project from Sydney, where she was the general manager of legal at United Group Infrastructure, a role which saw her reporting directly to the chief executive of the business and to the general counsel of the overall group. Heard began her legal career at Corrs Chambers Westgarth as a graduate, but worked out very early on that her passion lay in construction and started specialising within three years. Even as a young female, Heard was never intimidated by the construction industry, a sector very much dominated by males, especially at the senior levels. “I was the key client contact for many projects [at Corrs] and sat in meetings with clients where the majority of people at the table were men who were senior to me, but it never seemed to be a barrier to working with them,” says Heard. In fact, in some ways, Heard says being a woman has helped her to be a better lawyer in the field: “I could always ask, what some might call the blonde question, around technical issues and all
Photography by Thilo Pulch
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IN-HOUSE PERSPECTIVE
the engineers and management were very patient in explaining things to me. I don’t know if that was because I was a woman or junior or both, but I felt that was an advantage.” Having decided it was construction she loved, Heard had no trouble adjusting to her in-house life post private practice. “The most important thing is to pick an industry you really want to work in,” she explains. “Gone are the days where people leave private practice just to get out of the grind of billable hours and time sheets. You have to want to be in-house, you have to want to be part of a business and you have to want to be doing something you love.” Building within When Heard joined the Thiess John Holland project she was the sole lawyer and had to build the legal team from scratch. She must have done something right, as that team of now five lawyers was last year named the Australian Corporate Lawyers Association Small In-house Team of the Year. “Everyone here is very committed to the cause, and they are all here because they want to be involved in the project,” states Heard. As the project itself involves two phases Heard says the legal team has also had two distinct stages. “I have handpicked everyone in my team this round, the first team I didn’t,” she says. Not long after starting in the role she was joined by an administration assistant, a front-end construction lawyer and a student who had come out of contract administration world. In mid 2010 the project went through a transition and Heard hired her first construction litigator as well as a third/ fourth year all-round construction solicitor. As far as projects go, the Airport Link, Northern Busway and Airport Roundabout Upgrade has not had the smoothest of rides. Its Initial Public Offering (IPO) was the largest and most disastrous in Australia in 2008. The value of the initial A$1 instalments fell by 60 percent on the first day of trading, and by late November had collapsed to 0.1 cent, the lowest possible price on the ASX. One of the major investors went insolvent, resulting in many ‘mum and dad’ investors buying into the company, without realising that the shares they had purchased were a ‘stapled share’, a special type of security that obligated them to
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make additional payments. Then, the main earthmoving contractor on the project, TF Group, went into receivership owing millions of dollars to local subcontractors. “I had to work through claims by those subcontractors the money that they considered to be owned to them,” says Heard. In addition to all this the team has had to deal with the aftermath of the 2011 South East Queensland floods, and the damage caused by them to the project, as well as a fatality on the project late last year. As a result of these and other obstacles along the way, it’s unsurprising that Heard’s team now has three construction litigators who assist her in briefing directly to the Bar on litigious matters. “We use the Bar a lot and do a lot of briefing directly to the Bar, rather than going through external law firms,” states Heard. “I did that was because on projects there is very little room to move on dollar spend and it’s been fairly well profiled that this project has had some real challenges financially.” Heard says she and the team have had great success running litigation and alternative dispute resolution in-house. “Apart from some of the major claims that have been dealt with outside of the project, for most things we have gone on the record in court ourselves,” she says. “It’s been quite easy to work with the Bar, it’s been a really good experience.” Briefing directly to the Bar is something Head thinks more general counsels could undertake, if they have the resources and the interest. “Even when I did my first briefing, before I hired the litigator, I was very upfront and told the barrister that I would have to rely on their practice and procedure knowledge as much as anything else and that worked out fine,” states Heard. “I like to be in control of my own destiny and I have an appetite for risk, provided I have people in the team or myself who can take those on board.” Branching out While Heard doesn’t use law firms much for litigious work, there are plenty of other areas of law where she does. She uses mid-tier and top-tier firms including Minter Ellison and Norton Rose, as well as specialist providers at a boutique level. “I like to be very hands on with the law firms that I work with,” says Heard. “I think it’s important to have an open dialogue with the partners I’m briefing within the law firms that I use; I like to think I give feedback and set expectations up front.” One of her pet hates with regards to private practice lawyers is when she receives advice that contains more questions and qualifications then it does answers and solutions. “If that becomes a bit of a trend then I will sit down with the firms and tell them that I want them to ask me for the information they need when they identify that it’s missing, rather than sending the advice that does not include that information,” she explains. She would also like to see firms work “more creatively” with the in-house team. “That is, working out what resources are available from both camps, and then melding together a team in order to achieve the best outcome,” she says. “We have had some success with that recently, where we have briefed external lawyers for litigious dispute matters, having done a lot of the grunt work ourselves, using the external law firm as the face, reviewer and adviser on the work we have done, as opposed to them doing all the grunt work.”
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Carbon
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Carbon price: the countdown begins Is your business ready for the introduction of the carbon price in July? Freehills’ Michael Voros reviews the key points of this complex scheme.
M Michael Voros
aybe it’s a case of better late than never. After years of bitter politics which has seen the unseating of two Prime Ministers and an Opposition Leader, Australia is finally set to see the introduction of a carbon price mechanism. Legislation was passed through the Commonwealth Parliament last November and the carbon price is due to take effect from 1 July 2012. However, this may not be the end of the story. The Coalition Opposition has pledged to repeal the carbon price if it wins government in the future. This is a remarkable undertaking which has caused some disquiet even among the parts of corporate Australia who may be beneficiaries of this Opposition policy. The result is that Australia business is required to prepare for the carbon price by 1 July and implement appropriate structures to deal with the price, but there is no guarantee that these structures will still be relevant beyond the next Federal election in 2013. That’s politics for you.
Context The carbon price mechanism is the key element of a broader plan to reduce carbon emissions. Other key elements include: • an emissions and energy reporting scheme – already in place for the past two years; • a carbon farming initiative, under which farmers and landholders can earn carbon credits by storing carbon and/ or reducing greenhouse gases; • a Renewable Energy Target Scheme to support renewable generators, introduced under Howard, but expanded and somewhat plagued under this government; and • various fragmented grant schemes including the troubled SFS and the new Clean Energy Finance Corporation (CEFC), a venture capitalist style fund to encourage the development of new green technologies. Typical examples of emissions for which entities will be liable include direct emissions from power stations, waste, industrial process and fugitive emissions from gas fields, gas pipelines and coal mines). The price of emissions units will be: • fixed in the first 3 years, starting at $23/t carbon dioxide equivalent (CO2e) in 2012/13 and then increasing by 5% pa; and • set by the market under an emissions trading scheme from 1 July 2015. An equivalent carbon price will also be paid on some liquid fuels by changes to the fuel tax system.
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Carbon price: key preparation steps your business should take By Michael Voros, Freehills the impacts (ie the costs) 1 Evaluate and management steps.
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2 Consider the opportunities. 3
Review and design contracts: It is important to review and design your contractual arrangements to best manage carbon costs. Contract reviews should include: • an audit of existing contracts; and • a review of template contracts, especially those that are likely to have material carbon cost issues, for example gas or coal supply and transportation agreements and electricity supply agreements.
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Disclosure: Be careful what statements you are making publicly and in your financial documents. Consider your stakeholders (including shareholders and financiers) and ensure they are properly informed. Marketing: ensure you are considering consumer and competition law issues. The Australian Government and ACCC are targeting compliance regarding carbon cost pass through and green marketing. Offsets: Carbon offsets may be one key way to manage carbon costs. The ‘Carbon Farming Initiative’ voluntary scheme will present positive emissions reduction opportunities.
Costs The carbon price will cause Australian businesses to incur cost in several different ways. Clearly the most obvious of these will be the need to purchase emissions units. However, there will also be indirect costs such as higher costs passed from upstream (for example electricity, gas, transport, waste disposal and some building materials) and the cost of any abatement actions to reduce the applicable carbon price. The end result is that businesses will pay for their carbon footprints, directly or indirectly. Therefore businesses’ commercial exposure is best calculated on the basis of its total emissions profile. The ability of business to manage these additional costs will depend on the extent to which they are on the receiving end of increased carbon costs from their suppliers, and in turn their ability to recover from their customers. Various government assistance programmes have also been announced for particular industries. Internally businesses will need to ensure they are appropriately equipped to prepare for and manage carbon costs. While climate change may be seen as an environmental or sustainability issue, ultimately the carbon price is an economic/financial reform and managing the costs must partly if not solely come under the financial/accounting function. The carbon price is a financial driver to leverage better carbon outcomes. It may still be for the environment/sustainability/energy efficiency teams to come up with the good ideas for management.
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Compensation: Review what compensation may be available.
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Opt in?: Large fuel users should consider whether to opt in to the carbon price regime or not. Main reasons to do so are to more effectively manage the carbon price exposure, including through the use of offsets.
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Approvals: If you are going through an approval process, any carbon offset proposals or negotiations should be revisited.
Trading: Ensure AFSLs and any other 10 necessary requirements for permit trading are met (primarily for the flexible phase from 1 July 2015 on).
Risks While the carbon scheme is seen as an opportunity by many, it inevitable carries a risk element for business. It will be a particularly hot topic in the short to medium term, so it will be important to make proper disclosures to the market and to comply with the consumer and competition law in passing through carbon costs and green marketing. In particular the ACCC has been tasked to closely monitor carbon cost pass through. However, businesses that see the carbon scheme purely as an additional regulatory burden do so at their own peril. The carbon price is not just about costs. Over time it will favour Australian businesses that proactively seek out emissions reductions and can then trade off that. Directors in particular should ask their management what opportunities they are pursuing, not just what steps they are taking to manage costs.
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Carbon
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Carbon tax: Implications for resources and
construction businesses
McCullough Robertson’s Tim Hanmore explores the prickly question of exactly who carries the liability for the new carbon price in resources and construction businesses
T Tim Hanmore Tim Hanmore is a partner at McCullough Robertson.
he ‘fixed price’ starting at $23 per tonne of carbon dioxide equivalent from 1 July this year has become a mantra on many news services. But who in your corporate group is going to pay for it? When does the liability fall? Can it be shuffled on to customers, or even back up the chain to suppliers? Where do your joint venture partners stand? These are among the myriad of considerations faced by company secretaries and in-house counsel as a result of the carbon pricing scheme. An answer to each of these questions should be clearly understood and in short order. • APPLICATION – have you carefully considered whether your facilities are captured by the scheme? • STATUTORY LIABILITY – who has operational control? Can and should the liability be transferred under the legislation to a more appropriate entity for example in the corporate group or with financial control of the relevant facilities? • NEW AND EXISTING CONTRACTS – how do they deal with the issue, if at all?
Statutory liability The concept of ‘operational control’ will dictate who carries statutory liability under the carbon pricing scheme. Generally, that will mean that the entity with authority to introduce or implement operating, health and safety and environmental policies will carry the liability. However, this may not necessarily make the most sense. For example, it may be that a different entity within the corporate group has been identified as responsible for carbon liability management, or it may be that another entity altogether has financial control of the facility and is contractually bound to reimburse the operator of the facility for the cost anyway. In either circumstance, and potentially others depending on the nature of the facility and its operation, it might make sense to seek to transfer the liability to a different entity. The legislation provides for a liability transfer certificate mechanism, which may allow this to occur. Joint ventures The normal rule of thumb - that the entity with ‘operational control’ of a facility faces statutory liability under the carbon pricing scheme - may not relate to a facility you operate under joint venture. The first step is to work out who has ‘operational control’. That will normally be the entity that has the greatest authority to introduce and implement the operating, health and safety and environmental policies. But where a facility is operated in true joint venture and this authority is equally shared, one entity needs to be nominated to
Carbon
Australasian Legal Business ISSUE 10.3
take on ‘operational control’. The next step is to work out where the liability lies. This will sit either with the entity that has ‘operational control’, or for ‘designated joint ventures’, will be split between the participants of an unincorporated joint venture in – normally accordance with their respective participating shares in the output of the joint venture. Critically, if you are involved in a joint venture that operates (through a manager or otherwise) facilities caught by the carbon pricing mechanism, you need to understand where you and your joint venture partners sit. This will require consideration of a range of issues, including a review of your joint venture agreement, the nature of the facilities under the control of the joint venture, and who has ‘operational control’. Product supply agreements Regardless of whether or not your business operates or owns a facility caught by the carbon price, you are likely to face increased costs as a result of higher electricity prices, the manufacture of carbon intensive materials, and associated activities. This is likely to have a knock-on effect on your own pricing models and competitiveness. This is not new. Most organisations will be familiar with fluctuations in the cost of materials. Ultimately, once the new ‘tax’ is something industry has become familiar with, businesses will probably factor the increases in during the tender or price negotiation stage. In the meantime, however: • existing long term supply contracts need to be considered for the ability to pass on carbon liability, and • new contracts should be reviewed to determine where the carbon liability lies. Services agreements The issue also applies to some services contracts. For example, the operator of a facility needs to be certain that the carbon cost associated with that operation is clearly identified and allocated under contract (particularly in circumstances where it is likely to take on ‘operational control’). Businesses should review any contracts currently being finalised or under tender. Whether the contract is cost plus, fixed fee, or under a schedule of rates, along with the particulars of the relevant contract, will have a significant impact on the apportionment of any liabilities arising from the carbon ‘tax’. Carbon cost pass through mechanisms Anecdotally, some businesses appear to have taken the view that a change in law or tax/impost clause will assist in passing liabilities down the supply chain. Particularly now and moving forward, it is unlikely that a change in law clause will be of any benefit at all, given the change has occurred or is at least foreseeable. Separately, most tax pass through clauses may also be problematic. In almost all circumstances, the carbon ‘tax’ will rest with an upstream supplier, and the contractor will simply carry an increased cost as a result. Few tax pass through clauses would be operative in these circumstances. As an alternative, ever since the previous ‘Carbon Pollution Reduction Scheme’ hit the radar several years ago, some contractors have routinely included tailored carbon cost pass through provisions in all contracts. These provisions, if drafted correctly, should operate to protect you from the cost increase. Many businesses are drawn to this alternative, particularly
in these first few years of uncertainty, but many customers will see it as a point of negotiation. Policing the system - when the “carbon cops” call Business costs increase regularly due to costs associated with labour and material supply, and businesses are normally free to set their own prices. However, the “carbon cops” will be watching should a business misrepresent price increases as a result of the carbon pricing scheme. The ACCC will play a role in preventing price gouging during the introduction of the carbon pricing scheme. This role will include investigating alleged misrepresentations by businesses about their pricing. The ACCC is likely be guided by Treasury estimates of the price effects of the carbon pricing scheme. Where there is a significant difference between these and the business’s own forward estimates, the ACCC may investigate and demand information to determine whether the business had a reasonable basis for making the representations. The Federal Government’s Clean Energy Regulator will set up shop from 2 April 2012. It will be an independent statutory authority that will administer the carbon pricing mechanism and enforce the legislation introducing it, along with the existing greenhouse and energy reporting legislation. In addition to working with the ACCC and other regulators to enforce compliance, its responsibilities will include educating the public and industry on the carbon pricing mechanism and how it works, assessing emissions data and running the registry. Wrap-up So, it’s not long now before the carbon pricing scheme and the various regulators grow teeth and start to bite. All we can do is review the business activities we are involved in, clearly understand where the liability will rest and how best to manage it, and seek to reduce the overall liability through the implementation of more efficient practices. This editorial is not designed to express opinions on specific cases and further legal advice should be obtained before taking action on any issue dealt with in this publication.
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Carbon Q and A
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Carbon Q&A: Martijn Wilder, Baker & McKenzie Baker & McKenzie’s Martijn Wilder has been following the development of the carbon economy since its early days through to its present rise to prominence. He shares his thoughts on the scheme with ALB.
ALB: What is your reaction to the scheme in its present form? MW: It’s critical we have some sort of scheme. It’s universally accepted that a market approach is appropriate and it seems to be the right approach. The Clean Energy Finance Corporation provides a real opportunity to bring together public and private sector finance - A$10 billion will have an impact. We’re seeing a lot of international companies looking to come out here and possibly team up with Australian companies. Carbon farming is also a critical component of the government’s scheme. It’s a very, very good policy and is supported by both sides of government. It will just take time for projects to develop. There’s a great amount of interest and there will be increasing number of projects onto that scheme. I think in the first few years there’ll be a small number of projects but this will increase as methodologies are approved. ALB: How does the scheme differ from others in Europe? MW: Essentially, the Australian scheme has tried to model itself in such a way that it deals with some of the challenges
the European scheme had at the outset. One example is market pricing. The European scheme started with full open market pricing, whereas the Australian scheme obviously dictates what that price will be. Both schemes allocate free permits, however it’s fair to say the Australian scheme is far more detailed in the way it provides compensation, because our industry is quite different. The Australian scheme covers more large manufacturing and electricity than the European scheme. Also the European scheme does not include land based activities, whereas the Australian one does. In general the Australian scheme has more flexibility built into it. One important thing to remember is that the European policy is also supplemented by a lot of other policies - the European scheme is only one of the dominant mechanisms to reduce emissions. There’s a whole suite of policies around this in Europe. While Australia also has a raft of policies the ETS is designed to cover most emissions. ALB: What practical recommendations would you make for businesses in the lead-up to implementation? MW: I think for most companies the important thing is to work out whether or not they are covered by the scheme. Do they have a liability under the scheme? What is the extent of that coverage and what can they do? If they are covered, do they have any exemptions? Do they get any free permits, things that reduce their liability? How do they manage that liability in the most effective manner? A lot of companies are starting to realise that some aspects of the scheme are not that straight forward. A lot of the legislation is in, regulations are still being finalised,
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Carbon Q and A
Australasian Legal Business ISSUE 10.3
but a lot of details on compliance still remain unresolved and are still being developed. For example we just had the rules released on the auction process. Over the next three to four months we’ll start to see real engagement with the scheme and what it means. ALB: Are there any particularly challenging aspects clients need to watch for? MW: People have a very significant degree of misunderstanding as to how the scheme operates –particularly around issues such as joint venture liability and the transfer of liability between corporate entities. A lot of companies are not fully across the different sorts of tradeable units that exist. Issues arise around what the characteristics of those are, what you can do with them, whether you can trade them and what it means in terms of costs and liability. A lot of companies are also engaging very strongly with the government on the floor price issue. That’s a hot topic at the moment and there is very, very wide spread disagreement as to what is the best option so it’s worth pointing out and defining it. I think the other important thing to remember is that the scheme itself is based on the reporting scheme under which companies report their emissions. There’s a lot of inter-linkages between those and people need to appreciate that the two do work quite closely together. There are three other key areas getting a lot of attention: first, the need to have an Australian Financial Services Licence (AFSL) to trade carbon. Secondly, the ACCC has been given a lot of powers on what you can and can’t say on the carbon cost. Thirdly, tax – how do you treat the taxation of these units? Fourthly- the passing on of carbon costs under contracts and ensuring such amounts are legitimate. Martijn Wilder, Baker & McKenzie
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