AUSTRALASIAN LEGAL BUSINESS
CONSTRUCTION LAW: BUILDING FOR GROWTH
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com
JUNE 2012 NEW ZEALAND 2012
JWS
MERGER PREDICTIONS
G+T
CONSTRUCTION
THE URGE TO MERGE Who’s next in line? ALB SPECIAL REPORT: NEW ZEALAND 2012 Can New Zealand rise once again?
ISSUE 10.5 ISSUE 10.1
PAGE 20
ISSUE 10.5 JUNE 2012
General Counsel
Adelaide Based
Significant role Market leading brand Supervise a small team Our client is a significant heavy industry company based in Adelaide. With a large workforce and a reputation as a market leader in its sector, it has an enviable position in the local community as well as a national brand. A blue-chip local general counsel role, this position will appeal to strong local applicants, as well as interstate in-house counsel or law firm partners looking for an in-house role in a lifestyle location. Reporting to the Executive General Manager and advising the Board, this is the most senior legal role in the company and involves dealing with the most significant commercial and legal issues faced by the business. It will require daily interaction with, and recommendations to, the executive team. Leading a small, nimble and customer-oriented legal team, the successful lawyer will have a mix of strong black letter legal, commercial and interpersonal skills. Taking part in significant
and high-value negotiations, overseeing significant contracts, supporting the Board as required and briefing external providers in disputes are all part and parcel of this attractive and challenging role. To be considered for this position you will be a strong technical lawyer from a quality background, with significant experience in-house or in a quality firm. Your legal experience and honed interpersonal skills will underpin your commercial acumen, and the ability to provide pragmatic advice will separate you from your competitors. This is a truly rare offering in a lifestyle location. Interested counsel are invited to submit a profile or CV to Paul Burgess, Director, or call for further information. Salary will be commensurate with quality roles in the local market. This role is exclusive to Burgess Paluch and all CV’s will be forwarded to it.
Call Paul Burgess on 03 8676 0372 or 0414 687 629 or email a CV to paul@bplr.com.au
Significant Partner Roles Melbourne Workplace & Industrial Relations Partner
Our client is a respected national mid-tier firm operating a partnership model that is consistently proving profitable and rewarding, both financially and professionally. Joining their Melbourne office would give a senior or partner level lawyer an opportunity to offer their clients a “value-add” service at highly competitive rates, significant control over which clients they pursue and the opportunity, within a national network, to tap into internal referrals that would add to their practice.
Melbourne Corporate Partner
Lead a team of top notch lawyers in this profitable and growing national firm. The firm seeks a dynamic partner to expand its already significant corporate reach. Work in a diverse and successful corporate team and use your commercial skills to full effect on M&A, capital raisings, IPOs and debt capital market transactions. Working with impressive peers, enjoy a generous package and strategic input into group decisions.
Perth Corporate Partner
Burgess Paluch is Perth’s leading partner-level recruitment consultancy. We have current instructions from leading and boutique practices seeking to strengthen their corporate practices. We are setting up discreet discussions for a range of partners and senior lawyers with various types of corporate experience. Our current clients include national/international firms, a large local practice, and a boutique firm. Both salaried and equity/fixed partners are being looked at, depending on client base.
BPL2449
www.bplr.com.au Paul Burgess 0414 687 629 Doron Paluch 0438 004 445 Paul Garth 0434 113 355 Jackie Gillies 0422 288 685 paul@bplr.com.au
CONTENTS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
1
“SO THE MARKET IS SMALLER AND THIS INEVITABLY AFFECTS LAW FIRMS OF ANY SCALE AND IT MUST TRICKLE DOWN TO ALL FIRMS IN THE END.” Gary McDiarmid, Russell McVeagh
20
NEWS DEALS
COVER STORY
LEAGUE TABLES
LAW FIRM MERGERS Who’s hot property as firms continue to eye each other in the prospective merger market.
10
New Zealand 2012 Can New Zealand climb out of the abyss?
20
A cautionary tale Inside Dewey & LeBoeuf’s remarkable implosion.
12
Construction The construction industry is looking vulnerable – but the mining boom is still driving new legal work for the moment.
40
US Securities law Will the global reach of U.S. Securities Laws expand again?
58
FEATURES
06
SPONSORED UPDATE
08 09
Buddle Findlay PROFILES In-house perspective Andrew Clarke, Origin Energy APPOINTMENTS
52
38
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
2
AUSTRALASIAN
LEGAL BUSINESS
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We’ve done the numbers... ...and we’re thrilled to have 9 nominations in the following 5 categories: NZ Dealmaker of the Year - Pip Greenwood NZ Deal Team of the Year - Corporate Advisory Group NZ Deal of the Year (in all of the 5 nominated deals) Australasian Insolvency & Restructuring Deal of the Year Australasian Equity Market Deal of the Year Congratulations to all the other nominees.
www.russellmcveagh.com wellington vo da fo n e o n t h e q uay 1 5 7 l a m b to n q uay p o b ox 1 0 -2 1 4 w e l l i n g to n n e w z e a l a n d dx s x 1 1 1 8 9 t e l e p h o n e 6 4 4 4 9 9 9 5 5 5 fa x 6 4 4 4 9 9 9 5 5 6
au c k l a n d v e ro c e n t r e 4 8 s h o r t l a n d s t r e e t p o b ox 8 au c k l a n d n e w z e a l a n d dx c x 1 0 0 8 5 t e l e p h o n e 6 4 9 3 6 7 8 0 0 0 fa x 6 4 9 3 6 7 8 1 63
4
EDITORIAL AUSTRALASIAN LEGAL BUSINESS
DEWEY & LEBOEUF: A CAUTIONARY TALE
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com ISSUE 10.5 JUNE 2012
JUNE 2012 MERGER PREDICTIONS
L
NEW ZEALAND 2012
A BOB EACH WAY
JWS
G+T
CONSTRUCTION
THE URGE ast month a couple of blokes called Bob provided a timely reminder of the TO MERGE days when Australian politics seemed to operate at a different intellectual Who’s next in line? level. On the ABC, former Greens leader Bob Brown made an impressive cameo appearance on what admittedly was home turf – the studio audience ALB SPECIAL REPORT: NEW ZEALAND 2012 of discussion show Q&A. Whether you agree with his policies or not, there was no Can New Zealand rise once again? doubting the power of his delivery and the masterful qualities which have seen the Greens become a transformative force in Australian politics over the past decade. A few weeks later Senator Bob Carr, recently wheeled out of semi-retirement by the ALP, provided a case study on how to dominate an interview with the sheer force of charisma. “Oceans. I’m passionate about oceans,” the senator boomed on the ABC’s Lateline as an uncharacteristically flustered Tony Jones attempted to bring the interview back on topic. Love them or loathe them, there’s something to be said about the big personalities and the manner they enrich the quality of discussion around them. There may be a practical benefit too – NSW Labor’s descent into the abyss arguably commenced after the departure of Carr and it remains to be seen how the Greens will fare without Brown at the helm. It’s a story which translates into the business world too, where law firms and practice groups are sometimes dominated by one or two larger than life personalities. It’s a fact which often goes unspoken – indeed, the media teams in large law firms invest a good deal of energy trying to even out publicity across the firm’s lawyers – but the association of particular firms with particular individuals is a hard habit to break. A couple of these noteworthy individuals are now beginning to reach the age where the inevitable speculation about retirement has begun. What effect will their departure have for their respective firms? Is this the beginning of the end, or simply the end of the beginning? Perhaps we should pay some attention to the political fortunes of the Greens in the months to come – there may be some valuable lessons in how much a personality is worth, both in politics and in the business of law. ISSUE 10.5 ISSUE 10.1
RENU PRASAD Australasia Editor, Australasian Legal Business, Thomson Reuters
AUSTRALASIAN
LEGAL BUSINESS
PAGE 20
6
DEALS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
YOUR MONTH AT A GLANCE Firm
Allen & Overy
Deal
Value
Client
Lead lawyer
Comment
Lithium One merger with Galaxy Resources
A$500 million
Lithium One
Geoff Simpson
Fortescue Metals Group (FMG) high yield bond offer
US$2 billion
Fortescue Metals Group (FMG)
Peter Wilkes
This is the largest real estate refinancing to occur in Australia post GFC
Allens Arthur Robinson
Investa Office Fund multiple CBD property interests from Investa Property Group
A$393.75 million
Investa Office Fund
Mark Stubbings, Vijay Cugati, Adrian Chek and Stuart McCulloch
Allens
Consortium’s acquisition of ASXlisted Charter Hall Office REIT
A$1.9 billion
Acquirer
Allion Legal
Galaxy Resources merger with Canadian Lithium One
A$500 million
Galaxy Resources
Philip Lucas and Stuart Mengler
Allion Legal has previously advised Galaxy Resources on its A$130 million project financing for the construction of the Mt. Cattlin Lithium Mine
Ashurst
Rabobank floating rate notes issue
A$325 million
Rabobank Nederland Australia Branch
Paul Jenkins
In May last year Ashurst (then known as Blake Dawson) advised Rabobank Australia on its £1.37 billion global medium-term note program
Baker & McKenzie
Petronas’ block trade of its 17.3 percent stake in APA Group
A$540 million
Morgan Stanley
Craig Andrade, Andrew Reilly
Baker & McKenzie was the sole external legal advisor on the deal
Bank of Queensland entitlement offer/ institutional placement
A$450 million
Bank of Queensland
Tim Reid
Clayton Utz has represented Bank of Queensland many times, including its REDS and APOLLO RMBS Programs
PEP-owned Pacific Industrial Services Bidco’s takeover of Spotless Group
A$720 million
Spotless Group
Rod Halstead
Clayton Utz has advised Spotless Group on a number of matters and has been advising it on its workplace relations strategy since 2003
Investa Property Trust refinancing of debt facilities
A$1.9 billion
Lending consortium
Kathy Santikos
This is the largest real estate refinancing to occur in Australia post GFC
Fortescue Metals Group (FMG) high yield bond offer
US$2 billion
Joint book-running managers
Brad Robinson and Peter Jarosek
IAG launch of reinvestment offer
A$350 million
Joint lead managers
Philippa Stone
Metro Transport Sydney (MTS) sale to the NSW Government
A$19.8 million
Australian Infrastructure Fund (AIX) and its co-investors
Simon Haddy
Freehills also advised AIX on the recent divestment of its stake in the Port of Geelong, which sold for $25 million, plus distributions
India’s Adani Group refinancing of the Abbot Point X50 Coal Terminal
A$1.25 billion
The Adani Group
Brendan Quinn and Joel Rennie
Hancock Prospecting Roy Hill project stake acquisition by consortium
A$3.2 billion
Consortium of buyers including POSCO, Marubeni and STX
Shane Kyriakou and Lucy McCullagh
The deal includes rights to 16.5 million tons of iron ore offtake. Those offtake quantities are worth more than A$40 billion at today’s prices
Clayton Utz
Corrs Chambers Westgarth
Freehills
DEALS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
7
YOUR MONTH AT A GLANCE Firm
Deal
Value
Client
Lead lawyer
Comment
PEP-owned Pacific Industrial Services Bidco’s takeover of Spotless Group
A$720 million
PEP
Andrew Bullock
Gilbert + Tobin has advised PEP on a number of occasions, most recently on its joint venture with Svenska Cellulosa Aktiebolaget (SCA), a global hygiene and paper company, to develop its Australasian operations, SCA Hygiene Australasia (SCAHA)
Consortium ‘s acquisition of ASXlisted Charter Hall Office REIT
A$1.9 billion
Charter Hall Office REIT
Tony Bancroft, David Clee,Colleen Platford
Gilbert + Tobin also advised Charter Hall REIT on the Australian law aspects of the sale of its U.S. property portfolio (US$1.71 billion) last year
ISPT acquisition of 50 percent stake in Myer Centre Brisbane from CFS
A$366 million
ISPT
Helen Scott, Michael Byrom
Holding Redlich has advised its client ISPT for over 15 years
Gilbert + Tobin
Holding Redlich
King & Wood Mallesons advised Xstrata on the sale of its British Columbian metallurgical assets to JX Nippon Oil & Energy (Australia) last month and has a long standing relationship with Xstrata Johnson Winter & Slattery
King & Wood Mallesons
Transurban Group securities black trade
A$631 million
CP2 Limited
Damian Reichel
UBS (underwriter) was represented by in-house team
ISPT acquisition of 50 percent stake in Myer Centre Brisbane from CFS
A$366 million
CFS Retail Property Trust
Andrew Erikson
King & Wood Mallesons partner John Sullivan has also advised CFS Retail Property Fund on previous transactions
IAG launch of reinvestment offer
A$350 million
IAG
Shannon Finch, Ian Paterson
KWM acted as issuers counsel and structuring counsel for IAG
Xstrata’s all-share merger with Glencore International
Xstrata and Glencore International
Nicholas Pappas
King & Wood Mallesons advised Xstrata on the sale of its British Columbian metallurgical assets to JX Nippon Oil & Energy (Australia) last month and has a long standing relationship with Xstrata
Beach Energy capital raising
A$345 million
Joint Bookrunners
John Sullivan, Shannon Finch and Ken Astridge
Mike Barker, Sharon Henrick
King & Wood Mallesons has advised Nestlé on a number of transactions, including the acquisition of Jenny Craig Australia, its global acquisition of the Novartis medical nutrition business
Daniel Marks, Don MacCallum
In the past year, the Minter Ellison’s team advised the same syndicate of banks on a similar take-private financing of a listed REIT. Minter Ellison’s Finance team has also acted for the financiers on a number of other syndicated debt financings for Charter Hall Group
Scott Millar, Petar Kuessner, Peter Norman
This is one of the few public issues of Australian residential mortgage backed securities (RMBS) by a non-big four bank into the U.S. market since the onset of the global financial crisis
Nestlé’s global acquisition of the Pfizer Infant Nutrition business
Minter Ellison
Norton Rose
Consortium ‘s acquisition of ASXlisted Charter Hall Office REIT
ME Bank dual currency A$1 billion Australian residential mortgage backed securities deal
US$11.85 billion
Nestlé
A$1.9 billion
Financiers
A$ 1 billion
ME Portfolio Management Limited (a subsidiary of ME Bank)
8
LEAGUE TABLES
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.4
TOP M&A ADVISORS - ANNOUNCED DEALS, YEAR TO DATE
1
NO.
TOP M&A ADVISORS - COMPLETED DEALS, YEAR TO DATE
1
FREEHILLS
6,240.55
VALUE ($MIL)
NO.
DEALS: 20 MARKET SHARE: 24.5
VALUE MKT. DEALS ($MIL) SHARE
RANK LEGAL ADVISOR
KING & WOOD MALLESONS
16,862.76
VALUE ($MIL)
DEALS: 22 MARKET SHARE: 56.5
VALUE MKT. DEALS ($MIL) SHARE
RANK LEGAL ADVISOR
2
Latham & Watkins
3,309.12
13.0
1
1
King & Wood Mallesons
16,862.76
56.5
22
2*
Jipyong & Jisung
3,309.12
13.01
1
2
Gilbert + Tobin
13,166.18
44.1
10
4
Allens Arthur Robinson
2,015.84
7.9
11
3
Allens Arthur Robinson
12,441.99
41.7
11
5
Clayton Utz
1,514.98
5.9
9
4
Corrs Chambers Westgarth
11,519.86
38.6
9
6
King & Wood Mallesons
1,511.89
5.9
16
5
Ashurst
11,191.42
37.5
14
7
Johnson Winter & Slattery
856.23
3.4
1
6
Clayton Utz
10,612.67
35.6
20
8
Ashurst
639.94
2.5
7
7
Freehills
8,852.43
29.7
22
9
Clifford Chance
625.03
2.5
6
8
Minter Ellison
5,192.49
17.4
15
10
Gilbert + Tobin
562.91
2.2
7
9
Allen & Overy
5,138.48
17.2
10
11
Corrs Chambers Westgarth
529.17
2.1
6
10
McCullough Robertson
2,846.83
9.5
2
12
Middletons Lawyers
521.56
2.0
4
11
Cravath, Swaine & Moore
2,739.72
9.2
1
13
Mayer Brown LLP
400.00
1.6
1
11*
Baker Botts LLP
2,739.72
9.2
1
14
Herbert Smith
394.35
1.5
1
13
Cassels Brock & Blackwell LLP
1,351.70
4.5
3
15
Baker & McKenzie
301.90
1.2
6
14
Orrick Herrington & Sutcliffe LLP
1,220.35
4.1
1
16
Kromann Reumert
276.04
1.1
1
14*
Stikeman Elliott
1,220.35
4.1
1
17
Fasken Martineau DuMoulin LLP
248.72
1.0
2
14*
Linklaters
1,220.35
4.1
1
18
HopgoodGanim
241.63
0.9
1
14*
Kalamba & Associes
1,220.35
4.1
1
19
Minter Ellison
207.46
0.8
8
14*
Davies Ward Phillips & Vineberg LLP
1,220.35
4.1
1
20
Greenberg Traurig
199.12
0.8
1
14*
1,220.35
4.1
1
20*
Lander & Rogers Lawyers
199.12
0.8
1
Lawson Lundell Lawson & McIntosh
20
Lawrence Graham
1,194.03
4.0
1
22
Allen & Overy
177.62
0.7
4
21
Sullivan & Cromwell
984.05
3.3
2
23
O’Melveny & Myers
151.37
0.6
1
22
Clifford Chance
607.53
2.0
5
23*
Hogan Lovells
151.37
0.6
1
23
Andrews Kurth LLP
526.85
1.8
1
25
Blake Cassels & Graydon
143.44
0.6
1
23*
Mayer Brown LLP
526.85
1.8
1
25*
Paul, Weiss
143.44
0.6
1
25
Middletons Lawyers
521.56
1.7
4
25*
Allion Legal Pty Ltd
143.44
0.6
1
25,693.92
86.2
115
15,722.06
61.6
101
Subtotal without Legal Advisor
3,956.43
20.5
304
4,127.77
13.8
248
Industry Total
19,297.75
100.0
399
29,821.69
100.0
363
Subtotal with Legal Advisor
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-05-14 08:26:07 EDT
Subtotal with Legal Advisor Subtotal without Legal Advisor Industry Total
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-05-14 08:15:21 EDT
Firm Profile
NZ Commentary
DEVELOPMENTS IN THE WAITANGI TRIBUNAL – MIXED OWNERSHIP MODEL CLAIM Laws affecting the rights of the indigenous Māori population are a unique and important facet of life in New Zealand.
Tribunal’s procedures is the recent Supreme Court decision in Haronga v Waitangi Tribunal [2011] NZSC 53.
A previous ALB article – Shifting Sands: A New Approach to Ownership of the Foreshore and Seabed (September 2011), discussed the impact of the Marine and Coastal Area Act 2011, which provides for Māori to establish ‘customary marine title’ in New Zealand’s common foreshore and seabed (subject to public access and other interests).
In that case the Supreme Court examined the Tribunal’s common practice of declining to make specific determinations about a claim in favour of encouraging the Crown and Māori to explore a negotiated settlement. The Court in Haronga ruled that the Tribunal, having established the claimant’s application to be well-founded, was then required to ‘determine’ the claim by recording its decision on whether or not to grant the remedy sought, and on what terms.
Another quintessentially New Zealand jurisdiction is that of the Waitangi Tribunal, established in 1975 to hear claims by Māori that the Crown has failed to honour the commitments it made in the Treaty of Waitangi. Under that 1840 Treaty the Crown guaranteed to Māori, in exchange for sovereignty over New Zealand, the exclusive use and undisturbed possession of their lands, estates, forests, fisheries and other ‘taonga’ (treasured things). PROGRESS OF WAITANGI TRIBUNAL CLAIMS Over 2,300 claims have been filed with the Waitangi Tribunal, covering a wide range of historical and more recent Crown actions (although claims filed now must be contemporary in nature, relating to postSeptember 1992 matters). The Government has an aspirational goal of completing full and final settlements of all historical Treaty grievances by 2014. To work through the claims in a systematic and timely manner, the Tribunal has been implementing a ‘district inquiry’ method, which involves hearing concurrently and reporting on all claims falling within a particular geographic area. Now, though, the Tribunal is reassessing its priorities in light of an unprecedented number of applications that particular claims be heard urgently. On 26 April 2012 the Chairperson wrote to all Tribunal participants to advise that urgent hearings and remedies hearings would be afforded the highest priority for the Tribunal, which would in turn affect its long-term district inquiry programme. NEW ZEALAND SUPREME COURT DECISION IN HARONGA Another development concerning the Waitangi
It remains to be seen what impact Haronga will have on the Treaty claims and settlement processes, but we can expect claimants to rely on the decision in seeking to have their cases determined promptly. MĀORI CLAIMS REGARDING PARTIAL PRIVATISATION, FRESHWATER AND GEOTHERMAL RESOURCES Two claims being considered urgently by the Tribunal were recently brought by the New Zealand Māori Council (and others) and relate to the Government’s proposed sale of a minority share in four State-owned enterprises: Mighty River Power, Solid Energy, Meridian Energy, and Genesis Energy. The Wai 2357 claim argues that partial privatisation of the SOEs would prevent Māori with well-founded Treaty claims from securing a future share in those companies as redress. The claimants seek recommendations that the Crown not proceed with its policy until either all Māori claims relating to geothermal resources and fresh water are resolved, or a compromise is reached. The Wai 2358 claim relates more broadly to Crown actions and policies in respect of freshwater and geothermal resources, and asserts that the Crown has breached the Treaty by: •U sing
the common law to alienate Māori from these taonga resources without their prior consent • Enacting legislation that fails adequately to recognise Māori interests in those resources, such as the Resource Management Act 1991
• Adopting
a Treaty settlement policy that does not provide adequate redress to Māori, such as compensation or strong legal rights.
The Tribunal is asked to recommend that the Crown amend the RMA and other relevant legislation to provide for an appropriate level of control for Māori over freshwater and geothermal resources, and compensate Māori for the past and future use of those resources. The Tribunal has previously reported, in its district inquiries, on claims relating to Māori interests in geothermal resources and fresh water. The Tribunal has found the Crown to have breached the Treaty in various ways, and recommended that the Crown and Māori explore remedies including amendments to the RMA and compensation. The Tribunal has decided to consolidate the Wai 2357 and Wai 2358 claims and hear them urgently to enable the Crown to factor the Tribunal’s views into: • The
proposed sale of shares in the four SOEs, with the earliest sale scheduled to commence in the third quarter of 2012 • The Fresh Start for Fresh Water programme and the proposed reform of freshwater management and governance, with Ministerial decisions scheduled for late 2012 • Proposed resource management reforms with respect to geothermal resources, with a process scheduled to begin in 2013. The first stage of the Tribunal’s inquiry is likely to be held in mid-July 2012, with a Tribunal report to follow shortly thereafter. This article was written by David Randal, a Senior Associate in the Wellington office of Buddle Findlay. David specialises in environmental and Māori law. He can be contacted on +64 4 462 0450 or email david.randal@ buddlefindlay.com.
DAVID RANDAL
Buddle Findlay
10
INDUSTRY
JWS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
G+T
THE URGE
TO MERGE
MERGER FEVER IS TAKING HOLD OF THE AUSTRALIAN LEGAL SERVICES MARKET. THIS MONTH, THE ALB DATING CLINIC IS OPEN FOR BUSINESS TO ASSIST SHY COUPLES IN TAKING THAT IMPORTANT NEXT STEP. RENU PRASAD INVESTIGATES SOME OF THE ELIGIBLE SINGLES. JACKSON MCDONALD, MCCULLOUGH ROBERTSON Is it time for the independent firms to make a stand? Most merger discussion of late has been about international firms, but ALB would respectfully suggest that a merger between two of Australia’s well regarded statebased firms would also make strong sense. Queensland and Western Australia have always been known for their parochial spirit and there’s something to be said for creating a new resources super firm – McCullough McDonald, Jackson Robertson, call it what you will – which thumbs the proverbial nose at the old Sydney and Melbourne powerbase.
While other state-based firms rushed to form new national entities in the 1990s, McCullough Robertson and Jackson McDonald remained proudly independent – and have faced the uphill challenge of distinguishing themselves in a market which divides the world into “the top tier” and “the rest”. Now that the top tier is increasingly under pressure from international players, perhaps it is time for the state-based independents to take back the territory which they have always believed was theirs. Is this a chance to strike a blow against “the nationals” – and to do it with a touch of local style? GILBERT + TOBIN Everyone loves a good Gilbert + Tobin merger rumour – but are we in danger of overanalysing the situation? As Sigmund Freud once said, sometimes a cigar is just a cigar. Many column inches have been devoted over the years to analysing Gilbert + Tobin’s latest manoeuvres in the search of the grand
INDUSTRY
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
narrative: is there an international merger in the offing? Will Danny Gilbert parachute out in a blaze of glory? Subsequent events have called for a more sober perspective. If there is a merger on the cards, that is a somewhat difficult proposition to reconcile with the firm’s recent growth into Melbourne and Perth, beyond the ideal size of a classic merger target. G+T continues to make important lateral hires, although this is balanced by the loss of some high profile partners to Ashurst. The formal King & Wood alliance has now concluded, with the trigger apparently being a disagreement over a proposal to open a joint Hong Kong office. It would take a more prescient industry observer than us to look at all this and draw some kind of clear narrative. Gilbert + Tobin, as they say, is what it is. Maybe it’s time to put aside the putative masterplan and take G+T at face value – a highly successful Australian corporate firm which is well capable of being a force in its own right for many years to come. We’re not completely giving up on the grand merger theory just yet – but sometimes that cigar is just a cigar. JOHNSON WINTER & SLATTERY JWS has managed to maintain a low profile to date – but for how much longer? While mid-tier firms like to boast of their increased penetration into the top tier space, the truth is that there are very few firms outside the top tier with a solid track record in premium corporate work. Johnson Winter & Slattery is one of those few firms and accordingly needs to be taken seriously as a potential player – a point which has not been lost on managing partner Peter Slattery, who has told ALB that while he is hardly in the “urge to merge” category, he’s not adverse to the idea either. Slattery did a stint at Sullivan & Cromwell in the 90s and apparently has an affinity with the New York way of doing business – a point not without some significance in this context. JWS is ALB’s pick for the most attractive merger target left on the Australian market. Like G+T, JWS has a track record in premium corporate work but with a total lawyer count of around 120, it is at a more manageable size. Slattery has done a stellar job of building a top practice from humble origins in Adelaide – is it time now for the final masterstroke of a remarkable career? CORRS CHAMBERS WESTGARTH Should have, could have … but won’t. Corrs CEO John Denton has given strong indications in the media that his firm is not in the market for a merger and will go it alone. However, from another perspective Corrs is exactly the kind of firm which has the most to benefit from an international merger – a “challenger” firm always has less to lose and everything to gain in a market which has seen the disappearance of the traditional top tier hierarchy. This is a firm which is known for its thought leadership role in the Asia Pacific – is it time to take that one step further with Australia’s second Asia-based merger? MINTER ELLISON Is there an international suitor big enough to handle Australasia’s largest firm? Minters chief John Weber has been in the broadsheets, extolling the virtues of the single life. Apparently, being one of the diminishing number of independent firms has seen an increase in the amount of referred work, both Weber and Clayton Utz counterpart Darryl
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McDonough told the Australian last month. However a few weeks later, Lawyers’ Weekly quoted Weber as cautiously conceding that the firm was “open” to the idea of a merger. It would be unreasonable to expect him to say otherwise – no sure-footed CEP is going to categorically exclude any option – but a Minters merger is usually rated a low likelihood because of the firm’s large lawyer headcount, unusual geographical spread (including Adelaide and NZ, two markets left out of DLA Piper’s global integration) and breadth of practice areas, sometimes seen as a liability in the modern corporate firm. A breakaway of the firm’s East Coast and Asia offices might be a possibility – but according to Minters sources, no discussion has ever got that far. Still, less likely scenarios have eventuated and Minters deserves a mention on the list of “possible and probables”. AND ONE OTHER THING…. This market has already seen a number of mergers over the past three years. These are genuinely exciting developments which are a credit to those who have worked hard to make them reality. We wish these firms a blissful marriage….however, we also note that modern society does have a rather high divorce rate. Some of the more mischievous members of the profession are already taking private bets on which merger will fail first. Out of respect, we won’t reveal which merger is leading the betting market just yet – but there’s an extra incentive for firms to prove the doubters wrong. INTERNATIONAL MERGERS – THE STORY TO DATE Australian parties
International partner
New brand
Comment
Deacons
Norton Rose
Norton Rose
No financial integration
n/a
Allen & Overy
Allen & Overy
Integrated with global partnership
Chang Pistilli & Simmons, Cochrane Lishman
Clifford Chance
Clifford Chance
Integrated with global partnership
DLA Phillips Fox
DLA Piper, DLA Phillips Fox
DLA Piper
Integrated with global partnership
Mallesons
King & Wood
King & Wood Mallesons
No financial integration
Blake Dawson
Ashurst
Ashurst
Votes on integration in 2014
Allens Arthur Robinson
Linklaters
Allens
Integration in Asia only
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DEWEY IMPLODES
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
Dewey implodes:
DEWEY IMPLODES
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
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U.S. firm has a shocker U.S. FIRM DEWEY & LEBOEUF HAS FILED FOR CHAPTER 11 BANKRUPTCY PROTECTION, HAVING BEEN ROCKED BY MASS PARTNER DEFECTIONS AND CRIPPLING DEBT. IT’S A CAUTIONARY TALE FOR AUSTRALIAN LAW FIRMS – ESPECIALLY THOSE IN MERGERS. REUTERS’ ANDREW LONGSTRETH AND NATE RAYMOND REPORT.
I
t was a tale of doom foretold in a pie chart. On Jan 27, Dewey & LeBoeuf’s partners were summoned to a meeting on the 22nd floor of the law firm’s New York City headquarters to discuss the firm’s finances. While most of them knew Dewey LeBoeuf faced challenging times, few were prepared for what they were soon to hear from their chairman, Steven Davis. Using a PowerPoint slide show, Davis presented a grim picture: Of Dewey’s approximately $250 million in net income for 2011, about half was committed to pension obligations to retired partners and compensation that was owed to certain partners for the two prior years. Just half the pie remained to distribute to disappointed partners. The firm was living on the edge, Davis revealed. “You have to own this problem,” he told stunned partners, according to a lawyer who attended. Davis declined to comment for this article. Dewey was once among the 20 largest firms in the United States, with a global reach extending from Los Angeles to Abu Dhabi to Tbilisi, Georgia. But it has been decimated and within a few weeks of the revelations by Davis, about 200 of Dewey’s roughly 300 partners had fled. Dewey has outstanding bank and bond debt totalling approximately $230 million, according to Bill Brandt, a restructuring adviser retained by the firm. A spokesman for the firm declined to comment. Many of the causes for Dewey’s troubles have by now been often cited: a sputtering economy, massive debt obligations, and multimillion-dollar, multiyear financial guarantees to partners. What appears to have brought Dewey to its knees, however, is a failure of governance that allowed these challenges to spiral out of control. Interviews with current and former partners, consultants and others in the industry paint a picture of a firm run by a insular coterie of attorneys and administrators who often withheld crucial information from their partners, undermining their own
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DEWEY IMPLODES credibility in the process. Born of a boomera marriage between a firm with faded cachet and a wealthy if unglamorous suitor, Dewey was determined to buy its way into the pedigreed elite. But when the Great Recession hit, a sense of shared sacrifice and loyalty was in short supply. WHEN DEWEY MET LEBOEUF The beginning of the end, according to many former partners, predated the 2007 merger that tied Dewey Ballantine with LeBoeuf, Lamb, Greene & MacRae. While the firms appeared to complement each other on paper, they both brought some baggage to the union. Dewey Ballantine, with roots going back to 1909, had deep ties to Wall Street and bore the storied name of former New York Governor Thomas E Dewey. But over its last two decades its financial performance had slipped relative to its competitors. Before tying the knot with LeBoeuf, the firm considered a merger with the Californiabased law firm Orrick, Herrington & Sutcliffe. That deal fell through, and the departure of some key partners left Dewey Ballantine weakened. At the time, Dewey Ballantine also owed close to $80 million to former partners for deferred compensation and pension obligations, according to sources familiar with the firm’s finances. LeBoeuf, founded in 1929, specialized in representing companies in regulated industries such as insurance and energy. The firm had just had one of its best financial years ever, but its lawyers did not have a significant presence in flashier areas such as complex litigation and mergers and acquisitions. To upgrade its profile, LeBoeuf began offering handsome compensation guarantees to stars such as Ralph Ferrara, a litigation partner at prestigious Debevoise & Plimpton and a former general counsel for the Securities and Exchange Commission. The principal architects behind the Dewey-LeBoeuf deal were Davis, then chairman of LeBoeuf, who made the initial approach, and Morton Pierce, then the chairman of Dewey Ballantine. Pierce was a key rainmaker and had long been considered one of the top lawyers in the field of mergers and acquisitions. He had represented Walt Disney Co in its $7.4 billion acquisition of Pixar in 2006 and The MONY Group in its $1.5 billion sale to AXA Financial in 2004. Davis, who attended Yale for college and law school, had spent virtually his entire
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
career at LeBoeuf, becoming head of the firm’s energy and utility practice in 1994, then chairman of the firm in 1999. Davis first pitched the merger to Pierce in the spring of 2007, according to an October 2007 article in The American Lawyer magazine. When the idea was presented to LeBoeuf partners, some who were there told Reuters recently, they felt pressure to support it. Partners in New York were asked to assemble in the firm’s cafeteria and to cast their vote in public, according to former partners who attended. “If you voted against the transaction, it would be career suicide,” said one who was in attendance. The merger was announced in August 2007 and took effect two months later. Davis was elected chairman of the combined firm. In a press release, the newly christened Dewey & LeBoeuf said it had more than 1,300 attorneys in 12 countries and would have annual revenue of $1 billion. Davis said Dewey would “become one of the premier New York law firms with extensive global reach.” The deal’s closure coincided with a red-hot financial market. On Oct 9 the S&P hit its all-time high. “A FATAL DISEASE” Within months, however, the subprime-mortgage crisis began unfolding, and by late 2008 the economy had ground to a halt. Like many firms, Dewey felt the effects immediately. Deals slowed to a trickle and income fell. In 2009 revenue dropped 15.3 percent, to $809 million, according to a prospectus the firm issued for a bond offering in March 2010. According to former partners, the firm never made its budget targets after the merger and failed to adjust spending accordingly. “I look back, and a lot of things went wrong, but the real problem was to have a marriage where you’re struck by a fatal disease,” said Gordon Davis, a former Dewey real estate partner in New York who left this month for Venable. “There was almost no way to dig out of it.” The firm’s culture of secrecy initially masked the extent of its troubles. Beyond the figures cited in the magazine, details of Dewey’s financial picture were hard to obtain, even by its own partners, some former partners said. Rather than a traditional law partnership, with lots of committees and collective decisionmaking, Dewey was run more like a corporation, these people said, with Steven Davis, the chairman, playing the role of a powerful chief executive officer. Working closely with Davis were Stephen DiCarmine, executive director, and Joel Sanders, chief financial officer. Neither DiCarmine nor Sanders responded to calls seeking comment. Typically, Davis and Sanders were the ones who presented financial information to the partnership. It couldn’t be determined to what extent the three men shared information with their executive committee, which generally numbered around 30 people. The firm’s bond offering in March 2010 - for $125 million - was unusual for a major law firm, and was apparently not widely known by Dewey partners. Some only learned about the transaction when it surfaced in news reports the next month. “I read about it in the papers,” said one former partner. “And I certainly didn’t sign off on it.” Law firms typically finance their operations through contributions from their partners, and some firms obtain a revolving line of credit with a bank. Dewey’s move suggested that it needed money it could not immediately repay. In April 2010, then-Dewey partner Richard Shutran told Bloomberg News that the bond’s interest rate
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
DEWEY IMPLODES
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ALB COMMENT: WHAT CAN AUSTRALIAN FIRMS LEARN FROM DEWEY? 1. ARE SIGN-ON BONUSES JUST AS DANGEROUS AS COMPENSATION GUARANTEES? “….[Dewey] made compensation guarantees for multiple years. It offered guarantees to lawyers who did not prove to be rainmakers.” Rumours of sign-on bonuses of between A$2m to A$4m for certain lateral hires have circulated in the Australian market. The theory is that paying big money for “rainmaker” lawyers is worth the investment in the long run – but are these payments ultimately more divisive and troublesome than they’re worth?
2. TRANSPARENCY IS KING “Rather than a traditional law partnership, with lots of committees and collective decision-making, Dewey was run more like a corporation, these people said, with Steven Davis, the chairman, playing the role of a powerful chief executive officer.” The secrecy surrounding Dewey’s finances is remarkable and is a strong argument in support of firms making their revenue and profit figures available for general publication, a practice which
is not yet accepted by all Australian and New Zealand firms. This information is relevant not only to partners, but to other potential stakeholders in the firm – senior associates hoping for promotion and potential lateral hires. Mind you, it’s a bit hard to completely translate the Dewey situation to Australasia – the lack of partner knowledge of the firm’s bond offering is particularly staggering.
3. PACK MENTALITY CAN BE FATAL “When the idea was presented to LeBoeuf partners, some who were there told Reuters recently, they felt pressure to support it.” There have been certain examples in the Australian market of distressed mergers – firms acquiring partnerships which are known to be in difficulty. Some of these have proven to be successful, while ALB understands that others have quietly unravelled. There is no single blueprint for a successful merger, but one thing is clear: mergers which are consummated simply through the desire to close a big deal or through the excitement of doing something new can come back to haunt you. No one likes negativity – but sometimes the naysayers have their place in these kinds of discussions.
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DEWEY IMPLODES
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
was more favorable to the firm than the rate offered by firm’s bank lenders. This week the New York Times reported that it had obtained the offering document for the bond, which touted Dewey’s “strong financial condition and conservative debt profile” but did not disclose that it had quietly made major future financial commitments to a large number of its partners.
DEWEY TOOK THE PRACTICE TO AN EXTREME. IT MADE COMPENSATION GUARANTEES FOR MULTIPLE YEARS.
AN OCTOBER SURPRISE Big law firms sometimes woo big stars by promising to pay them a fixed amount for a year or two, regardless of the firm’s - or their own - financial performance. But most firms that do this use such guarantees sparingly. By all accounts, Dewey took the practice to an extreme. It made compensation guarantees for multiple years. It offered guarantees to lawyers who did not prove to be rainmakers. And it even gave guarantees to some existing members of the firm who had begun to complain that they had missed out. Rumors circulated among Dewey attorneys about who had such deals, but management never shared that information with the whole partnership, according to former partners. The compensation committee typically made recommendations to the executive committee about the amount each partner should be paid. It’s unclear who on those committees knew about the financial guarantees. Then, at a partnership meeting in October 2011, Davis made a startling disclosure about the guarantees. During a questionand-answer period, he said the deals had been extended to about a third of the firm’s 300 or so partners. The number shocked some lawyers. It also angered those who didn’t have a guarantee and who had seen their compensation stagnate or drop in recent years. RUN ON THE FIRM By February, media reports began surfacing that the firm was not able to pay its partners what they had been promised. The press had also taken notice of the growing defections, notably a group of 12 top
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DEWEY IMPLODES
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
insurance lawyers who left for a competitor, Willkie Farr & Gallagher. Davis, who had been re-elected chairman in August, tried to put out the fire. In an interview with Fortune that appeared online on March 22, Davis dismissed rumors that the firm was struggling to meet some of its loan covenants. He also defended its system of paying star performers. “If the direction we’re taking the firm in was somehow disapproved of, then the reality is that there ought to be a change in management,” he told Fortune. “I don’t sense that.” But the partnership was unravelling. By April the firm had retained bankruptcy counsel, hired a crisis communications firm, and had removed Davis as chairman. Dewey started merger talks with at least two major firms, but they went nowhere. Meanwhile, rivals kept circling and poaching. On April 27 the firm’s management circulated a memo telling partners that the Manhattan district attorney was investigating “allegations of wrongdoing” by Davis. The district attorney’s office declined to comment. Davis, who has hired a criminal defense attorney, said in an email to partners that “a dispassionate and disinterested review of the facts will confirm that I have not engaged in any misconduct.” The inquiry was prompted by a group of partners who approached the district attorney, according to a source familiar with the matter. The precise nature of the allegations could not be determined. Stuart Saft, who headed Dewey’s real estate practice until he left this month, blamed his former colleagues who went to the DA for squelching merger discussions. “I can’t imagine why the
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current partners who were there would do this, as it was shooting oneself in the foot,” he said. The identity of those partners could not be determined. Whether Dewey might otherwise have completed a merger will never be known. It’s also unclear whether its unwinding will take the form of a bankruptcy or whether the firm will simply wither away as partners continue to leave over the next weeks. Given Dewey’s immense liabilities, no one has offered a likely scenario under which the partnership could survive. But certain things are clear. The collapse of Dewey leaves dozens of former partners unpaid, hundreds of associates and administrative staffers laid off not to mention about 30 law students suddenly without a prestigious summer job. Creditors ranging from landlords to suppliers of paper to bondholders are starting to line up. The first of likely lawsuits against the firm - a case seeking class-action status on behalf of fired workers - has been filed in Manhattan’s federal court. And the name Dewey & LeBoeuf will serve as a cautionary tale for major law firms for a long while.
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NEWS
TECHNOLOGY IN PRACTICE
Q&A with
Damian Huon Damian Huon is a legal technology strategist with over 23 years experience advising Australia’s leading firms. As CEO of Huon IT, Damian and his team achieve business outcomes for professional service organisations with ‘everything technology’.
Navigating the IT Budget ‘Black Hole’ Whether you’re forecasting for next financial year or planning a major upgrade, many firms face the challenge of balancing the cheque book with IT demands. Here, seasoned CIO Advisor Damian Huon shares his tips to align IT with business direction. my budget be driven from top-down, or Q1 Should bottom-up? Both. While IT can’t be given free reign to buy whatever gadgets they please, neither can management plan without IT’s technical experience at the coal face. Luckily, there is an easy compromise. All firms should periodically enlist an external IT party to validate your strategy and bridge knowledge gaps. The review should involve both managerial and technical staff, and provide a strategic recommendation going forward. These are often minimal cost and identify operational and technical improvement opportunities, meaning you’ll achieve a quick return on investment and reap ongoing benefits.
Q2 How far ahead should my IT plan cater for?
There is a strong temptation to select cheap ‘bandaid’ fixes which will get you by for now, however often cost more in the long term. Most equipment life spans range from 3-5 years, so this is a good rule of thumb to use when choosing infrastructure that meets your needs now, and in years to come. A lot can change in that time however, so it’s equally as important to select scalable solutions that can affordably expand or contract in response to your shifting needs. Developments in Virtual and Cloud based systems make this easier than ever before.
Q3 Whorizon? hat upcoming innovations should I look out for on the Many firms are currently exploring improvements to their Customer Relationship Management (CRM) tools. No longer bound by restrictive Practice Management Systems (PMS), there are simple ‘add on’ programs that integrate with your existing systems and significantly expand functionality. Improvements in dictation are also high on the agenda, with mobility licensing allowing lawyers to dictate straight from their smart phone and send instantly – avoiding the cost of dedicated dictation devices and negating the need to ‘plug in’ and send. Voice to text is also growing momentum as accuracy rates are improving rapidly. If any of these innovations spark your interest, always be sure to ask for a demonstration or trial so your team can get hands on experience to ensure the solution works for your firm. Email your questions to alb@huonit.com.au
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
In case you missed it….. THE MONTH’S TOP HEADLINES FROM WWW.LEGALBUSINESSONLINE.COM
AUSTRALIAN HEADLINES STORY OF THE MONTH High Court rules general counsel, company secretary roles inseparable The High Court has ruled that the former company secretary and general counsel of James Hardie Industries, Peter James Shafron, contravened s 180(1) of the Corporations Act 2001, “by failing to discharge his duties as an officer of JHIL with the degree of care and diligence that a reasonable person in his position would have exercised”. The decision comes after months of uncertainty for general counsels who share the dual role of company secretary. According to the Court, Shafron’s responsibilities with JHIL as company secretary and general counsel were indivisible and must be viewed as a composite whole. According to the Australian Corporate lawyers Association (ACLA) this ruling is a clear warning to in-house lawyers who are also company secretary for their company, that the two roles cannot be separated to avoid liability under the Corporations Act by arguing that they are not an “officer” of the company.
14 May
Advent Lawyers, Balance Legal to merge Secondment-based firms Advent Lawyers and Balance Legal have announced plans to merge on July 1. The combined firm, which will be known as AdventBalance, will have four offices in Sydney, Melbourne, Perth and Singapore. A fifth office in Brisbane will open later this year. The two firms, both of which have featured in ALB’s 2011 Fast 10 list of the fastest growing firms of Australasia, have a combined total of over 80 lawyers. Balance Legal had revenues of A$6.5 million in FY2011 representing 52 percent growth, while Advent also had revenues at a similar level and 105 percent growth.
24 April
Global M&A confidence lower, but conditions better says Freehills partner Freehills M&A partner Tony Damian is confident in a busy year ahead despite new reports that leading corporates are not yet ready to engage in M&A. Only 31 percent of more than 400 companies surveyed by Ernst & Young said they expected to pursue an acquisition in the next 12 months — a 24 percent fall when compared to the October report. According to Damian, M&A in the Australian market, whether domestic, outbound or inbound is likely to increase in the coming six months. “I expect to see a lot of activity and quite a few announcements on the M&A front,” said Damian. “Reports of the
IN-HOUSE Q&A jlegal NEWS
Jackson Pek
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
your global legal recruitment partner
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Vice President and General Counsel, Asia Pacific >> Amadeus IT Group, S.A.
IN-HOUSE Q&A
Legal capability 8 Professionals
death of M&A are greatly exaggerated.” In particular, Damian expects to see more activity from the North American market, which has been overshadowed by Asian-based activity in recent years.
Main external counsel K&L Gates, Baker & McKenzie, Freshfields, Morrison & Foerster Amadeus IT Group Founded by Air France, Lufthansa, Iberia and SAS in 1987, Amadeus is the world's largest global distribution system and IT solutions provider to the travel and tourism industry. With 11,000 employees worldwide, Amadeus is also constituent Vice President and General Counsel, AsiaaPacific member of the IBEX 35, Spain'sITbenchmark stock index. Amadeus Group, S.A.
16 April
NZ firms join forces in rebuilding Christchurch Two New Zealand law firms have joined forces to help speed up the rebuilding process in Christchurch. Anderson Lloyd and Kensington Swan have pooled their resources and formed an alliance to ensure Christchurch has access to leading infrastructure experts in property and construction law. Between them the law firms will offer eight resource management law partners, 13 property partners, and five construction partners. According to the New Zealand Reserve Bank the reconstruction of Christchurch is expected to cost in the vicinity of NZ$30 billion. As a result, Christchurch will become one of the biggest construction C sites in the southern hemisphere.
22 May
M
Y AMP to establish international legal panel AMP general counsel Brian Salter is again looking to establish a law CM firm panel, this time for international legal work. Salter established two new legal panels for Australian legal work late last year, MY combining elements of the previous AMP and AXA legal panels, CY but will establish a separate international panel in the second half of this year to address the growing international nature of AMP’s CMY business. “There is an increasing focus by us offshore, particularly K through our funds’ manager AMP Capital,” said Salter. He said the aim of the panel was to ensure that the business had trusted legal advisors ready to assist them when and where they needed them. “Previously we had operated on the provision that we would seek out overseas law firms as and when we needed them in a particular market,” said Salter. “But, as it is my responsibility to manage legal risk, that includes internationally, we need to have a structured process to the selection of our law firms.”The Australianbased financial services and insurance company is also in the midst of establishing a new combined New Zealand legal panel. “The current panel finishes in June, and it is a good time to establish a combined panel for that market,” added Salter.
31 May
NAB In-house team starts own law firm A team of former in-house lawyers at National Australia Bank (NAB) are out to prove that legal work and time do not have to go hand in hand. Melanie Noble, Natalie Williams, Chris Broadbent, and Andrew Meldrum have formed a new law firm called Switch Legal, to provide cost efficient and cost certain legal advice. “Dealing on occasions with external lawyers, we saw first hand the struggle that most of the external firms had in really meeting corporates half way in delivering real value and cost certainty,” said Nobel, who was most recently head of legal, technology and IP at NAB. “Something we have in our favour is that for the past four years, and previously in other in-house roles, we have worked under pressure to deliver within very short time frames. We are used to doing that now.” With expertise across general commercial areas and TMT, the group hope to secure a list of clients across the telecommunications, retail, banking, pharmaceutical, and IT industries.
Jackson Pek
InLegal yourcapability opinion,8why have in-house lawyers become an increasingly Professionals indispensable part of K&L an organisation? In the Freshfields, movie Michael Clayton, Main external counsel Gates, Baker & McKenzie, MorrisonClooney & Foerster acts as his law firm's "fixer" -- someone who uses George Amadeus IT Group Founded Air France, Lufthansa, and SAS in 1987, connections, influence andbyknowledge to solveIberia difficult, often preposterAmadeus is the world’s largest global distribution system and IT solutions provider ous, problems. As in-house lawyers, we play a similar role (sans to the travel and tourism industry. With 11,000 employees worldwide, Amadeushit men and exploding cars), because we're first tostock be called is also a constituent member of the IBEX 35,often Spain’sthe benchmark index. in when someone's hair catches on fire. And in a substantial number of those cases, In your opinion, why have in-house lawyers become an increasingly indispensable part ofexists. an organisation? no legal issue actually Thus, because in-house lawyers are in the In the movie Clayton,George actscommercial, as his law firm’sethical “fixer” -business ofMichael proposing solutionsClooney to legal, and even someone who uses connections, influence and knowledge to solve difficult, often these personal problems, we're naturally quite creative. When we apply preposterous, problems. As in-house lawyers, we play a similar role (sans hit men powers of innovation andwe’re insight we can have a substantial and exploding cars), because often to theour first work, to be called in when someone’s impact on on ourfire. companies' performance. atnosome of the places hair catches And in a substantial number ofJust thoselook cases, legal issue actually well-rounded exists. Thus, because in-house lawyers the business of proposing where GCs/attorneys rosearetoinbecome CEOs -- Bank of solutions toContinental legal, commercial, ethicalPfizer, and even we’reindispensable in America, Airlines, etc.personal That'sproblems, why we're naturally quite creative. When we apply these powers of innovation and insight my opinion. to our work, we can have a substantial impact on our companies’ performance.
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look attimes, some ofthe the role placesofwhere well-rounded GCs/attorneys rose to become InJustrecent the General Counsel has diversified into a multi CEOs -- Bank of America, Continental Airlines, Pfizer, etc. That’s why we’re faceted role (where the General Counsel can wear the 'hat' of Lawyer, Legal indispensable in my opinion. Manager, Compliance Manager, and Company Secretary). In your opinion, In recent times, the role of the General Counsel has diversified into believe thisrole has(where increased your risk profile? George do you a multi faceted the General Counsel canRemember wear the ‘hat’ Bush's cringe-worthy taunt toCompliance the insurgents in Iraq: 'em on!"? In of Lawyer, Legal Manager, Manager, and"Bring Company In your opinion, do you this has increased this Secretary). particular case, the statement is believe not so foolish; generallyyour the more hats a GCrisk canprofile? wear, the better informed, and as a result a GC can render better Remember George Bush’s quality cringe-worthy tauntSo to hats the insurgents in Iraq: “Bring decisions and higher advice. are fashionable for us. Perhaps ‘em on!”? In this particular case, the statement is not so foolish; generally the more importantly though, corporate lawyers that inordinately focus on more hats a GC can wear, the better informed, and as a result a GC can render reducing theirand own personal or career riskareprofiles often become the better decisions higher quality advice. So hats fashionable for don't us. Perhaps Michael Claytons of their organisations. Rather, they avoid giving opinions more importantly though, corporate lawyers that inordinately focus on reducing their taking own personal or career risk profiles often don’t become the Michael and on responsibility, effectively becoming like Gollum, torn Claytons of their organisations. Rather, they avoid giving opinions and taking on between having something and being free of it.
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responsibility, effectively becoming like Gollum, torn between having something
and being freebest of it. advice you have ever received? Amy Chua states in her What is the What is the best advice you have ever received? (in)famous book Battle Hymn of the Tiger Mother:"What Chinese parents Amy Chuaisstates her (in)famous Battle Hymngood of theatTiger understand thatinnothing is funbook until you're it". While not advice Mother:”What Chinese parents understand is that nothing is fun until you’re good per se, Ms. Chua's quote resonated with me because I think too many at it”. While not advice per se, Ms. Chua’s quote resonated with me because lawyers they're their dissatisfaction I think toodon't many enjoy lawyerswhat don’t enjoy whatdoing they’reand doingattribute and attribute their to the profession It'sitself. oftenIt’sdifficult for high achievers ever admit dissatisfaction to the itself. profession often difficult for high achievers to to ever admit to themselves that they’re not not particularly suitable for certain roles in the to themselves that they're particularly suitable for certain roles in the legal profession, especially in law firms. For me personally, going in-house at IBM legal profession, especially in law firms. For me personally, going in-house was an epiphany, and I’ve enjoyed being a lawyer ever since. Now if I could only atgetIBM goodwas at itan . . .epiphany, and I've enjoyed being a lawyer ever since. Now if I could only get good at it . . .
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FEATURE
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
SPECIAL REPORT:
NEW ZEALAND 2012
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
CAN THE SHAKY ISLES FINALLY MOVE INTO A NEW PERIOD OF PROSPERITY?
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MARKET WRAP...........................................................................................................22 CLIENTS TIGHTEN THE SCREWS.................................................................................. 28 IN-HOUSE PERSPECTIVE................................................................................................ 31 M&A OVERVIEW.............................................................................................................. 34 CHRISTCHURCH PERSPECTIVE.................................................................................... 36
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FEATURE
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
THIS TIME IT’S THE REAL DEAL THEY TOLD US THE SAME THING LAST YEAR, BUT THIS TIME NEW ZEALAND LAW FIRMS ARE CONVINCED THAT THE BELEAGUERED NZ ECONOMY REALLY HAS TURNED THE CORNER. RENU PRASAD REVIEWS THE KEY MARKET DEVELOPMENTS SINCE THE START OF THE YEAR.
I
f Australian lawyers are starting to tire of the constant mergers and alliances and upheaval in their local market, they might do well to consider a move to New Zealand. Here is a market where the top tier firms look pretty much the same as they did five years ago and the prestigious old brands still occupy pride of place – for the moment, anyway. This is a market which has never really recovered from the GFC and the Kiwis have spent the intervening period looking for those elusive green shoots. As ALB reported last year, there has been many a false dawn and the New Zealanders have become conditioned to disappointment. “In terms of the systemic things, we’ve had four years of misery really,” says Russell McVeagh CEO Gary McDiarmid. “The NZ market over the last seven years looks a little like Mt Etna – it moved up to a peak in 2008, and then slid down; and whilst there is now some recovery, it does tend to reflect a longer term decline in volume. So the market is smaller and this inevitably affects law firms of any scale and it must trickle down to all firms in the end.” While Bell Gully chairman Roger Partridge agrees that New Zealand has “fallen off the peak” of 2007, he adds that this needs to be seen in a broader context. “It’s easy to look at the highs of ‘07 and exaggerate the extent to which the market has contracted,” he says. “My assessment is that the market is still bigger than it was in ‘06 – there was a big jump up in ‘07 and we’ve come back from that. It’s still certainly a buyers’ market but I think the market remains in reasonably good shape.”
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AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
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NEW ZEALAND – LARGEST FIRMS BY LAWYER HEADCOUNT, MAY 2012 Number of partners
Number of lawyers (excluding partners)
Total lawyers + partners
Lawyers per partner
Anthony Harper
15
30
45
2.0
Auckland, Christchurch
Bell Gully
45
163
208
3.6
Auckland, Wellington
Buddle Findlay
41
158
199
1.85
Auckland, Wellington, Christchurch
Chapman Tripp
55
154
208
2.8
Auckland, Wellington, Christchurch
Duncan Cotterill
37
108
145
2.9
Sydney, Auckland, Wellington, Christchurch, Nelson
Kensington Swan
31
89
120
2.9
Auckland, Wellington
Minter Ellison Rudd Watts
44
158
202
3.59
Auckland, Wellington
Russell McVeagh
41
175
216
4.3
Auckland, Wellington
Simpson Grierson
48
181
229
3.8
Auckland, Christchurch, Wellington
Firm
Offices
Figures do not include 2012 graduate intake. This list covers most large New Zealand firms but does not purport to be exhaustive.
Buddle Findlay chairman Peter Chemis agrees that it’s a challenging market, but nothing firms have not already encountered. “All the big firms are pretty resilient,” he says. “We’ve lived with patchiness for a long time – so you’re patching one part of your business but steaming along in another and we’re all okay.”
THERE IS A REAL DEBATE OVER WHETHER THE NZ PRIVATE PRACTICE MARKET IS SUFFERING FROM A PERMANENT DECLINE BECAUSE OF A PATTERN OF CLIENTS RATIONALISING THEIR EXTERNAL LEGAL SPEND. But patchy workflow and economic instability are only part of the problem. There is a real debate over whether the NZ private practice market is suffering from a permanent decline because of a pattern of clients rationalising their external legal spend. An important recent example, the NZ government’s panel consolidation, is dealt with in a separate article in this feature. This is a notable development which may lend support to the theory that NZ firms face challenges which will continue beyond the next phase of economic recovery.
In the meantime, a number of factors have conspired to result in a less buoyant than expected 2011. Some of these were anticipated – business slowed down for the Rugby World Cup and the national election at the end of the year – but other factors, such as the European debt crisis and delays with the Christchurch rebuild, were not. Those are the negatives. On the positive side of things, all firms interviewed by ALB felt that this year would be a year of recovery and there was a greater sense of confidence across the board. This perspective is supported by research such as the ANZ-Roy Morgan survey of consumer confidence and predictions by the IMF of modest growth across NZ. As this edition was going to print, the European crisis was threatening to erupt yet again, but for the moment things are heading in the right direction. “Things are picking up – there is no doubt about it. There is more corporate activity and banks are making more funds available. You still wouldn’t describe it as buoyant in any way but there’s activity and not just negative activity,” says Simpson
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FEATURE
HOW WOULD YOU DESCRIBE THE NZ MARKET IN 2012? “The NZ market has had a soft start to the year. However, it appears there is cause for a cautious return to optimism for NZ. I think there has been some slight uplift [in commercial activity] – a bit more activity in the private equity space and I think we might be starting to see some more trade sales - businesses are on the lookout for acquisitions, which hasn’t been the case previously.” Andrew Poole, Chapman Tripp “Our sense is that the New Zealand economy is slowly but steadily improving; an improvement that is reflected by a marked lift in the volume of corporate commercial and infrastructure transactions, particularly from clients operating in the Auckland market. This has been reflected in revenue being measurably ahead of last year. There is no doubt that the infrastructure, resources, and export sectors will continue to be key economic growth factors for the next several years.” Clayton Kimpton, Kensington Swan “For NZ firms overall, there has been mild improvement but we are still effectively bouncing along at the bottom of the bath tubshaped trough. For ourselves, last year was a pleasing year which had been up on the year previous, and the current financial year has kicked off well. We are tracking ahead of last year at this stage. These are, however, challenging conditions.” Gary McDiarmid, Russell McVeagh
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
Grierson chairman Kevin Jaffe. That is a sentiment echoed across the industry with notable consistency. MARKET WRAP There hasn’t been a major law firm merger in NZ for years, but this has not prevented the rumour mill from generating a new theory at regular intervals. Industry commentator John Bowie reported in March that Kensington Swan was in merger talks with Brookfields Lawyers, a report which was refuted by the latter. “I think there is some confusion about our alliance arrangement with Kensington Swan for certain work, which has been in place for a few years,” a Brookfields spokesperson told ALB. “We have encountered some confusion about that but just to be clear, we are not in merger talks with Kensington Swan.” Both Kensington Swan and Brookfields are on the panel for the New Zealand Transport Agency and the firms collaborate on some of this work. Kensington Swan also recently announced an alliance with South Island firm Anderson Lloyd which will facilitate collaboration on work related to the Christchurch reconstruction. Last year it was Minter Ellison Rudd Watts and DLA Phillips Fox which were said to be in merger talks and even today Minters managing partner Mark Weenink chooses his words very carefully when questioned on the topic: “We’ve never said to the market that we were having discussions with DLA,” he says. “What we said was that when people come and chat to us we have a look at them and when that has happened – and it hasn’t been just once – for a variety of reasons it looked like it wasn’t the right option for us.” New Zealand firms face the same kind of pressures as their Australian counterparts – a mature market and a sense in some quarters that the economy is simply not big enough to sustain the number of firms vying for work. But the absence of a successful merger to date has some suggesting that it will never happen. “It comes back to the fundamentals of why you would want to merge,” said one source. “It comes down to declining profitability and trying to increase your market share. Well if you merge you don’t solve that problem – you just end up with a bigger firm with the same problems. And that’s why mergers don’t happen – if you’re going to get yourself in better shape to merge, in truth you might as well just get yourself in great shape and not bother with the merger.”
“We’re a little busier and revenues are up a bit. We’ve got things in the pipeline but it’s not a long one and it’s a pipeline that delivers you something, then falls away. If the economy just sort of meanders along like it did last year, that wouldn’t be surprising.” Peter Chemis, Buddle Findlay
FEATURE
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
Domestic tie-ups aside, the other potential source of a merger is from off-shore, which is rated by most as a rather distant possibility because of the small size of the NZ market. Nonetheless, it appears that some international firms have been eyeing the NZ market and have had discussions with some firms. The motivation appears to be a desire to build capacity and to use NZ as a training base for the broader Asia-Pacific. Clearly such a proposal is not very far removed from international firms simply poaching NZ top talent and this will be a difficult idea to sell to NZ firms, who already face ferocious competition to retain their best. Kensington Swan has closed its Abu Dhabi office after a little over a year of operation. The firm will continue to service UAE clients from NZ, although it will have to do so without former UAE managing partner Quentin Lowcay, who has moved to Minter Ellison Rudd Watts in Wellington. This setback may help explain a perception in some quarters that Kensington Swan appears “skinny” in partner numbers. However, the firm’s overall partner count is similar to that of a year ago, a result which has partly been achieved by the recruitment of four new specialist partners in the employment, environment, public property, and banking & finance practices. “This year we anticipate further partner appointments by way of internal promotion and lateral hire, in addition to actively recruiting for litigation, commercial and banking & finance solicitors,” Kensington Swan CEP Clayton Kimpton told ALB. He added that the firm had had a strong start to the year. “Sitting at the end of the first quarter of 2012, we are measurably ahead of both budget and the same time last year,” he said. Kensington Swan joins several other firms in the quest for talent, which also includes scouting off-shore for NZ expats looking to return home. One such hire has been construction expert Brian Clayton, formerly of Shearman & Sterling’s Abu Dhabi office, who has joined Chapman Tripp in Auckland. The well-credentialed Clayton represents a major investment by Chapman Tripp in the construction space, which the firm has identified as a priority both in anticipation of the Christchurch rebuild and, in the longer term, in anticipation of new opportunities in the resources infrastructure space. “Brian is an investment for the firm,” says Chapman Tripp managing partner Andrew Poole. “We were prepared to back a lateral hire that may not have immediately delivered a partner fee block but could position us very well in the market in three to five years.”
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HOW WOULD YOU DESCRIBE THE NZ MARKET IN 2012? “The legal market [last year] was once again challenging for law firms and 2012 looks likely to be more of the same. However, the early signs are good. Some key themes for 2011/12 for the law firms are the increasing importance of the public sector, foreign direct investment, the return of takeover activity to New Zealand and a lift in strategic M&A, private equity and IPO work.” Roger Partridge, Bell Gully
“Things are picking up – there is no doubt about it. There is more corporate activity and banks are making more funds available. You still wouldn’t describe it as buoyant in any way but there’s activity and not just negative activity. There’s still a lot of caution around but there’s a lot more appetite and availability of funding.” Kevin Jaffe, Simpson Grierson
”It’s probably not as different to 2011 as people were hoping – it’s fairly similar and a slower recovery than people hoped. However, I think it’s reached a bit of a tipping point and things are starting to happen. There has also been a lot of good productivity changes at government level and some of that is starting to bite.”
”The New Zealand economy has followed the trend of other economies, with low growth and low levels of investment. However, despite this, and despite the Canterbury earthquakes, we have seen, and continue to see, good growth for the firm across both offices. As the Christchurch rebuild speeds up and the New Zealand economy continues to improve, we are well placed to see further growth in our core practice areas.”
Mark Weenink, Minter Ellison Rudd Watts
Malcolm Hurley, Anthony Harper
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FEATURE As it turns out, Clayton has managed to retain some of the project work he had been working on and has “more than enough work” to keep him busy in Auckland from the outset. Chapman Tripp is known for a more performance-based approach to remuneration, in contrast to the traditional lockstep structures of most large New Zealand firms. However, the Chapman Tripp model is not a pure “eat what you kill” system and income is determined by a partner committee which takes into account non-financial performance criteria. The firm has recently modified this system by introducing a base equity share for partners, resulting in a remuneration system which is based on both general firm performance and individual performance.“ The system is still quite different from our competitors in that it remains performancebased, financial and non-financial,” explains Poole. RESOURCE SECTOR Chapman Tripp’s identification of mining & resources as a growth area highlights the importance of this sector, which has flown somewhat under the radar in comparison
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
to the high profile it enjoys in Australia. NZ has always been known for its use of renewable energy. The mountainous terrain has proven to be a source of hydro-electric, geothermal and wind energy and renewables are estimated to account for about 80 percent of the country’s electricity generation. The government has a stated aim of increasing this proportion to 90 percent by 2025. The high profile of renewables means a correspondingly lower profile for fossil fuels and much of NZ’s territory has not yet been explored to this end. However, the country is already a significant exporter of crude oil (the industry was worth NZ$2.1bn last year) and the government has recently set a goal of becoming a net exporter of oil by 2030, an announcement which has proven to be controversial in the community on environmental grounds. This is just one example of how Prime Minister John Key, re-elected last November, appears to be taking policy in what might be characterised as a generally pro-business direction. This story is still unfolding, but the significance of the government’s policy position has not gone unnoticed in the legal sector. “What the government is saying is undeniably a major change for the economy,” says Poole. “There is a lot of exploration going on and massive gas reserves already tapped. There is potential for a significant step up in terms of offshore oil/gas exploration with potentially enormous finds offshore. If the government can get the strategy right and if we can attract international explorers then, as a NZ firm, we would like to say that we can do the legal work in NZ. It’s a small jurisdiction at the bottom of the world, but they will be able to access world class people here. We’ve got a particular focus on it [at Chapman Tripp]; we have a lot of energy clients and had success in that field.”
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FEATURE
NO MONEY, NO HONEY
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
THE NEW ZEALAND PARLIAMENT BUILDING IN WELLINGTON IS AFFECTIONATELY KNOWN AS THE BEEHIVE – AND A RECENT SHAKE UP OF GOVERNMENT PANELS HAS A REAL STING IN THE TAIL FOR LAW FIRMS. REPORT: RENU PRASAD
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he New Zealand government has broken new ground by conducting a single tender process for the procurement of its legal advice. This move, which was completed last December, was part of a broader shake up of government expenditure which is expected to see the government save NZ$178 million over the next six to seven years. The government’s legal spend is worth about NZ$100 million a year and the government is hoping to achieve an 18 percent annual saving on this figure. The legal panel has resulted in the appointment of 39 legal services providers, operating across a number of prescribed panels. Clearly a process of this kind inevitably produces winners and losers, but some firms missed out on appointments which they were widely expected to secure. These include boutique specialist firm Chen Palmer, which missed out on the Public Law panel and Chapman Tripp, which missed out on the Public Law and Litigation panels. However, both of these firms were successful with other panel appointments. The significance of the specialist panel appointments remains to be seen. At first there was some unhappiness because firms believed that they were completely excluded from bidding from an area of work if they were not on the appropriate panel. However, there now appears to be an understanding – which ALB was not able to verify – that firms will be able to bid for work even if they are not on the designated panel and the government has indicated that agencies will be permitted to purchase
THE GOVERNMENT PLANS TO CUT 18 PERCENT OF ITS LEGAL SPEND OVER THE NEXT SIX YEARS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
off-panel if this is necessary. It will be interesting to see how this unfolds in practice and what advantage panel firms will have over non-panel firms in each particular area. If the panels are rigidly enforced, there will be significant implications for the unsuccessful firms. Of the 125 legal service providers (sole practitioners or firms) who sought a panel position, 87 failed to secure any kind of role. The government noted that most of these providers did not rely on government for the bulk of their work and, by implication, would not be likely to suffer hardship by missing out on a panel spot. However, the government also conceded that there were 14 unsuccessful firms who did rely on government work to a significant extent and would require assistance with the transition to other sources of work. “The capacity for legal services work offered by the market far exceeded the capacity the government requires,” the government said in a statement. “This was also a factor in providers missing out.” New Zealand lawyers are privately wondering whether the consolidation of the government’s panel will be the final nail in the coffin for smaller practices which have been struggling for several years in a tough economic environment. The government’s move is consistent with two trends which people have been talking about for years: first, downward pressure on rates and secondly clients – whether government or private – becoming increasingly discerning in their organisation of legal spend. “Beyond any doubt, in-house teams are developing an enormous depth of quality and reach and so there has been a permanent shift from the private market of ‘business as usual’ commercial work away from commercial law firms,” says Chapman Tripp managing partner Andrew Poole. “That has all sorts of implications around training and what sort of leverage firms can expect and I think we’re all getting our heads around what that mix means at the moment.” Stories about the savvy in-house corporate lawyer have been standard fare for years but in NZ the issue is making a clear impact. Flat revenues are the norm and even where firms have had growth, there is a question mark over its sustainability. “I think if you asked managing partners where the growth is occurring and, assuming they were prepared to answer that candidly, most would point to one or two or three projects that generated that growth, rather than any real lift in the market,” one lawyer told ALB. It’s what Buddle Findlay’s Peter Chemis describes as a “perform storm”. “There is less work around and clients are doing more themselves. So there are a lot of instructions you would have got previously where they’ve decided to do them in-house or they decide not to proceed with them,” he notes. One can use various metaphors to describe the situation – shrinking pies dominate in such an exercise – but Poole suggests the best metaphor is that of a cake. “So you used to have a cake, the baseload work which was the fairly consistent work which you’d get from a consistent pool of clients – and then there was the icing on the top, which was the major projects which came along,” he explains. “Well now those proportions are changing in the NZ market. The baseload or the cake has shrunk and we’re now more reliant on that large chunk of icing for revenues.” And if the cake has shrunk, there’s only one way to grow – by taking more of someone else’s slice. “The firms that are doing well in NZ at present, in relative terms, owe that to improving market share and/or restructuring or downsizing their firms,” observes Russell McVeagh’s Gary McDiarmid. That’s a story which, unfortunately, Australian firms know only too well.
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FEATURE
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
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NEW ZEALAND:
THE VIEW FROM IN-HOUSE ALB APPROACHED FOUR LEADING IN-HOUSE LAWYERS FOR THEIR PERSPECTIVE ON THE NEW ZEALAND MARKET. REPORT: OLIVIA COLLINGS ALB: HOW WOULD YOU DESCRIBE BUSINESS SENTIMENT AT THE MOMENT AND THE LEVEL OF ACTIVITY IN YOUR ORGANISATION? Cameron Madgwick, Contact Energy associate general counsel I’m not sure that we would be looking to undertake a lot of project or acquisition activity at the moment. The New Zealand market is not especially buoyant. It’s a feeling of stability and also consolidation. Most of our competitors are owned by the government and the government is progressively selling down their ownership of those entities. In a corporate sense, within our sector, that is going to dominate over the next period. Charles Bolt, Fletcher Building, legal group general manager I would say it’s the same level of busyness, although the mix of work is slightly different. Six to 12 months ago we were at the tail end of large projects in the form of the Crane Group acquisition and restructuring some of our dead instruments and finishing off the implementation of a worldwide share scheme. This year we are working on a larger number of small projects. People are somewhat hopeful that the level of economic activity will increase. In New Zealand we have had a low level of house building for the past few years. There is a view that it needs to recover. There is a lot of preparation going on for what is likely to happen in Christchurch once the insurance cheques start to flow. In terms of the legal team and the acquisition led growth, I’m not feeling that there will be much work there; I think it will be more internal initiatives, right sizing of businesses, generating efficiencies from the portfolio of assets, etc.
Charles Spillane, Auckland Airport, chief financial officer and general manager - corporate affairs There is a heavy workload at the moment and has been for some time. This is a business that has continued to grow through the economic trials that the rest of the economy has faced. The business is getting busier, but whether that translates into more legal work is not yet clear. Rebecca Holbrook, Fisher & Paykel Appliances general counsel After a period of consolidation, there is renewed business confidence with an associated increase in project work. We have been actively involved with the Motor Business Development team, assisting with entering into agreements with the two key parties last year. Fisher & Paykel entered into an agreement with Haier for the supply of components and technology, predominately motors. The supply arrangement is for an initial period of three years, with provision for annual renewals for up to a further seven years. ALB: EVERY IN-HOUSE TEAM HAS ITS OWN UNIQUE APPROACH TO MANAGING WORK IN-HOUSE OR DELEGATING TO LAW FIRMS. WHAT IS YOUR TEAM’S PHILOSOPHY? Cameron Madgwick : We have a team of eight lawyers, including one specialist resources/environmental lawyer. The rest of the team are more general corporate lawyers although each person has a speciality. We have a law firm structure in the sense that it’s very linear – we took on a graduate lawyer a couple of years ago as a result of that. We try very hard to get the firm leverage right so that we have the right work being done at the right level. We have always managed to follow the philosophy of treating ourselves and our general law firms as one broad team. We use [firms] when we need specialist knowledge or we don’t have the capacity to deal with it ourselves. We try very hard to have those firms understand what we are doing and how we are doing it by providing them with regular business updates. We have a core panel of two law firms, and then there are another one or two we use regularly. Then there are other firms we go to when we have a unique requirement. It’s very important that we access specialists wherever we are around the world. Approximately 30 percent of our overall would be done by external law firms. I can’t see that changing dramatically. Charles Bolt: We have taken on a senior lawyer in the past 12 months as a result of the increased level of work, following the Crane Group takeover. That added a significant NZ$1 billion division
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FEATURE
Cameron Madgwick, Contact Energy associate general counsel
Charles Bolt, Fletcher Building, legal group general manager
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
to the group and we found that we needed additional resources as a result of that. We are quite a diverse business, with seven divisions which are quite different, across Australia, New Zealand, Asia and Europe. We are not a single industry business and we are very decentralised. We don’t seek to drag all the legal work through the centre - a lot of the legal work for those divisions is done by divisional lawyers. Our team is more focused on core corporate strategic matters and material transactions, with oversight of what is happening in the divisions and the material matters going on there. The divisional lawyers report to the chief executives of the divisions with a dotted line to me. On day-to-day matters the divisional lawyers will allocate legal work to law firms as they
see fit. But, we do have a policy whereby material matters go to a handful of firms we are comfortable with. On those matters we will have a level of oversight and involvement as well. We use a combination of New Zealand and Australian firms. Predominantly Bell Gully does our corporate work, Simpson Grierson does a lot of our construction work and operational work and in Australia we use Ashust and Clayton Utz. I think we will handle the front end of a greater number of matters as a result of having a new internal resource. But, at the back end, we will still need to rely on the external legal advisors. Charles Spillane: We do an awful lot of the legal work in-house – we would do more than 50 percent of the legal work. There is a very strong focus on cost control, as there has been since the start of the global financial crisis. It’s very important to ensure that costs remain in check, even when revenue is rising, in order for us to give that benefit back to shareholders. Russell McVeagh is the main advisor we use for legal advice which is not commodity/repetitive. Rebecca Holbrook: We engage external counsel on significant matters and matters requiring expert advice, for example licensing of patents. Our key challenge is the number of jurisdictions we operate in. The legal team works closely with our external advisors with the objective of ensuring value whenever third party legal advice is sought. Work is allocated generally according to expertise and experience within the legal team. There is a high level of transparency around work being undertaken, with the status of all
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AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
current matters being discussed as a team on a weekly basis. Three of the four staff in the legal team work part time – including myself. I think by offering that we have very good staff and I don’t think we would recruit or retain those senior lawyers if we did not offer that flexibility. We are not looking to expand the legal team at this time. ALB: WHAT ARE YOUR PRIORITIES FOR 2012? Cameron Madgwick: The priority is to continue to support the business in the various directions it goes. In a very general sense we are trying to move towards being a more proactive group – seeing trends of projects that come to us, rather than just continuing to resolve that problem – and helping create tools so that the problem does not arise again. We already enjoy a good relationship with the business but we can’t rest on our laurels in that regard; we have to prioritise building and developing the relationships that we hold. We also are very conscious about our cost management. We are trying very hard to find what things we can do to help the business better manage its cost, such as creating better systems internally to better manage some of the higher volume, lower value work that we do so that we can focus on the higher value work. As the economy turns and demand picks up the focus of the team will change. The legal team does not drive activity, we react to it. Charles Bolt: We want to get efficiencies across New Zealand and Australian divisions to ensure that everyone is talking to each other, particularly in those divisional legal functions. We have an eye on changes in the law, particularly changes to the Securities Act and how that is going to impact on us. We also have an eye on directors’ duties and what is happening with regards to insurance, reliabilities and indemnities. We have a constant focus on Trade Practices compliance – making sure our programs are working well and our people are keeping abreast of developments. If there are some smaller acquisitions it will be a focus for us to make sure that we are doing them correctly. It makes no difference from a legal perspective if it’s a NZ$5 million or a NZ$50 million [deal], as it requires the same amount of legal work to get it right. We are seeing a number of cases in New Zealand where there have been finance company collapses and
FEATURE directors have been prosecuted as a result of that. The regulation and case decisions are constantly evolving and we need to make sure we are ahead of the curve on that. Charles Spillane: My main priority will be overseeing the change in management at the company. We will be appointing a new chief executive, as the current one has resigned to take up a position elsewhere. The regulatory burden is also an ongoing issue. Aeronautical regulation has increased and changed in recent years. Auckland Airport has taken a leading role in trying to attract new airlines to the market. However, we are at the end of the route in most cases and far away. It’s an ongoing challenge to attract new airlines to the market as a result of this and the new regulations. We are increasingly looking to China for new opportunities and have had some success there in recent times. Rebecca Holbrook: IP is an increased area of focus, something the team as a whole is trying to up skill in. We have an active training program in place for the in-house team to increase our capabilities. Our IP budget, which includes applications for patents, has been expanded to reflect the focus of our business in that area. Across FPA there is a business excellence program and within the legal department we are addressing this by examining how we can improve the service that the legal team provides to the company. One of the things on our agenda this year, as part of that, is getting far more feedback from our customers.
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FEATURE
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
NEW ZEALAND M&A: CHINA AWAITS THERE ARE HIGH HOPES THAT THE NEW ZEALAND GOVERNMENT’S PARTIAL PRIVATISATION AGENDA WILL BE THE CATALYST FOR BROADER TRANSACTIONAL ACTIVITY – BUT WILL THE CHINESE BE ALLOWED THE JOIN THE ACTION? REPORT: RENU PRASAD
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ew Zealand M&A is going through one of those patchy stages: everyone has one or two interesting deals to talk about, but put it all together and you still get a rather ambivalent picture. However, the general view is that M&A activity is continuing to improve. “There’s more light at the end of the tunnel,” says Simpson Grierson chairman Kevin Jaffe. “You can see that in the attitude of clients - things aren’t stalling the way they were and we’re getting more across the board activity.” Lawyers report that a feature of the NZ market over the past 12 months has been the return of the company takeover. Examples include the NZ$129.3 million acquisition of juice and soft-drink maker Charlie’s Group by Japanese beverage company Asahi Group Holdings, the takeover of Pyne Gould, and the contested takeover of New Zealand honey maker Comvita by Singapore’s Cerebos. “Takeovers have been rare in recent years - but the early signs in 2012 are that this lift in takeover activity will continue,” said Bell Gully’s Roger Partridge. Bell Gully has acted on five major takeovers over the past 12 months. Partridge adds that a second trend is that NZ clients are making more acquisitions offshore. “For example, our long-time client Fletcher Building acquiring Crane Group
in Australia - the first successful scrip-based takeover offer a New Zealand company has made for an Australian company and, with a value of over NZ$1 billion, the second largest acquisition of 2011,” he says. “Again, with the New Zealand dollar high, we see the prospect of more offshore acquisitions by NZ corporates this year.” A key area of interest is the government’s plan to pursue a “mixed ownership” model for publicly owned entities. The first stage of this plan will see the partial privatisation of four power companies - Mighty River Power, Meridian, Genesis and Solid Energy - with the government retaining a majority stake in each case. The government also proposes to reduce its shareholding in Air New Zealand, again while maintaining a majority stake. Given the uneven M&A market, firms are particularly interested in securing a slice of this work. The first asset to hit the market will be Mighty River Power and an IPO is planned for late 2012. NZ Treasury has appointed a panel of law firms to facilitate the process, with the four successful firms being Bell Gully, Chapman Tripp, Russell McVeagh and Simpson Grierson. Bell Gully was ultimately successful in securing the role of advising Treasury, while the advisor to Mighty River Power is Chapman Tripp. Chapman Tripp’s Andrew Poole said that his firm was very pleased to have secured the Mighty River role. “When prospective clients look back in the next few years, the mixed ownership model will undoubtedly have been one of the very biggest corporate transactions of this period,” he says. “We felt that in terms of reinforcement of the brand it was very important to have prominence in these transactions and we wanted to ensure we had a corporate role – although we very much want to act for Treasury on one of subsequent transactions.” More broadly, it is hoped that these sell-downs will inspire the private sector into initiating some activity of their own. “Hopefully the government decision to make such a big market play does boost confidence and have a catalytic effect on the market - shore up confidence and spur a bit more private sector market activity,” says Poole. FOREIGN INVESTMENT The inbound foreign investment story in New Zealand has a distinctly western feel to it. According to a 2011 report by research body NZIER, the top two sources of foreign investment into NZ were Australia and the U.S, accounting for a total of NZ$47.3 billion and NZ$10.62 billion of investment respectively. The corresponding figure for Chinese investment, according to figures published
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by the NZ government in its Opening Doors to China 2015 vision statement, was NZ$1.87 billion. That is a relatively modest figure, but many commentators believe that Chinese investment has reached a point of critical mass. The NZ government appears to be broadly supportive of this development and has used its China 2015 vision statement to outline a number of initiatives aimed at improving bilateral Chinese-NZ investment. The challenges were said to be that Chinese investors and businesses were unaware of NZ investment opportunities; that NZ deal size is relatively small for major Chinese investors; that outward Chinese investment is subject to strict controls and that NZ investors are inexperienced in Chinese markets. The government went on to outline a strategy to address these issues and set out a target of doubling two-way goods trade with China to NZ$20 billion by 2015.
“THE TOP TWO SOURCES OF FOREIGN INVESTMENT INTO NZ WERE AUSTRALIA AND THE U.S, ACCOUNTING FOR A TOTAL OF NZ$47.3 BILLION AND NZ$10.62 BILLION OF INVESTMENT RESPECTIVELY” Lawyers have mixed views on the level of Chinese work which is coming across the desk. There appears to be an information gap: government agencies in the past have not always reported Chinese FDI figures, citing confidentiality issues and it may be that the figures have in the past simply been too low to be recorded in any meaningful way. In that context, it is difficult to assess the trend line on Chinese investment. “A lot of M&A does have international involvement, but it’s not new entrants into NZ,” says Jaffe. “We’re not talking about some big Chinese government entity coming into NZ and looking for opportunities. I think that sort of stuff is still absent.” There have been some notable Chinese acquisitions in NZ including Agria Coporation and New Hope Group’s NZ$141 million partial takeover of PGG Wrightson, a deal upon which Minter Ellison Rudd Watts advised. Managing partner MarkWeenink says China has been a significant part of his firm’s M&A practice, although he cautions against drawing any inferences about broader Chinese investment. “We have had five significant deals involving China last year, but maybe that’s just a coincidence,” he says. “At the moment the Chinese are in the $50m to $150m space and driving a lot of activity in that mix.” However, Chapman Tripp’s Poole says that the Chinese deals his firm has seen are well above the mid-size level and that there were some “potentially significant and game changing” deals in the pipeline. Chinese investment has become a sensitive political issue. Shanghai Pengxin Group has been in the headlines over an attempt to purchase a multi-property North Island farm group known as Crafar Farms. Despite community controversy, the application had been approved by the Overseas Investment Office at the time of printing, although that decision may be subject to further review.
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Chapman Tripp handled the overseas investment application for the buyer on this deal and Poole says that he regards this case as an important litmus test for NZ. “I cannot emphasise enough how important this decision is symbolically in demonstrating whether we are open to investment from the Chinese or not,” he says. “There is a real prospect of significantly more Chinese investment in NZ – this decision will show whether we are open for business or not.” Chapman Tripp’s work with Shanghai Pengxin is an example of how NZ firms are gaining traction in the Chinese market. Chapman Tripp has established a China desk and publishes periodic bulletins on news that is relevant to investment flows and has taken steps to promote the firm in China in order to “help the national effort in making it known that we are open for business here in NZ,” according to Poole. Last year, ALB noted that NZ firms prize the relationships they have with Australian lawyers and firms, particularly as a means of gaining access to referred clients wishing to do business in NZ. While it is clear that firms such as Chapman Tripp will seek to create their own destiny in emerging markets such as China, it is also clear that this will not happen at the expense of these relationships with the Australians. “I think it remains hugely important to have relationships with Australian firms - even more so now that the vast bulk of the top end firms have connections with UK or U.S firms,” says Poole. “However, it’s still a good story for NZ firms to independently make their way in the China market as well. It’s about the firm always asking ourselves what’s happening in the market in the medium and long term and being prepared to invest in that.”
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RISING OUT OF THE ASHES
A NEW CHRISTCHURCH
OLIVIA COLLINGS SPEAKS WITH ONE OF CHRISTCHURCH’S OLDEST LAW FIRMS ABOUT THE AFTERMATH OF THE EARTHQUAKE – ONE YEAR ON.
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hen Duncan Cotterill first opened, Christchurch was a small country town, and more than 150 years later the current leaders of the firm are determined to see the city rise again. “We love the fact that we were here when the city was first formed and we are doing that again,”
says Duncan Cotterill chief executive Janice Fredric. “We want to contribute to the new planning…. and take full advantage of the opportunities that will arise during the rebuilding.” On February 22, 2011 a 6.3 magnitude earthquake shook Christchurch, bringing down buildings, houses and the city’s famous Cathedral. The CBD area of the city became a no-go zone immediately afterwards and even now, more than 12 months later, many buildings are still not safe to enter or reoccupy and many have
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had to be cleared. “There is still deconstruction going on,” says Fredric, whose own firm has relocated to an office in the suburbs for at least five years while the city rebuilds. According to Fredric the firm has had its busiest year ever and even the Christchurch office, which was temporarily closed and then relocated, managed to have a better year than the one previous. In fact, since the quake the office has added two partners and Fredric predicts more will be needed. “We are definitely in growth mode,” she states. “There has been a lot of work generated for our litigation and property teams (from the quake) and a lot of work around insurance – that has become a huge growth area.” For Duncan Cotterill and its clients the biggest issues in the coming year relate to staff and planning. “There is going to be a large number of workers required once the rebuilding starts,” says Fredric. “Already it’s challenging finding good quality staff across the board: lawyers, IT professionals, secretaries, there has been an increase in the amount of poaching.” The city’s redevelopment is also dependent on authorities making decisions and commencing work: “We need to know where the main things, such as the convention centre, are going to be located before the rest of the development can commence… some construction has started but the bulk of it is not going to be until the beginning /early half of next year,” says Fredric. While reconstruction and construction in the region is likely to create many opportunities, Fredric says the government and business are working hard to ensure it’s not a case of ‘boom and bust’. “I think it is going to take quite a few years,” she says. “There is recognition that it is not just about the central city, it’s about the outlining areas as well. The Canterbury region needs to have economic prosperity to help the city of Christchurch…. It’s going to be an exciting time, to see how it ends up, but it will take 10 to 20 years.” Duncan Cotterill is committed to returning to the CBD, but Fredric expects the CBD will be much smaller than it was before. “The length of the rebuild is going to affect the number of people who return to the CBD,” she predicts.
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consumer finance transactions and structured finance arrangements to our established team. For intelligent commercial outcomes talk
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PROFILE Appointments
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Brought to you by
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recruitment made easy PARTNER APPOINTMENTS Name
Practice area
Going from
Going to
Gerry Cawson
M&A
Minter Ellison SA/NT
Kain Corporate and Commercial Lawyers
Brian Clayton
Project development and finance
Shearman & Sterling
Chapman Tripp
Gamini Colless
Banking and finance
Colin Biggers & Paisley
HWL Ebsworth
Anne Davis
Construction and infrastructure
Clayton Utz
Holding Redlich
Mark Foy
Property
Herbert Geer
DibbsBarker
Michael Hales
Dispute resolutions and arbitration
Nabarro
Minter Ellison
Mark Howard
Workplace relations Middletons and safety
HWL Ebsworth
Adrian Howie
Insurance
Kennedys
Colin Biggers & Paisley
Peter Keel
Disputes and litigation
Clayton Utz
Maddocks
Norman Lucas
Disputes and litigation
Clayton Utz
Maddocks
Cameron McKenzie
Disputes and litigation
MacDonnells Law
DibbsBarker
Nicola Marley
Banking and finance
Mayer Brown International
Minter Ellison
Stephen Ridgeway
Competition
Ashurst
King & Wood Mallesons
Craig Saunders
Tax and M&A
Ernst & Young,
Ashurst Australia
Quentin Solomon
Banking and finance
Clayton Utz
HopgoodGanim
John Turnbull
Corporate
Mason Sier Turnbull
Macpherson + Kelley Lawyers
Ashurst
King & Wood Mallesons
COMPETITIVE ADVANTAGE: MALLESONS ADDS ASHURST PARTNER King & Wood Mallesons has bolstered its competition practice with the appointment of Stephen Ridgeway, a leading competition lawyer.Ridgeway joins the firm’s Melbourne office from Ashurst (formerly Blake Dawson) where he was a partner in the competition group, acting for public companies in all areas of competition and consumer legal cases, including merger and joint venture approvals, Australian Competition and Consumer Commission (ACCC)
Brown International where she was also a partner. She has broad experience in finance transactions and specialises in advising private equity sponsors, financial institutions and companies on financing deals and related restructurings. Nabarro
investigations, litigation and compliance advice. Before joining Blake Dawson Ridgeway was a senior advisor to the ACCC. He is also the chairman of the Competition and Consumer Committee of the Law Council of Australia. Mayer Brown
Minter Ellison (London)
MINTERS LONDON RECRUITS MAYER BROWN PARTNER Minter Ellison has appointed Nicola Marley, a London-based Australian-qualified finance lawyer, as a partner and head of the firm’s London finance team. She joins from Mayer
Minter Ellison
MINTERS RECRUITS INTERNATIONALLY FOR PERTH PARTNER Minter Ellison has added Michael Hales as a senior legal consultant (and partner designate) in its newly integrated Perth office. He was most recently a partner at UK firm Nabarro and chair of that firm’s international committee, responsible for its global international business development and in particular the operation of its European alliance across France, Germany, Italy and Spain. He was also heavily involved in the planning and the opening of Nabarro’s Singapore office, which focuses on international arbitration. His confirmation as a partner will follow the finalisation of relevant Australian visa requirements and completion of the necessary formalities to enable him to practice in Western Australia. Hales worked in Australia from 19901992 and is admitted as a solicitor in New South Wales and in the High Court. Clayton Utz
Holding Redlich
HOLDING REDLICH BUILDS ON CONSTRUCTION PRACTICE Holding Redlich has announced the appointment of Anne Davis as a partner in the construction and infrastructure group, based in Sydney. She joins the firm from Clayton Utz where she was a senior associate. Her areas of expertise include strategic commercial, commercial (including contract, acquisitions, public/private partnering), construction, engineering and infrastructure, procurement and probity. Davis has significant experience in non-contentious and contentious matters across large, complex major projects. Ernst & Young
Ashurst
ASHURST AUSTRALIA ADDS E&Y TAX PARTNER Ashurst Australia has added a new tax and M&A partner to its Melbourne office with the appointment of Craig Saunders. Formerly a partner at Ernst & Young, Saunders is a highly experienced tax practitioner with experience in M&A and international tax matters. He has particularly deep industry knowledge around
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AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
the issues facing investors in infrastructure and private equity, and has built strong relationships with key investment banks and private equity houses, predominantly working with them in M&A and refinancing transactions. Clayton Utz
Maddocks
MADDOCKS RECRUITS PAIR OF CLUTZ PARTNERS Former Clayton Utz partners Peter Keel and Norman Lucas have joined Maddocks as commercial disputes partners. Keel, who specialises in financial services dispute resolution, also has extensive dispute resolution experience and provides advice on reputation management and social media risk management having co-authored with Keel a guide to legal risk management called ‘Reputation Matters’. Keel and Lucas have almost 45-years’ combined experience in complex commercial litigation, fraud-related litigation and dispute resolution for corporate and government clients. Clayton Utz
HopgoodGanim
HOPGOODGANIM RECRUITS SENIOR CLUTZ PARTNER HopgoodGanim has recruited former Clayton Utz partner of 15 years Quentin Solomon as project banking and finance director. Solomon is a senior banking and finance lawyer with more than 25 years’ experience in the financing of major projects in the energy, mining and transport sectors, and in corporate restructuring and brings a wealth of international experience to the role, having worked in the United States, the UK, East Asia and Europe. In addition to his time at Clayton Utz, Solomon has previously worked with Minter Ellison and Norton Rose. Shearman & Sterling
Chapman Tripp
CHAPMAN TRIPP RECRUITS INTERNATIONAL CONSTRUCTION PARTNER Chapman Tripp has recruited international construction lawyer Brian Clayton. Clayton joins Chapman Tripp’s Auckland office from Shearman & Sterling’s Abu Dhabi office, where he was a partner in the project development and finance team and ran the firm’s construction practice. Clayton will become a partner at the firm once he has satisfied New Zealand Law Society obligations. Clayton specialises
in construction and projects, with particular expertise in the energy sector, and has also practised in London, New Zealand and Australia. He has been involved in many large scale and complex construction projects across a range of sectors including oil and gas, petrochemical, LNG, power, water, mining, industrial, renewables, infrastructure, commercial, residential and leisure. Prior to Shearman & Sterling Clayton worked for Baker & McKenzie in Melbourne, Clifford Chance in London and a New Zealand law firm. Middletons
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Candidate 1
HWL Ebsworth
HWL GROWS WITH MIDDLETONS PARTNER AND SC HWL Ebsworth has added workplace relations and safety partner, Mark Howard, formerly a partner at Middletons. Howard has more than 25 years of experience in all aspects of industrial relations, employment law and occupational health and safety. In his new role at HWL Ebsworth he will head the firm’s workplace relations and safety practice nationally. Howard specialises in providing advice to public and private sector employers and state and local government authorities. He has a range and depth of experience in workplace issues across a very broad range of industries including government, financial services, technology, construction, manufacturing, insurance, retail, and energy and resources.
Kennedys
Candidate 2
Colin Biggers & Paisley
CBP ADDS KENNEDYS PARTNER Colin Biggers & Paisley has added former Kennedys partner Adrian Howie to its insurance practice in Sydney. Howie began his career with Minter Ellison in 1968 and became a partner in 1976. During his time with Minters he worked at the Sydney and Canberra offices handling a range of property, commercial and litigation work, including some interesting criminal matters, before settling in the insurance practice. He proceeded to lead the group for a number of years, primarily focusing on the areas of professional indemnity and directors & officers insurance. He then joined UK-based Kennedys in 2006. Throughout his career Howie has maintained a non-litigious practice, regularly providing advice to commercial clients on contractual and broad commercial issues. He has also had extensive experience with domestic tribunals, most commonly advising on maintaining procedural fairness.
Candidate 3 For a legal recruitment company that likes to keep things simple contact Brisbane Sydney Melbourne Perth
07 3231 1200 02 9375 2222 03 9098 8750 08 9288 1855
or visit www.empirecareers.com.au
recruitment made easy
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NOT BAD BY HALF THE CONSTRUCTION INDUSTRY IS HURTING – BUT THE TWO SPEED ECONOMY IS PRODUCING A CLEAR SET OF WINNERS AND A CLEAR SET OF LOSERS. REPORT: RENU PRASAD
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t hasn’t been a happy year for the construction industry. Builders Kell & Rigby went into voluntary receivership in February, ending 102 years in the industry; Reed Group is reported to be facing crippling cashflow issues and Leighton Holdings has continued to dominate the headlines for all the wrong reasons – cost overruns, class actions and a rap on the corporate knuckles from ASIC. The odd thing is that Leighton is continuing to win important work. In April, Australian subsidiary Thiess won a A$450 million contract at the Chevron-operated Wheatstone gas project in WA and in February Thiess won a A$1 billion mining contract to extend the life of OZ Minerals’ Prominent Hill copper and gold mine. The contrast between the bad news and the good news perfectly sums up the two speed economy which confronts construction lawyers: a booming resources workflow delivering lucrative work for construction companies and lawyers, but a residential/commercial sector which will see more builders hit the wall if there is no improvement soon. This is very much a tale of two halves. MINING & RESOURCES WORK Resources work has been the beacon on the hill for the construction sector for some years now. While some commentators have suggested that the level of resources activity in Australia has peaked, it is clearly far too early to seek any indication of this in
resources-related construction activity. However, it is notable that statistics from both the Australian Industry Group (AIG) and the Australian Bureau of Statistics have both recorded a fall in engineering construction activity and, by implication, resources sector construction activity in recent months. AIG suggested that the drop was partly attributable to project delays. The drop also follows very strong activity in preceding months, so perhaps it is more accurate to describe this as a ‘breather’ rather than a decline. All lawyers interviewed by ALB were unanimous in the view that it continues to be a case of full steam ahead for legal work associated with resources projects. As usual, projects in Western Australia and Queensland are leading the way. The list of projects which are occupying lawyers is lengthy and includes the greenfield LNG facility at James Price Point and the Oakajee Port and Rail project – both in
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Q&A
: W HAT TRENDS HAVE YOU OBSERVED IN THE FRONT END/BACK END RATIO?
“Rather than a trend towards back end work it seems there has been a trend more towards providing a higher level of support in relation to major project management and early high level intervention by experienced projects lawyers before project challenges become trench warfare.”
“Over the last two to three years there has been an upturn in contentious work and we have some very significant matters on at the moment. However, the front end is also furiously busy. The balance would probably be 40 percent contentious and 60 percent non-contentious.”
Adam Wallwork, King & Wood Mallesons
Doug Jones, Clayton Utz
“We have not detected any particular recent shift in the front end/back end work ratio. The contracting industry has become more sophisticated in the last five to 10 years and is more focussed on investing sensibly in their own inhouse resources and therefore in front end risk management. We are seeing a further segmentation of the life cycle of projects, which involves a middle ground, where skills are required which are different to pure back end work such as litigation and arbitration. Consequently, there is greater focus on forming reliable opinions early, setting strategy and supporting negotiation.” Chris Ryder, Corrs Chambers Westgarth
“There has been a decline in commercial and retail front end construction ever since the GFC. Most of the front end construction activity in Queensland at present is attributable to the resources boom, including mining infrastructure and accommodation, pipelines, water and port expansions. As for the back end construction work, Security for Payment work continues to boom. We currently have 10 lawyers who practice either exclusively or substantially in Security for Payments Act related work. There is no indication that this trend will change in the short term.” Stephen Pyman, Holding Redlich
“During the GFC there was a clear upswing in the level of back-end work, including increased Security of Payment Act applications and adjudications. Over the past year or so, the work has been relatively evenly split between front end and back end.” Elizabeth McKechnie, Minter Ellison
“During any economic downturn we would expect to see an increase in back end work due to the associated increase in management actively pursuing claims to improve the bottom line (or at least to keep it positive). During periods of sustained growth in the construction sector, management often prefers to chase the next project rather than be bogged down in the recessive nature of construction claims and associated disputes. Insolvency work is also on the increase, as evidenced by the demise of Kell & Rigby, which also brings about an increase in the level of back end work derived from security of payment related claims.“ Peter Paradise, Freehills
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WA – and Queensland’s Abbot Point terminal expansion. Readers will already be familiar with the remarkable scale and diversity of resources industry activity in Australia – suffice it to say that there is no evidence of a drop off in construction activity in this sector as yet and indeed there is the possibility of even more activity as megaprojects such as the A$34 billion Ichthys project in the Northern Territory and the mooted A$20 billion Olympic Dam expansion in South Australia come online. Analysts may be worried about the future of the resources boom, but this is not something which has yet impacted construction lawyers. Given the extensive development commitments involved, it might be the case that resources projects are simply operating on a different timescale from other projects. “The resources sectors have the luxury of being able to take a relatively long term view in their planning for very large projects,” says Corrs partner Chris Ryder. “Once those projects are committed, they represent a pipeline which keeps the industry reasonably active. Consequently, it seems to us, those resources sectors do not react to external factors in the same way and at the same rate as other industries such as, for example, tourism, agriculture and manufacturing.” This explains why construction lawyers have not yet observed the impacts of the global economic malaise in the resources space. “We haven’t seen any indications yet of a slowdown in mining or resources related work. If anything there has been an increase in work as more projects move beyond investment decisions and into execution with all the additional subcontracting and contract administration challenges,” says King & Wood Mallesons partner Adam Wallwork. Freehills’ Peter Paradise is another to observe that activity has increased rather than contracted. Minter Ellison’s Elizabeth McKechnie says that the projects she has seen appear to have moved into a new phase. “There is a lot of general procurement work as a range of projects move from planning to delivery – particularly coal projects,” she says. “Aside from one project being deferred due to IR problems, it is full steam ahead in the Queensland and WA mining industry.” WORK OUTSIDE OF MINING/RESOURCES Mining is only one part of the construction sector and despite some encouraging signs in the second half of 2011, the sector as a whole appears to have had a disappointing start to 2012. According to the AIG’s index of construction activity (PCI), the construction industry has now been in a state of contraction for 22 consecutive months. The drop in the number of new houses and apartments in the first few months of 2012 has been particularly notable. Commercial construction was also subdued, but showing small signs of recovery. The statistics are grim and lawyers have nothing cheery to add to the picture. “The commercial and retail markets remain anaemic and largely seem limited to targeted incremental works such as green initiatives and projects or changes in retail mix,” says Wallwork. “Residential construction outside resources regions has weakened further with even Victoria, where it has been strongest, slowing down.” With activity in the residential and commercial sector flagging, lawyers are turning to another possible source of construction work: public infrastructure. Projects such as the Royal Adelaide Hospital PPP have been a welcome source of work for those builders and advisors lucky to secure a role and there is hope that more projects will come to market soon – and all eyes are on NSW. “In terms of public infrastructure I’d say it’s picking up in NSW – the tide
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has turned at least in our practice,” says Clayton Utz partner Doug Jones. “However, I’d say it will be another perhaps six months to a year before the same thing happens in Queensland and Victoria.” Long-suffering residents of NSW must be pleasantly surprised to find themselves described as ahead of the pack after over a decade of being characterised as Australia’s basket case. However, the general consensus is that NSW is moving ahead with some major projects such as the North West Rail Link and the new Sydney Convention Centre, while other states have taken a more cautious approach.
WE HAVEN’T SEEN ANY INDICATIONS YET OF A SLOWDOWN IN MINING OR RESOURCES RELATED WORK. IF ANYTHING THERE HAS BEEN AN INCREASE IN WORK AS MORE PROJECTS MOVE BEYOND INVESTMENT DECISIONS AND INTO EXECUTION “The really big projects are not presently going to market in either Queensland or Victoria,” says Jones, “Victoria has had a hiatus since the election of the new government in the development of new projects. They’re still considering them, but not going to market and similarly there are some question marks over projects in Queensland. So there’s not a lot going to market in Queensland or Victoria but there is in NSW.” Jones is confident that other states will soon go to market too. “The need for infrastructure – particularly transport infrastructure – is very significant in all states and that will need to be met,” he says. “There’s the new government in Queensland – I’ve worked with Campbell Newman on two major road projects with the Brisbane City Council and he doesn’t muck around – he’s a very effective politician in ensuring effective project delivery.” But there is only so much work to go around in the public infrastructure space. “There are some significant infrastructure projects that the NSW Government is bringing to market, but these have fairly long lead times and will only give rise to work for limited players,” observes Minter Ellison’s McKechnie. “Not only have contractors expressed concern over the lack of activity, but so too have consultants in the industry.”
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FRONT END v BACK END Normally the front end/back end ratio is fairly simple: the balance of work in construction practices is said to invariably shift towards disputes when economic times
NAKHEEL TAKEN OUT OF DUBAI SPECIAL TRIBUNAL JURISDICTION Construction lawyers worldwide may be able to draw a lesson or two from the continuing saga of Dubai World in the United Arab Emirates. Nakheel, its property arm, is responsible for the famous Dubai Palm Islands and “The World” artificial archipelago development, the latter of which is now alleged to be slowly sinking back into the sea. The latest development is that a special tribunal set up to hear disputes over Dubai World’s debt restructuring will no longer hear cases against former unit Nakheel, the Dubai government’s legal affairs department said in a statement on Wednesday. All disputes and claims against the troubled property developer, which was absorbed by the Dubai government as part of Dubai World’s restructuring plan last year, will now be heard by the Arabic-language, civil law-based Dubai courts “or the alternative competent dispute resolution forum”, the statement said. In September last year, the special tribunal issued a directive saying the tribunal would exercise jurisdiction in proceedings that had commenced before August 23. The government’s legal affairs department said it had received a number of enquiries requesting clarification on the matter. Nakheel became embroiled in a number of legal battles as it struggled to finish a $16 billion restructuring, including a $3.7 million lawsuit filed by its former chief executive.
are tough. However, these are unusual times and the two speed economy is complicating the picture: many lawyers are balancing a front end mining workflow with a more disputes-oriented workflow from the rest of their client base. Doug Jones is a case in point: he has observed an upturn in contentious work over the past two to three years and says he has some significant matters progressing at present. But paradoxically, the front end is booming too and makes up 60 percent of his practice. Lawyers say they have not noticed any dramatic changes in the front end/back end ratio. Many observed that the usual trends associated with an economic downturn are manifesting themselves, with the usual emphasis on disputes – although this may be beginning to play itself out. “During the GFC there was a clear upswing in the level of back end work, including increased Security of Payment Act applications and adjudications. Over the past year or so, the work has been relatively evenly split between front end and back end,” says McKechnie. Many other lawyers made similar observations about the prevalence of security of payment claims. “Security for payment work continues to boom,” says Brisbanebased Holding Redlich partner Stephen Pyman. “Claims under this Act, which was designed to get subcontractors and suppliers paid and avoid major construction litigation, has seen a massive explosion with several individual claims over $80 million lodged. We currently have 10 lawyers who practice either exclusively or substantially in Security for Payments Act related work. There is no indication that this trend will change in the short term. The government has a tiger by the tail with this Act and appears unwilling to let go or amend its extremely short timeframes.” While disputes are clearly continuing to be a strong source of work, there is also a sense in some quarters that the “front end v back end” narrative is an outdated – or at least obsolescent – paradigm. “Rather than a trend towards back end work it seems there has been a trend more towards providing a higher level of support in relation to major project management,” says Wallwork. “This means early high level intervention by experienced projects lawyers before project challenges become trench warfare.” This is a theme picked up by Ryder: “The contracting industry has become more sophisticated in the last five to 10 years and is more focussed on investing sensibly in their own in-house resources and
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AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
therefore in front end risk management,” he says. “We are seeing a further segmentation of the life cycle of projects, which involves a middle ground, where skills are required which are different to pure back end work such as litigation and arbitration. We think our owner and contractor clients perceive real value if we are skilful in helping them navigate claims during construction in a far more time efficient and effective way. Consequently, there is greater focus on forming reliable opinions early, setting strategy and supporting negotiation. It is, of course, also driven by the security of payment legislation in each of the States in which we represent clients.” Ultimately, this is a trend which sees the lawyer as much in the role of project manager as legal advisor. “It means that we must develop a complimentary set of skills and particularly more refined strategic skills which allow us to become part of our client’s team, driving a strategy which keeps a project on track,” says Ryder. “We have a growing role in helping so that overall the project can be successful notwithstanding the inevitable disputes that develop during construction. That, of course, is professionally very satisfying if done well.” LEIGHTONS HOLDINGS Leighton Holdings has been beset with a series of well publicised problems with cost overruns, continuous disclosure and bribery implications in Iraq. Whether it’s bad luck or bad management, the Leightons saga provides a valuable lesson for in-house counsel in the construction industry. Holding Redlich’s Stephen Pyman says he would draw attention to two particular lessons from this story. “Firstly , delay in
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THERE IS GREATER FOCUS ON FORMING RELIABLE OPINIONS EARLY, SETTING STRATEGY AND SUPPORTING NEGOTIATION disclosure of project issues in Australia or abroad can affect market credibility and corporate counsel need to be particularly diligent to ensure proper disclosure,” he observes. “Secondly, any fine imposed by ASIC may be swiftly followed by more ‘pro-active regulation’ by ASIC, such as insisting on an external consultant audit of the disclosure practices of the company for the next three years. My view is that ASIC intends to place priority over the next 10 years in proactive regulation, so I think we will see a higher level of engagement with industry with ASIC continuing its risk-based surveillances. This comes at a time when regulatory scope is expanding and complexity in the financial system is increasing.” Minter Ellison partner Nicole Green also agrees that the disclosure obligations warrant particular attention. “The recent
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FEATURE fines imposed by ASIC are a salient reminder to ensure that disclosure obligations are being considered and complied with at all times,” she says.”In the context of the construction sector, this certainly poses issues as it tends to indicate that any negative news needs to be advised as soon as possible, without having the time to verify or mitigate the news. Likewise with positive news even general in nature – this also needs to be advised as quickly as possible, although this could lead to criticism if the good news is disclosed before it is possible to sufficiently quantify the effect of the news. This places corporate counsel in an invidious position.” And with plaintiff firms lurking in the wings and always eyeing the next class action, this sticky situation can only get stickier.
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
MILLS OAKLEY BUILDS BRISBANE CONSTRUCTION PRACTICE Mills Oakley has added a new partner in its Brisbane building and construction practice. John Matthews has joined the firm from Carter Newell, where he was a senior associate in construction and engineering. Matthews is the second partner to be appointed to Mills Oakley’s Brisbane office in as many months; property specialist, Michael Nixon moved from Norton Rose in April. Matthews has extensive experience in front end construction work, having provided advice to a range of public and private companies and has experience in complex building matters. He has also advised on key risk issues arising from contract formation, risk allocation, negotiation and drafting.
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FEATURE
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
CONSTRUCTION: THE IN-HOUSE VIEW TED WILLIAMS, GROUP COUNSEL, THIESS ALB: WHAT PROJECTS OR MATTERS ARE KEEPING YOUR TEAM BUSY AT THE MOMENT? TW: Most of our work is in the tender phase before we win the job. We have had a very busy past two years and we expect to remain at the same level of activity this year. The two most significant projects are the Brisbane Airport Link (a joint venture with John Holland) worth A$4.6 billion and the Victorian Desalination project (joint venture with Degrémont) worth A$3.5 billion. There are also a string of mining-related
projects and rail projects in Queensland and Western Australia. We are doing a lot of work on the bidding for a number of large PPP projects such as the Bendigo Hospital and the coal projects in Queensland and mining and mining infrastructure projects coming up in Western Australia. We also have a few disputes on at the moment, but we may see a drop in disputes next year. ALB: WE HAVE HEARD REPORTS THAT IN-HOUSE TEAMS IN THE BUILDING/CONSTRUCTION INDUSTRY ARE DOING MORE WORK IN-HOUSE. WHAT ARE YOUR THOUGHTS ON THIS TREND? TW: We have always done a lot in-house; we have quite a large team. At the beginning of this year we took on four new staff: 16 lawyers in my group plus the project lawyers. All up there is around 20 lawyers. I don’t see that we will get much bigger than that. In bid phase, we would tend to do all the work in-house, except on those very large projects or where there is a particular area of speciality we require some assistance in, or if it’s a project offshore. We tend to do a lot in-house as we are more familiar with the business and the commercial drivers of the business and we believe that our understanding of the business and proximity to the business means we are more efficient. Being integrated as part of the business means there are efficiencies. We have made a particular point of recruiting lawyers with serious qualifications in the area. We believe we have a team of specialists who can compete with private practice lawyers in the areas that we practice in. The role of lawyers in the organisation is expanding. Given, the growth in regulation and complexity of the markets we enter into, there is a greater recognition now of the need and role of lawyers on these projects. ALB: WHAT DO YOU SEE AS THE TOP LEGAL ISSUES FACING THE BUILDING/CONSTRUCTION INDUSTRY AT PRESENT? TW: There is a big question mark about the suitability of the PPP model for all types of projects. From our experience with PPPs, we think there are a lot of risks for contractors. That is an issue for the market. There is not the volume of the projects there, because of the risk issues and financing issues. The problem then for the government is that they have to find another means for bringing these projects to market, in place of the PPP model. Governments are starting to look at the PPP model to revaluate if it is too complex. There is a need for simplification in terms of the model and revisiting the types of projects for which it is appropriate.
CONSTRUCTION
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
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CONSTRUCTION LAW IN NEW ZEALAND -
Developments
THE CONSTRUCTION INDUSTRY IS FACING MUCH CHANGE IN NEW ZEALAND AT PRESENT, INCLUDING DEVELOPMENTS IN REGULATIONS, STATUTES AND RECENT CASE LAW. THE MAJORITY OF THESE CHANGES ARE CONNECTED TO THE LEAKY BUILDING EPIDEMIC THAT AROSE UNDER THE BUILDING ACT 1991. LICENSED BUILDING PRACTITIONER SCHEME BECOMES COMPULSORY The licensed building practitioner scheme was initially introduced as a voluntary scheme by the Building Act 2004 to promote better building, design and construction practices. From 1 March 2012, the licensed building practitioner scheme became compulsory and prescribed different types of licenses which an applicant can apply for - ranging from bricklaying and block laying to design and site. A person can hold more than one type of license, but only an individual (not a company) can apply to become a LBP. It is important for both small and large construction companies to ensure that they have the appropriate LBP on a site at all times. The scheme places obligations on both owners and building professionals to ensure that certain building work is carried out by an individual (or individuals) that hold the appropriate license.1 LAW COMMISSION REVIEW OF JOINT AND SEVERAL LIABILITY As part of the review of the Building Act 2004, a review was conducted into the common law principles of joint and several liability (Principles), primarily in the context of leaky home claims which often involve multiple parties. The Principles apply in cases where two or more people are liable for the same loss to a plaintiff through separate negligent acts. Both are 100 percent responsible for compensating the plaintiff. 1
The Government has agreed with a Department of Building and Housing Report that the Principles need to be considered in a broader review, not limited to the building sector to potentially move to a proportionate liability scheme. On 13 September 2011, the Government referred the matter to the Law Commission. The Law Commission is currently preparing terms of reference for the review. CONSTRUCTION CONTRACTS ACT 2002 – POSSIBLE CHANGES AHEAD A draft amendment bill is currently being prepared and it aims to improve the application of the current Construction Contracts Act 2002 (CCA) in residential and commercial building disputes. The key proposals include, amongst other things, extending the definition of construction work to include design, improving procedural matters such as seeking time extensions in adjudication claims and clarity around the appeal/review process. We are awaiting the bill’s introduction to the House, and expect this to take place in mid to late 2012. CASE LAW UPDATE – SCOPE OF COUNCIL’S DUTY OF CARE WHEN PRIVATE CERTIFIER INVOLVED Recently, the Supreme Court issued its judgment in the case of McNamara v Auckland City Council [2012] NZSC 34. This case confirms the limitations on the scope of a council’s duty of care to home owners who engage a private certifier to carry out inspection and certification of building works. This case involved a claim in negligence by a home owner against a council where a private certifier, acting outside their authority, certified building works. The council had issued a code compliance certificate on the back of the private certifier’s inspections. The majority of the Court (4-1, Elias CJ dissenting) upheld the Court of Appeal’s decision that a duty of care in negligence was not owed by the Council. The role of a private certifier was introduced under the (previous) Building Act 1991 and it would be inconsistent with that act to find that the council owes a duty of care to review the validity of a private certifier’s work. By Janine Stewart and Christine Gordon, Minter Ellison Rudd Watts.
Carter Newell Lawyers‌ a specialist law firm.
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IN-HOUSE PERSPECTIVE
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
IN-HOUSE PERSPECTIVE
A POWERFUL LEADER: ANDREW CLARKE, ORIGIN ENERGY MANAGING A SERIES OF HIGH PROFILE TRANSFORMATIONAL DEALS IS ALL IN A DAY’S WORK FOR ORIGIN ENERGY GENERAL COUNSEL ANDREW CLARKE, REPORTS OLIVIA COLLINGS
W
hen Andrew Clarke signed up for his job at Origin Energy three years ago he wasn’t completely prepared for what he was in for. The former Allens partner and Citigroup M&A managing director knew it would be a good opportunity; but the shape and size of that opportunity was, even to him, a surprise. “It was a company determined to do things,” says Clarke, who holds the dual title of general counsel and company secretary at Origin. “In the past three years we have undergone some pretty big changes, which have developed the company in ways which we didn’t fully imagine three years ago.” In the past 12 months Origin has completed a number of transformational transactions which have seen it become a top 20 ASX company. Last year it acquired Country Energy and Integral Energy’s retail electricity business and generation trading rights of Eraring Energy as part of NSW’s Power Privatisation and it completed a series of domestic and international
renewable energy transactions including a E$500 million hybrid issue (approximately A$680 million) – the first hybrid issue of its kind. Throughout the year Origin also conducted a range of other fundraising transactions including a A$2.15 billion syndicated facility and US$350 million bank debt facility; a US$500 million senior unsecured notes issue; a A$900 million retail notes issue and multiple bi-lateral bank facilities at a total of US$925 million. And while all of this was occurring on a corporate level, Origin continued to build its massive APLNG project in Queensland, develop several other projects including a joint venture with Sasol for CSG exploration in Botswana, a solar joint venture with Micron in the United States; a joint venture with Antofagasta Minerals in Chile for geothermal exploration; expansion of its exploration capabilities in the Bass Strait and farm outs of interests in an oil exploration venture offshore Kenya to Apache and Tullow. “For me personally, while managing those deals well is important, the thing that impressed me most [this past year] was that the team did it,” says Clarke. This is particularly impressive given the majority of the legal team had been at the company for less than 18 months. “During this same period, we built the team from four lawyers to 30,” says Clarke. “Despite having been here for less than two years, the team members have all taken to it really well… we have asked a lot of them in the past two years, and they have delivered, which is something they can be very proud of.” Origin’s in-house team is divided into three main areas and
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IN-HOUSE PERSPECTIVE works across five geographical locations. Clarke says that as a result of this he spends a lot of time ensuring that the team feels like a single unit, not a dispersed group of individuals. “We really focus on communicating…we have a weekly meeting and two physical meetings a year,’ he explains. “The feedback is that everyone in the legal team feels like they are part of something.” In addition to being geographically spread, the team is also very diverse on a professional level and personal level. “At first sight, there is little in common between a lawyer specialising in retail markets and a lawyer negotiating a very significant joint venture arrangement overseas,” says Clarke. “But we have a very strong sense of team. This company is very diverse in its needs, so our lawyers need to have a diverse way of thinking.” The team is comprised of an assorted mix of lawyers – from the youthful to the very experienced – and includes many senior female lawyers, a number of whom work flexible hours. “For us to be able to manage that, and embrace it without anyone feeling that they are carrying more than their share is a high achievement,” says Clarke. “And that is how it should be. Origin taught me to do that.” Having established a team that has earned the respect of the business and external legal advisors, as evident by the fact that not one but two law firms nominated it in the ALB Law Awards, Clarke says his next priority is to mature the team’s capabilities. “There is an enormous workload behind us and an equal one in front of us, and we won’t be changing our numbers in any significant way,” he says. “We have to deepen our understanding of the company and contributions that we make. Even if last year’s extraordinary year is repeated, it won’t be the same, so we have to be more mature and focused.” He adds: “The biggest job for me is to get the team effectively delivering the services the company will need.” ADDITIONAL POWER In addition to his high performing in-house team Origin also has a string of law firms at hand to assist; firms such as Clayton Utz, Baker & McKenzie, Freehills and Johnson Winter & Slattery, which have all advised Origin in the past year. Origin doesn’t have a formal legal panel and Clarke does not intend to establish one. Instead, he prefers to use a handful of firms on a regular basis.
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
THERE IS A LOT OF ACTIVITY IN THE SECTOR, AND IT IS CHANGING THE WAY AN ENERGY COMPANY PARTICIPATES, WE IN LEGAL HAVE TO WORK WITH THE BUSINESS ON ALL THE ISSUES THAT COME UP AS A RESULT OF THE ACTIVITY. “We tend to go back to a reasonably familiar small set of law firms,” he says. “We like to reward loyalty and people who have studied our business and gotten to understand us. I’m particularly conscious of ensuring that we don’t and won’t hitch our wagon to firms exclusively.” Having seen the volume of legal work increase significantly, new firms have come to the table in the past few years but Origin is unlikely to add many more. Even the arrival of new global law firm players is unlikely to significantly change the delegation of legal work. “I see the rise of global law firms as mostly neutral to us,” he states. “But we are cautious about conflicts. When we want to do something internationally we will ring an appropriate law firm, they will check their conflicts globally, and on that scale we’re likely to come down their pecking order... That is not a reason for us to not work with global law firms, but we know we need a diversity of voices in our ear.” Regardless of whether it’s a global or local firm, the one thing Clarke would like to see his private practice peers do better is the early scoping of legal work. “Before we embark upon the course of legal effort, as best you can you should stay in a conversation about what that legal effort will be,” explains Clarke. “It might take an hour or a month to properly scope out what it is you are doing, but none the less you should dedicate time to scoping because that’s where expectations are set.” Even within his legal department this is something that he is very passionate about improving: “Not everything we do is conducive to it, but a lot of things are discrete enough so that we can engage in a more productive planning conversation with business colleagues and outside counsel – the longer we’re in that conversation, the better.” Establishing what and how legal work will assist Origin will become particularly important as a series of external forces come to the fore. “We are one of the industries that is scrutinised more than most really,” states Clarke. “Governments will continue to look at our industry and find ways to improve it. In the upstream world, we are finding a wide range of reactions to energy development activity. At the more tail end, there is a greater focus on cost of living, and they both have an impact in many ways on how the industry is run. There is also a focus on clean energy, and that has a different, but just as intrusive, impact on the way the industry is shaped.” From July 1 the Federal Government will introduce a price on carbon and the Mineral Resources Rent Tax, a 30 percent tax on the extraordinary profits of coal and iron ore miners. These, along with international changes, will all put additional pressure on companies such as Origin which operate across the energy spectrum. “There is a lot of activity in the sector, and it is changing the way an energy company participates,” says Clarke. “We in legal have to work with the business on all the issues that come up as a result of the activity.”
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FEATURE
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
LAWYER TO WRITER: A NATURAL TRANSITION?
F
rom Robert Louis Stevenson to John Grisham, the law has long been a breeding ground for writers and novelists. So is there something unique about lawyering that makes it the ideal training for a writer’s life? Former lawyer turned novelist, Ralph Grayden, says there is a natural relationship between the legal profession and writing. “In its rawest form our legal system is all about two sides constructing competing narratives,” says Grayden, an alumnus of Freehills’ Sydney office. “As a lawyer you become pretty good at building a compelling story. That means knowing what needs to be said and what doesn’t, and joining the dots in the most logical and most convincing way. That’s also the most vital skill in writing.” “You don’t become a lawyer unless you love language,” he says. “And the law
hones the way you use language by teaching you the value of every single word.” However, Grayden says that storytelling is only part of the challenge of writing. Equally as important is having the selfdiscipline needed to sit at your desk and actually get the job done – particularly when that process can take some time. Grayden says it took more than three years to write his debut novel, a comedy called Page Three: A very London story. His own transition from lawyer to novelist took even longer and involved a detour through legal publishing and journalism. “You meet so many strong characters in the law and that gives you a lot of material to work with,” he says. This is true of Page Three, which tells the story of Paul Fletcher, a successful Sydney lawyer who wants to become a writer, and his beautiful wife Sarah, a publicist. When the couple moves to London to follow their dreams things don’t go to plan. Impatient for success, they find it hard to achieve all they’d hoped for from their new lives. Paul’s life descends into an orgy of drinking and television watching, punctuated by disaster. Sarah, however, secretly turns her good looks into easy money as a glamour model and soon finds herself at the centre of Britain’s notoriously fickle celebrity culture. Rejected and would-be authors – and there are many scattered throughout the profession – who are disillusioned with the publishing world and the difficulty of securing a contract with a major publisher may find some inspiration in Grayden’s story: having taken the step of self-publishing his work online via Amazon with a marketing budget of nil, Grayden has nonetheless managed to crack the best sellers’ list on Amazon following media reviews. That’s a good news story for all aspiring authors and artists, if there ever was one.
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SECURITIES
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
WILL THE GLOBAL REACH OF U.S. SECURITIES LAWS EXPAND AGAIN?
SECURITIES
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
59
P
rior to the U.S. Supreme Court’s decision in Morrison v National Australia Bank Limited (Morrison) the expansion of the federal U.S. securities laws to embrace foreign purchasers of foreign securities on foreign exchanges raised fears that the United States was evolving into the securities fraud courtroom. The decision in Morrison effectively limited private rights of action for securities fraud under section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) to transactions occurring within the United States. On 11 April 2012, the staff of the Securities and Exchange Commission (SEC) reported to Congress on their study of the cross border scope of private suits under section 10(b) of the Exchange Act. While their study made no specific recommendation, the options presented in the report indicate at least a partial return to pre-Morrison extraterritorial reach of U.S. securities law for private actions may well be on the cards in the near future.
BY KATHLEEN HARRIS GLOBALLY, CORPORATIONS AND THEIR LEGAL COUNSEL BREATHED A COLLECTIVE SIGH OF RELIEF IN 2010 WHEN THE UNITED STATES SUPREME COURT DRASTICALLY REDUCED THE JURISDICTIONAL REACH OF THE U.S. FEDERAL SECURITIES LAWS IN A CASE INVOLVING A MAJOR AUSTRALIAN BANK.
Morrison In Morrison, Australian shareholders of the National Australia Bank (NAB) brought an action in United States courts for a contravention of 10(b) of the Exchange Act alleging that HomeSide Lending, formerly a Florida subsidiary of NAB, knowingly used unreasonable valuation assumptions and sent falsified data to NAB, which in turn disseminated false and misleading statements to the public. Morrison was one of the so-called ‘foreign cubed cases’. Foreign cubed cases were commenced in the U.S. courts under federal securities law on behalf of foreign purchasers of foreign securities on foreign exchanges. The cases claimed that the U.S. courts had jurisdiction because the fraud was related to the U.S. by a sufficient level of conduct or had the effect of substantial harm to interests in the United States (known as the ‘conduct and effects tests’). Before the Supreme Court’s decision in Morrison, the lower federal courts all applied some form of the conduct and effects tests to determine the extraterritorial reach of section 10(b). While the conduct and effects tests were not uniform, generally 10(b) cases commenced by foreign investors were routinely allowed. In Morrison, the U.S. Supreme Court rejected the conduct and effects tests in favour of a bright-line transactional test. The transactional test says plaintiffs can only pursue claims alleging securities fraud under the Exchange Act for the sale or purchase of shares in the United States or of securities listed on a domestic American stock exchange. While the transactional test was intended to introduce clarity in determining extraterritorial application of U.S. federal securities law, its application by lower courts has had mixed results. For example, lower federal courts have applied the transactional test to cases involving fraud by intermediaries, such as investment advisers or broker/dealers. In applying the transactional test in these cases, courts have held that section 10(b) does not apply if the transaction for which the investor suffered a loss occurred either on a foreign exchange or otherwise outside the United States even if the intermediary was in the United States and engaged in the fraudulent conduct in the United States. Dodd-Frank Act partially reinstates conduct and effects test for enforcement agencies Shortly after the Morrison decision, the U.S. Congress passed legislation under the Dodd-Frank Act partially reversing the decision in Morrison and adopting the conduct and effects tests
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SECURITIES for section 10(b) enforcement actions commenced by the SEC or Department of Justice (DOJ). As a result of this legislation, in actions commenced by the SEC and DOJ, U.S. courts will have jurisdiction for actions which involve conduct with the United States that amount to significant steps in furtherance of a contravention (even if the transaction occurs outside the United States and involves only foreign investors) or conduct occurring outside the United States that has a foreseeable substantial effect within the United States. At the same time, Congress passed section 929Y of the Dodd-Frank Act, which required the SEC to conduct a study to determine whether private actions under section 10(b) should also be extended. The SEC study The SEC released its staff’s study in April this year, following a consultation period which accepted submissions from various parties, including the Australian government. The Australian government, together with the seven other countries, supported a continuation of the transactional test primarily on the grounds of international comity and conflict with domestic securities laws and class action procedures. Parties arguing for the retention of the transactional test also relied on its ‘bright-line’ rule granting issuers greater certainty with respect to potential legal exposure. Not surprisingly, those arguing for a return to the conduct and effects tests argued that the application of these tests protected all investors, domestic and foreign, and prevented the United States from being a base for the export of fraud and deceit. Those advocating expanded extraterritorial reach pointed to the impracticality of the transactional test given the reality of the global capital markets where an investor may not know whether an order for a cross listed security is executed on a U.S. or foreign exchange. A transactional test may also limit the diversification of portfolios if investors can only purchase the less liquid American Depository Receipts in order to ensure they were protected by U.S. federal securities law. Options for Change The study makes no specific recommendations for change but rather presents six options for Congress to
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
consider, with a seventh option being to do nothing. In that respect, the study has been somewhat of a disappointment, as it was generally expected that it would present a concrete recommendation for change. One of the SEC Commissioners, Commissioner Aguilar, issued a strongly worded statement critical of the study for failing to provide specific recommendations and arguing that the Study overstates international comity concerns, while not sufficiently addressing the harm to investors as a result of the application of the transactional test. In Commissioner Aguilar’s view, Congress should adopt for private section 10(b) actions the same standard adopted for SEC and DOJ enforcement matters. Of the six options presented, three involve at least a partial return to the conduct and effects test. The first option is for Congress to legislate the same conduct and effects tests for private rights of action available to the SEC and DOJ under the Dodd-Frank Act. Options two and three are variations on this theme. Option two reinstates the conduct and effects test but it would only apply to private litigants who could establish they were directly injured by conduct occurring in the United States. The SEC advocated this test in an amicus brief to the Supreme Court in Morrison and it remains the SEC’s preferred option. The third option is reinstate the conduct and effects tests, but only allowing U.S. investors to sue. The other three options all involve the retention of the transactional test but with modifications to allow for some extraterritorial reach. In these options the transactional test would still apply but would allow investors to sue where the securities at issue are of the same class of securities registered in the United States regardless of where the actual transaction took place; or allowing a claim where an investor was fraudulently induced to engage in a securities transaction while in the United States, regardless of where the transaction eventually took place; or if either party made or accepted the offer to buy or sell while in the United States. Implications going forward The prospect of a return to expansive extraterritorial reach strikes fear in the hearts of many global issuers and their legal counsel, and raises important issues of international comity and sovereign jurisdiction. By the same token, many cross-border investors, and the plaintiff legal firms that specialise in securities class actions, would welcome a return to a conduct or effects test. In my view, it is unlikely that the United States would return to the highly elastic conduct and effects tests that applied pre-Morrison. However, the limits of the transactional test in the context of global capital markets means the US.. Congress may well legislate for a private right of action for foreign claims in the form of a modified conduct and effects test. In the end, it will be a balancing act between competing interests, but in a world where capital markets are increasingly global, the location of a transaction and the laws that apply there may become increasingly less relevant.
Kathleen Harris heads the Regulatory, Competition & Consumer practice at Kemp Strang. She has worked in private practice in Australia and the United States, and has also held senior roles at ASIC and the New York Antitrust Bureau.
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