AUSTRALASIAN LEGAL BUSINESS
DOCUMENT MANAGEMENT IN THE DIGITAL ERA INTELLECTUAL PROPERTY
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com ISSUE 10.9 OCTOBER 2012
OCTOBER 2012 MELBOURNE DOC MANAGEMENT
King & Wood Mallesons
Herbert Smith Freehills
Allens Linklaters
Ashurst
INTELLECTUAL PROPERTY
If one green bottle should accidentally fall…
ISSUE 10.9
ALB SPECIAL REPORT: VICTORIA 2012 Melbourne: what two speed economy?
Senior Roles from Senior Recruiters
At Burgess Paluch our recruiters are some of the most senior in the market. To speak to a recruiter who understands senior lawyers, call Burgess Paluch. Melbourne Family - Special Counsel/Partner Up-market family team seeks a special counsel or current/future partner for its growing and busy practice. Work with a mix of high net worth clients on both disputes and mediated matters. Taking a lead role in the business and assisting with the practice and development of juniors, this is a rare offering with a defined career path.
IR/ER 4+ PAE
Join a busy and vibrant CBD office in a growing IR/ER group. Working as a part of this group will allow you to work hands-on with major employer issues while benefiting greatly from mentoring and training from the partners. Strong remuneration on offer.
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 national corporate team and use your commerciality 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.
Sydney Banking & Finance - Snr Assoc
Deal with leading lenders, underwriters and owner/developers on a wide variety of domestic and cross-border projects. Working with impressive peers, enjoy a generous package and good career opportunities.
Commercial Litigation - Partner
Expanding premier firm seeks partner for rare role in this high profile practice. Enjoy high level general commercial litigation as well as some contentious and non-contentious insolvency matters. You will set the goals and spearhead the direction of the group. Have an impact at the firm and broaden your horizons. Key role in a relaxed group. Open path to equity for the right partner.
Singapore Oil & Gas - Mid to Senior
Leading international firm seeks a mid to senior level lawyer with a background in oil and gas for a challenging role. Work with global brands on cross border transactions and play a key part in this gun team. Good market rates, relocation and a career path at this strong firm.
Brisbane
Perth
IR/ER - Snr Assoc
Corporate/M&A - Snr Assoc
Commercial & Disputes 4+ PAE
Commercial Lit - Snr Assoc
Challenging and interesting work assisting employers on workplace and industrial issues, including some executive level matters. Blue chip issues with corporate, commercial and significant government clients. Interstate lawyers looking to relocate are welcome to apply. A rare chance to mix transactional and litigation work. Lawyers in this national firm act almost as in-house counsel for their clients, becoming the sole point of contact on broad commercial issues affecting the business. Work closely with a range of leading organisations across multiple sectors.
London Commercial Litigation - Assoc This premier City/international law firm is looking to recruit an additional associate to join their top flight litigation team in London. The successful candidate should have general commercial litigation experience. Interviews via video conference.
This leading, busy corporate team boasts some of the best corporate and resources work going in Perth. Work directly under a highly respected partner on corporate / commercial matters including joint-ventures, takeovers, and some international work including offshore capital raisings. Interesting range of high profile, high calibre general commercial litigation, insolvency, and insurance work on offer (depending on experience). The firm has one of the leading commercial litigation and dispute resolution practices in Australia and the Asian region. Enjoy significant career prospects.
Hong Kong Insolvency 5+ PAE
Attractive senior role in this switched on insolvency team. With recent experience conducting one of the largest corporate insolvencies in the Asia Pacific region, this strong team, led by an Australian partner, is ready to hire. Work on challenging cross border disputes with a close Australian connection.
BPL2526
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 10.9
1
“THERE IS A STRONG VIEW AROUND THE PLACE THAT THE GOVERNMENT NEEDS TO BE INVESTING IN PROJECTS TO GET THINGS HAPPENING IN VICTORIA. THIS IS DRIVEN BY GOVERNMENT BUT MUST BE SUPPORTED BY BUSINESS.” Tony Macvean, Hall & Wilcox
20
NEWS DEALS
COVER STORY MERGERS: WHO WILL STRUGGLE AND WHO WILL THRIVE? Your verdict on the major mergers and alliances of 2012
LEAGUE TABLES
FEATURES 14
LIBOR SCANDAL Could it happen in Australia?
32
DOCUMENT MANAGEMENT Document management in the digital era
36
08
10
RESTRAINTS Would your firm sue a departing partner or put them on gardening leave?
06
INTELLECTUAL PROPERTY Raising the bar on Australia’s IP regime
44
COMPLIANCE How to build a structured approach to regulatory compliance
56
SPONSORED UPDATE Buddle Findlay
09
APPOINTMENTS
34
PROFILES In-house perspective Carmel Mulhern, Telstra
60
ACLA PERSPECTIVE
64
NE 185C
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
2
AUSTRALASIAN
LEGAL BUSINESS
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4
EDITORIAL
AN EPISTLE FOR CHANGING TIMES
A
couple of months ago, there was an interesting exchange of comments on the readers’ forum of UK legal publication The Lawyer. The publication had reported on two separate incidents involving Hong Kong-based partners at high profile international firms. In both cases, the partners had been involved in alleged drink driving incidents. The details can still be found online and make for some interesting reading – there’s a touch of James Bond in the account of high powered lawyers whizzing along in Porches around the bends of the Fragrant Harbour. Not all of The Lawyer’s readers appreciated the story and took to the forum to express their displeasure. “This is a legal website, not a local HK paper,” wrote one correspondent. “The only reason we are being fed this info is gossip. It’s juicy info involving Magic Circle partners getting drunk. Nothing else.” This view was not universal and many other readers wrote in to defend the story, arguing that the seriousness of the alleged offending and the link between the profession and alcohol abuse made the story newsworthy. Inevitably came the tongue in cheek responses: “I’m a real general counsel and not only do I not mind if my external counsel drinks a few pints, I practically demand it,” declared one reader. “And when my counsel picks me up after a hard day of pushing papers to go to the pub for a little schoomzing they damn well better be driving a rocket fast Porsche because I don’t have time to waste with my busy schedule.” This exchange reflects the divergent views towards alcohol which still exist in the profession. There are plenty who will still give a nod and a wink towards a culture of heavy drinking but perhaps their days are numbered – certainly there seems to be an increasing proportion of partners who have eschewed the beers and are instead seen sipping designer water at functions. At least the breakfast functions, anyway. When did this cultural transition take place and where will it lead? Will we reach the point where any kind of consumption of alcohol – regardless of whether it results in anti-social or criminal behavior or not – must, by default, be frowned upon in a professional context? It is not uncommon for those in human resources roles to desist from drinking at work functions – will this practice one day extend to lawyers and indeed anyone whose professional capacity could potentially be compromised by the timeless maxim in vino veritas? Will orange juice replace the cocktails at functions, to make sure no client confidences are breached? There’s a sobering thought, if there ever was one. RENU PRASAD Australasia Editor, Australasian Legal Business, Thomson Reuters
AUSTRALASIAN
LEGAL BUSINESS
GLOBAL VISION. AUSTRALIAN INSIGHT. Change defines the times. We are a leading global law firm with the expertise to help our clients navigate complexity and change, evaluate risk and seize opportunities – wherever they arise. As one, Herbert Smith Freehills is a global force with a single vision. HERBERTSMITHFREEHILLS.COM
6
DEALS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
YOUR MONTH AT A GLANCE YOUR MONTH AT A GLANCE Deal
Value
Advisor
Client
Lead lawyer
Sunshine Coast University Hospital PPP
A$1.8 billion
DLA Piper
Lend Lease Project Management & Construction
Alex Guy, Scott Alden, Kim Broadbent, Dan Brown
BlueScope Steel joint venture with Nippon Steel Corporation
US$1.36 billion
King & Wood Mallesons
BlueScope Steel
Diana Nicholson
BlueScope Steel joint venture with Nippon Steel Corporation
US$1.36 billion
Clayton Utz
Nippon Steel
Graham Taylor, Linda Evans
NRL five year broadcast agreement
A$1 billion
Kennedys
NRL
Tony O'Reilly
Caulfield Village construction contract
Undisclosed (Entire project is worth A$1 billion)
Norton Rose Australia
Melbourne Racing Club
Arthur Chong
Rockwood Holdings merger with Talison Lithium
C$724 million (A$729 million)
Clayton Utz
Talison Lithium
Heath Lewis
Rockwood Holdings merger with Talison Lithium
C$724 million (A $729 million)
Gilbert + Tobin
Rockwood Holdings
Peter Cook, David Clee
Quadrant Private Equity’s stake in Super A-Mart
A$500 million (approximate)
Clayton Utz
Ironbridge Capital
Niro Ananda, Jonathan Donald, Geoff Geha
Quadrant Private Equity’s stake in Super A-Mart and Barbeques Galore
A$500 million (approximate)
Minter Ellison
Quadrant Private Equity
Callen O'Brien
Quadrant Private Equity’s stake in Super A-Mart and Barbeques Galore
A$500 million (approximate)
Baker & McKenzie
Ironbridge Capital
Mark McNamara
GrainCorp Oils establishment and financing
A$472 million
Gilbert + Tobin
GrainCorp
John WilliamsonNoble, John Schembri, James Lewis
GrainCorp Oils establishment and financing
A$472 million
Freehills
Goodman Fielder
Rebecca MaslenStannage, Sarah Kenny
CAMECO CORPORATION’S ACQUISITION OF YEELIRRIE URANIUM
Thakral refinancing
A$460 million
Ashurst
Thakral
Martin Coleman
• Cohen previously advised Cameco Corporation on its joint venture with Mitsubishi Development to acquire a uranium project in Western Australia from Rio Tinto for US$495 million
Cameco Corporation’s acquisition of Yeelirrie uranium
US$430 million
Clayton Utz
Cameco Corporation
Heath Lewis, Brett Cohen
Cameco Corporation’s acquisition of Yeelirrie uranium
US$430 million
Ashurst
BHP Billiton
Geoff Gishubl, Antonella Pacitti
Heath Lewis, Clayton Utz
Lewis previously advised Talison Lithium in relation to a merger with Salares Lithium and a C$40 million equity financing and listing of Talison Lithium on Toronto Stock Exchange.
Peter Cook, Gilbert + Tobin
US$430 million M&A
DEALS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
DEALS REPORTED TO ALB, SEPTEMBER 2012. Please note that owing to the limited space in this table, only the higher value deals in any given month will be shown.
YOUR MONTH AT A GLANCE Deal
Value
Advisor
Client
Lead lawyer
Silver Lake Resources’ acquisition of Integra Mining
A$426 million
Gilbert + Tobin
Silver Lake Resources
Marcello Cardaci
Icon Construction and Southern Cross Constructions merger
A$400 million (value of new group)
Arnold Bloch Leibler
Icon Construction
Jonathan Wenig, Nathan Briner, Jeremy Lanzer, Laila De Melo
Fuji Film’s acquisition of Business Process Outsourcing
A$375 million
Clayton Utz
Salmat Limited
Geoff Hoffman
Fuji Film’s acquisition of Business Process Outsourcing
A$375 million
Ascendas Group IPO and listing of securities
SIN$385 million
King & Wood Mallesons
Ascendas Group
John Sullivan, Evie Bruce
DEXUS Property Group capital partnership
A$360 million
Allens
DEXUS Property Group
Mark Stubbings, Nigel Papi
APA Group's notes offer
A$350 million
Clayton Utz
Joint lead managers
Brendan Groves
APA Group notes offer
A$350 million
King & Wood Mallesons
APA Group
David Eliakim, Philip Harvey
Caltex subordinated notes offer
A$300 million
Clayton Utz
Citigroup and UBS as joint structuring advisers and joint lead managers
Stuart Byrne
Caltex subordinated notes offer
A$300 million
Allens
Caltex
Stuart McCulloch, Robert Pick, Alan Maxton, James Darcy
FKP Property Group stapled securities offer
A$208 million
Minter Ellison
FKP Property Group
Gary Goldman, Daniel Scotti, Ian Lockhart
Stage 2 of the Sydney Cricket Ground (SCG) redevelopment
A$186 million
Mills Oakley
AW Edwards
Andrew Wallis
Stage 2 of the Sydney Cricket Ground (SCG) redevelopment
A$186 million
Corrs Chambers Westgarth
The Sydney Cricket & Sports Ground Trust
Andrew Chew, Robert Regan
Country Road’s acquisition of Witchery and Mimco
A$172 million
Baker & McKenzie
Gresham Private Equity (Witchery & Mimco owner)
Craig Andrade, Tyson May, Tim Sherman, Bryan Paisley, David Jones
A$360 million Ashurst
Fuji Film
Ian Williams, Natsuko Ogawa
PROPERTY DEXUS PROPERTY GROUP CAPITAL PARTNERSHIP
• Allens has been working with DEXUS since 1998, and regularly advises the property group on a range of major developments and strategic matters.
Nigel Papi, Allens
A$185 million CONSTRUCTION STAGE 2 OF THE SYDNEY CRICKET GROUND (SCG) REDEVELOPMENT
• Robert Regan also led the Corrs team on the Stage 1 Development
7
8
LEAGUE TABLES
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
TOP M&A ADVISORS - AUSTRALIAN ANNOUNCED DEALS, YEAR TO DATE
1
NO.
TOP M&A ADVISORS - COMPLETED DEALS, YEAR TO DATE
1
FREEHILLS
12994.82
VALUE ($MIL)
NO.
DEALS: 54 MARKET SHARE: 24.9
RANK LEGAL ADVISOR
VALUE MKT. DEALS ($MIL) SHARE
KING & WOOD MALLESONS
21450.04
VALUE ($MIL)
DEALS: 37 MARKET SHARE: 39.6
VALUE MKT. DEALS ($MIL) SHARE
RANK LEGAL ADVISOR
2
Ashurst
9,672.88
18.5
43
2
Ashurst
16,388.49
34.4
46
3
Gilbert + Tobin
7,388.95
14.2
27
3
Gilbert + Tobin
16,363.11
34.3
22
4
Allens
7,346.89
14.1
31
4
Freehills
16,272.85
34.1
19
5
King & Wood Mallesons
5,825.19
11.2
43
5
Allens
15,961.20
33.5
20
6
Clayton Utz
5,657.29
10.8
33
6
Clayton Utz
12,624.13
26.5
27
7
Baker & McKenzie
5,036.73
9.7
24
7
Corrs Chambers Westgarth
11,914.38
25.0
14
7*
Latham & Watkins
3,309.12
6.3
1
8
Minter Ellison
7,362.47
15.4
28
9
Jipyong Jisung
3,309.12
6.3
1
9
Allen & Overy
5,291.11
11.1
15
10
Osler Hoskin & Harcourt LLP
3,027.19
5.8
6
10
Baker & McKenzie
4,074.33
8.5
2
11
Clifford Chance
2,808.64
5.4
8
11
Norton Rose
3,526.10
7.4
17
12
Minter Ellison
2,786.27
5.3
35
12
Cravath, Swaine & Moore
3,350.79
7.0
12
13
Blake Cassels & Graydon
2,509.15
4.8
4
13
McCullough Robertson
2,739.72
5.7
1
14
Allen & Overy
2,230.97
4.3
11
14
Clifford Chance
2,559.85
5.4
15
15
Norton Rose
2,202.34
4.2
23
15
Baker Botts LLP
2,554.96
5.4
2
16
Middletons Lawyers
1,638.68
3.1
5
16
Orrick Herrington & Sutcliffe LLP
2,414.38
5.1
2
17
Squire Sanders & Dempsey LLP
1,545.22
3.0
7
17
Stikeman Elliott
1,485.86
3.1
4
18
Johnson Winter & Slattery
1,505.35
2.9
3
18
Osler Hoskin & Harcourt LLP
1,351.86
2.8
3
19
Corrs Chambers Westgarth
1,345.71
2.6
22
19
Kirkland & Ellis
1,334.61
2.8
1
20
Simpson Thacher & Bartlett
1,250.64
2.4
2
20
Cassels Brock & Blackwell LLP
1,334.61
2.8
1
Lawson Lundell Lawson & McIntosh
21
Werksmans Attorneys
1,220.35
2.6
1
20*
1,117.12
2.1
1
21*
CLS Attorneys
1,220.35
2.6
1
20*
Herbert Smith
991.54
1.9
3
23
1,220.35
2.6
1
20*
Kirkland & Ellis
748.44
1.4
4
Lawson Lundell Lawson & McIntosh
24
DLA Piper
726.52
1.4
24
23*
Linklaters
1,220.35
2.6
1
25
McCullough Robertson
571.87
1.1
18
23*
Kalamba & Associes
1,194.03
2.5
1
23*
Davies Ward Phillips & Vineberg LLP
40,644.23
77.9
356
Subtotal with Legal Advisor
47,750.99
88.1
315
Subtotal without Legal Advisor
11,546.25
22.1
875
Subtotal without Legal Advisor
6,430.27
11.9
570
Industry Total
52,190.47
100.0
1231
Industry Total
54,181.26
100.0
885
Subtotal with Legal Advisor
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date:2012-09-22 08:30:36 EDT
(*tie) Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2012-09-22 08:16:32 EDT
Firm Profile
NZ Commentary
EXPLAINING THE ORDINARY A recent judgment from New Zealand’s Court of Appeal has provided useful guidance on an issue that arises frequently in priority disputes between secured parties under the personal property securities regime, and more widely. In StockCo Limited v Gibson [2012] NZCA 330, the Court discussed the factors that will be relevant in determining whether a transaction is “in the ordinary course of business of the seller” in terms of section 53 of the Personal Property Securities Act 1999. An equivalent expression is found in section 46 of the Australian Personal Property Securities Act 2009, so the decision is likely to be of interest to Australian practitioners. The phrase is also prevalent in other legislation, contractual boilerplate and widely-used forms of trust deeds. It seems likely that the decision will be influential in these other contexts as well. THE FACTS
The case involved a priority dispute between receivers appointed by a consortium of financial institutions (Financiers) and a livestock trading and financing company (StockCo). The Financiers had a security interest over all of the property of four dairy farming companies (Security Group), including their livestock. To raise funds to purchase new dairy farms (which the Financiers had refused to finance), the Security Group entered into sale and leaseback transactions with StockCo. In one of these transactions a member of the Security Group (Plateau) sold 4,000 heifers to StockCo, which then leased them to Nugen (a related company that was not part of the Security Group). ORDINARY COURSE OF BUSINESS?
StockCo argued that the sale of the heifers was in the ordinary course of Plateau’s business and (it being common ground that StockCo did not know the sale was in breach of the Financiers’ security) StockCo’s security interest over the heifers therefore took priority over the Financiers’ security interest. Both the High Court and Court of Appeal disagreed. O’Regan P noted that section 53:
... must be interpreted in a way which meets the commercial objective of facilitating commerce without undermining the equally important commercial objective of ensuring that those who provide credit on the security of the debtor’s goods are not unfairly deprived of the benefit of that security (at [49]).
He held that “what is required is an objective factual assessment based on all the circumstances of the particular case” but gave the following guidance:
- That the price is discounted from the fair market price will also suggest a sale not in the ordinary course. So, too, will the fact that a transaction is not at arm’s length
· A two stage process is appropriate: the court will determine what business was being carried on by the seller “in the ordinary course”, and then determine whether the transaction falls within that
- The reason for the transaction is relevant, such as if it is in response to financial difficulties or in suspicious circumstances
·W hen a group of companies is operated as a single business, it may well be appropriate to consider the business of the group as a whole (as on the facts here) · T he fact that security documentation restricts the seller’s ability to change its ordinary business is unlikely to be relevant – while altering its business might be a breach of the security agreement, that will not affect the objective determination of what the seller’s ordinary course of business is · T he section should not be interpreted “in a way that allows a debtor to make a sudden change of business strategy”, broadening the scope of the section and reducing the secured party’s protection. Such a sudden change would be “contrary to the concept of the ‘course’ of business”
- The court will consider the frequency of the transaction, the phrase “ordinary course of business” involving “some anticipated repetition of business activities”. Here, StockCo sought to rely on what the Court found to be “one-off transactions that were not capable of becoming a business which would be operated in the ordinary course”.
This article was written by Scott Barker, partner, and Kellee Clark, senior solicitor, both based in the Wellington office of Buddle Findlay, a leading New Zealand law firm. Scott specialises in litigation, insolvency and credit recovery, and Kellee specialises in banking and finance and general corporate law. Scott can be contacted on +64 4 498 7349 or scott.barker@buddlefindlay.com and Kellee on +64 4 462 0801 or kellee.clark@buddlefindlay.com.
· The following factors may be relevant: - Agreements made at the seller’s usual place of business will be more likely to be in the ordinary course of business. The extra formality here (including negotiations through Plateau’s lawyer) and involvement of external advisers did not suggest a sale in the ordinary course of the group’s business - Similarly, the nature and significance of the transaction is relevant, such as whether it can be effected by a manager or needs specific authorisations - The transaction is more likely to be in the ordinary course of business if the buyer is an ordinary everyday consumer rather than a dealer or financial institution - The fact that the sale was of a large quantity (perhaps forming a “substantial proportion of the stock of the seller”) is an indication it is not in the ordinary course
SCOTT BARKER
Buddle Findlay
KELLEE CLARK
Buddle Findlay
10
ANALYSIS
King & Wood Mallesons
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
Herbert Smith Freehills
Allens Linklaters
Ashurst
IN VINO VERITAS
IN WINE THERE IS TRUTH AND IN TRUTH THERE IS WHINE. ALB READERS UNLEASH THEIR CANDID OPINIONS — FLATTERING AND UNFLATTERING — ON THE LATEST MERGERS TO HIT THE MARKET IN 2012. REPORT: RENU PRASAD.
T
he call which was put through to the ALB Complaints and Tomatoes Department was not unexpected. ALB, as part of the Employer of Choice survey, had invited readers to cast a vote as to which Australian law firm merger would be most likely to fail. A highly provocative question indeed – so it was not surprising when one lawyer phoned in to announce that he had “something to say” about the process. “This survey of yours,” he said crisply. “You’ve been asking people to vote for which merger will fail. Well that’s missing the point isn’t it? What makes you think that only one of them will fail? I want to vote for more than one of them.” Other readers made the same point. “Why am I constrained to only thinking
ONE will fail?” complained one respondent. Another respondent took matters into his or her own hands: “I would like to select more than one - Allens, Ashurst, Herbert Smith Freehills, King & Wood Mallesons and Norton Rose,” they wrote. It was at this point that we concluded that this exercise was not dissimilar to asking an Englishman to nominate his favourite football team and expecting an objective answer. An exact science it ain’t. But there is still good reason to proceed with the exercise. Ever since the Norton Rose–Deacons tie up back in 2010, the market has been intrigued by the procession of mergers and alliances involving Australian firms. Privately, each of these arrangements has been critically reviewed, dissected and analysed by rivals. Very little of this discussion, however, has reached the public realm and it is easy to see why: there can be little benefit for any lawyer to be seen to be publicly lauding or disparaging a rival. So the criticism has remained off the record and the media have, by and large, stuck to the official script provided by the firms. A notable exception occurred in June when King & Wood
ANALYSIS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
Mallesons’ Stuart Fuller offered his opinion on the financial integration aspects of Herbert Smith Freehills to several media outlets. Fuller argued his case well and with a candour which seems to be a hallmark of his firm. But such candour remains the exception to the rule. The commentary from Fuller would have been appreciated by those members of the legal community – particularly in-house lawyers – who do not have the benefit of working in proximity to their professional colleagues in other organisations. The point here is not whether the commentary is correct – the point is that it provides an insight into the kind of things that are being said in offices and boardrooms across the nation and the kind of chatter which might occur over Friday drinks. Not everyone has access to a well developed professional network and hearing these kinds of opinions helps provide some context to what may otherwise seem a bewildering pace of change in the market. Idle minds can make for gossip, but sometimes they also provide astute insights. In moderation, that’s not a bad thing at all. With this in mind, we now publish the results for two of the most controversial questions of this year’s EOC survey: which merger/ international firm has the strongest brand? Which arrangement is the most likely to fail? Importantly, not all participants in the EOC survey chose to answer these questions – in fact a substantial number chose not to. 449 respondents voted in the “strongest brand” question and 266 respondents voted in the “likelihood of failure” question. And as far as we can tell, the respondent who proposed to vote for all of the firms in the latter question did not actually carry out this threat. STRONGEST BRAND? In this section, respondents were asked to nominate the international firm which they regarded as having the strongest brand. The list of choices included alliances (e.g Allens Linklaters), full mergers (e.g Hebert Smith Freehills), standalone entrants (e.g Allen & Overy) and verein structures (e.g King & Wood Mallesons).
Which merger/international entrant has the strongest brand? Allen & Overy
11.8% 24.5%
DLA Piper
4.9%
Herbert Smith Freehills King & Wood Mallesons
4.7%
10.9%
Clifford Chance
Clifford Chance
3.4%
DLA Piper
10.2%
Herbert Smith Freehills
15%
King & Wood Mallesons
6.7%
27.4%
Norton Rose
10.2% 0.7%
0 0
13.2%
Ashurst
Baker & McKenzie
Squire Sanders
3.4%
Allens Linklaters
4%
Norton Rose
The results can be broken into three broad categories. First, it is clear that respondents were impressed with the prestige associated with the Magic Circle: Clifford Chance and Allen & Overy were ranked considerably ahead of the rest of the field and Allens Linklaters, although some distance behind, was also favourably viewed. Clifford Chance Sydney managing partner Mark Pistilli believes that his firm’s choice of model would have contributed to the strong result. While other firms may need to shrink their numbers in order to meet global profitability targets, Clifford Chance Australia has the luxury of starting from a relatively small base. “It’s always a happier environment to be growing rather than shrinking,” observes Pistilli. “It means we can offer something to the younger lawyers who are looking for partnership.” It was a mixed set of results for other international firms. Australia’s longest established international firm, Baker & McKenzie, fared well. So did Norton Rose, again confirming the general market perception that Deacons has achieved one of the more successful brand transitions
Allen & Overy
14.5%
Ashurst
THE POINT HERE IS NOT WHETHER THE COMMENTARY IS CORRECT – THE POINT IS THAT IT PROVIDES AN INSIGHT INTO THE KIND OF THINGS THAT ARE BEING SAID IN OFFICES AND BOARDROOMS ACROSS THE NATION
Which merger/ international entrant is most likely to fail?
18%
Allens Linklaters
7.1%
Squire Sanders
55
10 10
1515
11
20 20
25 25
9.4%
00
55
10 10
15 15
20 20
25 25
30 30
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ANALYSIS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
AUSTRALIA’S LONGEST ESTABLISHED INTERNATIONAL FIRM, BAKER & MCKENZIE, FARED WELL. SO DID NORTON ROSE, AGAIN CONFIRMING THE GENERAL MARKET PERCEPTION THAT DEACONS HAS ACHIEVED ONE OF THE MORE SUCCESSFUL BRAND TRANSITIONS THE MARKET HAS SEEN TO DATE. the market has seen to date. DLA Piper did not fare so well and nor did Herbert Smith Freehills – although it should be pointed out that this firm did not formally exist at the time of the survey. It will be interesting to see whether the brand perception improves once the marketing efforts begin in earnest. Respondents were also lukewarm on King & Wood Mallesons and Ashurst, while Squire Sanders attracted the lowest vote. One respondent wrote succinctly: who is Squire Sanders? Let’s hope more people are able to answer that question once the firm has had a chance to establish itself in Sydney. There are also a handful of other international firms operating in Australia, such as Sullivan & Cromwell and Skadden Arps and Holman Fenwick. These firms have a rather niche focus in Australia and were omitted from the survey as it would be difficult to compare them with their larger counterparts.
LIKELIHOOD OF FAILURE Respondents had a choice of the same firms in this section as the previous section and were asked to vote for the merger most likely to fail. Importantly, we note that these results are based on reader perception only. There is no evidence that readers were using “insider” information when making their judgments and some of the more colourful predictions need to be taken with a grain of salt. King & Wood Mallesons was voted the merger most likely to hit the rocks according to respondents, who cited the cultural differences between the partners as the main reason. “They're clearly operating in two different silos: K&W to do PRC work and Mallesons the rest,” wrote one respondent. “The cultures are not compatible so I don't think financial integration will go smoothly. If the Aus-PRC deal pipeline dries up, expect this merger to go down the toilet.” Herbert Smith Freehills also attracted a high vote, with respondents predictably sceptical that the firm will meet its October deadline for a shared profit pool. “Immediate financial integration? No way this is going to work when our dollar comes back down,” said one respondent. Allens Linklaters attracted a high vote, which is somewhat surprising given that this is one of the more flexible arrangements which will see the partner firms largely retain their own profit pools and identities. However, some respondents felt that the firms could end up perceiving each other as competitors rather than alliance partners and even suggested that Allens partners could switch their allegiances to Linklaters. Readers may recall that similar rumours circulated when the Linklaters alliance was first announced, causing Allens CEP Michael Rose some exasperation. Not surprisingly, Allen & Overy and Clifford Chance were rated the lowest possibility of failure. Failure in the case of these firms would mean the Australian lawyers being excised from the main partnership, an outcome which respondents rated as unlikely.
WHAT THE FIRMS TOLD US – AND WHAT THE CRITICS SAID Firm
The official line:
…and what the critics said*
Allens Linklaters
“…the nature of this alliance means that in relation to joint matters clients will benefit from one point of contact, a unified team drawn from the best resources of each firm, and advice and support provided in a consistent manner and style.”
Ashurst
“…a powerful global legal presence operating as one team, under one brand, with a shared vision.”
“Blakes is giving up its name completely to take on a name that is not well known in Australia…as an outsider it doesn’t look like the smartest move.”
Herbert Smith Freehills
“Herbert Smith Freehills to be top integrated firm in the Asia Pacific region and new global force”
“Immediate financial integration? No way this is going to work when our dollar comes back down.”
King & Wood Mallesons
“With unrestricted Chinese legal capability on top of our already strong regional offering, the combination of King & Wood Mallesons has created a new global legal powerhouse with a uniquely Asian view of the world."
Squire Sanders
“This is an important step for our team in Perth as we become part of a genuinely global legal practice. We are very excited about the combination as it enables us to provide enhanced service to domestic and international clients operating or investing in Western Australia.”
*drawn from EOC survey comments and off record interviews conducted by ALB
“The merger you have when you’re not having a merger.” “I wouldn’t be surprised if the top Allens partners end up at Linklaters.”
“The cultures are not compatible so I don't think financial integration will go smoothly. If the AusPRC deal pipeline dries up, expect this merger to go down the toilet.” “King & Wood will suck the DNA out of Mallesons.” “Who is Squire Sanders?” “U.S. firms are known for the quick exit so watch out if the resources boom goes sour.”
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
EQUITY MARKETS
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TRUENERGY DELAY DASHES HOPE OF 2012 IPO REVIVAL
I
ndications are that Australia’s TRUenergy has delayed its proposed IPO and will reduce the launch size from an earlier planned $3 billion if markets weaken further. The IPO, slated to be Australia’s biggest in about two years, could be pushed back to the first quarter of 2013 from the November date targeted earlier, the sources have told Reuters. The size could fall to between $2 billion and $2.5 billion, one of the sources said. However, TRUenergy has declined to confirm these reports. The move would follow a series of cancelled or delayed IPOs in the region, such as motorsport racing company Formula One’s up to $3 billion Singapore listing and London luxury jeweller Graff Diamonds’ $1 billion Hong Kong IPO. A delay to 2013 would also add to struggles of the Australian IPO market, which hasn’t seen a single offering worth more than $100 million so far in 2012. Lawyers in the sector concur that it is still one of the worst IPO markets Australia has had for a long time. “The Calibre IPO (A$75 million) is the biggest so far this year; what we need is a few more to be successful before we start thinking that the IPO market is open,” said Gilbert + Tobin partner Peter Cook, who advised the underwriters of the Calibre IPO. While Cook says the market is definitely not dead, he admits trading conditions are difficult. “The IPO market is showing some sign of life,” he said. “The announcement by TRUenergy doesn’t help, but they have not cancelled it – they have said they are waiting for the market to return.” The last big domestic IPO was QR National’s $4.6 billion offering in late 2010. Only $225.7 million has been raised through 10 IPOs in Australia so far in 2012 compared with $795 million in 2011 and
$7.3 billion in 2010, according to Thomson Reuters’ data. King & Wood Mallesons partner Shannon Finch says that the TRUenergy announcement is disappointing for those in the market, but says there is still hope. “The IPO pipeline is quite strong, but I don’t think many of them were aiming for this year,” she said. “There might still be one or two IPOs this year, but I think a lot are waiting until next year.” IPOs that have made it to market this year have been at the smaller end of the market, around the A$50 million mark. “Smaller deals generally have been going pretty well,” said Finch. “I don’t think the market has gathered a lot of hope around those deals, but at the same time I don’t think the market has been too rough on them either.” Volatile markets have roiled new offerings globally. In Asia, equity capital market deals tumbled 30.4 percent to $77.9 billion in the first half, with IPO volumes down 62 percent, Thomson Reuters’ data shows. In Australia too several planned offerings have fallen by the wayside, including a $800 million float of Genworth Financial’ s Australian mortgage insurance unit.
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ANALYSIS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
ANALYSIS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
15
THE CASE FOR GARDENING LEAVE STRUGGLING WITH RESTRAINT CLAUSES? MILLS OAKLEY’S ADAM LUNN OFFERS SOME NONONSENSE ADVICE ON THE MATTER.
S
ome places capture the imagination, excite the senses and draw one in like a warm embrace. So it is as you discover Taree and the Manning Valley on the central coast of New South Wales. Don’t drive past with a nod of limited recognition to a mark on a map. Turn off the fast lane, take a breath and meander. Pause a while and discover the secrets. From the centre of Taree on the river there are scores of villages and localities in the Manning Valley – beautiful coastal towns with lagoons, lakes and glorious reaches of water meeting the sea; quaint and quiet inland villages that serve the farms rolling over the surrounding hills and river flats; the dramatic scenery of the mountain country; the wildlife that a lucky observer might catch a glimpse of in the forests. Visitors cannot fail to appreciate the tranquillity, the beauty, the people, the joie de vivre, and, yes, the serenity, that make the Manning Valley so captivating. So it was on the 28th of January 2010 when Mr Marshall, formerly of Stacks The Law Firm, returned home from the Supreme Court of New South Wales where His Honour Justice Robert McDougall had just refused to restrain the solicitor from plying his trade surrounded by the mountains, the forests, the river flats and sea. Stacks The Law Firm, based in Taree, sought to hold its former employee, Mr Marshall, to a restraint that forbade him from carrying on “the business or profession of a lawyer” within 10 kilometres of the town’s GPO. It also sought to have the NSW Supreme Court uphold restraints preventing him recruiting its employees or soliciting any clients who were with the firm while he was employed. Justice Robert McDougall refused to enforce the restraint, saying it would prevent the lawyer providing legal services to any businesses or people in the area, even if they had never been clients of his former firm. Justice McDougall said that a key factor in determining the restraint’s duration was the period of time the employer needed to sever any connection between its clients and the former employee. “There is much to be said for the proposition that the length of time taken to sever the connection is closely related to the time required to train up someone who can fill the [lawyer’s] place,” he said. In this case, he posited, it would take about a year to train the replacement to properly take over the job, and that – combined with the fact that the lawyer had agreed to a restraint of that duration when he signed his contract – meant that a 12 month restraint was justified.
However, Justice McDougall accepted the lawyer’s argument that the restraint should apply only to clients he had worked for, rather than any client of the firm. “The legitimate interests of the plaintiff will be sufficiently protected if the restraint is limited to solicitation of clients of the firm for whom the defendant performed work, or to whom he provided legal services (which I think is the current jargon), over the period in question” he found: Stacks/Taree v Marshall [2010] NSWSC 34 (28 January 2010). And in that sentence, His Honour highlights the fundamental issue with restraint clauses. By and large they will only be enforced to the extent reasonably necessary to sufficiently protect the legitimate interests of the party seeking to enforce them. Now, any lawyer worth their salt will immediately appreciate the inherent uncertainty that leaps off the page from that statement. As a rule of law, it makes chaos theory look like the Commissioner of Taxation’s job description. No, it doesn’t take the beat of a butterfly wing in the Amazon jungle to provide all of us with a great feast of litigation over words like “extent”, “reasonably”, “necessary”, “sufficiently”, “protect”, “legitimate” and “interests”. So, what’s a lawyer to do? How does one advise their clients? Indeed, how do they protect their own interests? What do we say? “Here’s a restraint clause, it may or may not be enforceable, depending on whether El Nino or La Nina prevails in the Pacific”? But, let’s back up a step. We are considering restraints and that means we are considering protection.
Adam Lunn is a Melbourne-based partner at Mills Oakley.
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ANALYSIS TYPES OF RESTRAINT Broadly speaking, the sorts of restraints that we usually see people attempt to create cover: • Non-competition – to not compete with the former business • Non-solicitation – to not solicit employees or clients • Non-dealing – a sort of catch-all hybrid type of restraint. Most restraint covenants are accompanied by the ubiquitous “confidentiality” covenant. Ubiquitous and superfluous given the existence of common law, equitable and statutory obligations of confidentiality. As a consequence of a hundred and fifty years of jurisprudence, we see restraints that have all sorts of curious mechanisms in them, cascading provisions, deemed enforceability provisions and the like. All of which are amusing to draft, none of which do one jot for principles of certainty. ENFORCEABILITY Australian courts regard contractual provisions which limit the ability of a person to pursue their occupation as contrary to public policy and, as such, will not enforce them, unless the covenant can be shown to be reasonable. Reasonableness is shown by demonstrating that there is a legitimate business interest to be served by enforcing the covenant. Which pretty much boils down to two things: • protection of confidential information; and • protection of customer relationships.
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
Now, confidential information already has the protection of the common law, equity and statute, so a restraint (and the ubiquitous confidentiality provision) is probably a bit of overkill and on that basis alone might be argued to be not reasonably necessary – indeed the Courts of Appeal in NSW and Queensland have recently come to that conclusion themselves. Customer relationships, well yes, there is no standalone protection for businesses to protect their very valuable customer relationships. So to that extent, a restraint covenant does seem to be a pretty good solution. Or is it? No restraint will stop Dick and Jane getting together over a beer on Friday night. And the strength of the restraint is only as good, at best, as the ability of the would-be enforcer to keep an eye on what Jane is doing with Dick behind closed doors: the ‘Chaperone Principle’ if you will. NO MEANS NO It should, by now, be reasonably apparent to even the casual observer that the plethora of amorphous words used in determining what may or may not be enforceable when a court comes to consider the reasonableness, efficacy, sufficiency and legitimacy of a restraint means no matter how well crafted, no matter how many cascading provisions one litters their restraint with and no matter how many clients are expressly listed in the restraint, it’s still anyone’s guess as to whether a restraint in any particular circumstance, is worth the paper it’s written on. I for one will put my hand up and confess, I can’t draft a reliable restraint. I defy any lawyer to put their hand up and claim that they can. I can draft a restraint that represents the best guess at what a court might be prepared to enforce in a given set of circumstances, but I’m trying to draft something that is, after all, prima facie illegal. I can’t predict the future and I will always drape my posterior in thick cladding as to the prospects of enforceability. However, I can draft a pretty short clause that (just about) any court in the country will give effect to and which will achieve the desired result with a much higher degree of certainty. If it matters so much that a departing employee or partner not interfere with customers or clients and if it matters so much to add belts and braces to your extant protection for confidential information, then there’s a simple solution. Pay them to go on gardening leave. Provided your employment or partnership agreement contains a provision to permit gardening leave, then that will provide far better protection than any restraint anyone can draft (and it costs pittance to draft and won’t cost an arm and a leg to try to enforce). Sure, it will still cost you. You will have to pay the person while they are pruning the roses, and you will get nothing else out of them. But you don’t get anything out of a person pretending to comply with a restraint and you will have the comfort of knowing that while pruning the roses or rolling in the hay, they aren’t approaching your customers or working for them. Or if they do, then it’s going to be infinitely easier to stop them and to recover any losses, based on a simple breach of their employment obligations. And that, I hazard, is a far better position to be in than spending a whole lot more seeking an outcome that increasingly seems to depend upon the whim of an Amazonian butterfly. If it doesn’t matter that much, forget the protection and get on with the business.
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
RESOURCES
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AUSTRALIA’S SECOND OLYMPIC DISAPPOINTMENT BY SONALI PAUL, REUTERS
A
ustralia’s energy and resources lawyers have just one question in the wake of BHP’s decision to postpone the much vaunted Olympic Dam expansion: is the party finally over? A $246 billion pipeline of planned mining investments in Australia is on increasingly shaky ground, with nearly half already frozen or likely to be delayed, as miners and lenders wrestle with high costs and sliding revenue. A sharp fall in iron ore and coal prices, driven by a drop-off in demand from China, has caught many by surprise and forced miners – from the world’s largest, BHP Billiton, down to the smallest – to review their investment plans. “Anyone who was expecting to bank a project at the levels we were at about eight weeks ago had unrealistic expectations,” said Michael Blakiston, a partner at Gilbert+Tobin, and director of iron ore company Sundance Resources. The commodities rout has thrust Australia into a debate over whether the mining boom is over and can no longer be relied on to create jobs, power growth and raise tax revenue in a $1.4 trillion economy that has gone 21 years without a recession. The $246 billion of planned projects is based on government data on projects under study or awaiting approval and mining expenditure estimated by bankers and lenders. It also includes $40 billion of projects already halted by BHP. According to project finance lenders, lawyers and analysts, some of the major projects at risk include the $10 billion Roy Hill iron ore mine, Xstrata’s $6 billion Wandoan mine and GVK Power & Infrastructure’s $10 billion Alpha Coal mine. They are in new mining areas, requiring huge investment on railways and ports, which makes them tougher to fund. The companies had planned
to make investment commitments by late 2012 or early 2013, but this looks in doubt as lenders demand more equity and impose tighter terms, such as requirements to hedge commodities prices. MINING HUB GLOOM “We are still bullish on lending but overall prepared to lend less due to the softer prices,” said a banker in the mining hub of Perth, declining to be named due to client confidentiality. The government conceded recently it was worried about the outlook for resources projects that are on the drawing board. “In the immediate future, I’ve only got a couple in my mind that could go to final investment decision over the next 12 to 18 months,” Resources Minister Martin Ferguson told reporters. GVK Coal told Reuters it was confident that its Alpha project was viable. Bankers also say Xstrata’s Wandoan thermal coal project in Queensland, which could become Australia’s biggest coal mine producing 22 million tonnes a year, could be delayed, holding up port and rail investments that other miners planned to use.
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NEWS
In case you missed it….. THE MONTH’S TOP HEADLINES FROM WWW.LEGALBUSINESSONLINE.COM
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
Day, Kirkland & Ellis and Skadden Arps. This is the first time Boies Schiller and Jones Day have made the cut, replacing Quinn Emanuel and Latham & Watkins from last year's list.
M&A
Shale gas, luxury brands fuel China M&A: report
AUSTRALIAN HEADLINES STORY OF THE MONTH TressCox Lawyers to merge with Macrossans TressCox Lawyers has announced it will be merging with Brisbane-based Macrossans Lawyers, effective 1 October 2012. The merger will result in a fully financially integrated partnership between the two firms. Five Macrossans partners, including current chairman Bill Hickey, will join TressCox’s existing three partners based in Brisbane. The full integration of both firms will result in a total partnership of eight in Brisbane and an overall team of approximately 50. Macrossans was previously a member of the Hunt & Hunt national group.
A desire to gain more access to non-conventional energy sources and a pursuit of luxury consumer brands are two key trends to emerge from a new Squire Sanders study on Chinese M&A trends in FY2012. The report found that North America was the top target market for Chinese investors, with a share of 35 percent of overall deal value. Mao Tong, partner in Squire Sanders' Hong Kong office, said that non-conventional energy was likely to be an important motivating factor: "The Chinese government's 12th five-year plan (2011-2015) lays an emphasis on new energy resources, so the need for the technology and know-how to exploit China's deep shale gas reserves will maintain the country's interest in U.S. and Canadian companies which are acknowledged leaders in this area," he said. Sinopec has made major acquisitions in Brazil, Canada and the U.S. over the past year and CNOOC recently made a bid for oil sands firm Nexen.
UNITED STATES
Herbert Smith Freehills touches down in New York
PRIVATISATION
Baker & McKenzie scores NSW electricity privatisation gig
Baker & McKenzie has been appointed as legal advisor to the next stage of the NSW Government's plan to sell the State's electricity generators. Partners Chris Saxon and David Ryan will be taking lead roles on the deal. The sale is currently in the "scoping" stage and is expected to generate gross proceeds of around $3 billion and save the state government $850 million in avoided ongoing operation and maintenance costs.
DISPUTES
Jones Day “most feared” litigation firm: survey
Jones Day was recently named one of the top four “most feared” litigation firms in the U.S. by more than 300 corporate counsels in the BTI Consulting Group Litigation Outlook 2013 report. Each year the group polls in-house lawyers to determine which big law firms they dread “seeing as lead opposing counsel in a litigation case”. This year the four firms were Boies Schiller, Jones
Freehills and Herbert Smith have officially opened an office in New York. The office will initially operate as Herbert Smith New York until the new merged entity Herbert Smith Freehills officially launches on 1 October. The New York office will focus solely on complex cross-border disputes work, particularly international arbitration, anticorruption and cross-border investigations and handling the U.S. end of cross-border litigation. The new office will boast some high profile talent following the recruitment of six leading U.S. commercial litigation partners from Chadbourne & Parke, along with the additional recruitment of 15 fee-earners from the same firm.
SINGAPORE
Freshfields returns to SG: 'A radically different place'
Freshfields Bruckhaus Deringer has returned to Singapore after a hiatus of five years, as it seeks to tap into a region that has seen massive economic growth since the firm withdrew from the citystate in 2007. The Freshfields office will be helmed by partners Stephen Revell and Gavin MacLaren. Revell, the head of the firm's global capital markets practice, will relocate from Hong Kong, while MacLaren,
NEWS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
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IN-HOUSE Q&A
NICOLE STEVENS-WARTON who leads Freshfields’ Asia energy and natural resources practice, recently joined Freshfields from Allens. In a phone interview with ALB, Revell said that the firm had seen great growth in client demand for legal services in Southeast Asia in recent times. “Back in 2007, there was a lot less optimism about the region,” he said. “We were in the middle of a downturn, and the future looked like it belonged to China. Since then, however, Singapore has emerged as a clear centre for growth in Southeast Asia. It is a radically different place now.” Revell added that among the top drivers for growth in the region was Indonesia’s emergence as a major provider of energy and natural resources. “This is not a short-term move by any means,” he said. “Southeast Asia is clearly going places, so as client demand from the region increased, the decision to open was a pretty straightforward one.”
SINGAPORE
Maples and Calder to open in Singapore
Maples and Calder will soon become the latest offshore firm with a Singapore outpost, after the Caymans-headquartered firm announced it would be opening an office in the Lion City. The announcement comes shortly after fellow offshore firm Bedell Cristin opened a Singapore office, and Walkers and Collas Crill declared plans to beef up their teams in the city. Maples and Calder’s Singapore office will be managed by funds partner Nick Harrold, and also includes corporate finance partner James Burch, and private equity and corporate lawyer Tom Katsaros. While Harrold and Burch will relocate from the firm’s Hong Kong office, Katsaros will rejoin Maples and Calder after a spell at Kain Corporate and Commercial Lawyers in Adelaide. The Singapore office will offer Cayman Islands and British Virgin Islands advice in areas like hedge and mutual funds, private equity, structured and asset finance, corporate law and trusts for high net worth individuals.
INDUSTRY
Curwoods acquires Suncorp’s GILD
Sydney-based Curwoods Lawyers has acquired GILD Insurance Litigation (GILD), a subsidiary of Suncorp. The acquisition will bring to Curwoods an additional partner as well as 37 lawyers and will form a new health and government practice group at the firm. Curwoods managing partner, Scott Kennedy, says the firm’s strategic plan focuses on steady growth and expansion to develop the firm’s expertise in the core areas of insurance, commercial, dispute resolution, private clients and property. “We have been aware of the expertise of GILD for some time who we consider leaders in their field, so when the opportunity arose to take on the business and bolster our firm, our partners were keen to pursue it,” said Kennedy.
LEGAL COUNSEL, ASIA PACIFIC REGION
SPENDVISION In your opinion, why have in-house lawyers become an increasingly indispensable part of an organisation?
1
The legal, regulatory and compliance landscape is becoming more complex. Failing to stay abreast of such issues can have financial and reputational repercussions for a business. Most businesses therefore see the benefit in taking a proactive approach to managing risk. While businesses have historically outsourced this type of work, many now find that there is efficiency to be gained in having the advice come from someone who knows the nuances of the business, its products and services and the expectations of its customers. While you expect an experienced lawyer to give the required legal advice on a particular issue, it is the in house lawyer who is able to give that advice within the context of the business’ commercial environment. Even the most thorough brief to an external counsel about the commercial implications of a scenario is unlikely to compare to the knowledge and experience gained by an in house lawyer in relation to the operating environment of the business itself.
2
Increasingly, the role of General Counsel/inhouse Counsel has diversified into a multi-faceted role. As sole inhouse counsel in Australia of a global corporate, does your role encompass other facets and do you believe this has increased your risk profile? I believe it is rare to find an in house lawyer whose role is limited to providing legal advice and drafting documents. The role of in house counsel morphs over time and extends in different directions as the lawyer is asked to advise or assist areas of the business such as human resources, information security or financial regulation and compliance. While prudence demands that in house lawyers be cognisant of their different ‘hats’ and know when to limit their involvement in a matter to the traditional role of legal advisor, the attraction for me in working as an in house counsel is the opportunity to really understand the business and to influence the business’ decisions and strategies. In this regard, the legal advice you provide is not given in a vacuum but rather within the commercial reality of the business.
3
How have you managed the requirements of your position whilst working part time, and what do you see as the challenges but also the benefit to your employer?
Organisation and efficiency are important in numerous roles but they are critical to an effective, part time in house lawyer. You need to be able to prioritise tasks quickly and effectively, work to deadlines, keep colleagues informed of the status of projects and manage expectations. The biggest challenge of the role is that regardless of how well you manage your workload within your working hours, issues will invariably arise that require your attention outside those hours. The business continues to operate when you are not present. Many issues that arise can wait until you are next in the office but occasionally, you are going to need to put out a fire on a day when you would not ordinarily be wearing your fireman’s hat. Acknowledging this and being prepared to act when required reassures the business that a part time role is a viable alternative. In my experience, most part time employees have a strong work ethic and they appreciate the flexibility afforded to them by their employer. They reciprocate by making themselves available when they are genuinely needed and in this respect, a part time in house counsel with the requisite experience can be an invaluable, cost effective resource to a business.
JLegal is a global specialist legal recruitment consultancy focused solely on providing recruitment solutions to the legal profession. For a confidential discussion about your career, contact one of our senior consultants today. www.jlegal.com Melbourne t | +61 3 9910 6700 Sydney t | +61 2 8249 4730
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ALB SPECIAL REPORT: VICTORIA 2012
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
FACING THE VICTORIA IS OFTEN DESCRIBED AS THE WRONG SIDE OF THE TWO SPEED ECONOMY – BUT MELBOURNE LAWYERS HAVE GOT REASON TO REMAIN UPBEAT. REPORT: RENU PRASAD
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
ALB SPECIAL REPORT: VICTORIA 2012
ELEMENTS
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ALB SPECIAL REPORT: VICTORIA 2012
E
arlier this year, National Australia Bank CEO Cameron Clyne urged the business community and the media to resist the temptation to use the phrase “two speed economy”. His reasons for doing so may have been impeccable, but he also may have underestimated the basic appeal of the phrase. In the incessant search for a pithy headline, the media have shown a penchant for dividing the world into winners and losers and Melbourne has often found itself on the wrong side of this equation. The media have been putting the boot into Melbourne for a few years now and it’s not just because a lot of the people doing the commenting happen to live in Sydney. It’s because a lot of the bad news emanating from the economy has a strong Victorian element; whether it’s Ford laying off 440 people in Broadmeadows and Geelong or the continuing stories of the dire state of the manufacturing industry. Victoria, of course, is part of the manufacturing heartland of Australia and the state accounts for 30 percent of the nation’s manufacturing workforce. The industry is Victoria’s largest source of full time jobs and accounts for about 11 percent of Gross State Product. That’s 11 percent of GSP facing an increasingly uncertain future. Still, problems of this kind are by no means confined to Victoria and if the current rumblings in Queensland are anything to go by, even greater structural challenges may await other states. In the
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
meantime, Melbourne lawyers will tell you that there’s plenty of work to go around in Victoria. Firms are growing revenues and boosting partner headcount and some of the headline infrastructure projects, such as the National Broadband Network, are being coordinated out of Melbourne. It is true that this is an economy which has dependencies which have been described as unsustainable – manufacturing and those famous brown coal electricity plants in the Latrobe Valley are two examples – but like all periods of transition, there is opportunity for those legal advisors that are prepared to adapt. Whether it’s fostering new business opportunities or riding the counter-cycle, Melbourne firms have their work cut out for them. MARKET There are a number of law firms who continue to identify themselves as “Melbourne firms” despite an increasingly diverse client base. These days, the typical “Melbourne firm” has one or more offices interstate – Sydney and Brisbane are the usual suspects – and even if they don’t, they will have a solid list of clients based outside Victoria. Many Melbourne-headquartered corporates are clearly national or international in scope: such companies include Asciano, ANZ, NAB, Newcrest, BHP Billiton, Telstra and Foster’s. Melbourne law firms are by no means limited to Melbourne work. Mills Oakley, for example, derives over 40 percent of its revenue from outside Victoria and has grown its Sydney and Brisbane practices by over a third last financial year. “I see the market evolving into two segments – international firms and national firms,” says CEO John Nerurker. “I’d describe us as a national commercial firm.” All of this indicates that caution is necessary when making generalisations about the Melbourne market: the phrase “Melbourne firm” is becoming increasingly problematic. However, it remains a useful term to describe a cohort of firms which is well known to the market: these include Mills Oakley, Hall & Wilcox, Herbert Geer, Lander & Rogers, Maddocks and Arnold Bloch
ALB SPECIAL REPORT: VICTORIA 2012
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
Leibler to name a few. These are very different firms with divergent approaches to growing their business, but what they share in common is a deep connection with Australia’s second largest city. “Possibly one test is where the head of the firm is located and where the majority of the partners are located,” says Herbert Geer partner Adam Brooks, “I’d describe us as a leading east seaboard mid market practice, but Melbourne is our largest office – it’s very significant.” PARTNERSHIP GROWTH In June, Melbourne welcomed a new firm to its ranks: Sydney’s Colin Biggers & Paisley formally merged with insurance boutique Monahan + Rowell. The move was not a completely clean sweep for CBP, as several M+R lawyers, led by partners Bruce Butler and Justin Griffin opted to join Moray & Agnew instead. However, CBP has shored up its numbers with other hires: it has recruited litigation and insolvency specialist Nigel Watson from TressCox, insurance partner Adrian Howie from Kennedys and Cathyrn Prowse from DLA Piper. That collective recruitment spree has seen CBP boost its overall partnership count by nearly a third (28 to 37 partners) so far this year. CBP has set a pattern which has recurred at many Melbourne firms and firms such as Hall & Wilcox and Mills Oakley have partnerships which are about 20 percent larger than they were last year. This percentage needs to be understood in terms of the relatively small size of these firms; 20 percent growth in both cases only equates to about six extra partners. Lander & Rogers, Maddocks and ABL have followed a similar strategy, adding about five new partners each. The story at all of these firms is controlled growth off a relatively modest base. The story at HWL Ebsworth is slightly different. This is a firm which made its name a few years ago with an aggressive acquisition policy and it is clear that this pattern has continued in 2012. Like many of its Melbourne rivals, HWL Ebsworth has boosted its partner count by about 20 percent but it has done so off a base of over 100 partners. Some of the firm’s Melbourne hires include
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M+K property principals Lydia ArricoDunn and David Marriott, former Lander & Rogers corporate advisory group leader Anthony Seyfort and one time Herbert Geer chairman Steven Smith. Overall, the firm has boosted its partner count by 18 percent to 146. Herbert Geer, recently voted Melbourne Firm of the Year at the 2012 ALB Law Awards, has moved in the opposite direction and shrank from 48 partners to 43 over the past year. Long serving managing partner Bill Fazio left the firm in June. His replacement will be external appointee John Cain, who comes to the firm with a diverse resume which includes 10 years at the helm of Maurice Blackburn and, more recently, five years as the Victorian Government Solicitor. This is clearly a change of direction for Herbert Geer and it will be interesting to hear Cain’s vision for the firm when he commences his new role in October. Meanwhile, the firm continues to pursue new talent and has recently lured back property specialist Vicki Sharp and her team from Middletons. Melbourne has also not been immune from the growth ambitions of listed firm Integrated Legal Holdings. ILH bought a 25 percent stake in mid-market M&A player Rockwell Bates in July and plans to up its stake to 49 percent in the coming year. REVENUES Given the increased partner headcount, it should not come as a surprise that
2012 REVENUES – SELECTED MELBOURNE FIRMS FY2012 revenue ($Am)
FY 2011 revenue ($Am)
% increase
Arnold Bloch Leibler
67.8
58.6
15.6
Hall & Wilcox
45.9
42.4
8.3
Herbert Geer
61.6
61.3
=
Holding Redlich
68.7
62.7
11
HWL Ebsworth
140
120
16.7
Lander & Rogers
75
67
12
M+K Lawyers
52.2
46.3
12.7
Maddocks
113.5
100.4
13
Mills Oakley
48.6
41.6
17
Firm
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ALB SPECIAL REPORT: VICTORIA 2012 revenues are uniformly up at all Melbourne firms. However, Mills Oakley’s Nerurker warns against drawing the inference that partnership growth automatically translates into revenue growth. Despite having boosted partner headcount at his own firm, he says he would describe his firm’s 2012 revenue growth as about 80 percent organic.“Partners join at different times of the year – so we won’t see the full benefit until the second full year,” says Nerurker. One firm which Nerurker nominates as a worthy competitor is cross-town rival Hall & Wilcox, which is cementing its reputation as one of the quiet achievers of this market. “Generally speaking we have had a good first six months of the year,” says managing partner Tony Macvean. “We hit our growth targets for the FY12 in revenue and profit and we have had consistent double digit growth over the past five years.” Both Hall & Wilcox and Mills Oakley have regularly featured in ALB’s annual list of the fastest growing Australian firms, the Fast 10, over the years. The fact that nearly all Melbourne firms surveyed by ALB had double digit growth says a good deal for the robust nature of this market and firms such as Arnold Bloch Leibler (15.6 percent growth); HWL Ebsworth (16.7 percent) and Mills Oakley (17 percent growth) are leading the pack.
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
There’s a mix of organic growth and acquisitions at play here and it will be interesting to check back on these firms in a year or two, but for the moment the figures are trending upwards. Herbert Geer was the exception to this trend, recording flat revenues for the year. However, Adam Brooks notes that the firm has grown its figures in Melbourne. “Revenue would be higher than it was a year before – the firm’s had a very strong year. Adding Vicki Sharp has already had a great impact on the firm and our traditional strength in property,” he noted. ECONOMY The Victorian economy weakened noticeably during the second half of 2011, though it did rebound in the March quarter 2012, with state final demand growing by 1.8 percent in the quarter and a projected 2.7 percent over the year. By contrast, In Western Australia, state final demand grew by 8 percent in the March quarter 2012. State Treasuries forecast 1.75 percent growth in gross state product in Vic in FY2013, compared to five percent in QLD and 4.75 percent in WA. Clearly there is a notable gap between Victoria and the resource states, although the way the figures are calculated may produce a somewhat skewed picture. The key here is the difference between “gross state product” and “state final demand”, a topic covered in some detail last March by Fairfax columnist Ross Gittins. As Gittins points out, it would be easy to assume that “state final demand” is the same thing as “gross state product” but this is actually incorrect. For example, up to half of all mining investment is estimated to be spent on imported equipment. In the case of equipment produced in Australia, the state final demand figure duly attributes this investment to the state where the mine is located, but does not make any attribution to the state where the equipment is manufactured – a result which skews the figures in favour of the mining states and understates the productive economic activity
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ALB SPECIAL REPORT: VICTORIA 2012
in non-mining states. Only the gross state product figure gives the complete picture, however this figure is only calculated once annually, leaving the media to draw their conclusions from the state final demand figure throughout the year. The conclusion from all this? Yes, there is a gap between the mining states and the rest of Australia, but it is not as pronounced as the final demand figures may suggest – another reason to use the phrase “two speed economy” with caution. MANUFACTURING A particularly interesting aspect of the Victorian economy will be the future of its large manufacturing sector. One firm which will be keeping a close eye on this question is Macpherson + Kelley (M+K) which has a long tradition of serving the manufacturing sector, particularly in Dandenong which managing director James Sturgess notes accounts for over 40 percent of Victoria’s manufacturing sector. “We do need to recognise that all the strong nations of the world have a good manufacturing base,” says Sturgess “Why? Because manufacturing adds value: if you add value your standard of living will go up. That’s how simple it is.” Sturgess believes that manufacturing suffers from a fundamental image problem. “We’re telling kids that if they fail at school or they don’t get good grades, they will end up in manufacturing,” he says. “So there’s this whole philosophy of manufacturing being dirty, dumb and dangerous – well it’s not and it shouldn’t be seen that way.” Sturgess concedes that some government attempts to prop up manufacturing – particularly manufacturing in the automotive industry – have had mixed success. However, he says this comes down to a question of execution. “It shouldn’t be a debate about whether to support the industry or not – it should be about how they are to be supported,” he states.
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
Victoria’s dependence on manufacturing may also help explain the growth in one particularly hot legal practice area: workplace relations. “We’ve seen a significant number of disputes dealing with restructuring and redundancies – that’s not a big surprise,” says Brooks. “Given Melbourne has a weighting to the [manufacturing] sector historically, that’s something that distinguishes this particular market.” INFRASTRUCTURE Last year, several lawyers expressed the view that the Victorian state government was taking a rather cautious approach to investment in infrastructure. Some minor progress has been made since then, although critics have observed that real action may still be some years in the future. The focus at the moment is a continuing dialogue between the State and Federal governments as to access to Commonwealth funding. In November last year the Victorian government released its list of priority infrastructure projects. These were headlined by the East West link, an 18km inner urban freeway, an augmentation of the city rail network dubbed the Melbourne Metro, a rail link to Avalon Airport and the development and expansion of the Port of Hastings.
VICTORIA’S PRIORITY INFRASTRUCTURE PROJECTS Vic funding
Commonwealth funding sought
Commonwealth funding received
East West Link
$15m
$30m
$0
Melbourne Metro Rail
$50m
$130m
$0
Port of Hastings
$4m
$120m
$0
Removing level crossings
$349.8m
$16m
$0
National Managed Motorways
$12.5m
$115m
$12.5m
Project
Source: Premier’s Office, Victoria
2012
WINNER
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ALB SPECIAL REPORT: VICTORIA 2012 These projects have been endorsed by Infrastructure Australia in its annual priority listings – stage one of the Melbourne Metro has been declared “ready to proceed” while the East West link has been classified as a project with “real potential”. Other major Victorian projects, such as works relating to the Monash Freeway, have also been put in the “ready to proceed” category. Victoria was not successful in attracting Commonwealth funding in the May budget for most of its headline projects, leading Premier Ted Baillieu to issue a press release complaining of a pattern of discrimination
“I THINK THAT THERE IS A STRONG VIEW AROUND THE PLACE THAT THE GOVERNMENT NEEDS TO BE INVESTING IN PROJECTS TO GET THINGS HAPPENING IN VICTORIA.” against Victorians in the allocation of funding. At the time of writing, the Victorian government was continuing its campaign to gain more funding. Overall, it’s a mixed report card for Victoria on the infrastructure front, an interesting contrast to the state’s reputation a few years ago as a leader in innovative new PPP structures. “There seems to be a lack of infrastructure projects and projects generally, and a reluctance to borrow to invest in such projects,” says Macvean. “Currently it feels like there is a lack of investment in Victoria which generates negative sentiment in the state. I think that there also may be a sense of a lack of leadership. I think that there is a strong view around the place that the government needs to be investing in projects to get things happening in Victoria. This is driven by government but must be supported by business.” LATROBE VALLEY Victoria has been at the forefront of Australia’s difficult and confused transition to a carbon neutral economy. Victorians are literally at the coalface of this transformation and no one is feeling the pressure more than the quarter of a million residents of the Latrobe Valley region in the state’s south east. Brown coal – more carbon intensive and therefore more polluting than the black coal found in NSW and Queensland – is at the centre of this story. Brown coal sourced from coalfields in the Latrobe Valley and
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
burnt in local thermal power stations is estimated to account for up to 85 precent of Victoria’s electricity generation. The power stations and mines of the Latrobe Valley have attracted national publicity, and not always for the right reasons. In June, the Morwell River collapsed into the Yallourn coal mine in the Latrobe Valley, reducing capacity at the generating plant to 25 percent. Hazelwood, perhaps the region’s most famous plant, has the dubious distinction of being named the least carbon efficient power station in Australia by the WWF. Loy Yang A Power Station has also been the press after its acquisition by AGL earlier in the year. The Commonwealth and State governments have been sending mixed messages about the future of the coal industry in the Latrobe. On the one hand, the tide seems to have turned against coal fired electricity generation. In July, the Federal Government cancelled an A$100 million grant for a new coal-fuelled power plant in the Latrobe Valley proposed by energy company HRL. This A$1.2 billion project involved the proposed use of a new gasification technology that would reduce the carbon emissions from burning brown coal to levels similar to those of a modern black coal power plant. This decision can be seen as a victory of those environmentalists who have been strenuous in their opposition to the idea of a new government subsidised coal fired power station. However, the wider campaign to scale back coal-fired power generation seems to have stalled: the Federal Government has cancelled negotiations with three Latrobe Valley electricity companies to shut down 2,000 megawatts of coal fired power generation. Hazelwood, the so-called dirtiest power station in Australia, had been considered the most likely candidate for closure. Governments are still keen to reap the economic benefits of the local coal industry. The federal and Victorian governments have announcement a $90 million fund for new brown coal projects in the Latrobe Valley. The purpose of the fund is to encourage investment in “low-emission brown coal technology” and a transition towards industries which utilise brown coal by converting it into export products such as fertiliser or LNG. Some commentators have criticised the initiative on the basis that “clean coal” projects are a contradiction in terms. However, the Victorian government is particularly on record as advocating a ramping up of coal export activity in the Latrobe Valley, on the proviso that a way can be found to safely dry and transport the coal. Clearly there is plenty of life yet in the Victorian coal industry and perhaps the best proof can be found in the actions of those responsible for making investment decisions. In June, AGL completed the purchase of the outstanding shares in Great Energy Alliance Corporation for $448 million, a move which gives AGL ownership of the Loy Yang A power station and a brown coal mine which supplies all the coal required to meet the current and future operating requirements of the station. Freehills were the advisors to AGL on not only the acquisition but also the associated capital raising. The move demonstrates that there is a future for carbon intensive brown coal fired plants even with the carbon tax in place. The Climate Spectator’s Stephen Bartholomeusz suggested that export demand for coal would affect black coal plants far more adversely than brown coal plants. “Loy Yang A is so low on the cost curve that even with the carbon tax it will be among the country’s lowest-cost generators,” Bartholomeusz wrote in May . Notably, this observation was made before the government’s decision to eliminate the carbon floor price. Brown coal plants may be going out of fashion, but their time has not passed just yet. Not by a long shot.
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BANKING
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
SCANDAL-HIT LIBOR FACES CHANGE BUT HAS NO REAL RIVALS THE CREDIBILITY OF THE LIBOR BENCHMARK HAS TAKEN A HUGE DIVE IN LIGHT OF THE RECENT RIGGING SCANDAL – BUT WHAT ARE THE REALISTIC ALTERNATIVES? REUTERS’ MARIUS ZAHARIA AND KIRSTEN DONOVAN INVESTIGATE.
A
scandal over the rigging of the Libor interest rate that underpins financial contracts worth hundreds of trillions of dollars is likely to force regulators to reform the way it is set. But any decision they take will, at best, be a compromise rather than a solution that will fully restore the reputation of what is often referred to as the world's most important financial instrument, many market participants believe. It is therefore more likely that the way Libor is set and regulated will be overhauled to make it more transparent rather than the instrument being replaced altogether. Its shortcoming is that it is based on the rate at which a contributing bank says it can borrow funds in the unsecured money market rather that the rate at which it actually obtained a loan. There are no further checks made on its submission. REAL TRANSACTIONS One way to make the rate-setting process more transparent would be to base it on real transactions. Bank of England Governor Mervyn King has said "the time has now come to move it away from quotes, towards observations based on actual market transactions." But the euro zone sovereign debt crisis has hit banks so hard that they have been less willing to lend money without collateral, particularly for periods longer than three months. As a result any reform to Libor may always be imperfect as it may not reflect the true state of the market. "You can make some improvements to it, but there is no magic wand here," said one London-based interest rate strategist who asked not to be named. "If there aren't really enough transactions and you need to find an index because you have a huge industry based on it then clearly you need to find a compromise." There have been a number of attempts to find alternatives. The European Banking Federation has recently launched a dollar Euribor rate, set in Frankfurt. Broker ICAP has launched its own rates, fixed in New York. There is also talk that the overnight rates – such as Eonia, which is calculated considering volumes of the trades being made – and their derivatives across different maturities could in time become a substitute for euro Libor rates. But none of these rates is widely used and they are not expected to become the new benchmark, at least in the foreseeable
future, due to the sheer number and size of Libor-based financial instruments. Libor, or the London Interbank Offered Rate, is set for 10 currencies in 15 different maturities from overnight to 12 months. It is compiled daily by Thomson Reuters on behalf of the British Bankers' Association on the basis of contributions from banks in panels chosen for each different currency. The highest 25 percent and lowest 25 percent of submissions are excluded and the remaining are averaged. REPRESENTATIVE RATE An increase in the number of contributing banks would diminish the impact of any individual contributor and, in theory, should produce a more representative rate. But a similar attempt by the BBA in 2009 aggravated tensions in funding markets at the time. That move pushed up three-month Libor rates by a couple of basis points as investors worried that weaker banks could push the rate massively higher. Also, any rate they will submit is likely to be only indicative as "there are perhaps only 10-15 banks that can contribute regularly," said Max Leung, an interest rate strategist with BofA Merrill Lynch Global Research. Moreover, analysts question how many will be willing to join the group given the potential reputational damage that any connection to the Libor rate might now be perceived to have. Another way to improve the credibility of the Libor setting would be to introduce a rule to oblige banks to pay their Libor submission rate if they borrow cash after the fixing time around 11.00 a.m. London time (1000 GMT), or else not borrow at all. CURRENTLY, THERE IS NO SUCH OBLIGATION As part of its settlement with regulators, Barclays agreed to help publishers to improve the system. The Commodity Futures Trading Commission, a U.S. futures regulator, said Barclays had agreed to actively "encourage" efforts to make Libor more reliable on six fronts – methodology, verification, investigation, discipline, transparency and formulation. The BBA, which has overseen Libor since its launch in 1986, said in March it was working on a review that will address issues such as the code of requirements for contributors and strengthening "the statistical underpinning" of the submissions. A spokesman of the BBA declined to comment on how advanced the review was.
Mills Oakley Lawyers - where the glass is half-full An East Coast growth story If any leading mid-tier firm provides a valuable insight into the paradigm shift occurring in the Australian legal market, it is Mills Oakley Lawyers. In less than a decade, what was once a relatively small Melbourne-based commercial law practice has evolved into a high-profile growth story that now operates across three capital cities and counts a number of leading corporates among its client base. Nearly 40 partners and more than 200 staff provide full-service capabilities from offices in Melbourne, Sydney and Brisbane. It is emblematic of the market share that premium mid-tier firms have wrested from the top-tier, as the latter chased cross-border work offshore and in-house legal teams sought better value pricing in the wake of the GFC. It is in the Sydney and Brisbane markets that Mills Oakley has enjoyed some of the most marked growth. “The Sydney practice is exceeding even our most optimistic projections,” said CEO, John Nerurker. ”We have been in this market for just six years and during that time the contribution of Sydney to our overall business has grown exponentially.”
“We are now servicing a number of leading corporate clients out of our Sydney office.” Such has been the rate of growth that Mills Oakley recently shifted its Sydney offices to expanded premises in the heart of the corporate beltway at prestigious 400 George St, home to the likes of Telstra, Societe Generale Australia, Jones Lang LaSalle and the Australian Prudential Regulation Authority. “We are now servicing a number of leading corporate clients out of our Sydney office and are well positioned for the accelerated growth rate to continue,” said Mr Nerurker.
“Our performance across all centres is being fuelled by a migration of corporate clients from large national firms who are seeking a better price point. Of course, this is only half the equation. We have needed to demonstrate that our teams could provide the level of technical skills that corporate clients received in top tier firms.” To deliver on those twin requirements, Mr Nerurker has led a program of active recruitment at Mills Oakley, cherry picking partners and lawyers from top tier and national firms who have been prepared to shift for greater opportunities and more control over their careers. “They see a more flexible and dynamic career path with our firm,” he said.
“Sydney...is a congested market that requires pinpoint accuracy in a firm’s value proposition for clients or they will move on.” During 2012 alone, Mills Oakley has brought on six additional partners, including financial services specialist, Mark Bland, corporate advisory expert Daniel Livingston, construction expert Lindsay Stirton and leading property partner, Catherine Hallgath. “The appointments in Sydney of Lindsay and Catherine reflect heavy client demand in the NSW market for our construction and property practices,” added Mr Nerurker. “Sydney isn’t for the faint hearted,” he adds. “This is a congested market that requires pinpoint accuracy in a law firm’s value proposition for clients or they will move on.” Mr Nerurker said Mills Oakley had maintained competitive rates while actively recruiting leading practitioners who could provide the level of expertise corporate clients expected. “Lindsay Stirton has over 20 years’ experience as a specialist infrastructure and construction lawyer while Catherine Hallgath
John Nerurker: clarity of vision is key has worked with a number of leading Australian and Asian property owners. “Combined with the expertise of veteran Mills Oakley partners such as Andrew Wallis in Construction and Lachlan Paterson in Property, we are building a combination of scale, expertise and pricing that clients are increasingly gravitating towards.” That is an understatement. Mills Oakley is now regularly named by leading legal media as one of the fastest growing firms in Australia, benchmarked on both revenue and partnership increases. Partner numbers have increased another 20% this year and the firm is on track to bolster the partnership even further in 2013. John Nerurker said clarity of vision for the firm has been key. “Our partners have always had a clear goal for where we want to take the firm. We’ve just completed our new five-year strategic plan out to 2017 and while the strategies have evolved beyond those in our last plan, the underpinning vision remains the same,” he said. “We want to make inroads into the institutional client base in Australia that has traditionally been serviced by top-tier firms. “It’s very satisfying for all Mills Oakley partners and staff that we are well on our way.”
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BANKING
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
THE BANK BILL SWAP RATE:
COULD THE LIBOR SCANDAL HAPPEN HERE? THE REVERBERATIONS OF THE LIBOR SCANDAL WILL REACH FAR AND WIDE – BUT IS AUSTRALIA’S OWN BANK BILL SWAP RATE ABOVE REPROACH? NATHAN LYNCH OF THOMSON REUTERS ACCELUS INVESTIGATES.
T
he events surrounding the London Interbank Offered Rate (Libor) scandal in the United Kingdom have led Australian market participants to question whether similar events could occur on their home turf. In Australia, the equivalent of Libor is the Bank Bill Swap (BBSW) reference rate — a traded market rate that serves as a benchmark in the local financial system. The Australian Financial Markets Association (AFMA), which administers it, has been quick to point out that there are some critical differences that make the BBSW resistant to the type of manipulation seen in the UK market. The main difference, according to AFMA, is that Australian market participants are asked about the actual rates they are observing in the market for prime bank paper. AFMA explained that Libor was a far more subjective assessment as institutions are effectively asked to give opinions on interbank borrowing rates. AFMA had tried to minimise this inherent subjectivity, and therefore the potential for conflicts of interest, when it set up the BBSW in the 1990s. In practice, the BBSW rate is set by taking data from 14 market participants at 10am each trading day. The panellists report the average mid-rate pricing that they are observing for prime bank paper with standard maturities of one to six months.
Prime bank paper includes the bank accepted bills and negotiable certificates of deposit issued by banks that have met the eligibility criteria and conditions required to be an AFMA prime bank. Following the financial crisis there are now just four qualifying prime banks in Australia, the so-called "four pillars" of Commonwealth Bank, Westpac, National Australia Bank and ANZ Bank. AFMA said that the paper issued by these prime banks was traded on a homogeneous basis and was recognised as being of the highest quality with regard to liquidity, credit and consistency of relative yield. The panellists which contribute data to the BBSW rate-setting process are: ANZ Banking Group BNP Paribas (Australian Branch) Citibank NA (Australian Branch) Commonwealth Bank of Australia Deutsche Bank AG (Australian Branch) HSBC Bank Australia JPMorgan Chase Bank (Australian Branch) Lloyds TSB Bank (Australian Branch) Macquarie Bank National Australia Bank Royal Bank of Canada (Australian Branch) Suncorp-Metway UBS AG (Australian Branch) Westpac Banking Corporation. Once the rates submissions come in from these 14 institutions each day, AFMA uses what it terms a "rate-trimming" process to eliminate the four highest and four lowest rates from the data set. This eliminates any outliers and also makes it very difficult for institutions to manipulate the data. In effect, institutions would have to be working in concert to do so, as a single institution that mis-reported would simply have its data removed during rate
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
trimming. Thomson Reuters publishes the final BBSW figures at approximately 10.08am AEST each trading day. AFMA said that the BBSW was produced as a service to its members and the broader financial community and it "places a high priority on ensuring the rate set process has integrity and is a reliable gauge of the market". FAMILIAR NAMES A number of the institutions on the BBSW panel are implicated in the Libor scandal. AFMA has pointed out however, that these are the Australian-regulated operations of the institutions under investigation and the process in Australia is very different. The broader industry has not raised any concerns about the BBSW survey process locally. The Australian Securities and Investments Commission, meanwhile, is understood to be monitoring the situation but has not made any formal announcements on the state of the market. David Lynch, executive director of AFMA, said it was critical to understand the differences between the two processes. "In essence under the Libor rate survey, banks are asked, 'at what rate could you borrow funds on of a reasonable market size at 11am in the London market?' Here we ask the banks on the BBSW panel to provide us with the actual rates that they're observing in the brokered market at 10.00am," he said. Another difference was that the BBSW quotes were for prime bank paper, which traded as a homogenous group. By contrast, he said, Libor contributions were for each individual bank in respect of its own paper." In Australia, there was a strict industry governance process around BBSW and the market was an institutional market. Libor, by contrast, was an inter-bank market in which banks were effectively reporting on their own paper. Lynch said the structure of the Australian market meant there were controls in place to minimise the impact of any conflicts. "In the BBSW market many banks trade other banks' paper but you also have investment managers and other investors who participate in the market. Together with the governance processes that the industry has put in place, this means that the market has worked well. There hasn't been a reason to believe there's any market failure to be addressed: the rate compilation process has been working efficiently," Lynch said. GOVERNANCE AND OVERSIGHT The BBSW process also has appropriate oversight from an independent committee; AFMA’s Market Governance Committee (MGC) is responsible for the effective operation of the Australian over-the-counter (OTC) financial markets. The MGC regularly reviews the management of the BBSW rate process and is also responsible for approving any changes to the OTC market conventions that support the BBSW process. It also reviews quarterly reports on the operation of the BBSW process and relevant developments in the financial markets. Lynch said that AFMA was conscious of the need for broad industry representation on the MCG. It was in the industry's interest to ensure that the BBSW process was transparent and worked effectively. He said that, like Libor, the BBSW was a reference rate and is used for a range of other financial transactions, so it was crucial that industry participants had confidence in BBSW as a reliable benchmark rate.
BANKING
“THE MARKET HERE IS VERY DIFFERENT TO THE MARKET IN THE UK BOTH IN TERMS OF THE STRUCTURAL PROCESSES THAT WE’VE ADOPTED AND THE ROLE OF PANELLISTS IN THE MARKET.” "The range of participants in the market is reflected in the AFMA committees that review our processes. I think that's important and it adds to the market support for the approach that we have here," he said. Lynch said the problems with Libor had highlighted the importance of the controls that AFMA had put in place when setting up the BBSW framework. "The market here is very different to the market in the UK both in terms of the structural processes that we've adopted and the role of panellists in the market. For example, because a panellist bank provides a contributed rate on prime bank paper as a homogeneous group, the fundamental issue of banks posting rates in relation to their own paper doesn't arise here. Moreover, only four of the 14 panellists are prime banks. So it's not 14 banks contributing their own view of their own paper, it's 14 banks contributing their view of prime bank paper," Lynch said. Lynch said that any problems with the BBSW data would be identified quickly. The MGC regularly reviews the quality of this data to ensure that the panellists are reporting accurately. He also noted that the rate at which prime bank paper is traded is observable to market participants through broker screens. The panellists are the leading traders of prime banks paper and their individual rate contributions are available to each other, which adds an additional safety buffer. "Given it is a highly competitive market with institutions holding different positions, rate contributions are carefully scrutinised by other market participants, so any aberrant contributions would be quickly identified. AFMA itself reviews rate contributions on a daily basis and has a number of touch points with market participants through its market committees to receive ongoing feedback on the quality of rate contributions," Lynch added.
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Recruitment
last issue’s ad
PROFILE
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AUSTRALASIAN LEGAL BUSINESS ISSUE 10.5
LATERAL PARTNER APPOINTMENTS Name
Practice area
Firm coming from
Firm going to
Mark Bartley
Planning and Environment
DLA Piper
HWL Ebsworth
John Cain
Commercial
Maurice Blackburn
Herbert Geer
Cris Cureton
Construction & Litigation
Minter Ellison NT/SA
Squire Sanders Australia
Natasha Davidson
Banking & Finance
RBS
Clayton Utz
Douglas Hall
Project finance
Norton Rose
Sparke Helmore
Betsy Howe
Taxation
HWL Ebsworth
Sparke Helmore
Philip Kapp
Private equity
Clayton Utz
Corrs Chambers Westgarth
Janice Nand
Workplace relations
Lend Lease Australia
Sparke Helmore Lawyers
Charles Rosedale
Corporate
Clayton Utz
Maddocks
Lucille Scomazzon
Corporate
Ashurst
Maddocks
MADDOCKS ADDS CLUTZ TALENT AGAIN Clayton Utz
Maddocks
Maddocks has lured former Clayton Utz partner Charles Rosedale to the firm’s commercial team as a special counsel. Rosedale brings with him more than 35 years’ experience in corporate law advising both listed and unlisted companies. Rosedale’s experience includes acting for issuers, underwriters, investors and other stakeholders in IPOs, ASX listings, rights issues and institutional and private placements as well as regulatory requirements.
HERBERT GEER APPOINTS NEW MP Maurice Blackburn
Herbert Geer
Herbert Geer will welcome former Victorian Government Solicitor John Cain as its new managing partner on October 1. Cain replaces Bill Fazio who departed the firm on June 30. During his legal career Cain has been the managing partner at Maurice Blackburn and chief executive officer of the Law Institute of Victoria. He was most recently providing strategic and practice improvement advice to Maurice Blackburn.
BOEING COUNSEL RETURNS TO SPARKE Boeing
Sparke Helmore
Sparke Helmore Lawyers has welcomed back former partner Janice Nand as a consultant in the workplace group, based in Sydney. Nand specialises in employment law and has 20 years’ experience in providing legal services in private practice, government and corporate environments. She most recently spent two years as country counsel at Boeing in Australia, where she focused on employment and compliance issues. Nand has also held senior legal and management positions in Federal Government agencies, including the communications portfolio, immigration and the Australian Government Solicitor’s Office. She also held a diplomatic post in London with the Department of Immigration.
MADDOCKS ADDS ASHURST TALENT Ashurst Australia
Maddocks
Maddocks has recruited Ashurst partner Lucille Scomazzon and senior associate Angela Wood. The two have joined the firm’s commercial practice based in Sydney. Scomazzon has broad corporate and commercial law experience with a particular
focus on the aged care, health and life sciences, retirement living, disability services and education sectors. Wood has been working with Scomazzon for more than seven years and together they have acted on a number of negotiated mergers and acquisitions, as well as advising on corporate governance, regulatory issues, contracting and outsourcing services, policy review and development, and risk management.
CLUTZ ADDS DIRECTOR IN SYDNEY RBS
Clayton Utz
Clayton Utz has appointed Natasha Davidson as a director in the firm’s Sydney corporate practice. Davidson joins Clayton Utz from RBS (formerly ABN Amro), where she has held various legal and banking roles for nearly a decade. Her most recent position was director (ECM and M&A) which saw her lead the legal negotiations, probity and procurement work streams on both the QR National and T3 landmark offers. She has spent the past five years as chair of the AFMA Capital Raising Committee and has also lectured at Sydney University.
SQUIRES ADDS MINTERS NT/SA PARTNER Minter Ellison NT/SA
Squire Sanders
made easy Perth-based Squire Sanders Australia has added prominent Northern Territory project, construction and litigation lawyer Cris Cureton. Cureton established the Minter Ellison Darwin office as a foundation partner in 2003 and will bring to Squire Sanders expertise in construction and engineering disputes especially in major project procurement and delivery. He has worked on many of the major projects in the Northern Territory in the past two decades including the Alice Springs to Darwin Railway, Darwin Waterfront Redevelopment, Darwin Marine Supply Base, Betaloo Basin onshore gas exploration and the Bonaparte Gas Pipeline. His areas of expertise include: adjudication, arbitration and mediation; litigation and dispute resolution; projects and public private partnerships including aboriginal land, native title and sacred site agreements and clearances. Squire Sanders Australia was established in October last year after a majority of partners from the Minter Ellison Perth office joined the global firm.
CORRS RECRUITS CLUTZ PE PARTNER Clayton Utz
Corrs Chambers Westgarth
Corrs Chambers Westgarth has appointed leading private equity expert Philip Kapp as a partner in its private equity practice. Kapp joins the firm from Clayton Utz where he was a partner and head of private equity. He is considered one of Australia's top private equity lawyers having been involved in almost every major private equity transaction in the country since 2000.
HWL ADDS DLA PARTNER DLA Piper
HWL Ebsworth
HWL Ebsworth has added former DLA Piper partner Mark Bartley to its Melbourne planning, environment and government group. Bartley is an accredited specialist in environmental, planning and local government law and his background includes acting for Commonwealth and state government departments, statutory authorities, local councils and private sector developers. Bartley has been involved in all aspects of property development, and regularly appears before the Administrative Appeals Tribunal, Planning Panels and Advisory Committees. He also offers significant water related expertise including advising on major project approvals, legal compliance programs, corporate governance, catchment management
and other environmental policies, waste water re-use schemes, water trading and legislative and policy changes.
SPARKE HELMORE ADDS IN PERTH Norton Rose
Sparke Helmore
HWL Ebsworth
Sparke Helmore
Sparke Helmore has appointed two new partners and expanded its corporate practice offering to Perth. Douglas Hall, formerly senior project finance and banking partner at Norton Rose’s Perth office joined the firm on August 6. In the past 25 years, Hall has gained significant domestic banking and restructuring experience in Australia and around the world, including in jurisdictions ranging from various African and Asian countries, to Canada, the South Pacific and the Caribbean. He has acted for banks, project sponsors and borrowers, including many junior and mid-cap mining companies, on corporate, property and mining project financing transactions. Betsy Howe, a tax and corporate lawyer, has joined the firm’s Sydney office from HWL Ebsworth. During her career she has also worked at a number of leading Australian firms, including Mallesons Stephen Jaques (King & Wood Mallesons) and at Russell McVeagh in New Zealand. Howe advises on tax issues associated with corporate finance, including asset finance, structured finance and securitisation, as well as the corporate tax issues associated with mergers and acquisitions
Over 45 years experience
BRYANT TAKES GROUP GC ROLE AT TRUST COMPANY
The Trust Company has a new Group General Counsel. Peter Bryant, who was previously Deputy General Counsel, stepped into the Group General Counsel last week. The Group General Counsel and Company Secretary roles were previously occupied by Sally Ascroft, who has since moved onto a new role as the General Counsel for Mission Australia. The Company Secretary position has been split from the General Counsel role and is currently performed by Alex Carrodus. The Trust Company is one of the largest trustees in Australia and has a market capitalisation of A$161 million. The company employs over 450 people across Australia, New Zealand and Singapore.
empirecareers.com.au
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DOC MANAGEMENT
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
DOCUMENT MANAGEMENT:
ARE LAW FIRMS READY TO TRASH PAPER DOCUMENTS?
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
DOC MANAGEMENT
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DOCUMENT MANAGEMENT IS MOVING INTO A NEW DIGITAL ERA – BUT REPORTS OF THE DEATH OF PAPER COULD BE GREATLY EXAGGERATED, WRITES STANLEY HONG
I
n a world where the technological determinists look to be winning out, it’s somewhat astonishing that the legal industry is still reliant on physical documents. Research conducted by Fuji Xerox in conjunction with Colmar Brunton, found that across the 100 law firms which participated in the survey, 80 percent answered they still printed all, or some of the documents received electronically, while 79 percent were still reliant on physical documentation during exchange. Although the results of the survey may paint a picture that law firms are still overwhelmingly dependent on physical documentation, this does not change the fact that there has been an increased emphasis on finding technological document management solutions and electronic document exchange led by the Federal Court – especially in light of the Seven Network Ltd v News Ltd case (C7 case).
‘WHAT IS A DOCUMENT?’ AN EXISTENTIAL QUESTION Before technology gained a foothold within law firms, documents generally pertained to physical paper and when a matter arose, the admissibility of such documents only really covered paper based copies. However, with the introduction of technology, the definition of what constitutes a ‘document’ has expanded greatly and can now encompass any type of electronic communications whether it is email or any social media postings by lawyers – everything can
potentially be admissible in proceedings. The wider definition of a document has led to even the most well accepted legal requirements to be challenging in certain instances as Craig Columbus, Chief Information Officer at Russell McVeagh points out: “Because the definition of relevant documents is so broad, even under the new High Court Rules, it may be argued that an entity is legally obliged to not only provide all existing relevant documents, but also a list of all those known to have been lost or destroyed. This is hard enough with paper documents, but when you introduce electronically stored information, you've opened a whole new can of worms.” The overarching aspect of document management is the managing of risk, and although New Zealand and Australia do not specifically require all electronic documents be retained; however, in order to mitigate risk, firms must consider carefully which
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documents to keep, and which to destroy, as Columbus notes: “Whilst there is no present obligation for an entity to retain all documents, emails, web postings, tweets or other electronically stored information, the fact that these documents may become relevant in future litigation means that document destruction must not be undertaken lightly. Further, when you consider that the definition of ‘document’ has been updated to include ‘information electronically recorded or stored, and information derived from that information’ it is clear that it is not just the original document that is discoverable, but any metadata or communications associated with that document.” The concept of risk management is also a sentiment echoed by the new Chief Information Officer and Chief Knowledge Officer at Gilbert + Tobin, Russell Wright, who spoke with 20 years of experience in the provision of information services to the legal profession, witnessing significant development in the area. Wright said that the online document management systems are now positioned as “a significant risk management tool” because they have expanded to encompass email and other matter related digital content, thus providing a more complete record of matter related client interaction. In the near future client/matter related SMS - social media commentary will also be stored using the latest enterprise content management software solutions “which delivers a further advance in the capture of the detail of the client/matter engagement”, which is another step forward in mitigating risk. Although the definition of document may raise significant questions, another major concern relates to the integrity of electronic documents and their admissibility before a court if the need arises. Many of those fears may be unfounded according to Shane Barber, Partner at Truman Hoyle, who notes that the courts largely treat electronic documents in the same way as paper documents, particularly in light of the various Electronic Transactions Acts that operate at both the Commonwealth and State levels. The various legislative instruments uphold the admissibility of electronic documents, provided certain preconditions are met, but the fact remains that the integrity of both “electronic and paper based documents can be open to challenge in terms of their admissibility, irrespective of the form the document takes”. Providers of document management solutions are also mindful of the need to alleviate risk, and Brad Gabriel, Managing Director of LitSupport says that, “litigation support databases are indeed an essential risk mitigation factor in high volume matters. However, with that being said, there’s the age-old ‘garbage-in, garbage-out’ factor. So it isn’t just about the technology, it is very much about the process. Hence any lawyer faced with a major electronic discovery should ensure that they surround themselves with the appropriate project management expertise to ensure defensibility.” TECHNOLOGY: WASTED ON THE YOUNG? It is easy – and lazy for that matter – to conclude that there may be a distinct generational gap between young lawyers, who have grown up with technology and would therefore be at ease with the use, compared to older partners, who may be more inclined to rely on physical documents. However, this assumption may be slightly misleading as Barber points out by observing that although young lawyers have readily embraced online document management – reflecting the email culture in which many of them have been
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
immersed with all their lives – the older partners have also "been equally at ease with the technology, opting to use the new methods of online document management or at least a hybrid of both the online and physical documentation solutions”. An interesting point Barber makes is that any lawyer who was educated pre-90s would have not encountered any significant computerisation at university, which may give rise to the perception that older lawyers would be averse to using online document management solutions, however, the current technology is so intuitive that it’s no encumbrance if someone gained their qualifications over two decades ago. “When you consider the way that lawyers think, it tends to be in a very logical and organised manner. That manner of processing information fits very well with the way online document management systems are layered. Irrespective of the generation to which the lawyer belongs, the technology resonates.” RISE OF THE (ELECTRONIC DOCUMENT) MACHINES Advances in technology regarding online document management have certainly paved the way for the wider application of technology in law firms. Arguably, the biggest development over the last two years may be the growth in popularity of tablet devices such as the iPad, and the current trend of businesses allowing employees to ‘bring your own device’ (BYOD) to work. The legal industry is not immune. In fact, the current impact that technology and tablet computing is having compelled Barber to hold a personal view that all lawyers will eventually “possess a personal device of some kind, especially with the market for those devices continuing to expand” with further offerings such as the upcoming Microsoft line of tablets. It’s also a point that resonates with Columbus, who echoes the view of Barber, by saying that with the impact of BYOD and the popularity of the iPad, has only intensified the move towards electronic document management solutions, with lawyers wanting to actively engage with technology due to the “efficiencies gained by being able to make a full document bundle accessible in a lightweight, portable, and cool device – which is very attractive to lawyers.”
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AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
“IT APPEARS THAT PAPER HAS NO INTENTION OF DISAPPEARING IN THE FORESEEABLE FUTURE“ Paul Gooderick, Director of Law In Order
Although, Columbus does also specifically highlight the risks associated with the use of such technologies as well, by suggesting that security and confidentiality should still take precedence over convenience, and that it is “imperative that a lost or stolen device not lead to the disclosure of any client information.” PAPER DOCUMENTS: THE END OF THE BEGINNING? The impetus to move to a more electronic based document solution seemed to be the result of the widely commented on C7 case, in which an exasperated Justice Ron Sackville made an observation that lengthy trials almost inevitably turned into even lengthier appeals. To reinforce the point, his Honour referred to Winston Churchill’s statement that such an outcome would be “merely the end of the beginning”. The C7 case produced approximately 85,000 documents, comprising of almost 600,000 pages – not to mention the pleadings and witness statements which resulted in approximately $200 million in legal fees all up. Justice Sackville stated “in my view, the expenditure of $200 million… on a single piece of litigation is not only extraordinarily wasteful, but borders on the scandalous.” What was apparent in the C7 case was that as technology increasingly encroaches into every aspect of the business world, the number of documents that can be
generated, has the potential to result in instances of “megalitigation” – such as C7. Conceivably, as a response to cases like C7, the New South Wales Supreme Court Equity Division introduced Practice Note SC Eq 11 with the aim of achieving a “just, quick and cheap resolution of the real issues in dispute in the proceedings”. The position in New Zealand is similar to Australia and although the discretion is still up to the presiding judge, and the court, to decide whether limits should be placed on the amount of physical documentation used in a matter. It is however, the understanding of Columbus that “there is increasing pressure from all directions to streamline proceedings” wherever possible through the use of technology, such as the type Nuance provides. According to Peter Matthews, the Australia-New Zealand Sales & Marketing Manager for Nuance, law firms have increasingly utilised the company’s software which converts physical paper documents into digital form quickly and easily. Matthews said; “There has been good penetration of our software such as eCopy ShareScan into law firms because the software can connect to the document management systems which law firms use.” Interestingly, the impetus behind law firms increasing usage of the type of digital document solutions Nuance offers is not only due to the courts desire for lawyers to use less paper, but for the practical and cost saving benefits. Matthews observes “law firms are increasingly looking to minimise paper storage and the costs associated. Additionally, by converting documents to digital form, lawyers can manage documents easily and improve accessibility.” THE REPORTS OF THE DEATH OF PAPER HAVE BEEN GREATLY EXAGGERATED With the increasing impact of technology, coupled with the encouragement by the courts, it’s easy to envision a world where the requirement for physical documentation will go the way of the dodo. However, as the research conducted by Fuji Xerox and Colmar Brunton highlights, there is still a need for the production of physical documents: but where? Barber points out many
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
instances where physical documents are still the preferred method of management, and remain particularly popular with litigators, regulators, commercial lawyers, and also with clients – especially in relation to contracts, where many clients wish to “take the document with them and to make future reference to the document when the need arises”. Paul Gooderick, Director of Law In Order, one of the leading providers of document processing services and technological solutions for law firms in Australia, anticipated the growth of online solutions – which although a savvy piece of business, he does remark there’s still a need for physical documentation. “There has been a growth in both the electronic and the paper reproduction side of our business and it appears that paper has no intention of disappearing in the foreseeable future. In fact the physical copying side of our business is still very substantial.” Reinforcing the importance of physical documents and the reliance law firms place on businesses such as Law In Order, Gooderick says that his company has over 1,300 law firms as clients, ranging from sole practitioners to some of the leading practices in the country which uses the company in some capacity in order to meet their physical reproduction needs. In fact, there appears to be a greater emphasis for law firms to seek physical documentation solutions which has resulted in a greater need for companies such as Law In Order. “The top 20 firms use the services we provide in some form, and the way they have engaged with us has evolved.
Document Management
DOC MANAGEMENT
There is now more outsourcing of print rooms and we’re establishing closer relationships with some of our larger clients to such an extent that we perform many of their in-house work, or have other arrangements to fulfil their specific needs and requirements,” says Gooderick. LItSupport’s Gabriel says that the death knell of paper may be a little premature. Mr Gabriel envisions that in some areas of the law, the need for physical documents may increase – especially as ‘concentrated reading’ gains prominence in particular areas of the law where “reviewing and providing advice on documents is a core function. Paper is deeply embedded in tradition, and lawyers will continue to use paper for much of their document review activity. Especially in matters that require in-depth review, annotating and highlighting. Like so many of us, lawyers will continue to print documents that extend beyond one or two screens.” So the machines haven’t won just yet – but they are making inroads.
Case Management
Trinogy is the leading iManage – WorkSite® document management provider, and the only Thomson Reuters FloCase® case management solution partner in S.E. Asia. iManage – WorkSite® is the leading document management product for legal and professional services firms with modules catering to document management, mobile access via iPhone®/iPad®, Blackberry®, MS Outlook®, Lotus Notes®, MS Sharepoint® and a variety of other interfaces.
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trinogy.com.au
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A Difficult Question in Trade Mark Law: When are Trade Marks too Close? By: Ian Horak, Barrister, Victorian Bar. A common and longstanding concern for many trade mark owners is that another trader’s mark is too close for comfort. Although the legal principles governing this area of law are well-settled they continue to provide fertile ground for stoushes between parties seeking to use similar trade marks. The Trade Marks Act 1995 (Cth) expresses the concept of similarity between trade marks in terms of the phrase “deceptive similarity”. Two recent Federal Court of Australia decisions have considered the meaning of this concept, with differing results illustrating the fine and often difficult line to be drawn when deciding whether two trade marks are deceptively similar and therefore in conflict. The first decision, Tivo Inc v Vivo International Corporation Pty Ltd, focused on a potential conflict between trade marks for goods such as televisions, remote controls and digital set top boxes. The applicant registered its trade mark “TiVo” and supplied products under that mark to the Australian market. The mark proposed by the respondent, which was a later entrant to the market, was “ViVo” to be used in respect of audio
NEW RELEASE:
visual apparatus including digital video recorders. The parties joined issue on a number of grounds and challenged each other’s right to trade mark registration. One important aspect of the dispute was the similarity between trade marks. Holding that the two trade marks were deceptively similar and therefore in conflict, the court found that they had very considerable aural similarity and would be subject to imperfect recollection, while taking into account factors such as careless pronunciation, the likely circumstances of sale, the broad class of potential consumers and evidence of actual consumer confusion. The second recent decision, Australian Postal Corporation v Digital Post Australia Pty Ltd (No 2), came to the opposite conclusion in respect trade marks that both contained the words “POST” and “AUSTRALIA” albeit in a different sequence. Here, the respondents had formed a company that provided a digital mail service under the trade mark “DIGITAL POST AUSTRALIA”. The long-established mail provider Australia Post took issue and commenced proceedings
for trade mark infringement, passing off and misleading and deceptive conduct. The primary issue between the parties at the final hearing was whether the two marks were deceptively similar, the prior factual inquiry being whether persons would be “caused to wonder” whether the business of the respondent was associated with Australia Post. Ultimately the court accepted the respondent’s argument that the presence of “Digital”, combined with the different relative position of the remaining words within the trade mark was sufficient to distinguish the trade marks in these circumstances. It appears the court was further convinced by the submission that consumers of digital mail services would be likely to take particular care when using those services and would be able to differentiate between the two trade marks. These decisions highlight the issues to be considered when determining whether two trade marks are too close and further show that disputes are often resolved on the basis of impression and judicial estimation rather than exact science.
Shanahan’s Australian Law of Trade Marks and Passing Off (5th edition) By Mark Davison, Ian Horak This work offers a fully revised analysis of the law of trade marks and passing off in Australia. The text explores the significant changes in trade mark law in recent years, in Australia. It also contains key developments in the law of passing off and its legislative equivalents. To order your copy online visit: This book was written originally by Dan thomsonreuters.com.au/lawbooks Shanahan, an experienced patent attorney with Spruson & Ferguson. Professor Mark Davison who specialises in trade Scan the code with marks and e-commerce, co-authors this your smart phone to edition with Ian Horak, barrister at the shop now. Victorian Bar practising in intellectual property law. Offering professionals authoritative commentary from Australia’s leading experts, Shanahan’s Australian Law of Trade Marks and Passing Off continues to be the ideal reference for every trade marks matter.
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Cost Management Solutions: Today’s Market – Managed Print Room – Cost Recovery – Innovation – The Future Today’s Market The Global Financial Crisis has forced law firms around the world to forensically examine their cost management strategies, to drive efficiencies, cut costs and hunt for undermanaged areas of the business to make improvements and maximise profitability. As market volatility continues, cost management innovation in terms of technology, people and processes will give a law firm significant advantages over firms that stick with traditional business models. This period of change postGFC is an opportunity to challenge preconceived ideas of how a law firm should operate. Legal process outsourcing (LPO) is already a hot topic – particularly for large scale document discovery and review. So is business process outsourcing (BPO). With back-office operations being managed by quality-assured specialists rather than by the law firm, the firm is free to get on with what they do best i.e. practice law. To accompany intense internal cost pressures, there are external tensions as clients increasingly question the billing practices of law firms. LitSupport Managing Director Brad Gabriel says: “Smarter cost management is vital in these business conditions where profits are being squeezed. This White Paper refers specifically to soft costs associated with document reproduction – photocopying, digital printing and scanning. We explore how an improved strategy managing document reproduction costs can improve a firm’s competitive edge, by creating increased client value, while at the same time improving revenue margins.” WHAT TOP TIER FIRMS ARE SAYING + Document reproduction is an essential client service +C lient requirements are unpredictable and therefore costs are difficult to manage
+ Cost recovery models have changed significantly with most professional fees for document reproduction now written off or absorbed WHAT THE LARGE NATIONAL AND MID-TIER FIRMS ARE DOING + I ncreasing outsourcing of print room management or document reproduction operations to specialist providers + As a result, significantly more document reproduction professional fees are recovered from clients + Disbursements are written off at lower rates without diluting profits THREE WAYS TO CONTROL DOCUMENT REPRODUCTION COSTS 1. Eliminate fixed costs and capital outlay on print rooms by moving to a consumption-based variable cost model 2. Manage cash flow and profit margins through fixed pricing on operational costs 3. Consolidate ordering and tracking to ensure accountability and maximised cost recovery Cost Recovery Many firms do not take the time to track what they don’t recover. However, knowing how much it costs a firm to represent a client can be ultimately played to the firm’s advantage. Quantifying calculable cost savings that have been absorbed on behalf of the client demonstrates a more powerful value proposition, which could help swing a panel review or appointment in the firm’s favour. It also provides the end client with information that translates well within their own business, which often perceives value in terms of commodities, cost savings or spend. LitSupport’s Managed Print Room Under an insourcing arrangement there is no
cost differentiation between internal and outsourced document reproduction, as one external supplier takes responsibility for all work. Every request is invoiced at the same flat rate and the firm has complete control and flexibility over how to recover these costs from clients. Cost Management Innovation Rather than a one-size-fits-all cost management policy, law firms are best served by a flexible, bespoke approach. If a law firm recovers document reproduction costs from clients, a system is required that enables the firm’s professionals to decide, at the point of billing – on a clientby-client, matter-by-matter basis – whether to recover, discount or write off costs, knowing that discretionary discounts won’t knock the firm’s bottom line into the red. LitSupport’s software solution – JOTA™ (Job Ordering and Tracking Application) – simplifies the entire management of costs for print, copy and scan services. Its key benefits will commercialise any law firm print room and optimise service delivery. The Future Looking to the highly developed legal markets of the United Kingdom and the United States, it is clear that a firm’s benchmark in service delivery, as well as its profitability, can be enhanced through commercialisation of internal non-core business services. For further information please ask for a copy of the LitSupport Cost Management white paper and find out more about our insourcing solutions by contacting us at: 1300 LIT SUP (548 787) client_services@litsupport.com.au www.litsupport.com.au Follow us on Twitter & LinkedIn
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RAISING AUSTRALIA’S IP STANDARDS THE AUSTRALIAN INTELLECTUAL PROPERTY COMMUNITY HAS SEEN PLENTY OF WORK IN THE PAST 12 MONTHS, PARTICULARLY IN THE LITIGATION SPACE, BUT THAT IS SET TO INCREASE AGAIN FOLLOWING THE INTRODUCTION OF NEW LEGISLATION, WRITES OLIVIA COLLINGS
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n April this year the Australian government introduced new regulation governing intellectual property, the first major change to laws in this area in many years. The Intellectual Property Laws Amendment (Raising the Bar) Act 2012 will impact Australian patents, trade marks and copyright and will seek to make Australia more competitive on the international stage. "It raises the bar of patentability here, resulting in greater alignment with international standards and greater certainty and consistency across jurisdictions," says Ashurst IP partner Anita Cade. "This legislation will assist in making us more consistent with the United States, UK and Europe." Middletons intellectual property partner Jane Owen also expects the changes in the Act to raise Australia's patent competitiveness in the international arena by ensuring that Australia is granting better patents. In harmonising intellectual property laws and in particular patent laws, Australian companies, inventors and researchers will benefit from the new Act according to Gilbert + Tobin intellectual property partner Chris Williams. "The trend to harmonise the world intellectual property laws is something that Australia has been part of and will benefit from," he says. In particular, the Act makes significant changes to the requirements for specifications in relation to the inventive steps and identification of 'specific, substantial and credible use' for inventions which are seeking to lodge a patent.
“The biggest change is the level of description required in the patent specification to enable the invention to be performed, and to support the claims in the patent,” says Davies Collison Cave partner Michael Caine. “They have introduced a new description requirement and a new support requirement.” Overly broad patents have in the past stifled inventions, as applicants tried to get as broad a patent claim as they could, thus preventing others operating in the same space. “The examination standard has also been raised,” says Caine. “The patent examiners now need to be satisfied in relation to all elements of patentability and also in relation to specification requirement; whereas in the past, the benefit of any doubt was in favour of the applicant.” According to Wayne Condon, principal and national practice group leader at Griffith Hack, as a result of the changes there may well be an expectation within industry that in raising the standards of patentability this will result in the
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“THIS WILL GO A LONG WAY IN ENSURING THAT PEOPLE WHO OBJECT HAVE A GENUINE INTEREST IN OBJECTING, NOT JUST IN DELAYING A COMPETITOR IN GETTING IT TO MARKET” Anita Cade, Ashurst
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granting of patents that are stronger when it comes to the patents being more enforceable and less likely to be subject to a validity challenge. “That outcome, however, remains aspirational at this stage given that there is no track record as to how the Raising the Bar changes will have practical impact,” he adds. While most of the changes in the Act won't come into effect until April 2013, some changes have been introduced already, such as access to patented inventions for regulatory approvals and research. According to Swaab Attorney's Tim Hemingway this change recognises the delays in bringing many products to market as a consequence of "lengthy pre-market and pre-manufacturing regulatory approval processes". Cade adds that the Act also broadens what is considered to be common general knowledge when applying for a patent. “The common general knowledge test previously only allowed you to take into account what was considered common general knowledge in Australia when assessing inventiveness," she says. "But now it will be common general knowledge of the matter outside of Australia as well." Extending the common general knowledge test will mean it is easier to challenge the validity of a patent. This will not only make it easier to use intellectual property that is generally known, but also makes it easier for parties involved in litigation to identify relevant experts as they'll be able to draw on a broader pool of professionals. Along with patents, the Act also seeks to improve trade mark regulation in Australia. Key amendments are intended to ensure better case management, create a new 'presumption of registrability' favouring trade mark applicants and alignment of trade mark and copyright legislation in relation to customs seizures and indictable penalties. "These changes will assist trade mark owners, as some of the changes will reduce the cost of obtaining protection," says Cade. "Protection should not be just for large companies with deep pockets." Kelly Marshall from Swaab Attorneys says many of their clients are also looking forward to having more certainty on trade marks as a result of the Act, particularly in relation to trade mark oppositions. For example, a trade mark will be presumed registrable, unless provided otherwise under the new regulation. This will make it easier for businesses to obtain trade mark registration. There are also changes within the Act in relation to trade mark oppositions, which will reduce delay and help keep the costs down. Under the new amendments, opponents will also be required to give more information at the point where the objection is first raised and lodge a statement of grounds and particulars in respect of each ground of opposition within one month of filing the Notice of Opposition. "The opponent will need to spend some money and commit to an objection rather than simply filing a Notice of Opposition," says Cade. "This will go a long way in ensuring that people who object have a genuine interest in objecting, not just in delaying a competitor in getting it to market.” LITIGATION IN THE WIND In recent times, the importance of protecting, enforcing and challenging breaches of intellectual property has come to the forefront of commercial issues according to Owen. "Intellectual property is a boardroom issue and it has become something that
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directors and executives have had to take more notice of, cognisant of the importance in value of intellectual property,” she says. As a result of this, there has been a shift and “up lift” in patent litigation in recent years which Owen expects to continue as a result of the new Act, although it might be five or more years before those challenges flow through to the courts. Caine also predicts more litigation in the intellectual property sphere as a result of the new Act. “It’s a big departure from what we have had in the past, which means there will be uncertainty until the courts clarify how the laws are to be interpreted,” he says. “I think there will be more opportunity for litigation initially at least, because there is not clear guidance on how the provisions will be interpreted.” With a lot of the new provisions he says it is unclear, by looking at the wording only, what they are intended to achieve and will be highly subject to the interpretation of those words by the courts. “Interpretation of the Act is immensely reliant on the explanatory memorandum,” he says. “Parties weighing up their chances of being successful under this new regulation might be more willing to give it a try, because the outcomes are less certain.” Williams also expects there will be more litigation, particularly within the trade mark space in the not too distant future, as a result of the changes. "We have been advising our clients on the changes to that area, because there are greater economic incentives for brand owners to sue [now],” he says. “The act increases the penalties for trade mark infringement, including providing the remedy of additional damages; which provides an incentive for brand owners to sue."
“THE ACT INCREASES THE PENALTIES FOR TRADE MARK INFRINGEMENTS” Chris Williams, Gilbert + Tobin The fact that disputes will be able to be managed more cost efficiently and expeditiously as a result of the changes in the Act, including a greater focus on case management, is one indicator that more litigation could be on the cards according to Hemingway. A move amongst litigation funders could also see more litigation within the intellectual property sector according to Owen, who says that funders such as IMF are interested in funding litigation if the patents are being breached. For Cade however, an increase in litigation within intellectual property is to be expected as a result of new technologies and services outpacing legislation. “Our world is subject to such enormous and rapid change," she says. "Businesses in Australia are grappling with new ways of communicating, new ways of dealing with customers and they have to innovate to stay ahead of the curve. It is the age old problem of the law trying to keep up with the developments of the human mind." A number of cases in the courts, such as Roadshow Films V iiNet and AFL, NRL, Telstra V Optus Now TV, demonstrate that in some cases, new innovation is surpassing legislation, and therefore going to court is the only option. "We have seen that tension in a number of key IP cases being fought in recent times," says Cade. "It’s a real challenge for business owners who are innovative and a challenge for the laws that are trying to regulate them."
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IP specialist firm of the year 2011 & 2012 Let us guide you through the Australian IP landscape Contact the leaders in intellectual property, Griffith Hack. Melbourne (+61) 3 9243 8300 Sydney (+61) 2 9925 5900 Perth (+61) 8 9213 8300 Brisbane (+61) 7 3232 1700 www.griffithhack.com.au
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GUIDELINES FOR COMMENCEMENT OF THE RAISING THE BAR ACT THE INTELLECTUAL PROPERTY LAWS AMENDMENT (RAISING THE BAR) ACT 2011 RECEIVED ROYAL ASSENT ON 15 APRIL 2012, AND AS SUCH MOST PROVISIONS WILL TAKE EFFECT FROM 15 APRIL 2013. THIS IS THE MOST SIGNIFICANT AMENDMENT TO AUSTRALIA’S INTELLECTUAL PROPERTY LAWS SINCE THE COMMENCEMENT OF THE PATENTS ACT 1990. BY MICHAEL CAINE, PARTNER, DAVIES COLLISON CAVE
For further information please contact Michael Caine, Partner, Davies Collison Cave, on: mcaine@davies.com.au
NEW EXPERIMENTAL USE AND REGULATORY EXEMPTIONS TO TAKE IMMEDIATE EFFECT One of the few provisions to take effect immediately is an “experimental use” exemption which allows researchers in Australia to carry out experiments relating to the subject matter of patented inventions without infringing the patent. Although some commentary in relation to this exemption has suggested that it only applies to non-commercial experimentation, there is nothing in the wording of the provision which excludes experiments conducted for commercial purposes. The new regulatory exemption supplements the existing pharmaceutical regulatory exemption, such that activities relating to obtain regulatory approval for any product or method are likely to be exempt. NEW REQUIREMENTS FOR PATENT APPLICATIONS The Act raises the requirements for patentability, and the description requirements for patent specifications, for all applications filed from 15 April 2013, and for patent applications filed prior to that date for which an examination request has not been filed prior to 12 April 2013. Interestingly, the new description requirements not only relate to standard
patents, but also to innovation patents. A number of actions are available to patent applicants to ensure that the current, more lenient, patentability and specification requirements apply to their applications. Some of these actions, and other actions to be taken before commencement, are set out below. PREPARING FOR RAISING THE BAR COMMENCEMENT Patent applicants should consider taking the following actions prior to the commencement date of Monday 15 April 2013, which effectively means the actions must be taken by no later than Friday, 12 April 2013. 1.
Request examination of any pending patent applications you may have prior to commencement. 2. Enter national phase early or file your complete patent application (as opposed to a provisional application) in Australia early to enable an examination request to be filed prior to commencement. 3. Where an objection has been raised that your patent application is directed to more than one invention, or where there is an intention to file a divisional application to cover separately disclosed inventions, file the necessary divisional applications with an examination request prior to commencement. 4. Where your application has been opposed by a third party it will no longer be possible, after commencement, to file a divisional application to provide a further route to protection for your invention. If your application is under opposition consider filing a divisional application with an examination request prior to commencement. 5. Consider amending your pending applications prior to commencement to include additional description, examples or the like, or to recite a specific, substantial or credible
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use as required under the new law. After commencement it will not be possible to add further description to a patent application. However, a safer course of action would be to request examination before commencement. CHANGES TO THE ACCEPTANCE AND EXAMINATION REQUEST PERIODS There are a number of additional changes to the patent system which will be introduced with the new law, although these additional changes will be the subject of regulations which have not yet been drafted. Of particular note is the stated intention of IP Australia to reduce the 21 month period within which the application must be accepted (following issuance of the first examination report) to 12 months, and to reduce the period for requesting examination following the issuance of a Direction to Request examination from 6 months to 2 months. These changes will require patent applicants to be diligent in progressing their applications through the Patent Office. Under the current law when acceptance is not secured within the 21 month acceptance period it is common to refile the application as a divisional application of itself to maintain pendency. After commencement any divisional filed to maintain pendency will be subject to the new law. Accordingly, it is anticipated that applicants will be more inclined to request hearings to secure acceptance of the parent application rather than resort to the filing of divisional applications to maintain pendency. The new provisions will be subject to regulations which are yet to be published. It is anticipated that the regulations will be available for review later this year.
AustrAliA’s leAding intellectuAl propert y firm We combine the technical expertise and depth of a boutique ip practice with the litigation skills and resources of a full service law firm.
davies.com.au
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ALL CHANGE - NEW ZEALAND’S INTELLECTUAL PROPERTY REGIME SHAPES UP FOR THE 21ST CENTURY NEW ZEALAND’S INTELLECTUAL PROPERTY PRESS HAS TENDED TO BE DOMINATED IN 2012 BY THE EXTRADITION CASE BROUGHT BY THE U.S. GOVERNMENT AGAINST KIM DOTCOM FOR ALLEGED COPYRIGHT OFFENCES ARISING FROM THE MEGA UPLOAD SERVICE. BUT WHILE ATTENTION HAS BEEN FOCUSED ELSEWHERE, NEW ZEALAND’S IP LEGISLATION HAS BEEN EXPERIENCING A LONG AWAITED OVERHAUL. BY RICHARD WATTS AND EARL GRAY, SIMPSON GRIERSON PATENTS BILL After a wait measured in not years but decades, the overhaul of New Zealand’s outdated patents regime is finally imminent. The Patents Bill has been resurrected towards the top of the legislative programme, and is expected to have its second reading in Parliament in the next couple of months. With Regulations also to be prepared, this means it is likely the Bill will come into force sometime in 2013. There will be a number of key changes – the one getting all the attention is the ability to obtain patent protection for computer software. The current wording excludes computer programs “as such” but leaves the door open for patent protection for embedded software. Assuming it survives through parliamentary debate, this would leave New Zealand’s position on software patentability as similar to that in Europe. Another major change is the removal of New Zealand’s archaic “local novelty” criteria for patentable inventions. Seemingly impossible in today’s world of global business, New Zealand presently only examines an invention on whether it is “new” in New Zealand, rather than throughout the world. This is now to be replaced by an “absolute” (worldwide) test - bringing New Zealand into line with its key trading partners. Technically, this will result in inventions not being patentable in New Zealand when they would have been patentable under the Patents Act 1953. However, the practical effect will be slightly less dramatic - as most New Zealand originating patent applications have some international element and are therefore designed for registration in jurisdictions which already have absolute novelty tests, and these days the proliferation of internet publication has meant that overseas material is generally ‘available’ in New Zealand in any event. One area of ongoing debate is that there is no provision for patent terms extensions for pharmaceutical and other inventions which have a long approval process before products can be put on the market. Even though not in the Bill, this issue will be heavily debated during negotiations with the U.S. and others for the Trans Pacific Partnership agreement. This appears set to remain a significant difference between New Zealand and Australian treatment of patents, and an area where New Zealand remains out of line with its major trading partners. Accordingly, there will be pressure to offer equivalent protection to pharmaceutical innovators. TRADE MARKS – MADRID PROTOCOL The system for allowing international trade mark registrations through the Madrid Protocol is scheduled to come into force in December 2012 – once again bringing New Zealand into line
with its key trading partners, including Australia, the U.S. and Europe. While offering international registrations for trade marks is essentially an administrative change, it will have a significant impact. This is expected to result in an increase in trade mark applications, with more being filed as international applications from overseas – early estimates are for 7000 incoming international filings in the first year. This increase in applications should result in a marked increase in trade mark oppositions, particularly amongst bigger multi-nationals (the highest users of international filings). The result is likely to be a contentious couple of years at least. COPYRIGHT - THREE STRIKES AND … New Zealand is one of a handful of countries to have introduced a graduated response (or “three strikes”) regime for end user copyright infringement. The regime, introduced a year ago, requires rights owners to notify ISPs of copyright material (principally music and films). The ISP must then send a series of warning notices to any customers found to be illegally downloading material. One year on, New Zealand has just had its first thirdstrikers – who will be subject to potential penalties of up to $15,000. However, the provision allowing for suspension of their accounts remains, ironically, suspended, pending review by the government in 2013. While early debate on the Three Strikes regime focused on weighty issues such as whether access to the Internet was a fundamental human right, this has now been over-shadowed by heated debate between rights-owners and ISPs over payment for the scheme. At present rights owners have to pay $25 to lodge a protection notice. Rights owners have objected and demanded removal of the fee – some have refused to use the scheme at all. Meanwhile, ISPs have argued the administrative cost is far greater than the $25, and argued for increases of up to $104 per notice. Both sets of objections fell on deaf ears – in a recent review this month, the government elected to keep the fee at $25. COMMENT New Zealand’s IP structures are in a state of real change. While the changes are significant, most of them are long overdue and are merely bringing the regime up to speed and in line with its major trading partners. The changes are likely to be seen as positive for outside business, with the increased harmonization likely to encourage investment in IP in New Zealand. However, increased activity combined with the uncertainty of untested laws suggests that New Zealand could be a busy place for IP litigation in the next couple of years.
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PUT ON YOUR RED SHOES AND DANCE THE BLUES THE UNITED STATES COURT OF APPEALS RECENTLY CONSIDERED WHETHER A COLOUR COULD BE PROTECTED AS A TRADE MARK WHEN USED IN THE FASHION INDUSTRY AND FOUND THAT IT COULD BE, BUT WILL IT BE THE SAME IN AUSTRALIA? BY KELLIE STONIER, SENIOR ASSOCIATE, GRIFFITH HACK
For further information please contact Kellie Stonier, Senior Associate, Griffith Hack intellectual property law firm, on: kellie.stonier@ griffithhack.com.au.
U.S. NOW RECOGNISES COLOUR MARKS IN FASHION INDUSTRY Since 1992, Christian Louboutin has painted the sole of women’s high heels with bright red lacquer in contrast with the colour of the rest of the shoe. In January 2008, Louboutin obtained the registration of a colour mark for a red soled shoe in the United States. Yves Saint Laurent (YSL) released a line of monochrome footwear which included shoes in red, purple, yellow and green. Louboutin instituted proceedings against YSL for trade mark infringement and sought an injunction to prevent the sale of the red version of the monochrome shoe. YSL asserted that Louboutin’s use of a red sole was not distinctive but merely ornamental and functional given it was used in the fashion industry. YSL also maintained that it had sold shoes with a red sole since the 1970s and effectively sought to establish prior use and that red soles were not new in the industry.
THE U.S. COURT OF APPEALS FOUND NO REASON WHY A SINGLE COLOUR, WHEN USED SO CONSISTENTLY AND PROMINENTLY BY A PARTICULAR DESIGNER, COULD NOT SERVE TO IDENTIFY A SOURCE OF ORIGIN. At the outset, the District Court concluded that a single colour could not serve as a trade mark in the fashion industry because it was ornamental in nature but the Court of Appeals overturned that decision. The Court of Appeals found that while red soles were not inherently distinctive, the use of the red lacquer as a contrasting colour on
the sole of women’s high heels had acquired a secondary meaning as a symbol that identifies the Louboutin brand. That particular trade mark use was capable of protection. However, the Court of Appeals went on to find that the use of red by YSL on the monochrome shoe was not use by it of red as a trade mark but use of the colour red as part of the ornamentation of its product. Consequently, such use could not be an infringement of Louboutin’s registered mark. WHAT MIGHT HAPPEN WITH LOUBOUTIN IN AUSTRALIA? In Australia, Louboutin has applied for registration of a trade mark for the colour red applied to the sole of a shoe and the application has been accepted following the submission of evidence of use. The trade mark application is now open for opposition and it remains to be seen whether YSL will oppose the application prior to the 2 November 2012 deadline. But will the approach in Australia be the same as that adopted by the United States Court of Appeals? Australia has had its own fair share of colour contests between Cadbury and Darrell Lea, Woolworths and BP and Nestle and Mars. Colour trade marks in Australia have previously been found to be capable of registration but will it be the same in the fashion industry where colour is integral to style and trends? Similar to the United States, colour trade marks in Australia are not considered to be inherently distinctive because colour is typically used as ornamentation. For a colour trade mark to be registered in Australia, it must be distinctive at the date of filing. Colours that are ‘descriptive’ or have non-trade mark significance are not capable of protection. For example, the colour brown for chocolate flavoured ice cream, the colour red to denote a tap for hot water or a reddish-brown colour for terracotta roof tiles are unlikely to be capable of registration or protection. However, where the colour is being used as a trade mark and not purely part of the ornamentation of a product, and it can be demonstrated that the colour has acquired distinctiveness through use such that consumers recognise the colour as signifying a source of origin for the mark, the trade mark has been found to be capable of protection. It would seem that Louboutin is applying glossy red lacquer to the soles of shoes in that manner and for that purpose. Accordingly, Louboutin’s trade mark application is likely to have prospects of being successfully registered and enforced in Australia, even if it is opposed by YSL in the interim.
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HOW APPLE OVERWHELMED SAMSUNG’S PATENT CASE TACTICS DID POOR TACTICAL DECISIONS BY LAWYERS LEAD TO SAMSUNG’S RECENT COURTROOM LOSS TO APPLE OVER PATENT INFRINGEMENTS? REUTERS’ DAN LEVINE AND POORNIMA GUPTA INVESTIGATE.
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n August 2010, just a few months after Samsung Electronics launched its Galaxy smartphone, a team of Apple Inc lawyers flew to South Korea. Apple's late co-founder, Steve Jobs, had already told Samsung executives at a meeting earlier that summer that he considered the Galaxy S, based on Google's Android operating system, an illegal copy of the iPhone. But given the extensive business ties between the two companies – Samsung is one of Apple's key component suppliers – a negotiated solution seemed most likely. The Apple attorneys were blunt: "Android is designed to lead companies to imitate the iPhone product design and strategy", read the second slide in their presentation. But the meeting did not go well, according to a person familiar with the case. Samsung attorneys bristled at being accused of copying, and produced a set of their own patents that they said Apple was using without permission. The meeting brought to the fore a fundamental disagreement between the two companies, and set the stage for a bitter, multicountry patent dispute that led to last month’s U.S. jury verdict that Samsung had violated Apple's patents. The jury awarded Apple $1.05 billion in damages, which could be tripled as the jury found Samsung acted willfully. Samsung could now face a costly ban on sales of key smartphone and tablet products. Shares in Samsung – the world's biggest technology firm by revenue – tumbled more than seven percent in wake of the verdict, its biggest daily percentage drop in nearly four years, wiping $12 billion off its market value. Samsung says it will seek to overturn the decision, and the worldwide patent battles among tech giants are hardly over. But for now at least the decision in what was widely seen as a critical case promises to re-set the competitive balance in the industry. The vast majority of patent disputes settle before trial, particularly between competitors. In this case, though, the stakes were just too high – and the two companies ultimately had very different views of the often murky legal issues. Samsung believed its wireless communications patents were strong and valuable, and would serve as a counter-weight to any Apple showing of infringement, people close to the case say.
The South Korean company also didn't believe Apple could or should be allowed to claim patent protection on design elements like the form of a rectangle, or the front flat surface embodied on the iPhone. Apple, for its part, considered its feature and design patents to be very high up on the intellectual property food chain – and demonstrating their validity was critical to a much wider war against Android. The two companies never came close to settling their differences according to courtroom testimony, trial evidence and interviews with several sources. And when it came to the trial, Samsung's lawyers miscalculated in arguing that a verdict for Apple would harm competition in the marketplace. The jurors, led by a foreman who holds his own patent, were more persuaded by Apple's pleas to protect innovation. For them, it ultimately wasn't even a close call. A spokesman for Samsung in Seoul had no immediate comment. CORDIAL BUT ADAMANT Apple launched the iPhone in 2007, revolutionising the mobile phone market. But later that year Google, then still an ally of Apple's, unveiled the Open Handset Alliance, with the aim of distributing its Android smartphone software to all-comers. Google's open approach quickly caught on among manufacturers looking to compete with Apple. The strategy infuriated Jobs, and by 2009 relations between the two companies had soured and Google's then-CEO, Eric Schmidt, left Apple's board. Jobs' biographer famously quotes him as accusing Google of "grand theft" and vowing to "go to thermonuclear war" over the issue. In January 2010, Taiwanese phone manufacturer HTC Corp launched a touch screen, Android-based smartphone that sported features very similar to the iPhone. Apple sued in March of that year, and the Android smartphone patent wars were on. HTC, though, was a minor player compared with Samsung. After the cordial but failed August 2010 meeting, attorneys from Apple and Samsung talked in a series of meetings both in South Korea, California and elsewhere in the United States. Apple's attorneys set to work putting a price tag on a royalty demand. By October 2010, they had concluded that Samsung should pay $24 per smartphone, and $32 per tablet. Based on Samsung's own estimation of its profits, Apple's royalty payments
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would effectively wipe out more than half of Samsung's margins on any phone priced less than $450. And, Apple's offer wouldn't have covered the "unique user experience" patents Apple holds dear. "We made that clear," said Apple licensing chief Boris Teksler. By the end of 2010, the meetings stopped as the two sides were too far apart. VIEWED AS RIP-OFF Apple hoped its relationship with Samsung would make filing an actual lawsuit unnecessary. Yet instead of wilting under Apple's pressure, Samsung instead pressed its own patent claims, including a critical one relating to how mobile products send and receive information over wireless networks. Samsung eventually would request a 2.4 percent royalty on those patents, or $14.40 per device. But Samsung had committed to license its wireless patents on fair terms to competitors over the years, in exchange for the technology becoming part of the industry standard. Courts have generally been reluctant to bar companies from using such "standards essential" patents, and thus they are often less valuable than other types of intellectual property. Then, in early 2011, Samsung released the Galaxy Tab 10.1. To Apple, it was a clear rip-off of the iPad, and showed Samsung had no intention of modifying its products. Apple sued Samsung in a San Jose, California federal court in April 2011, saying the Korean company "slavishly" copied its designs. Samsung quickly counter sued, and the dispute bled into at least 10 courts around the world, including Australia and South Korea. Over the next year, outside law firms hired by both companies racked up thousands of billable hours around the world, but no decisive rulings threatened either side. Jobs passed away in October 2011, and Cook carried on the litigation, filed "reluctantly," he said. Until recently it had mostly been a see-saw battle. Apple largely succeeded in thwarting HTC. But earlier this year a federal judge in Chicago threw out a case pitting Apple against Google's Motorola Mobility unit, saying neither side could prove damages. For Apple, the California lawsuit against Samsung took on even more urgency as it sought to prove the basic validity of its iPhone and iPad patent claims. It scored its first serious victory in the San Jose court when U.S. District Judge Lucy Koh issued two sales bans: one against the Galaxy Tab 10.1, and the other against the Galaxy Nexus phone. In her ruling on the tablet, Koh said Samsung had the right to compete, "but does not have right to compete unfairly." Yet Koh repeatedly urged the two sides to settle. In July, Cook and his Samsung counterpart Choi Gee-sung participated in one last mediation in an attempt to stave off the impending U.S. trial. They couldn't agree. Besides the dispute over the "standards essential" patents, Samsung believes it has a stronger patent portfolio than Apple when it comes to next-generation technology like 4G. OUT OF TIME The trial began on July 30. Apple presented top executives who testified in coherent narratives, and revealed damaging internal Samsung documents that showed the company modifying its products to be more like the iPhone. Samsung's case was far less slick. Koh gave both sides 25
hours of trial time, but Samsung lawyers used up too much time in the beginning and couldn't cross examine some Apple witnesses towards the end. Samsung employees testified through interpreters, or in video depositions that alienated jurors. "Instead of witnesses, they sent you lawyers," Apple attorney Harold McElhinny said during his closing argument. And while Samsung's own patents were a major part of behind-the-scenes negotiations, at trial its lawyers struggled to present them on an equal footing with Apple's intuitively comprehensible design and feature patents. Samsung could have opted for a separate trial on its patents, but declined. Its lawyers may have believed that placing its own allegations in front of the same jury would balance out any toxic impact from breaches of Apple patents. It didn't work. Samsung violated six of Apple's patents, the jury said. Samsung asked for up to $399 million on its standards patents. It got nothing.
Samsung has vowed to keep fighting. It could get an appeals court to delay any potential sales ban, which would give it time to bring new, modified products to the market. But barring a reversal on appeal, Apple now has a clear verdict: how it values its intellectual property is more than just a theory.
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SWEEPING APPLE WIN, BUT SAMSUNG SET FOR BOUNCE-BACK SAMSUNG’S CALIFORNIA DEFEAT MAY NOT BE AS DEVASTATING AS THE INITIAL MARKET REACTION MAY INDICATE, REPORTS REUTERS’ MIYOUNG KIM.
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efeat in a bitter patent wrangle with Apple Inc, its smartphone rival and biggest customer, will dent Samsung Electronics Co's $21 billion cash-pile, but could actually help cement its leadership in the global smartphone market. A U.S. court has ordered Samsung – which sold around 50 million phones in April-June, almost twice the number of iPhones – to pay $1.05 billion damages, after ruling that the South Korean firm infringed on some Apple patents. While the verdict was a big win for Apple, the damages are less than half the $2.5 billion compensation it sought – although that could yet be increased by the judge – and are just 1.5 percent of annual revenues from Samsung's telecoms business. That phone and tablet business is the powerhouse behind Samsung's growth, earning around 70 percent of total profit. The group had net profit of $4.5 billion in April-June. Samsung could also see its popular Galaxy smartphone banned from sale in the United States. But its skill as a "fast executioner" – quick to match others' innovations – would likely mean tweaked, non-patent infringing devices would be on the market soon after any ban came into place. "Samsung has already made some design changes to new products since the litigation first started more than a year ago," said Seo Won-seok, an analyst at Korea Investment & Securities. "With the ruling, they are now more likely to make further changes or they could simply decide to raise product prices to cover patent-related payments." Also, Apple's demands for Samsung to pay it a royalty on its phone sales could hit rival phones using Google's Android operating system more than it hits Samsung. If anything, the blaze of publicity from the high-profile, high-stakes U.S. litigation has made Samsung's brand more recognisable. CONTRADICTING VERDICTS The California jury’s verdict on seven Apple patent claims and five Samsung patent claims suggests the nine-person panel had little difficulty in concluding that Samsung had copied some features of Apple's iPhone and iPad.
It could lead to an outright ban on sales of key Samsung products, with Apple saying it planned to file for a sales injunction within seven days and the judge in the case setting a hearing on September 20. Because the jury found "wilful" infringement, Apple could seek triple damages. The U.S. ruling, read out to a packed federal courtroom in San Jose, just miles from Apple's headquarters, came less than 24 hours after a Seoul court found that while the iPhone and Galaxy look very similar Samsung hadn't violated Apple's design. Samsung issued a defiant response to the U.S. decision, which it called "a loss for the American consumer", indicating the legal tussle is far from over. "This is not the final word in this case or in battles being waged in courts and tribunals around the world, some of which have already rejected many of Apple's claims," Samsung said in a statement. Nomura analyst CW Chung, speaking before the verdict, predicted it could take "many years" for Apple and Samsung to settle the case whatever the result of this round, leaving the two firmly in control of the $200 billion-plus global smartphone market. "The litigation may end up with both parties entering a crosslicensing agreement, which should enable them to build a higher patent wall in the smartphone market," said Chung. "This would have a positive impact on the share prices of Samsung and Apple, while posing a substantial threat to other competitors." If Apple were to pursue similar legal challenges against other Android manufacturers that could squeeze profit margins as smartphone prices decline in a growing market – reinforcing the dominance of Samsung, one of the few with big enough margins to absorb the extra cost. Handset competitors using Android include Taiwan's HTC Corp, LG Electronics, Google's Motorola, Sony Corp and some Chinese brands. WIN SOME, LOSE SOME? Although Samsung had been viewed as the underdog in the U.S. case, the sweeping nature of Apple's victory was something of a surprise, with many analysts having expected a mixed ruling.
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Concerns over potential reputational damage, the short-term cash hit and the impact on billions of dollars of business with Apple had knocked as much as 5 percent off Samsung's shares in the week in the run-up to the verdict. But the stock is still up nearly 50 percent since Apple filed its accusations. Samsung has previously been able to move nimbly to release model upgrades by the time courts have ruled certain products infringed Apple patents and retire patent-infringing models from its line-up. It has skirted around those rulings with a few engineering tweaks and has also made some bold design changes to differentiate its devices from Apple's. "The impact on Samsung will be quite limited, as affected models are mostly legacy products and its new products did make some design changes to avoid potential litigation," said DJ Jung, representative patent attorney for SU Intellectual Property. "Still ... it's a sweeping loss in the most important market. It's inevitable that Samsung's brand will be negatively affected – Samsung could be perceived as a copycat." Even though Samsung's flagship Galaxy S III phone was not involved in the trial, the jury validated Apple's patents on features and design elements that Apple could then try to wield against that product. It is possible Apple would not have to seek an entirely new trial against the S III, but rather include it in a "contempt proceeding" which moves much faster, said Nick Rodelli, a lawyer and adviser to institutional investors for CFRA Research in Maryland. Seoul-based Jung predicted further appeals and fresh suits against newer products as the rivals continue to clash in court. "It's going to be a very drawn-out battle," he said. "They will keep suing each other, appeal against unfavorable verdicts and bring in new products ... because the stakes are too high. They don't want to lose their initiative in the fast-moving smartphone market." OUTSIDE THE BOX In a research note before the verdict, UBS analysts said an Apple win could, in the long-run, hurt the U.S. firm "as the real threat is not a competitor beating Apple at its own game, but instead changing the game. "The likelihood of Apple being leapfrogged or a rival creating a new category (of device) is greater if they have to think out of the box. If they just copy Apple, like Coke, Apple can claim to be 'the real thing'." Samsung also looks to be staying ahead of the curve – by reviving the stylus function, derided by Apple's Steve Jobs, in its latest tablets and by creating the hybrid phone-cum-tablet, or phablet, category, with its 5.3-inch Note. Apple, which has largely stood by its original form and design, is taking note, with speculation that the next iPhone will have a bigger screen and new iPads may be smaller. In China, set to become the world's biggest smartphone market this year, Samsung has almost twice Apple's market share, and the iPhone slipped to fourth in the market in April-June, overtaken by both Lenovo Group Ltd and ZTE Corp, according to latest data from industry research firm IDC. Despite, or because of, the publicity from the U.S. case, and more than a dozen pending cases elsewhere around the globe, the Samsung brand has gained recognition – as an equal to Apple rather than merely a supplier. In a recent Campaign Asia-Pacific brand ranking, Samsung came top ... ahead of second-placed Apple.
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“SAMSUNG HAS PREVIOUSLY BEEN ABLE TO MOVE NIMBLY TO RELEASE MODEL UPGRADES BY THE TIME COURTS HAVE RULED CERTAIN PRODUCTS INFRINGED APPLE PATENTS AND RETIRE PATENTINFRINGING MODELS FROM ITS LINE-UP.”
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THE SECRETS OF DEALING WITH REGULATORY CHANGE THE TASK OF MANAGING RISK AND COMPLIANCE OBLIGATIONS HAS BECOME INCREASINGLY ONEROUS FOR AUSTRALIAN FINANCIAL INSTITUTIONS. WIETSKE JARVIS-BLEES OF THOMSON REUTERS ACCELUS LOOKS AT SOME OF THE KEY METHODS OF MANAGING THE CHALLENGE.
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s the deluge of regulatory change shows little sign of abating, keeping track of new requirements and ensuring the business remains compliant is a challenge that every Australian financial institution faces. It is also a major challenge for risk and compliance practitioners who have to allocate resources between competing regulatory requirements and ensure that systems and staff training are kept up to date with regulatory reforms. David Love, director, policy and international affairs at the Australian Financial Markets Association (AFMA), said Australian financial institutions faced an unprecedented period of reform. "There is clearly a change in the zeitgeist. The view a few years back was about trying to ease the burden of regulation and better regulation. Well the pendulum has clearly swung quite to the opposite side here," he said. Love said the changes were particularly significant because they affected the industry at a structural level. "We are
seeing things like Dodd Frank, the whole G20 commitments ... the move towards platform trading and centralised clearing. Those sorts of things, they are changing the way businesses are operating. Here we are looking at the way [the Future of Financial Advice reforms are] impacting the way businesses are run. They are all having structural changes at the most fundamental level and managements have to understand those things," Love said. KEEPING UP TO DATE Staying on top of the flow of regulatory change is a significant challenge for firms. Lindesay Brine, head of business risk and regulatory change at National Australia Bank, said successfully navigating those challenges required expertise at both regulatory and business levels. "To respond effectively to regulation means you have got to find a way to deal with [the need to comply] in your business, and to make sure that your business is viable and, unless you have the involvement of each of the business lines in there, it is very difficult to achieve it. The balance has to be between having some people who understand regulators, [who] understand regulation and deal with them on a regular basis, and then you also need to have people in the business who are aware of what is going on and are not necessarily totally on top of the nuances of the regulations, but can understand how it is going to impact their business," Brine said. Rob Walsh, a partner at Ernst & Young, said including the
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business in the regulatory compliance projects at an early stage was critical to ensure the compliance process ran as efficiently as possible. "The real risk is people who are close to the business and work with the business and understand the business aren't involved in the front end, and there comes some point down the path where the business gets presented with what is the solution and they don't like it much, and it is not necessarily aligned to what they are trying to do," Walsh said. Brine also said involvement of the business was vital. "I don't think it can actually be done in isolation, and I think everyone has been through a situation where a central area has tried to be the focus of the response to a compliance requirement or a regulatory change and discovered ... that the business doesn't like the solution or it simply won't work," Brine said. Walsh said that, in those cases, the project often ended up being far more costly than would have been necessary had it been done correctly from the start. "There is a lot of focus, understandably, about the cost of regulation, but if you look at some of the initiatives, I would say
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there is the cost of regulation and the cost of implementing that regulation, and there is a lot of — in our experience — retrospective trying to reshape, recast, rescale the initial solution, and I think that getting the right people at the front end is absolutely critical," Walsh said. A FLEXIBLE APPROACH If keeping up to date with the sheer scale of regulatory change was one challenge, the fact that many of those regulations had not yet been finalised, or were still subject to change, while timeframes remained tight was equally tricky. The over-the-counter derivatives reforms, currently underway through both the Dodd Frank Wall Street Reform and Consumer Protection Act and the G20 commitments to clear all standardised OTC derivatives by the end of the year were one clear example. Brine said it was important that financial institutions that were captured ensured they were prepared for the new regimes, despite the considerable uncertainty. "What you do have to do is prepare yourself for what might occur. There is always going to be a mostlikely outcome, there is your best possible outcome which you know will never happen, and then there is the one which could be the absolute worst, which is always possible, particularly when, let's say, a large US bank has a problem with derivatives in London and all of a sudden the whole industry is on the back foot. So you have got to be prepared for just about anything." Brine added that it was critical to keep the approach flexible, to account for changes in final regulatory requirements down the track. "I think one of the keys ... is to make sure that you have got flexibility. If you start pushing too early for a rigid implementing solution, you could find yourself in big trouble if suddenly things change, and we have seen in the rule-making process in the U.S. that there have been changes along the way," Brine said. "The keys are flexibility, being aware of what is going on, making sure you are on top of what is happening in the rule-making [process] and keeping people informed about what is going on. But bear in mind that there will be surprises, that you will not be able to totally prepare everyone for what is going to come down the path with some of the regulations," Brine added. CONFLICTING REGULATIONS Dealing with potentially conflicting regulations was another challenge. Love said it was critical that Australian businesses took note of offshore developments and made their case when foreign regulations conflicted with local obligations. "There was a time when you could live in a sort of Australian cocoon, I suppose, and sort of not worry too much about what the overseas regulation said. But nowadays ... it could be fundamentally affecting the structure of your business going forward," Love said. "Where it is a conflict it is then a question of making representations. We have had some success, I suppose, in small ways with the European Union on some minor accounting issues, for example, where they do take submissions and they do take notice of it. However, especially when you are dealing with something like Dodd Frank ... you have to be quite realistic about your ability there to work. All you can do is try to act in coalition with many other similar groups around the world and try to convince them that they really are going in the wrong direction and that they will have to change or modify to a certain extent what they are doing. I think on
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FATCA there has been some success in that area," Love said. "The other side is also turning to your local regulators, explaining to them – and the government as well – explaining to them the consequences of what is changing and the fact that you may not be able to comply with all the regimes that you are subject to, and if contradictions continue to prevail once the legislation is implemented ... you have got to make actual quite strategic decisions at top level about whether or not your business can continue in certain markets," Love said. Australian financial services compliance practitioners are dealing with a barrage of different and potentially competing regulatory changes following the global financial crisis. Taking a holistic approach to regulatory reform — encompassing both regulatory and business expertise — is crucial, according to compliance and risk specialists. In addition, instilling the right type of corporate culture is essential to ensure that regulatory projects are supported and embedded across the institution. "None of this matters if the culture in the organisation is not correct," said Rob Walsh, partner at Ernst & Young. "There has got to be a clear acceptance that compliance needs to occur and that there are consequences for not seeing that happen." Walsh said that recent cases overseas — including the high-profile Libor scandal in the UK — had demonstrated the importance of embedding the right culture at all levels of an organisation. "If you have got a thousand people in your organisation doing a particular activity, how many of those have felt some sort of pain through not doing what they are supposed to do? Everybody knows it is easy to take the stick to a low performer but [regulators] are really keen to see where the rubber has hit the road with the senior performer and, quite frankly, people in the organisation are keen to see it. So I think when you deal with some of the larger organisations the problem does become more pervasive and more difficult the further up you go," Walsh said. "There have obviously been a couple of cases offshore at the moment where you have obviously got comprehensive failure of controls, whether it be in relation to anti money laundering or what is going on with Libor, for example, but I would contend that that is less around the controls, it is more around the environment within which that occurred," Walsh added. Lindesay Brine, head of business risk and regulatory change at National Australia Bank (NAB), also said culture was important. "You can have a project team, you can have various committees, you can have manuals and rulebooks all created, but at the end of the day whatever change is required has to be done at the business level. And it requires a number of people who have probably been doing something the same way for a very long time completely changing the way they have gone about it," Brine said. KEEPING CONTROL OF COSTS While regulatory change is never cheap, Walsh said that financial institutions should capitalise on synergies between different regulatory requirements as much as possible. "The easiest thing to do is [the Foreign Account Tax Compliance Act] issue — FATCA solution, AML regulation — AML solution and you simply just set up the project almost in isolation for each one of these beach heads, whereas of course if it is done correctly there is a lot of synergy that does go across many of these projects, and certainly it touches the same number of people. So trying to streamline what you are doing
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is an important opportunity which I don't believe is fully utilised as best it could," Walsh said. Walsh added that making sure the investments in regulatory compliance were commensurate to the risks was equally important in keeping costs under control. "I think there are actually quite significant savings, from our experience, in terms of how these projects are managed, and it is less to do about the actual regulation it is more around the way in which they come together. I think there is a lot of very aspirational thinking in the early stages of a project and ... the process sometimes runs ahead of where the thinking currently is at," Walsh said. He said it was important that financial institutions conducted a risk analysis of the obligations that they faced to determine what would be a proportionate investment to meet those obligations. "It is looking at it through a risk lens and it is about working out what are the things in terms of clearly as a licence to operate you need to have nailed down ... in terms of the reputational risks if you have an issue and I think it is really focusing around that order of magnitude in terms of where the spending is ... Certainly think in terms of the discussion around 'do you have enough to start or do you go boots and all', I think you can always make more investment in these projects whereas I think what it has got to be is a proportionate investment and I think that there does have to be some sequencing for that to occur," Walsh said. Brine said that if the costs of compliance became prohibitive, financial institutions would need to weigh up whether it was still worth being involved in a particular business line. "You have got to comply with regulations that affect you, so the only alternative you have got is if you feel that you can't meet a certain regulation you have to consider whether you can actually operate in that particular market or that particular area. It often [comes down] to strategic decisions, what is going to work best for your business," Brine said. "Sometimes you have to make decisions about a business line based on what the regulatory environment is like. Is it possible to comply and make money in that area? I think they are all questions and ones that every institution, bank or finance firm will go through when discussing this," Brine said. He also said that, ultimately, this was a board decision.
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IN-HOUSE PERSPECTIVE
A WOMAN ON A MISSION CARMEL MULHERN, TELSTRA GROUP GENERAL COUNSEL CARMEL MULHERN HAS INHERITED ONE OF THE MOST SOPHISTICATED AND SIZABLE LEGAL TEAMS IN THE COUNTRY, YET SHE IS COMMITTED TO MAKING IT EVEN BETTER REPORTS OLIVIA COLLINGS
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hen Telstra group general counsel Will Irving took on a new role late last year, the telco did not need to look too far to find a suitable replacement. Carmel Mulhern, like Irving, has had a long and successful career at Telstra starting as a corporate lawyer in 2000, before progressing to the role of company secretary. A former Mallesons senior associate, Mulhern has been working on Telstra business since the 1990s, including on the original T1 float. Since taking over the group general counsel role in January Mulhern has been busy with the finalisation of the National Broadband Network (NBN) agreement, a deal worth A$11 billion. “There have been quite a few milestones during my time at Telstra,” says Mulhern. “But I do think the completion of the NBN earlier this year, after the extraordinary amount of work that was put into it, has been the highlight of my working life here.” The deal, which Mulhern describes as “very difficult” was this year named the ALB Law Awards Australian Deal of the Year.
“To complete a transaction that has been running for more than two years is a huge achievement for the team, the company and the country,” says Mulhern. Legal leadership Despite having been a member of the legal team at Telstra for many years, and company secretary, Mulhern says that since taking on the group general counsel role she has been surprised by the breadth of issues that the team actually addresses. “The spectrum of legal issues that we deal with is enormous. I'm in awe of the competence and talent in the team,” she says. Mulhern has also found the role to be more intellectually challenging because of the nature of the advice she is required to give. Unlike the company secretary role, the general counsel role also encompasses the management of a very big team of lawyers. “I now spend a lot of my time on people, their well being, budgeting and all those other things that come with being a senior manager,” she says. In taking over from Irving, Mulhern says she has been lucky to inherit a legal team that works well and requires little alteration, however, she is still keen to “step back” and have a good look at the team. “We are working to ensure the legal team is functioning in a way that is aligned with the business strategy and objectives – we are not just a support function,” she says. “We are looking at the way we do things in legal so that whatever we are doing, and the way we do it, is to help customers and to help our internal clients make it easier for the customers.”
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PROFILE Since Mulhern took over the legal team at Telstra has undergone a small evolution, with some lawyers taking on newly created senior roles. In the past few months three staff were promoted from acting general counsels to general counsel and there has also been a restructure of the wholesale legal team, the team that was responsible for much of the NBN-related structural separation. “We have created a number of supervising counsel roles to reflect the fact that the general counsels needed to delegate more of the work to that next row of people and to acknowledge the maturity of the team,” says Mulhern. Having worked closely with the board as company secretary Mulhern is satisfied with the existing legal reporting structure, which sees all general counsels reporting to her. “We are very strongly of the view that the legal function is independent and needs to retain its independence,” she says. “We encourage our lawyers to sit with the business, so that they understand the business and can be a resource to the business, but in terms of reporting lines, it’s to me and then I report to the CEO. This makes it easier to determine what advice should attract privilege, which ultimately protects the lawyers.” Where there is a will Under Irving’s leadership Telstra became known throughout the legal industry for its progressive and experimental legal procurement methods. From its all-youcan-eat retainer agreement with Gilbert + Tobin to the Legal Process Outsource agreement with Integreon through Mallesons, Telstra has become a leader in the legal field for corporates looking to get a better deal from legal providers. Mulhern says she is keen to continue that tradition started by Irving, but not simply for the sake of innovation. “We are looking to continue to be innovative,” she says. “But the number one focus is getting the best service and advice for us and for the company.” Telstra recently went through repricing for the new financial year with external providers, and as part of that process Mulhern told firms that she was open to any proposal that they wanted to put on the table. “I don’t have any particular preconception about what I want or like,” she says. “I have seen what has been working well, and I think what we currently have in place is working well, but there are always new ways to do things. It’s not
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just about price – it’s about quality as well.” Telstra has a legal panel in place until next year and Mulhern says she is unlikely to make any changes before that tender process, despite the internationalisation and consolidation occurring in the market. Since the panel was first established a number of firms have become part of international networks, while others have merged domestically to expand their domestic footprint. “We will be interested to see what benefits that [internationalisation] can bring to us from a legal service perspective. But, I do think that as top tier firms join international firms, it opens up opportunities for the mid tier firms,” she says. “It’s moved a long way from years ago where one or two law firms serviced corporates. It’s much more competitive now.” One of the other legacies left by Irving that Mulhern is keen to continue is the diversity of the Telstra legal department. More than 60 percent of the legal team is female and during the past few years between 20 and 25 percent of staff have been working flexibly. "I think that it is a great legacy and something I would like to continue to build on," says Mulhern who has also benefited from the flexible work options available at Telstra. “Provided you have the output or product you have been asked to work on, you are encouraged to do it in a way that works for you and are provided with the tools to enable that to happen.” Indeed, Telstra has been so supportive of Mulhern’s personal and professional commitments that when she was originally approached to take on the company secretary role she was about to go on maternity leave for the third time. “I had nine months off on maternity leave before taking up the role on the board,” she says. “I don't know if law firms have that ability, because of the expectations of clients, to provide that flexibility…in a corporate environment it is easier to do.” Looking ahead Having bedded down one of the biggest deals in the Australian market in the past year Mulhern is now looking to the implementation of the NBN as well as a constant stream of new regulation. On September 1 the new Telecommunications Consumer Protection Code begins, bringing with it a range of changes and requirements for Telstra. “That is something that we in the industry have worked on for the past two years and it’s something that will occupy quite a lot of our time as we ensure that we are compliant,” says Mulhern. “Complaints are a huge part of the industry and the legal team will be called on a lot to ensure that we help to drive down complaints and that when they do arise we help to deal with them.” Overarching all the regulatory, NBN and day-to-day legal work is Mulhern’s desire to make the legal group even more useful to the business. “We are spending a lot of time, within the senior team, working out what is it that we do and what can we do better to make the legal function a competitive advantage to the company,” she says. Unlike some legal departments across the country, Mulhern says Telstra’s approach to legal is that it is and always will be an integral part of the decision making process. “We are not giving advice in a vacuum,” she says. “You are there with your clients, you can see the risks, hopefully well ahead of them becoming a reality, you also understand what your customer is trying to achieve.” She adds: “We are certainly seen as being valuable rather than a cost.”
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IN-HOUSE OBSERVATIONS
AUSTRALASIAN LEGAL BUSINESS ISSUE 10.9
FINANCIAL LITERACY OF DIRECTORS:
truism or oxymoron?
BY TONY DE GOVRIK, LEGAL AFFAIRS & COMMUNICATIONS DIRECTOR, AUSTRALIAN CORPORATE LAWYERS ASSOCIATION, THE PROFESSIONAL BODY FOR IN-HOUSE LAWYERS.
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Tony de Govrik
n American journalist, Ambrose Bierce, once said that “a corporation is an ingenious device for obtaining profit without individual responsibility”. However, in the case of directors this has not been the case for quite some time. For example, Directors have long been held accountable for a company’s debts if they allow the enterprise to continue trading while insolvent. There are also myriad provisions in the Corporations Act which place quite onerous duties on directors to act honestly and with diligence in carrying out their responsibilities for the company. This is even before we look at sundry other legislation (such as work place health and safety) which similarly places liabilities on directors with concomitant civil and sometimes criminal sanctions. In the wake of legal decisions in recent cases such as the Australian Wheat Board, Centro Properties and James Hardie, it is timely that the Australian Government’s Financial Reporting Council (FRC) has just released a report card on the financial literacy of directors. Last month the FRC released the results of a survey which was conducted in April and May of this year with both directors, and financial professionals who deal with directors, being asked to rate the financial literacy of directors in Australia. They were also asked to suggest ways that the financial literacy of directors could be improved. The survey was completed by 385 respondents from a diverse population of directors, and financial professionals who deal with directors, from larger and smaller ASX listed companies, non-listed companies, not-for-profit organisations and superannuation trustees. This diversity was reflected in their commentary on the financial literacy of directors and in their suggestions on how to improve it. Some of the observations from the survey include:
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Notwithstanding the diversity of the survey respondents, almost all respondents acknowledged in their commentary that there were issues and challenges for directors in acquiring and maintaining the level of financial literacy needed by directors. • Directors generally rated their personal level of financial literacy marginally higher than the financial literacy of their fellow directors. The financial professionals who deal with directors rated director financial literacy at notably lower levels than the directors themselves (although the FRC would note that this result is not surprising since, in many cases, directors would have rated their personal level of financial literacy from the perspective of someone without professional accounting training, whereas financial professionals would have judged it from the perspective of someone with professional accounting training). • Financial professionals who regularly deal with directors, on average, rated the general financial literacy of the directors of the top 200 ASX listed entities (good to very good) higher than that of other ASX listed entities (fair to good) and substantially higher than non-listed entities (poor to fair). • Both directors and financial professionals rated the knowledge of directors of basic accounting principles (fundamental accounting concepts, the purpose of financial statements, the role of accounting policies and the role of notes in financial statements) as higher than their knowledge of specific, more technical accounting issues. • Directors conceded that on average their knowledge of more technical accounting issues was fair. The financial professionals who regularly deal with them, on average, rated it as poor to fair. • A number of respondents expressed concern that the increasing complexity of accounting standards is making it more difficult for directors to acquire and maintain the level of financial knowledge needed to sign off on financial statements. This is borne out by the two previous observations. The FRC is proposing to write to ASIC, the ASX Corporate Governance Council and the primary organisations that provide accounting and financial education courses for directors to raise with them some of the suggestions provided in the survey responses on steps that could be taken to improve the financial literacy of directors in Australia. In-house counsel can play a valuable and proactive role in assisting directors to understand and appreciate the ramifications of not having at least some basic financial skills - as vividly highlighted by recent case law. The results of the survey are available on the FRC website at www.frc.gov.au .