INSURANCE LAW
ENERGY & RESOURCES
CLOUD COLLABORATION
AUSTRALASIAN LEGAL BUSINESS
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com
ISSUE 11.10 OCTOBER 2013
OCTOBER 2013
UNHAPPY CAMPERS: 10 reasons why firms get fired
INSURANCE LAW ENERGY & RESOURCES CLOUD COLLABORATION M&A
PLUS TOP DEALMAKERS SPEAK OUT: Why we’re optimistic about 2014
ISSUE 11.10
TIME WORKS HARDER FOR YOU WITH CLEVER COLLABORATION SOLUTIONS In business, every minute matters. So you can imagine just how much it was worth when Ralph Galilee, by his estimation, gained an extra hour each day across his entire legal firm. Working with Telstra, Ralph was able to unify Galilee Solicitors’ international communications network with a Telstra IP Telephony (TIPT) solution. Simply implementing the cloud-based system allowed his company to save an estimated $500,000 in upfront equipment costs. However, once the system was in place, the real benefits became apparent with Galilee’s new unified communications reducing travel time, freeing up IT staff, and automatically directing client calls to available staff. All of which added up to an estimated extra hour’s worth of productivity per day for staff – time that is now being reinvested into client work, helping Galilee become one of Australia’s premier providers of select legal services. Galilee Solicitors’ TIPT solution is just one of the many success stories built on Australia’s largest and most reliable IP network. Search ‘Clever Australian’.
CONTENTS
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
1
“ALL INDICATORS ARE THAT THE ECONOMY IS STRENGTHENING, AND WE HAVE HAD BOTH DOMESTIC AND OFFSHORE CLIENTS IN THE LAST MONTH ACTIVELY LOOKING FOR DEALS IN THIS MARKET.” Graeme Quigley, Russell McVeagh
24 A TIME TO DEAL Transactional activity may have been patchy this year, but dealmakers are seeing a light at the end of the tunnel.
24
REGULARS
COVER STORY 10 COMMANDMENTS
Ten ways in which firms should strive to improve client service.... or pay the price
16
DEALS
06
SPONSORED UPDATE
07
Buddle Findlay
FEATURES CORRS’ NEW DIGS
22
How Corrs Chambers Westgarth will cultivate a collaborative environment with its new Sydney offices.
INSURANCE
38
After enduring a string of natural hazards, insurers now have global economic headwinds to contend with.
CLOUD COLLABORATION
Why cloud-based technology is a key solution to improving client relationships and productivity.
RESOURCES
Can Australia beat China and become the world’s second shale gas superpower?
34
46
LEAGUE TABLES
08
APPOINTMENTS
10
NEWS
12
ACLA PERSPECTIVE
15
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
2
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4
EDITORIAL
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10 INSURANCE LAW
ENERGY & RESOURCES
CLOUD COLLABORATION
AUSTRAlASIAn lEgAl BUSInESS
AUSTRALASIAN
LEGAL BUSINESS
www.legalbusinessonline.com
ISSUE 11.10 OCTOBER 2013
OCTOBER 2013
UnhAppy CAmpERS: 10 reasons why firms get fired
INSURANCE LAW ENERGY & RESOURCES CLOUD COLLABORATION
AUSTRALASIAN
LEGAL BUSINESS
Why we’re optimistic about 2014
ISSUE 11.10
RENU PRASAD Australasia Editor, Australasian Legal Business, Thomson Reuters
M&A
A
few years ago, I discovered that a Subway sandwich shop had opened near my office. I began to frequent it. For a moderate price, one could partake in a variety of sandwiches, garnished with olive, onion and pickle and washed down with a carbonated beverage. Thus replenished, I would return to work to resume my labours, belching quietly through the afternoon. Discreetly, of course. Or so I thought. As it turned out, there was nothing discreet about the gastric gases gently rising through the air and settling like a malodorous fog over the ALB office after each of my Subway visits. I was later told that it was not dissimilar to the smell emanating from the drains of Calcutta. People were polite. It took a while for the issue to be raised with me. In the meantime, building management had commissioned a scouring of the plumbing system in a wellintentioned but ultimately futile attempt to identify the source of the mysterious smell. Since then, I have learned to avoid onions and olives during the working day. When visiting law firms and the courteous attendant appears to ask whether I would like still or sparkling water, I have learned that “still” is the correct answer. They don’t teach you this stuff at university. I mention this story because it shows the value of candid feedback. This sorry saga could have been brought to a conclusion far sooner if people had not been afraid to speak their minds. Sometimes it’s kind to be cruel. In this spirit, we present to you the Ten Commandments feature in this issue: a collection of the more common grievances in-house lawyers hold in relation to their external advisors. The purpose of this feature is not to mock private practitioners: it is to give a candid insight into how firms can improve their client service. Some of the behaviors described may sound unerringly familiar; some may elicit a cringe or two. But if you put down this magazine with a better insight into the client, the feature will have served its purpose. It might even help with a pitch or two. That’s the value of the feedback sandwich; it’s not always happy eating, but one can only emerge stronger from the experience.
FEEDBACK SANDWICH
plUS TOp DEALMAkERS SpEAk OUT:
6
DEALS
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
YOUR MONTH AT A GLANCE A$1.5 billion
YOUR MONTH AT A GLANCE Deal
Value
Advisor
Client
Lead Lawyer
Lloyds Banking Group sale of Australian asset finance business/corporate loan portfolio to Westpac
A$1.5bn
Allen & Overy
Lloyds Banking Group (co-advisor)
Michael Parshall
Lloyds Banking Group sale of Australian asset finance business/corporate loan portfolio to Westpac
A$1.5bn
Minter Ellison
Lloyds Banking Group (co-advisor)
Victoria Mathewson
Lloyds Banking Group sale of Australian asset finance business/corporate loan portfolio to Westpac
A$1.5bn
Gilbert + Tobin
Westpac
Peter Cook and Gina Cass-Gottlieb
Queensland Motorways acquisition of CLEM7 Tunnel
A$618m
Allens
KordaMentha
Guy Alexander and John Warde
Projects Queensland procurement of Government Wireless Network
A$457 m
Allens
Projects Queensland
Ren Niemann
Billabong recapitalisation
A$395m
Allens
Billabong
Alan Maxton, Guy Alexander & Vijay Cugati
Billabong recapitalisation
A$395m
Gilbert + Tobin
Centerbridge and Oaktree
Dominic Emmett, David Clee and Sarah Turner
Barrick Gold divestment of Yilgarn South assets to Gold Fields Limited
US$300m
Clayton Utz
Barrick Gold
John Elliott
M&A
CIMB Trust Capital Advisors Singapore acquisition of 3 Collins Square, Docklands
A$279m
Herbert Smith Freehills
CIMB Trust Capital
David Sinn
DIVESTMENT OF YILGARN SOUTH ASSETS TO GOLD FIELDS LIMITED
Skilled Group acquisition of Broadsword Marine Contractors
A$75.5m
Clayton Utz
Skilled Group
Andrew Walker
Clearlake Capital acquisition of Futuris Automotive
A$69m
DLA Piper
Clearlake Capital
David Morris
Cash Converters senior unsecured notes
A$60m
Gadens
Cash Converters
Chris Fanning and Jon Denovan
DHA Investment Management Ltd establishment
$50m
Norton Rose Fulbright
Defence Housing Australia
Fadi Khoury
Western Desert Resources equity raising
A$45m
Allens
Western Desert Resources
Robert Pick
Austreo Property Ventures acquisition of 157 Ann Street Brisbane
A$40m
Herbert Smith Freehills
Austreo Property Ventures
Greg Hing
Regeneus IPO
A$10.5m
DibbsBarker
Regeneus
Geoff, Cairns, Lis Boyce
Gold Coast Private Hospital project financing
Gilbert + Tobin
Healthscope
Alexander Danne
Marubeni acquisition of Motor Finance Wizard
Ashurst
Marubeni
Ian Williams
Forum Media Group acquisition of Nextmedia
Holding Redlich
Wolseley Private Equity
Ian Robertson
Cotton On Group acquisition of Supré
Clayton Utz
Cotton On Group
Michael Linehan
Cotton On Group acquisition of Supré
Arnold Bloch Leibler
vendors
Rick Narev
M&A
LLOYDS BANKING GROUP SALE OF AUSTRALIAN ASSET FINANCE BUSINESS/CORPORATE LOAN PORTFOLIO TO WESTPAC
• The Lloyds Group is one of Allen & Overy’s major global clients, the firm having acted for them on a number of significant transactions. Minter Ellison also has a very strong relationship with the Lloyds Group, having advised them in relation to a number of prior significant portfolio sales in Australia and New Zealand.
US$300 million BARRICK GOLD
• Clayton Utz has been a lead adviser to Canadian-based Barrick on all of its Australian corporate transactions in recent years.
Victoria Mathewson, Minter Ellison
Firm Profile
NZ Commentary
BUSINESSES WITHOUT BORDERS – WHAT HAPPENS WHEN THEY FAIL? INTRODUCTION
International trade has come a long way since the days of the Silk Road and with increased globalisation it has become second nature for thousands of businesses. While international trade has obvious benefits, it can also create huge challenges when a business fails and it needs to be reorganised or its assets sold. For global businesses, a cross-border insolvency arises when an entity is placed into an insolvency process (for example liquidation or administration) in one country but has assets or debts in other countries. Increasing Asian investment in New Zealand and increasing New Zealand exports to Asia has increased the potential for New Zealand entities to become embroiled in cross-border insolvencies. When a business fails there is, almost inevitably, insufficient money for all its creditors. Local law is obliged to choose whom to pay and, as a result, disputes regularly arise. A cross-border insolvency has the added complexity of different priority rules applying in different countries and by its very nature a high level of uncertainty surrounding the extent to which there will be co-operation between the courts of different nations.
THE MODEL LAW
In 1997 the United Nations adopted the Model Law on Cross-Border Insolvency. This marked an acceptance among nations that an international framework was necessary for facilitating insolvency proceedings of a multi-national debtor. The intended benefits of such an international framework include equal treatment of creditors, maximisation of returns to creditors and facilitation of international reorganisations. To date, the Model Law has been adopted by only 20 countries and territories. However, because the Model Law does not require reciprocity in the jurisdiction in which the insolvency originated, it still has extensive application for those countries in which it has been adopted.
In New Zealand, the Model Law was adopted in the Insolvency (Cross-Border) Act 2006 and took effect in July 2008 (shortly after equivalent legislation took effect in Australia). The Model Law (as enacted in New Zealand) provides for a “foreign representative” (for example a foreign liquidator or administrator) to apply for recognition in New Zealand of a “foreign proceeding” (for example a foreign liquidation or administration). The foreign proceeding will be recognised if certain conditions are satisfied.
APPLYING THE MODEL LAW
The process of obtaining recognition in New Zealand of a foreign insolvency proceeding is not especially difficult. Recent experience was obtaining orders on short notice for the recognition of a Korean insolvency proceeding involving a Korean shipping company and a Panamanian flagged ship moored off the coast of New Zealand. The more difficult (and important) issue is the effect of recognition. Upon recognition in New Zealand of a foreign main proceeding, claims (and enforcement) against the debtor’s assets in New Zealand are automatically stayed. The automatic stay is necessary to allow steps to be taken to organise an orderly and fair cross-border insolvency proceeding. For example, it allows claims to be dealt with in the foreign insolvency proceeding (in accordance with the foreign insolvency regime) to promote equality among all creditors, rather than in accordance with domestic law. However, a creditor may apply for modification or termination of the automatic mandatory consequences of recognition. This enables a New Zealand court to apply domestic exceptions and limitations to the foreign insolvency (for example, the New Zealand court can authorise the enforcement of claims by secured creditors). One industry that faces particular uncertainty with cross-border insolvencies is shipping. A creditor of a shipping company might have a claim arising in connection with a ship (for example, for
goods or services supplied to the ship). In those circumstances, many countries (including New Zealand) allow the ship to be arrested by that creditor where there is a link between the person with liability for the claim and the owner (or charterer) of the ship. The arrest of a ship effectively enables a creditor to obtain security for its claim. The Model Law as enacted in New Zealand does not expressly recognise or take account of rights arising from the arrest of a ship. One issue that remains unresolved in New Zealand is whether creditors who have obtained security through the arrest of a ship should be entitled to the benefits of that security (through a claim in New Zealand admiralty proceedings) or whether they are obliged to submit to the foreign insolvency proceeding (as an unsecured creditor). The answer to this is likely to be determined later this year and will provide greater certainty in this largely untested and ever developing area of law. In the meantime, foreign creditors and more especially our newer trading partners coming in from the Asia/Pacific region have the comfort of knowing that when looking into New Zealand the crossborder recognition of foreign insolvency proceedings is very much alive and well. This article was written by David Perry (partner) and David Broadmore (senior associate), both based in the Auckland office of Buddle Findlay, a leading New Zealand law firm. David Perry specialises in banking and finance, and insolvency, and David Broadmore specialises in commercial litigation and insolvency. David Perry can be contacted on 64 9 358 7020 or david.perry@buddlefindlay.com. David Broadmore can be contact on 64 9 358 7010 or david.broadmore@buddlefindlay.com.
DAVID PERRY
DAVID BROADMORE
Buddle Findlay
Buddle Findlay
LEAGUE TABLES
8
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10 TOP M&A FIRMS - COMPLETED DEALS, YEAR TO DATE 2013
TOP M&A FIRMS - ANNOUNCED DEALS, YEAR TO DATE 2013
1
NO.
1
HERBERT SMITH FREEHILLS
15,833.94 DEALS: 53
NO.
VALUE ($MIL)
MARKET SHARE: 28.7
RANK LEGAL ADVISOR
VALUE ($MIL)
MKT. DEALS SHARE
HERBERT SMITH FREEHILLS
10,435.10 DEALS: 41
VALUE ($MIL)
MARKET SHARE: 27.8
RANK LEGAL ADVISOR
VALUE ($MIL)
MKT. SHARE
DEALS
2
Minter Ellison
13,671.05
24.7
46
2
Corrs Chambers Westgarth
9,638.98
25.7
23
3
King & Wood Mallesons
12,708.20
23.0
51
3
Gilbert + Tobin
9,632.61
25.6
17
4
Allens
11,378.84
20.6
41
4
King & Wood Mallesons
8,906.04
23.7
39
5
Corrs Chambers Westgarth
8,621.68
15.6
28
5
Minter Ellison
8,671.25
23.1
39
6
Gilbert + Tobin
6,994.49
12.7
21
6
Allens
4,588.20
12.2
33
7
Ashurst
6,030.24
10.9
39
7
Baker & McKenzie
3,283.91
8.7
31
8
Allen & Gledhill
4,160.43
7.5
6
8
Ashurst
3,238.07
8.6
27
9
Baker & McKenzie
3,953.85
7.2
37
9
Clayton Utz
3,082.28
8.2
28
10
Johnson Winter & Slattery
3,578.26
6.5
9
10
Paul, Weiss
2,280.19
6.1
1
11
Clayton Utz
2,274.97
4.1
30
11
Blake Cassels & Graydon
1,959.10
5.2
4
12
Deloitte
2,172.59
3.9
1
12
Skadden
1,831.47
4.9
4
13
Linklaters
2,111.59
3.8
10
13
Linklaters
1,820.80
4.8
9
14
Simpson Grierson
1,507.54
2.7
3
14
Simpson Grierson
1,739.91
4.6
4
15
Thomsons Lawyers
1,267.22
2.3
9
15
Allen & Overy
1,186.88
3.2
12
16
Jones Day
1,196.65
2.2
2
16
K&L Gates
1,167.38
3.1
6
16*
Paul Hastings
1,196.65
2.2
1
17
Stikeman Elliott
1,099.80
2.9
5
16*
WongPartnership LLP
1,196.65
2.2
1
18
Thomsons Lawyers
1,088.92
2.9
7
19
Chapman Tripp
1,180.53
2.1
3
19
Gowling Lafleur Henderson LLP
1,080.95
2.9
2
20
Allen & Overy
1,141.32
2.1
12
20
Dorsey & Whitney LLP
1,078.75
2.9
1
21
Skadden
1,057.35
1.9
2
20*
Squire Sanders LLP
1,078.75
2.9
1
22
Debevoise & Plimpton
904.11
1.6
1
20*
1,078.75
2.9
1
23
Squire Sanders LLP
800.00
1.4
1
Lawson Lundell Lawson & McIntosh
24
Stikeman Elliott
791.15
1.4
3
23
Norton Rose Fulbright
911.51
2.4
19
25
Norton Rose Fulbright
662.75
1.2
20
24
Chapman Tripp
906.62
2.4
2
Subtotal with Legal Advisor
44,522.17
80.6
357
25
Debevoise & Plimpton
904.11
2.4
1
Subtotal without Legal Advisor
10,717.79
19.4
864
31,852.43
84.8
288
55,239.96
100.0
1,221
5,726.17
15.2
569
37,578.60
100.0
857
Industry Total
Subtotal with Legal Advisor Subtotal without Legal Advisor Industry Total
Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2013-10-14 08:29:56 EDT
Based on Ranking Value inc. Net Debt of Target Source: Thomson Financial Date: 2013-10-14 08:16:34 EDT
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APPOINTMENTS LATERAL PARTNER APPOINTMENTS NAME
PRACTICE AREA
COMING FROM
GOING TO
Alan Maclean
Banking & finance
HWL Ebsworth
K&L Gates
Amber Stanton
Energy & resources
Squire Sanders
K&L Gates
Andrew Kennedy
Workplace relations
Newmont Australia
K&L Gates
Betsy-Ann Howe
Tax
Sparke Helmore
K&L Gates
Christa Lenard
Workplace relations
Clayton Utz
K&L Gates
David Lyons
Banking & finance
Norton Rose Fulbright
Herbert Smith Freehills
David Ryan
Corporate
Baker & McKenzie
Herbert Smith Freehills
Donna Bartlett
TMT
Holding Redlich
M+K Lawyers
Gillad Dalal
Banking & finance
Norton Rose Fulbright
HWL Ebsworth
Jim McMillan
Tax
PwC
Kelly & Co
Peta Olive
Property
SBA Law
Aitken Partners
Tony Bleasdale
CEO
Maurice Blackburn
Makinson & d'Apice Lawyers
SYDNEY FIRM APPOINTS KNOWLEDGE MANAGER AS CEO Sydney firm Makinson & d’Apice Lawyers has appointed a knowledge manager as its new CEO, with former Maurice Blackburn GM of knowledge management Tony Bleasdale taking on the CEO role. Bleasdale will be developing a five year strategy for the firm as well as guiding a rebranding process. NORTON ROSE FINANCE EXPERT RELOCATES TO SYDNEY Norton Rose Fulbright has announced that banking and finance partner Leigh Borrello has moved from the Singapore office to Sydney. He will continue to service clients in Asia as well as help build the firm’s Australian asset finance practice. Borrello will strengthen the firm’s offering in aircraft finance, ship finance, equipment finance, cross-border leasing and structured finance transactions out of Australia. FREEHILLS RAIDS BAKERS, NORTON ROSE Herbert Smith Freehills has made two senior
lateral hires in its corporate and finance practices. David Ryan has joined the firm’s corporate team in Sydney and David Lyons has joined the finance team in Brisbane. Ryan joins from Baker & McKenzie where he was a partner and global head of mining and metals. He will work with HSF’s energy and resources clients on M&A and general corporate activity. Lyons joins the team from Norton Rose Fulbright where he was a partner in the firm’s finance practice. He has extensive experience in advising financial services clients on a broad range of transactional and other issues and is a board member of a number of Asian business councils and associations. AITKEN PARTNERS MAKES COMPULSORY ACQUISITION Melbourne based Aitken Partners has added to its strength in compulsory acquisitions with the recruitment of Peta Olive. Olive was formerly a partner with SBA Law where she was responsible for building and developing that firm’s
compulsory acquisition practice. “As a law firm we have been active in compulsory acquisition for many years and that practice area for us has seen a spike in growth as our expertise has become more widely known,” said Aitken Partners’ managing partner, Andrew Blogg. Aitken Partners has 10 partners and a staff of around 75. NEW TAX HEAD FOR KELLY & CO Adelaide’s Kelly & Co has appointed Jim McMillan as the new head of the tax practice. McMillan is a former PwC tax partner Jim McMillan and Adelaide managing partner who began his career with the Australian Taxation Office in Canberra and was one of a small team that drafted the original capital gains tax legislation. He has been involved in managing tax audit and dispute matters, as well as a number of tax appeals matters before the Australian AAT, the Federal Court and the High Court.
APPOINTMENTS MELBOURNE: NORTON ROSE BANKING EXPERT MOVES TO HWL HWL Ebsworth Lawyers has announced the appointment of Gillad Dalal as a partner in its banking & financial services team. Dalal joins the Melbourne office of HWL Ebsworth from Norton Rose Fulbright, where he had spent over 12 years. With close to 25 years of banking and finance experience, Dalal is an advisor to several of the major Australian and international banks and financial institutions and his clients include ANZ, HSBC, CBA, Bankwest and Standard Chartered Bank. K&L GATES LAUNCHES FIVE PARTNER, THREE CITY RAID K&L Gates has made five new lateral partner hires from a host of firms including Clayton Utz and HWL Ebsworth.
In Perth, former Squire Sanders partner Amber Stanton joins K&L Gates’ energy, & resources practice, while labour, employment & workplace safety partner Andrew Kennedy arrives from Newmont Australia, the Australian subsidiary of Newmont Mining Corporation. In Sydney, workplace relations partner Christa Lenard has joined the firm from Clayton Utz while tax partner Betsy-Ann Howe also has been added from Sparke Helmore. FINANCE PARTNER ALAN MACLEAN JOINS THE FIRM’S MELBOURNE OFFICE FROM HWL EBSWORTH. “As we continue to grow the K&L Gates brand locally and throughout the region, it is paramount that we have the very best people to work collaboratively with our clients,” said Nick Nichola, K&L Gates’
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Australian managing partner. “These five partners are a testament to this, each bringing with them strong capabilities and decades of experience in their respective areas of law.” HALL & WILCOX BOLSTERS DISPUTES TEAM Hall & Wilcox has announced the appointment of Natasha Toholka as a special counsel in the firm’s commercial dispute resolution team. Toholka has extensive experience in banking and finance litigation, security enforcement, insolvency and general commercial disputes and has joined Hall & Wilcox from Minter Ellison. She has acted for major trading banks in all aspects of workouts and recoveries as well as for a significant number of insolvency practitioners.
12
NEWS
THE CASE FOR DICTATION
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
In case you missed it….. THE MONTH’S TOP HEADLINES FROM WWW.LEGALBUSINESSONLINE.COM
with Sarah Dart Sales Manager, Asia Pacific
INDUSTRY
Time is money
HSF joint CEOs Gavin Bell and David Willis will retire from the firm next year, the firm has announced. A process will be initiated to replace Bell and Willis with effect from 1 May 2014 and no decision has yet been made as to whether the joint CEO model will be retained. Willis’ original tenure as managing partner of Herbert Smith had been due to end in April 2013 and he had agreed to a 1-year extension because of the merger. The firm added in a statement that Bell had decided to step down for personal reasons. “[Bell] suffered a major health issue earlier this year and although he has now fully recovered, in light of that event he wants to devote more time to his family,” the statement said. The outcome of the CEO appointment process is expected to be complete by the end of the year.
Typically, we speak at a rate of around 125 words per minute. We type at around 60 words per minute. For law firms the implication is clear: dictation saves time – and time is money. Yet for the current generation of younger lawyers – so called digital natives – keyboard skills are second nature. They have used personal computers since their schooldays, written uni essays on laptops, and now use their tablets and smartphones at every opportunity. In the same way as a lawyer 20 years ago would feel odd typing up a client memo, not typing up a memo or file note feels odd to Generation Y lawyers of today. But competition in the legal field is growing more intense each year and clients will take their business elsewhere if they feel they can get better, swifter or more economical legal services. The maths are simple. It takes more than twice as much time for a lawyer to type up a file note, report or memo than it would if they were to dictate it. And if the lawyer is out with a client they can’t get to the keyboard until they return to their desks adding additional delay. Modern digital systems allow quick, on-the-spot dictation – even from the client’s office – which can be automatically transcribed if speech recognition is deployed, or routed to admin staff to type up immediately. Quality control is enhanced as administrative staff can proof documents prior to release to ensure that appropriate firm branding and formatting is deployed. Over time, as the young lawyer’s charge-out rates increase the benefits of dictation are magnified. Successful law firms understand that making dictation a standard work practice for all lawyers ensures that good work habits become entrenched. Smart technology investment meanwhile delivers young lawyers with enhanced workplace flexibility allowing them to dictate anytime, anywhere – and most importantly of all, client satisfaction is enhanced with costs kept in check through delivering a more efficient and higher quality service. BigHand delivers digital dictation and speech recognition workflow software, hardware and services that enable busy, mobile professionals become more efficient. A multi-award winning voice technology company, with both desktop and mobile app versions of its software, BigHand supports 170,000 users and over 1600 client organisations globally across the professional services and healthcare sectors.
Sarah Dart is BigHand’s Asia Pacific Sales Manager. For further information please contact Sarah or visit www.bighand.com.au | 1300 662 948 | sarah.dart@bighand.com
Herbert Smith Freehills’ joint CEO role under review
CORPORATE Lander & Rogers lawyer becomes first-ever female AFL club president Lander & Rogers consultant Peggy O’Neal has been elected president of the Richmond Football club, becoming the first ever female to hold this position at a top level AFL club. O’Neal’s background is in superannuation and financial services and she has particular experience with corporate superannuation funds, public offer superannuation funds and public sector superannuation funds. “We are very proud of Peggy and wish her every success in her presidency. I know our whole firm joins with me in congratulating Peggy as we provide our ongoing support to her during her presidency,” said Lander & Rogers chief executive partner, Andrew Willder.
QUEENSLAND Brisbane firms anxious for return of glory days Brisbane firms are struggling to find traction in a tricky market – but there are signs of improved conditions. “There are some encouraging signs of an increased appetite for hiring, mainly among the larger firms. However, it is too early to tell if this is a continuing trend or anomaly,” Burgess Paluch senior consultant Paul Garth told ALB. Garth describes the hiring mood as cautious, even at the mid-tier level. “[Brisbane mid-tier firms] are generally willing to take their time and wait out the market for the perfect candidate. The market does have a strong appetite for strong senior people with clients. With the pressure on firms to keep
NEWS
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
>> fees in check, many are focusing on increased profits via lateral hires,” he said. Salary freezes are a feature of this market, but firms appear to have retained their staff. Garth says he has heard “very few” stories of redundancies in the present market. “Certainly fewer than was anticipated and talked about,” he commented. HopgoodGanim partner Martin Klapper told ALB that his firm had avoided redundancies. “We haven’t had any redundancies as has happened elsewhere in this market,” he said. “Our model does not involve bulking up with junior lawyers to form large teams; we don’t do that – [that’s] a little bit of an advantage. The Brisbane legal services market is described as patchy, with many firms operating below full capacity. However, areas of strength remain. “In the areas of construction, infrastructure, aviation and litigation we have seen an increase throughout this year, not just as a result of the election,” said Carter Newell senior partner Paul Hopkins. Klapper describes his firm’s workflow as having more of an “operational” focus of late. Garth nominates insurance as a busy area and also agreed that there was some demand for experienced construction and infrastructure professionals. “I suspect things will become busier in hiring terms as the year draws to a close and the new one begins,” he said. “If the Australian dollar falls, as widely predicted, then the tourist dollar will drive projects and investment in that sector, and the mid-tiers will be where most of that work flows. Agriculture is another sector that will benefit as the dollar falls and Queensland has always been well placed in that area. Brisbane firms have some good commodity trading and agribusiness teams that will benefit.”
SOUTH AUSTRALIA Stricter rules for lawyer conduct introduced Tighter controls for regulating the conduct of lawyers in South Australia have been introduced following the passage of the Legal Practitioners (Miscellaneous) Amendment Bill. Some of the key changes include a broader definition of unsatisfactory and unprofessional conduct to include conduct not directly related to a lawyer’s practice. Law Society President John White said that the new provisions responded to public demand for a higher standard of accountability. “Lawyers are gatekeepers of justice, and their private conduct is relevant to their professional duty to facilitate justice,” he said. The Act also includes new provisions which increase what information lawyers must provide to their clients about the anticipated cost of their work and the Supreme Court will have extra power to immediately suspend a lawyer’s practising certificate if it is in the public interest to do so. A Legal Profession Conduct Commissioner will be appointed to receive and investigate complaints against legal practitioners, replacing the Legal Practitioners Conduct Board. “Just as the Legal Practitioners Conduct Board was an independent entity, so will the Commissioner be, but we expect the Commissioner may enhance accessibility for those wishing to lodge a complaint,” White said. A register of lawyers disciplined for professional misconduct will be publicly available online.
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IN-HOUSE Q&A DEON HUBNER General Counsel
Macquarie Telecom
Presented by
your opinion, why have in-house lawyers become an 1 Inincreasingly indispensable part of an organisation? Inside the organisation, simply and logically, is the right place for that organisation’s primary lawyer to reside. There is no better place from which to view, from a legal perspective, the business, in order to manage risk and to allocate resources efficiently and effectively. It is better to be part of the furniture so to speak, part of the impromptu conversations that occur in corridors or meetings. It is better to become aware of what is going on through a means of dissemination of information which goes so much beyond just being given a prepared set of formal instructions when someone decides it is time to do so. Of course, the need to brief out work to private practitioners will remain indispensable, but the first port of call and the hub for the legal management of the larger organisation should always be the in-house legal team. Residing in the business enables one to bring value at all stages of a process or transaction. It also helps to ensure that knowledge is retained and shared.
recent times, the role of the General Counsel has 2 Indiversified into a multi-faceted role, (where the General
Counsel can wear the ‘hat’ of Lawyer, Legal Manager, Compliance Manager, and Company Secretary). In your opinion, do you believe this has increased your risk profile?
Being so integrated in the business comes with its challenges; however, in my current role, the company secretarial function as well as the regulatory function is separate from that of general counsel, so at least to that extent some challenges have been removed. Whichever way an in-house legal function is structured, an appropriate degree of independence is critical. Sacrosanct are our professional obligations as officers of the court. We are hired as lawyers to be legal advisers, not business advisers, so if there is something that we need to shine a light on or say no to (and of course, when saying no, always propose an alternative), then we must have the courage to do just that. It is not easy to be the bearer of bad tidings and to push back if needs be, but if you don’t, then you are failing in your responsibilities not just to your profession, but also to your employer and other stakeholders; even to society and the environment. My role is to view the business imperatives in the light of legal risk and compliance. Things are not always so black and white, but even in the varying shades of grey there is always a line and it is one that I will not cross, no matter who my employer is, or how much I am being paid. That is not only a moral and ethical stance; it is also a commercial one. To cross would be bad for business, particularly if one takes a longer term view, which we need to do more often as humans - in all aspects of life. If ever I were to arrive at a stage where I was pressed by the business to cross that line, I would simply resign and seek out other work.
your opinion, what do you consider to be the main 3 Inchallenges for inhouse counsel in your particular industry sector?
Generally, in house legal departments, when viewed in isolation, are seen as cost centres, not revenue generators. There is always pressure to do more with fewer resources. In that context prioritization becomes a real challenge. Which matters do I single out for close attention and expert external assistance? To which matters do I apply a lighter touch? Raising our profile internally is always important. So too is ensuring that my team is challenged and given interesting work. Much of what we do is small and repetitive and of an administrative nature; however, we also do some of the most interesting and rewarding legal work available and it is important to share that in order to retain and develop the team. 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 8102 1900 Sydney t | +61 2 8228 7680
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ANALYSIS
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
STILL CHASING BAKERS BAKER & MCKENZIE IS THE TOP BRAND IN THE GLOBAL LEGAL SERVICES MARKET, ACCORDING TO A NEW STUDY – BUT A HOST OF FIRMS INCLUDING KING & WOOD MALLESONS, DLA PIPER, NORTON ROSE AND K&L GATES ARE ON THE RISE. The Acritas Sharplegal Global Elite Brand Index was based on responses from 815 senior general counsel in multinationals with revenues of $1 billion and over. The surveys, which were conducted in the local language across 55 countries, asked the respondents to comment on which firms “first came to mind”, which firms respondents were most favorably disposed towards and which firms were most likely to be considered for cross-border deals and litigation. 70 Australians were involved in this year’s survey. A key finding of the study was the rise of “challenger” brands at the expense of the incumbent elite. The firms which have recorded the strongest increases on the index over the past four years were Gibson Dunn, Kirkland & Ellis, DLA Piper, King & Wood Mallesons and K&L Gates; the latter three are well known for their aggressive expansion policies. By contrast, the performances of Magic Circle firms Clifford Chance, Slaughter and May and Skadden on the index declined by a level proportionate to the increase by the challengers. CMS, Dentons, Latham & Watkins, Norton Rose Fulbright and Reed Smith were also mentioned as firms which had consistently improved their standing on the index over the past four years. HONEYMOON PERIOD? It is clear that firms who have engaged in mergers are enjoying an uplift in their market perception. “There’s quite a bit of evidence in the research that pointed to the fact that when firms do merge; particularly when [the merger is] new and different, for example King & Wood Mallesons, if they get it right and they do the right level of communication with the market and positioning the brand correctly, then they can get a significant uplift in terms of them being spoken about in the market,” said
Sarah Chisman-Duffy, Acritas head of Asia Pacific. The question is whether this momentum can be sustained and whether the survey results are reflecting a temporary honeymoon period rather than a permanent market shift. “It’s for the firms to get out of the honeymoon period and make sure they continue to leverage the great resonance they got in the market at the time of merger,” said Chisman-Duffy, adding that it was too early to make any predictions in this context. One notable absence from the top 20 is Ashurst, although the firm had enjoyed a lift in the 2012 survey. “With the recent vote on financial integration, it will be interesting to see how that progresses going forward,” said Chisman-Duffy.
ACLA
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
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WORKPLACE BEHAVIOUR – Are porn emails a sacking offence?
BY TONY DE GOVRIK, LEGAL AFFAIRS & COMMUNICATIONS DIRECTOR, AUSTRALIAN CORPORATE LAWYERS ASSOCIATION, THE PROFESSIONAL BODY FOR IN-HOUSE LAWYERS.
R
Tony de Govrik
egular readers of this column will recall that in September this year I posed the question in relation to social media and the workplace: “Are employers gaining the upper hand?” Based on a series of recent decisions involving dismissals for alleged inappropriate use of social media and the internet, I concluded that employers appeared to be getting a better run in the courts and tribunals when it came to claims of unfair dismissal by disgruntled employees. However, a recent decision by the Full Bench of the Fair Work Commission (FWC) may have swung the pendulum slightly back in favour of the employee. While one may be excused for wondering why porn sites have a ‘Share to Facebook’ button, a number of workers caught out by a software filter installed on Australia Post’s email system may be wishing that they had used Facebook for this purpose rather than emails to distribute pornographic material to fellow workers. When Australia Post’s new software filter detected the distribution of pornographic material to its workers in 2010, an investigation ensued which resulted in allegations that 40 employees had distributed pornographic material in the workplace. These employees were subjected to a disciplinary process – some were terminated; some received a lesser sanction or warning. Three of the employees terminated were from the same workplace – Australia Post’s Dandenong Letter Centre. They had been found to have sent emails containing pornographic material from their private home computers to work colleagues at their Australia Post email addresses and to have sent these types of emails from their work computers to their home email addresses. The three dismissed employees lodged unfair dismissal applications with the FWC. At first instance, only one of the employees succeeded but he didn’t get the reinstatement he was seeking, only compensation. The three then appealed to the Full Bench of the
FWC. After a closed hearing to determine if the sacked workers should be reinstated or compensated, the Full Bench of the FWC ordered all three be reinstated with continuity of employment. The majority said: “There is an emerging trend in the decided cases towards regarding the accessing, sending or receiving and storing pornography by an employee as a form of serious misconduct that invariably merits termination of employment” but that this trend was inconsistent with the basic principle that whether a dismissal is “harsh, unjust or unreasonable” must be decided on the facts and circumstances of the particular case. The decision took into account a number of relevant factors such as the gravity of the misconduct, proportionality of response, level of tacit acceptance, and factors such as the employee’s age, length of service, and service record. Although Australia Post had a policy covering internet and email use in the workplace, the majority were concerned that there was a failure at the Letter Centre in question to monitor and enforce the policy. There was also evidence that supervisors and junior managers at the Letter Centre knew that inappropriate emails were being circulated, that employees had not been warned about the installation of the new filter and reminded of the policy and that there had been no prior warnings that Australia Post would treat breaches of the policy seriously to the point of dismissal. The majority found that Australia Post should have considered the length of service – between 11 and 17 years – of the men it sacked before making a decision to terminate their employment. They also found there was no evidence of harm to the recipients of the emails (their friends at work) or of any reputational damage to Australia Post. In view of these considerations, the majority felt it was harsh to terminate the three employees for policy breaches of a type that had been widespread and unaddressed for a long time, particularly where there had been no prior warning. Some might regard this decision as being in distinct contrast to the 2006 decision by the Full Bench of the Australian Industrial Relations Commission in Queensland Rail v Wake. In that case an employee was summarily dismissed for breach of Queensland Rail’s internet and email policy as a result of using the system to download and disseminate pornographic material over a number of years. The Full Bench upheld the dismissal even though the employee’s breach was not considered serious and his length of service was substantial. Here, however, there was clear evidence that the employer had provided education and training in relation to its policy and had gone to quite some lengths to ensure compliance with it. The termination of the employee for breaching the employer’s policy was therefore, in the circumstances, justified. Employers and their legal advisers will no doubt want to ensure that not only is there an email/internet policy in place but that it is monitored and enforced (as with any policy).
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TEN COMMANDMENTS
A LAW FIRM WOULD NEVER ANNOY A CLIENT, WOULD THEY? WELL, MAYBE NOT. IN THIS CANDID FEATURE, WE COUNT DOWN TEN OF THE TOP LAW FIRM BEHAVIOURS THAT PEEVE CLIENTS. REPORT: RENU PRASAD, GINA DOMBOSCH.
THE
TEN COMMANDMENTS OF LEGAL PRACTICE
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
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TEN COMMANDMENTS
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“
D*ckhead. What a d*ckhead,” the GC said. “That bloke thought he could just go straight to the CEO and bypass me…thought it was a smart thing to do. Well it wasn’t smart, I can tell you – his firm isn’t doing our legal work anymore. Not while I’m here.” Ah, if only the walls could talk. So often the law firm/client relationship is strained, but so often that tension goes unexplored. Not all clients, after all, have the time to give their firms detailed feedback, although this practice is becoming increasingly common. Equally as likely, however, is that firms will simply miss out on work without gaining a true understanding of how they could have improved their service. With this in mind, we’ve compiled a list of the most common points of improvement we’ve heard from the in-house profession. The research for this feature was conducted using several methods. First, several GCs were interviewed for the direct purpose of this feature.1 Secondly, we have used commentary from ALB’s In-house Roundtable Series and ALB’s Masterclass panel discussions and our long running In-house Profile Series where in-house counsel have commented on this topic. Given that some of these people were speaking “off record”, we have kept quotes anonymous unless we have obtained specific permission to publish and attribute them. This, we hope, also has the merit of ensuring a more candid dialogue. So, on with our top ten. We hope it proves to be suitably provocative reading.
1 None of the GCs named in this feature were responsible for the colourful opening comments in this article, which were drawn from an off-record discussion occurring in another context.
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TEN COMMANDMENTS
“IT APPEARS THAT LAWYERS AT THE MORE PRESTIGIOUS FIRMS HAVE A HABIT OF TALKING ABOUT THEMSELVES A LITTLE TOO MUCH AND, DURING THE CRUCIAL PITCH PHASE, FOCUS ON PROFILING THEMSELVES INSTEAD OF FOCUSING ON THEIR CLIENT’S NEEDS AND HOW THEY CAN ASSIST.”
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
GET YOUR PITCH RIGHT
A couple of years ago, a high profile company was planning a major new commercial development. That particular company had a well known relationship with a top tier firm, yet for this project it opted not to use that firm. Why? The GC, after seeking anonymity, explained why. “Two firms were invited to come here and make a presentation to my team,” he said. “They were asked to address very specific points in their presentation. One of the firms did that. The other did not. Guess which one got the job?” Surprisingly, other GCs tell similar stories. It appears that lawyers at the more prestigious firms have a habit of talking about themselves a little too much and, during the crucial pitch phase, focus on profiling themselves instead of focusing on their client’s needs and how they can assist. “They miss the point that they are providing a service to the client,” said one GC. Another tip, says Andrew Arnold, GC of Lynas Corporation, is to understand the client relationship in the broader commercial context. “[Firms should be] listening to the client’s commercial strategies rather than focusing primarily on legal strategies,” he said.
CAN THE SPAM, PICK UP THE PHONE
It’s important to be clear on this point – clients do not necessarily object to receiving law firm email updates and circulates on principle. However, they would appreciate this information being more targeted to their particular needs. “A considerable amount of resources is devoted by firms to mail outs on emerging issues,” says AMP General Counsel Brian Salter. “These by and large are all the same. It would be much more effective for firm relationship partners to personalise the updates to make them more relevant for their clients.” Firms are typically well informed of breaking news, case law, changes in legislation, and market intelligence. Rather than waiting to put together a formal publication, why not share this information first hand? Simply pick up the phone or drop an email explaining why this particular development should be of concern to the client. But is it okay to reach out to a busy client, even when there’s no matter afoot? Anecdotally, the answer appears to be “yes”. Dan Last, GC of Carlton & United Breweries, for one believes that informal discussions such as these can help deepen the relationship. “I appreciate the partners that are happy to make the time to generally keep in touch even where there is no obvious prospect of significant work. It shows an interest in the legal team and our business that helps build long term relationships” he says.
TEN COMMANDMENTS
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
LOSE THE TRAINING WHEELS, BABY
One theme which has struck a particular chord with clients is the appearance of junior lawyers on matters, largely for the purpose of giving that lawyer some training “on the job”. “The larger firms tend to put junior lawyers through their training on large matters which results in costs being put onto a business for the junior lawyer learning on the job,” says Jon Downes, GC for ACE Insurance. Salter is another to mention this issue, commenting that this practice does not seem to be consistent with the principle of being cost conscious. But the use of junior lawyers is merely the entrée to the truly meaty issue which clients have been gnawing at for years: timebased billing. “Value is not a function of time and while many firms are prepared to offer alternative fee arrangements, they continue to measure their internal output in minutes. This creates a conflict between how the firms operate and what their clients expect,” says Challenger Limited’s Michael Vardanega. In the view of clients, it’s only fair for firms to play by the same rules as those applicable in-house: Downes points out that in-house counsel are increasingly expected to budget accurately and fixed fee options greatly assist as opposed to time based billing. At the very least, firms need to demonstrate some flexibility on the subject: for example Last suggests that alternative fee options could be discussed from the outset. “I encourage law firms to offer alternative structures, other than just time-based, when we discuss billing. We stick with the traditional billing approach in many cases, but it’s good to have the lawyers explore other approaches up front,” says Last. Woolworths’ General Counsel Rod Bordignon is another who believes that billing and cost consciousness are top priorities. “My number one issue is for law firms to treat my money as if it is their own, ie. do not over-service, but understand what we are asking you to do, and don’t do anything more without asking,” he says.
NO SURPRISES, THANKS
“VALUE IS NOT A FUNCTION OF TIME AND WHILE MANY FIRMS ARE PREPARED TO OFFER ALTERNATIVE FEE ARRANGEMENTS, THEY CONTINUE TO MEASURE THEIR INTERNAL OUTPUT IN MINUTES.”
There are apparently three kinds of surprises that peeve in-house lawyers. First, and perhaps the most egregious, is the infamous cost blow-out. Secondly, there is the unexpected announcement that a particular deadline cannot be met. Thirdly, there is the surprise revelation that the advice will take a different form from what the client was expecting. “Many lawyers know that there are massive cost overruns or they will not meet the timing of a transaction or the advice will not turn out how they expect, but they put their head in the sand and wait for it to blow up,” complained one GC. GCs are prepared to accept that things will not always go to plan – but they do not understand why it takes so long to communicate the bad news. “Things do not always go well,” concedes Vardanega. “But not facing up to the issue early just makes things worse.” Downes agrees that “over promising and under delivering“ is one of the cardinal sins of legal practice, while Arnold’s tip is to communicate staffing changes on a matter as soon as practicable.
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TEN COMMANDMENTS
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
CONSISTENCY, CONSISTENCY
Consistency, we’re told, is the reliable bed-fellow of the aforementioned “no surprises” value. Consistency takes various forms – Arnold gives as one example the “availability of high quality practitioners across the full scope of corporate and litigation areas.” Building on this theme, Last adds that firms need to look at the manner in which these services are delivered. “I think external firms can improve by offering greater consistency in the way services are delivered across practice groups,” he says. “It can be frustrating where we use a new practice group or new partner at a firm where we have an existing relationship and find that the new practice group or new partner doesn’t operate in a manner consistent with the group that we are familiar with or is otherwise not an appropriate recommendation for the work that has been briefed. For example, it can be frustrating to see inconsistent approaches to billing within the same firm.”
“IT CAN BE FRUSTRATING TO SEE INCONSISTENT APPROACHES TO BILLING WITHIN THE SAME FIRM.”
GET TO KNOW THE BUSINESS
It seems many clients believe firms do not invest the necessary time and energy to understand the underlying commercial business, its products, market, goals or objectives. Conversely, firms who do make this investment came in for particular praise. “I am always pleased when external lawyers take the time to understand and appreciate our products,”says Last. “It’s a bit easier for an adviser to CUB than it may be for other companies, but it really helps if the external lawyers are interested in the products that we make and the markets in which we operate.” Kontelj believes understanding the business is important in providing a legal service that takes into accounts the commercial aspects at all times. “Firms must be able to balance commercial and legal aspects of a matter,” he says. Secondments are a concrete way to gain insight into a client’s business. “CUB has had a good experience with external firms placing secondees into the legal team. With a couple of firms…it has really helped the external lawyers understand our business better and in particular the way that the internal team operates,” Last says.
DON’T MAKE ME CHASE YOU – AND DON’T LEAVE ME HANGING
Communication is a little bit like teamwork – it’s one of those corporate values that everyone espouses, yet is commonly found lacking in execution. When clients brief work to a law firm, they expect regular updates on the progress of this matter and they do not want to chase firms for this information. “In-house counsel need to know what is going on when they have outsourced work. It is often the case that law firms need to be chased for updates,” says Downes. Arnold also cited this as an area for improvement, while Stretch Kontelj, General Counsel, Specsavers says that it is “imperative” that firms provide regular updates rather than have clients chase them for information. Unsurprisingly, clients also demanded that advice be communicated in easy to understand terms. “Firms should provide clear and concise advice in plain English rather than slabs of regulations/ legislation,” says Kontelj. “Opinions on prospects of success should be clearly stated and a course of action recommended when such advice is sought.” Bordignon emphasises that conclusions are important. “Law firms should come to a conclusion and make a recommendation when advising; don’t leave it hanging. We don’t want to guess what they think,” he says.
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
WHAT’S IN IT FOR ME?
Newsletters, lunches, seminars, extranet, corporate hospitality: clients appreciate the work which goes into fostering the client-firm relationship, but point out that there is a distinction between generic relationship building and relationship building which is specifically directed at the needs of in-house counsel. “In-house counsel are usually very busy,” says Salter. “When firms see them, they should make the experience as effective and valuable from the in-house counsel’s perspective as possible.” Interestingly, part of this “value add” process might be a little bit of marketing, which some GCs say is acceptable if it helps improve their understanding of the firm and how it proposes to be used. “Firms are doing a lot of good things but could improve how they communicate their value, for example, they could be clearer about what they want to be known as by their clients, how they differentiate themselves from other firms and how they demonstrate their alignment to the client’s interest and outcomes,” says Vardanega.
TEN COMMANDMENTS “PARTNERING WITH LEGAL CONSULTANTS SPECIALISING IN MATTER MANAGEMENT MAY OFFER FIRMS A COMPETITIVE ADVANTAGE WHEN TENDERING FOR WORK.”
INNOVATE OR PERISH RUNNING WITH THE BIG BOYS
Despite protestations by firms that the recent raft of international mergers has been enthusiastically backed by clients, there remains a view that these arrangements have been more of an internal distraction for firms and the focus needs to return to client service. Firms, of course, have invested a great deal in marketing their new arrangements and it remains to be seen whether the “distraction” theory is a serious criticism or simply the manifestation of the very human resistance to change. In-house lawyers raised a multiplicity of related points on this topic. Does entering a global merger mean that a firm will prioritise global clients ahead of their existing national clients? How will the conflicts play out? And more broadly, how does this affect a firm’s offering in this market? Clients are eyeing subtle changes in the positioning of firms and are wondering what will happen. “With the internationalisation of the firms and the pressures arising as a result of less M&A and capital markets activity, some firms are taking on instructions when they might not have done so in the past,” says Vardanega.
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Last year, Salter laid down the law to his firms: show me your LPO strategy, or don’t expect to receive any work. It’s all part of a broader philosophy - clients want to see firms making continual improvements to their efficiency. “Firms should constantly re-evaluate how they deliver legal services and whether there are new and more innovative, efficient and effective models for this that are in the interests of their clients.” says Salter. “Partnering with legal consultants specialising in matter management may offer firms a competitive advantage when tendering for work.” Client are also interested in how law firms could mine their impressive database of contacts to improve their service. “Law firms have a large network of contacts particularly with international firms and whether it’s professional bodies, M&A opportunities, investment, they should be thinking how they can leverage off this within the bounds of confidentiality,” said one GC.
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CORRS CHAMBERS WESTGARTH
THE ULTIMATE
OPEN DOOR POLICY CORRS CHAMBERS WESTGARTH HAS ALWAYS PUSHED THE BOUNDARIES. IN THIS CASE, THEY’VE REMOVED THEM COMPLETELY. IN REMOVING OFFICE WALLS, THEY’RE BUILDING SOMETHING NEW IN THE INDUSTRY AT 8 CHIFLEY SQUARE.
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
CORRS CHAMBERS WESTGARTH
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Corrs Chambers Westgarth is embracing the workplace of the future, moving to its progressive new Sydney office at 8 Chifley Square.
“ John W.H. Denton, CEO, Corrs Chambers Westgarth
We like to think we’ve always been a friendly firm with an open doors policy,” says Corrs CEO, John Denton. “But this office move isn’t about hierarchy, it’s about engagement and collaboration.” Already known as a firm that thinks strategically and keeps ahead of change, Corrs is taking on one of the sacred cows of the profession, the corner office. All offices, in fact. “When we first thought about it we thought it would generate resistance. “But we’ve been speaking about moving to an open and flexible working environment for a long time. People are actually excited, now. They’re keen to move and take advantage of what’s on offer. “This is an industry where passionate people work long and hard. Not just partners who have worked hard to get where they are, graduates who are keen to win the badges of success, the office, the laptop and the mobile phone. Managers, everyone.” What’s on offer is a whole new way of working, for not just Sydney Corrs people, but eventually all of them. Melbourne is moving in 2015 and Perth 2016 and Brisbane will adopt the same workplace philosophy soon after that. Denton says the key is human interaction. “We have long known that the two most important things to the people at Corrs are the intellectual stimulus of their work and the relationships with their colleagues. Every staff survey puts these two elements at the top of the list, ahead of pay, travel, training, everything. The change this new way of working brings elevates and concentrates on both those things.” The new way of working, as Denton describes it, is something the corporate world has been doing for some time, open plan. It comes in degrees – at one end there’s hot-desking where you come to work and get your laptop and coffee mug out of your locker and look for a desk. Corrs is at the other end, where each person has their own permanent work area and storage and shared facilities include quiet rooms, meeting rooms, a café for informal meetings, meals and entertaining, and open areas for collaboration. The teams are located together. This and the open nature of the design with a spacious open core, groups of work spaces all around and a staircase connecting it all has coined the
“WE LIKE TO THINK WE’VE ALWAYS BEEN A FRIENDLY FIRM WITH AN OPEN DOORS POLICY, BUT THIS ISN’T ABOUT HIERARCHY, IT’S ABOUT ENGAGEMENT AND COLLABORATION.”
John W H Denton, CEO, Corrs Chambers Westgarth
name ‘sky villages’. When you see it, your first thought is of people sending paper darts to each other across the void. But the communication is way beyond paper darts. Human interaction may be the goal, but it’s technology that makes it work. A completely wireless office in which people’s laptops, phone calls, digital files and printing are active anywhere as they move around and people can work together anywhere, at any time, in any way. “The environment changes behaviour. We want to encourage people to share knowledge and skills, to work together and to enjoy it. We are convinced that this will boost creativity, collaboration and engagement. The benefits for the firm are a happier, more productive and innovative workforce. “My experience is that people in all levels of the organisation have good ideas, but hierarchy can stop the ideas from filtering to the place where they can be enacted. We think individuals, the firm as a whole and our clients will benefit from this open working and thinking.” Should cost savings be on that list of benefits? “Maybe,” says Denton. “It’s true that we make better use of our space this way, and that will bring ongoing savings, but it hasn’t been inexpensive bringing that into play. The benefits we want are about quality – quality of work and the experience of work. The biggest benefits for the firm we see are the product going to the client and the staff engagement level. People will need to adapt because change is always disruptive, but we’re excited.” A few benefits Denton hasn’t mentioned are being in the heart of the commercial precinct, the sheer beauty of the building designed by globally respected architect Lord Richard Rogers of Rogers Stirk Harbour of Pompidou Centre fame, and the six star environmental sustainability of the building. All these things are attractive to a firm whose mantra is ‘world class’. “Just the feeling of space is liberating,” says Denton. It’s true, the centerpiece of the building is a café with louvred and bi-fold windows that can be opened to a wide deck looking out over city views. And a light-filled atrium that is the antithesis of the legal industry’s fourwalled and ceilinged offices. The critical word for Denton is flexibility. “The business world has changed for everyone, for our clients in Australia and globally, for our suppliers and for the legal industry. Everyone wants and needs flexibility. Our staff want flexibility in their lives, businesses need flexibility to manage costs and above all, our clients want flexibility in how we work with them. Our way of working needs to reflect that and we need to bring it into our culture. We’ve been doing it in various ways for a long time, but this will make a real difference.” [Corrs Chambers Westgarth moved to 8 Chifley Square on 21 October 2013.]
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DEALMAKERS
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
More than TYRE KIC
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
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just... KING AS BUSINESS CONFIDENCE PICKS UP, LAWYERS ARE EYEING THE PROSPECT OF INCREASED DEAL FLOW IN THE M&A AND CAPITAL MARKETS SPACE. IN THIS SPECIAL FEATURE, WE BRING TOGETHER FIVE OF AUSTRALASIA’S FINEST DEALMAKERS – ALL WINNERS IN THEIR RESPECTIVE TRANSACTIONAL FIELDS IN THE 2013 ALB LAW AWARDS – AND ASK THEM TO SHARE THEIR PERSPECTIVES ON THE MARKET.
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BEYOND THE GREEN SHOOTS BUSINESS CONFIDENCE IS AN ENIGMATIC BEAST. WE’RE NOT SURE HOW OR WHY, BUT GROWING SIGNS OF TRANSACTIONAL ACTIVITY ARE BEGINNING TO EMERGE. HERBERT SMITH FREEHILLS PARTNERS PHILIPPA STONE AND SIMON HADDY SHARE THEIR MARKET ANALYSIS WITH ALB’S RENU PRASAD.
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“BANK HYBRIDS HAVE BEEN COMING OUT AT A GREAT RATE; IT’S A VERY TECHNICAL AREA AND ONE OF OUR AREAS OF EXPERTISE AND THOSE THINGS ROLL REGULARLY SO THAT’S ALWAYS A GOOD WORK STREAM.” - PHILIPPA STONE
here have been two constants in the Australian legal services market over the past few years. The first is that there is always someone talking about the rise of the challenger firms and the fall of the top tier. The second is the continuing dominance of Herbert Smith Freehills of particular practice areas, notably M&A. There’s a lesson in there somewhere. It might not remain true for long, but it’s still there for the moment. This year, HSF’s Philippa Stone won the coveted Australian Dealmaker of the Year at the ALB Australasian Law Awards and the firm’s M&A team won the Australian Deal Team of the Year Award. But even an award-winning M&A firm has to ride the vagaries of an uncertain market. “Competitor experience seems to be varied as to when they say their quiet months were. I found February and March extremely tough but since then it’s been coming back. Probably more M&A than capital markets – but capital markets is also solid,” observes Stone. HSF partner Simon Haddy is also seeing some more positive signs. “There are a number of factors people cite and no one knows which ones are actually driving the behavior – but it seems there is that sentiment shift that’s being driven by a combination of these – whether it’s a perception of political stability or an increase in liquidity, or a sense that we’ve just got to get on and do things. But certainly things seem to be coming into alignment a bit more,” he says. HSF’s annual Australian Public M&A Report found that the completion rates for deals in the Australian market was down nearly 20 percent last financial year. “Once they get announced they tend to complete. Anecdotally we’ve seen a lot more in that ‘not quite launching’ mode,” says Haddy. “Once they do launch people tend to be pretty focused on completion.” The lower completion rate may simply be a sign of the times. “One of the things we’ve seen is an increasing level of complexity around the deals that are going through,” says Haddy. “Whether it’s the nature of the parties, the jurisdictions involved, the types of buyers, other regulatory issues; there are a lot more hurdles that people need to clear and possibly they’re only wanting to launch once they’ve got a bit of a read on those things. Certainly it’s an area where we feel we can add value.” But parties are beginning to take the challenges in their stride. “There is an acceptance of a reality that there are these complications and more times than not there are ways through them,” says Haddy. “They will typically be quite bespoke, but the inevitability is that there will be complexity of one description or another.” Public M&A is only one part of the transactional landscape. Another aspect which is of interest for lawyers, particularly in light of
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the recent change of Federal government, is the sale of state assets. Currently heading for the block are the Port of Newcastle and a further round of electricity assets in NSW. Stone says that there are particular advantages associated with the advisor role on each side of the transaction. “You know you’ve got the bird in the hand when you’ve got the government role, that’s the upside….but the downside is that the person who’s going to go forward with the business is the successful bidder. Because there are a number of bidders, you can’t be sure that your chicken is going to hatch, but if it hatches, it’s better to have that chicken!” she says. Stone’s expertise covers both M&A and equity capital markets, although she says M&A is currently more busy. “But ECM is on the uptick as well….IPO activity is on the uptick,” she adds. “We’ve got two vendor/issuer IPOs; I think one of those will go this half, I’m pretty sure. Last year we did the CBA PERLs VI and Bendigo and Adelaide Bank’s $269 million CPS Offer which were the first Basel III compliant deals as well as, respectively, the first Basel III compliant note and the first Basel III compliant preference share.” Hybrids have been the flavour of the month of late. “Bank hybrids have been coming out at a great rate; it’s a very technical area and one of our areas of expertise and those things roll regularly so that’s always a good work stream but it’s been particularly good because they only settled the Basel III rules mid last half of last year, and since then they’ve all come out,” says Stone. “Obviously it was better to issue after the final rules came out so you had assurance that the new issue was going to qualify for capital treatment.” But aside from a couple of potential cornerstone raisings, the team has not seen many acquisition-related raisings. “We haven’t seen as many raisings to fund competitive bids – it’s one of the things I’ve been really missing,” says Stone. “Those are the most enjoyable ones, but they haven’t been that common recently.” An interesting new development in the market has been the announcement that the ASX will now provide a bookbuild facility. Stone says that the key issue here will be writing the rules. “Because when you are an issuer in a traditional bookbuild, you at least have the right to control where the stock is going; so there’s the ability not to allocate to a hedge fund or someone that you just don’t want on your register,” she explains. “I know they’ve been working to overcome this issue, but it’s important to make sure that you don’t end up with unexpected results where someone who’s an undesirable shareholder in terms of the stability of your share register ends up with a significant portion of the issue. I think people are a bit wary of it, and whether it is taken up will depend on how it goes once someone actually does try it.”
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“THERE IS AN ACCEPTANCE OF A REALITY THAT THERE ARE THESE COMPLICATIONS AND MORE TIMES THAN NOT THERE ARE WAYS THROUGH THEM.” - SIMON HADDY
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AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
BACK FROM THE DEAD LAST YEAR’S RESTRUCTURING OF THE NINE ENTERTAINMENT GROUP WAS NAMED THE AUSTRALIAN DEAL OF THE YEAR AT THE 2013 ALB AUSTRALASIAN LAW AWARDS. GILBERT + TOBIN’S DOMINIC EMMETT EXPLAINS SOME OF THE INTRICACIES OF THIS DEAL TO ALB’S RENU PRASAD.
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“UNLESS THEY AGREED ON A SOLUTION, THE COMPANY WOULD GO INTO RECEIVERSHIP.” - DOMINIC EMMETT
here’s Alan Bond when you need him? Last year Nine Entertainment Group was staggering under debts in excess of A$3 billion. The creditors were not in a negotiating mood. The receivers and administrators were lurking in the background – literally, according to some sources who were present at the G+T offices during negotiations. It was time for some innovative deal making to pull Nine back from the brink. This A$4 billion recapitalisation and restructuring saw senior debt lenders including Apollo Global Management and Oaktree Capital take a 95 percent equity stake in Nine while mezzanine debt funders, including Goldman Sachs, took a 3.75 percent stake. Key advisors on this deal included G+T’s Dominic Emmett (advising Nine); Arnold Bloch Leibler’s Leon Zwier (advising Apollo and Oaktree), Herbert Smith Freehills’ John Nestel (advising Goldman Sachs) and Ashurst’s James Marshall (advising the par lender group). As Emmett sees it, this deal is more than just a restructuring. He says that the complexities of this case – ranging from asset divestments to scheme arrangements to a U.S. Term Loan B debt issuance – called for the coordination of four practice areas: corporate, litigation, finance and restructuring. All of this, of course, was dependent on a deal being struck between the parties to prevent Nine from going into receivership. “To keep [a company] out of formal insolvency everyone needed to understand the effect of receivership and administration on the underlying businesss and enterprise value,” observes Emmett. “What brought everyone together at the end of the day; what brought Oaktree, Apollo and Goldman Sachs to the table to agree on a deal was the threat of insolvency. Unless they agreed on a solution, the company would go into receivership.” The G+T team went to great lengths to persuade the creditors that receivership would not be a beneficial result for anyone concerned, preparing a report to
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analyse the probable impacts of receivership. “It was very important to prove that receivership was not a good thing, not just say it,” explained Emmett. “The report looked at, for instance, what would happen to the NRL rights or to the cricket rights in the event of receivership. So would those counter parties to those deals [stay with Nine] if Nine went into receivership? I think that was a very important influencing factor in forming [the creditors’] judgments in coming to an agreement.” At the time the deal started, Emmett had only recently arrived at G+T from Corrs Chambers Westgarth, which raises the question of whether the firm was asked to advise on the deal because of his presence there. “Not at all,” he says. “There was no way in the world I could claim that I brought it across from Corrs – it was a team effort. Nine has always been a G+T client and then, independently of that, I was asked to advise the board in a personal capacity. So it was a combination of factors.” Despite the notoriously brittle 2013 economy, Emmett says that he is not necessarily expecting a spike in restructuring activity. “I’d say it’s more steady as she goes – there are not as many bigger deals as there were 18 months ago,” he says. “Billabong (where Emmett is working with Centerbridge and Oaktree) is an exception to that. Apart from that, there are the loan portfolio sales that are keeping many busy.” Mining services is also a potential area of interest. “A big influencing factor is the ability of these companies to issue debt into the U.S. markets – that’s saving a lot of companies that might otherwise be in difficulty,” says Emmett. He adds that this is an example of how restructuring activity is not necessarily countercyclical. “There are other reasons why companies get into difficulty,” he explains. “With mining services, it’s not so much the economic downturn, but that the mining space has changed. A lot of these mines have been built and are ready for production so now they’re up and running, they don’t need many of those services anymore. So the mining services companies get into difficulty not because there’s a recession rather – it’s just that they’re not required as much because the projects are moving from a construction phase to a production phase.” If anything, an economic uplift may even have the unexpected effect of lifting restructuring activity. “As you get out of an economic downturn, there’s more money around and there are more buyers
DEALMAKERS
“AS YOU GET OUT OF AN ECONOMIC DOWNTURN, THERE’S MORE MONEY AROUND AND THERE ARE MORE BUYERS FOR ASSETS.” - DOMINIC EMMETT
for assets,” says Emmett. “The banks might see that they now actually might be able to do something with an asset; someone might want to buy it or fix it – so ironically perhaps as we come out of the downturn cycle, there might be more activity in the restructuring space because there are more solutions.” No matter what tidings the economy may bring, Emmett says there is one constant in his practice area. “There will always be some restructuring,” he predicts. “Many of the very big ones come out of left field, unexpectedly.”
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A NEW ZEAL FOR DEALS? AT THE CENTRE OF A SERIES OF NEW ZEALAND PUBLIC ASSET SALES, HAYDN WONG IS ONE M&A LAWYER WHO BELIEVES THINGS IN THE MARKET ARE LOOKING BRIGHTER, WRITES BEN ABBOTT
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he Bell Gully corporate team is one team which is in a pretty good position to take a definitive pulse of the M&A market. Fresh from winning this year’s ALB New Zealand Deal Team of the Year, the team maintains one of the deepest benches available to M&A clients in the country. Perhaps it will be comforting to his peers, then, that Bell Gully partner Haydn Wong says the heartbeat of the New Zealand M&A is beginning to quicken. “I think the overall sense in the market is one of reasonably steady improvement; it is a recovering market,” Wong says. This is manifesting in a number of ways. “There are better quality assets coming to market. For a while there were a range of transactions coming out of distressed asset situations. While there is still a bit of that happening, we are seeing more positive transactions based on the perception that there are decent exit values available. Decent assets are being put on the block, and there is good interest in those assets,” Wong says. A steady economic outlook is giving more certainty to acquisition valuation and modelling, allowing interested buyers to transact with confidence. “We are not by any means back in the heady days of pre-GFC activity, but good solid transactions are now being put forward and we are seeing a greater level of closing on those transactions than we have seen over the last few years,” says Wong.
“I THINK THE OVERALL SENSE IN THE MARKET IS ONE OF REASONABLY STEADY IMPROVEMENT; IT IS A RECOVERING MARKET.” - HADYN WONG
THE BIG DEAL On the day ALB spoke with Wong, Bell Gully had just overseen the registration of public offer documents for Meridian Energy, the second plank in the New Zealand Government’s extensive programme of public asset sales which have dominated the M&A market – and local news headlines – over the last two years. Bell Gully, which received accolades for advising the Crown on both the original mixed ownership model scoping study as well as on the previous sale of Mighty River Power Limited to investors for NZ$1.7 billion earlier this year, is now involved in the landmark Meridian Energy sale expected to reap over NZ$1 billion. Wong says the government has been and remains an important source of M&A work for the legal market. A number of firms will continue to be involved for the upcoming partial sales of Genesis Energy, Solid Energy and Air New Zealand as well as Meridian and the government has moved to stimulate oil and gas sector transaction work by opening up more acreage for prospecting and drilling. Likewise, the government’s appetite for infrastructure investment has resulted in private investment via PPPs, including a 960-bed prison in South Auckland, two new school properties in West Auckland and PPP motorway projects. Although it has been a long time coming, Wong says M&A work
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stemming from the redevelopment of Christchurch following the devastating earthquake of 2011 is beginning to materialise, such as the recent JV between New Zealand’s Arrow International and China State Construction Engineering Corp. He expects Chinese investment will remain a source of work, with continued Chinese interest in the local dairy, forestry and fruit production assets. Wong says the ‘wave’ of Australia-sourced private equity money that characterised the early to mid2000s has largely finished, due to some ‘fairly average’ experiences for some funds, and a rare number of available large transactions sizes to attract some larger funds. However, Wong says New Zealand private equity firms are succeeding in raising new funds, which is likely to result in an uptick in locally-sourced private equity investment. M&A lawyers will also be watching attentively as the Financial Markets Conduct Act is phased in through a transitional period over the next two and a half years. The Act has implications for any clients involved in raising funds through securities offerings or selling down through the public markets. “It is a very significant change, and many organisations will be required to consider the impact on their business, so that is top of mind for everyone,” says Wong. SLOW BUT STEADY Wong says there are no obvious changes to the way M&A is being conducted in New Zealand, except for the fact that warranty and indemnity insurance has now become a permanent feature in the market. “I think the pricing [for insurance] has come back significantly. Now that it is not as expensive as it once was, the economics of the transaction allow it,” he says. The transaction types such as distressed assets and private equity sell downs also lend themselves to the product. Though optimism and opportunity is returning to the New Zealand market, there are still challenges making deals harder to realise than pre-GFC. One of these is the ability to run a truly contestable process for available assets. Wong says although transactions often start out as part of a contestable process – with a broad range of buyers eyeing off the deal – the buyer set often reduces to a small number of potential buyers or even to bilateral arrangements. This means it has become harder for deals to remain competitive around pricing, while they are also more difficult to run to a proscribed timeframe. “Pre-GFC a bid would be put up and it would close quickly, but it is taking longer to close negations and close deals.” However, Wong is confident things are improving – not just in terms of attitude, but also deal flow. “There is certainty a more positive attitude throughout the year, and that has led to a steady increase in overall M&A activity where a number of good transactions have been got away as well,” Wong says.
LOCAL HEROES GRAEME QUIGLEY, NEW ZEALAND’S DEALMAKER OF THE YEAR, SAYS THAT WHILE M&A WILL REMAIN DOMESTIC IN FLAVOUR, M&A LAWYERS CAN EXPECT A STEADY DIET OF DEALS. REPORT: BEN ABBOTT
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ne might expect ALB’s recently announced New Zealand Dealmaker of the Year to have pure M&A work perennially at the top of his ‘to do’ list. However, Russell McVeagh corporate and M&A veteran Graeme Quigley says the overriding feature of the local corporate market – and a feature which has in fact been overshadowing M&A – has been the significant volume of capital markets work. “With the quality of listings coming to the market, M&A has not been as active as in previous years,” Quigley explains. “The investment banking community has been focused on capital markets work.” He gives the recent headline-grabbing examples: the public sale of New Zealand’s Mighty River Power Limited, as well as Z Energy’s IPO, the ongoing public offer of Merdian Energy and the mooted sale of Genesis Energy early next year. “Our corporate and M&A group has been pretty active, but there is no doubt capital market work has kept a lot of firms busy this year,” Quigley says. However, there have been enough M&A transactions to ensure Russell McVeagh is far from idle in between roles on capital markets deals. For instance, the firm advised Hong Kong-based Cheung Kong Infrastructure (CKI) on its NZ$490 million acquisition of waste manager Envirowaste, as well as Woolworths on its NZ$350 million purchase of New Zealand-based online retailer EziBuy. “Those are some decent sized deals in this market,” Quigley says. Russell McVeagh has also been acting for New Zealand Crown entity the Guardians of New Zealand Superannuation, which manages New Zealand’s sovereign wealth fund, the New Zealand Superannuation Fund, in a restructuring of its stake in the North Island’s Kaingaroa Forest. A range of smaller deals have been evident, with Russell McVeagh securing a role in deals such as Warehouse Ltd’s sale of a majority stake to online sports retailer Torpedo7 for NZ$33 million. Quigley sees good signs for M&A in New Zealand over the short to medium term, as the capital markets cycle shifts more towards an M&A slant. “All indicators are that the economy is strengthening, and we have had both domestic and offshore clients in the last month
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and people can’t see themselves having to deal with a struggling business in a soft economy,” he says. “The Australian acquirers have been active acquirers over here for a long time, and we think that is likely to continue.” A previous spike in Chinese interest in New Zealand’s primary industries has not been quite as steady a trend for lawyers. The interest peaked some three or so years ago, coinciding with a period of strength in the Chinese economy and a relative weakness in New Zealand. “We are not seeing the same level of interest out of China as we saw then, it has really steadied right off,” Quigley says. Instead, Quigley argues domestic acquisition will be the key source for M&A work in the near term. “I do think the focus is very much on domestic deals in this market over the near term. We have a healthy local economy, and the deals will be domestically focused,” he says. New Zealand corporates are not as eager to venture offshore, however, primarily because of the question mark hanging over Australia. “Historically the focus of cross-border corporate acquisition from New Zealand has been Australia, and with the Australian economy where it is in the cycle at the moment we are not seeing New Zealand firms rushing to acquire there in the same way that they have in the past. It will be very much a domestic story over the next 12 months,” says Quigley.
“SILOS ARE NOT IN THE CLIENT’S INTEREST. WE HAVE HAD A VERY CONSCIOUS FOCUS FOR SOME YEARS NOW ON A MORE TEAMBASED APPROACH TO SERVICING OUR LARGE CLIENTS.” - GRAEME QUIGLEY actively looking for deals in this market,” he says. “I think New Zealand is seen as a better prospect than some other markets in the near term in terms of acquisition targets and the opportunity to enhance the value in the business that is acquired.” BUYING LOCALLY Australia remains a key source of M&A investment, according to Quigley, with a mix of trade and private equity buyers still active in the market. “There is always a reasonable amount of interest out of Australia, provided our economy is in the right point in the cycle
A TEAM EFFORT Quigley notes that warranty and indemnity insurance is now firmly ensconced as a part of the deal market, particularly in deals where private equity owners are exiting their investments. Likewise, a slowdown in the pace at which deals are being done is clear. “It’s been the case for the last 24 months or so that deals are taking longer than they used to, sometimes a lot longer. It’s not uncommon for parties to be talking for several months or longer before a deal is concluded,” he says. This has coincided with smaller groups of buyers participating in the sale process for available assets. “A couple of recent deals have seen very large buyer groups, but the general theme is for smaller buyer groups than a few years ago,” says Quigley. In such an environment, he says the ability for lawyers to work in multi-disciplinary teams is what sets the best deal teams apart. Having joined Russell McVeagh as a partner in the early 1990s and been appointed to the firm’s board a number of times, Quigley has seen this emphasis rise to prominence over time. “We have a very strong focus on excellence in terms of the quality of advice pertaining to what the client is actually looking to achieve. How we can facilitate that by working internally as a team and work with the client has become more and more important as time has gone by,” he says. The recent landmark capital restructure at Fonterra is a case in point. The deal, which was key to Quigley taking home the ALB Dealmaker of the Year Award, was a highly complex piece of work requiring multiple work streams to be run at the same time across different practice groups within the firm. Avoiding a silo mentality remains critical. “Silos are not in the client’s interest. We have had a very conscious focus for some years now on a more team-based approach to servicing our large clients; that is what clients tell us they want,” concludes Quigley.
fri 25th
Financial
OctOber
2013
& MEDia MarkEts
Location
Middle Harbour Yacht Club Mosman
charity rEgatta
cost of entry
yacht entry: $2,000 (plus GST) per yacht Price per Guest: $150 (plus GST) ViP spectator Guest: $300 (plus GST)
free with entry All competitors will receive: • a polo shirt • a cap • gourmet lunch pack • entry to beach after party including BBQ, complimentary drinks, auction and raffle draws.
This fun sailing event is a great way to help support worthwhile charities whilst entertaining your clients, networking or even thanking your staff!
ViP Boat A spectator boat will follow the race. This is an alternative to racing. Guests are able to view the regatta whilst enjoying a seafood buffet served with fine wines.
For entry Forms or sponsorship applications please contact: david.brocklehurst@thomsonreuters.com or call 02 9373 1984 or 0412 411 366
All class of boats are welcome. Race operated on a handicap basis. Current cup holder: Deutsche Bank Yacht name: Sputnik
visit www.asxreutersregatta.com.au
on illi m $1 han help raise more t
ity ar h rc fo
ab
Last Year sponsors
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PRODUCTIVITY
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
IT’S TIME
FOR ‘CLIENT-INTIMATE’ PRODUCTIVITY CLOUD-BASED TECHNOLOGY IS A KEY SOLUTION TO IMPROVING CLIENT RELATIONSHIPS AND PRODUCTIVITY, WRITES WILL IRVING, GROUP MANAGING DIRECTOR, TELSTRA BUSINESS.
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Will Irving
hen I talk to my customers – the owners and managers of Australia’s small and medium enterprises – about how they’re prospering in a relatively subdued economy, two themes come through loud and clear: the importance of strong client relationships, and the challenge to strengthen them and deliver more proactive advice with fewer resources (and even fewer WIP write-offs!). I call this client-intimate productivity. As part of producing our ‘Towards a Clever Australia’ 1 report, Telstra interviewed more than a thousand business and government customers to better understand their outlook for the next few years. The research found that the vast majority are looking to achieve growth, and most are primarily focussed on improving customer experience and satisfaction (85 percent), increasing productivity (85 percent) and managing risk (73 percent). That last figure is great news for the legal profession and underscores the value in being so close to clients that you can spot the risk – and be ready with practical advice on how they can manage those risks before, in many cases, they’ve even turned their minds to the issue. Interestingly, the report also identified three strategies that the most successful companies (“Growth Champions”) adopted:
they all had a Customer First strategy; they all focussed more than their competitors on improving Employee Collaboration; and they were all investing in ICT and paying close attention to the way employees and customers used it, to ensure they were fully leveraging the investment. It’s when they do that – when they get the most out of the full breadth and depth of each individual lawyer’s and firm’s systemic capability, and apply it with laser-like customer focus – that they create client-intimate productivity, and the business success that follows. We see some great examples of client-intimate productivity amongst our customers at Telstra Business, including a number of successful law firms and many companies with great in-house legal teams. One example, Galilee Solicitors, has shown great ingenuity by using technology to set up a new operating model which has delivered improved productivity, agility and client service. They focussed on Cloud Collaboration and I’d like to share with you how this has created a better place to work for their solicitors, and more satisfied clients. So what is Cloud Collaboration? Cloud Collaboration involves integrating communications technologies (fixed and mobile, video and voice), business data, the firm’s knowledge library (including a skills and expertise database), and even external information (which may be legal, commercial and/or client specific – with appropriate security controls of course) and ultimately with external parties (clients, barristers and others) as the need arises. By unifying communications and databases, you create the ability to share work seamlessly, allowing your team to connect to clients and colleagues from almost anywhere at any time, and on the user’s device of choice. It means you can maximise the value of firm precedents and prior work, manage versions of documents and simultaneous input from multiple sources, enable faster and higher value learning from clients (and others), and deliver outputs clients will value. In effect, it opens a firm up to share ideas and expertise at a moment’s notice – and it is now more vital than ever for
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
productivity, engagement and innovation. So here are some practical examples of how to improve productivity and customer experience with Cloud Collaboration: IMPROVE BILLABLE HOURS TO BOOST PERFORMANCE During the boom, clients were often more focussed on speed and maximum resourcing, and so seemed happier to pay, but those days are long gone. Every potentially billable unit written off in pre-bill, coded to the firm, or simply not recorded when taking that call when out and about after hours (or worse, billed and then haggled over by the client), is not just lost potential fees, it is dispiriting for whoever devoted their time to the task. Minimising lost time by integrating Law Practice Management Systems with your Cloud Collaboration solution goes a long way to capturing this lost revenue. For example, today you can get a raw feed of call records and match those with your customer accounts to streamline billing and customer administration. We can then work
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with technology partners to customise this data to integrate with your Legal Practice Management System. Galilee Solicitors integrated their practice management system with their Cloud Collaboration solution - Telstra IP Telephony and gained significant improvements in productivity per day. That has huge value in dollar terms to the firm, but it also improves morale and enables the firm to invest in systems and training too. Imagine how much that kind of efficiency gain could improve your practice? And then consider the pace of technological advancement, like some relatively imminent features such as being able to record calls made and received by your Telstra IP Telephony (TIPT) number at the touch of a button – subject of course to appropriate notification to the other party where required. This will help ensure a high degree of client interaction accuracy and allow your lawyers to focus on the conversation, not frantically scribbling file notes. Or being able to store recordings safely in the Cloud and having them transcribed – whether manually today, or via voiceto-text technology as it rapidly comes of age. And down the track, Cloud-based telephony will offer other emerging technologies like automated simultaneous language translation. BREAK DOWN DISTANCE BARRIERS TO COLLABORATE AND PROVIDE ADVICE FASTER FOR YOUR CLIENTS As busy legal professionals working on short lead times with multiple clients (and often, multiple stakeholders within each),
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lawyers are often required to collaborate on projects with colleagues in other office locations, members of the bar and experts across the globe. Engaging the right people can be time-consuming and inefficient when you don’t know when they’re available, so knowing when to call or collaborate can save considerable time over a year in your business. One way to overcome this issue is by integrating TIPT with Microsoft® Communicator, a desktop program designed to share desktops, instant messages and – by integrating with Outlook calendars and the phone system – provide the “Presence” status of team members regardless of where they are. We use this product every day at Telstra. When I open an email, a coloured dot next to each recipient’s name tells me if they are busy or have a gap in their calendar. If I click on their name, I can see contact numbers and whether they’re currently on the phone – and then click on their name to call them, or send an instant message which is great for quick conversations “in the moment” as opposed to the “read later” of email. So what does this mean for the bottom line? In 2010, global IT consultancy firm IDC calculated the productivity benefits for Presence tools in large organisations. They found that the instant message feature alone saved users an average of 1.7 hours per month, because it meant staff weren’t waiting for email and telephone responses on urgent issues. This accelerated file sharing and document collaboration, and generated faster responses on approvals and customer queries (and happily, all IM sessions are saved into Outlook so there is a full record). There are significant benefits to client relationships too. In 2012, CXINLAW published a whitepaper highlighting the importance of having a great customer experience in law firms, from the very first time your customer calls. Through the use of secret shopper style reviews of UK law firms and legal services organisations, 1
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
“CLOUD COLLABORATION – POWERED BY RELIABLE, HIGH CAPACITY NETWORKS WITH GREAT BREADTH AND DEPTH OF COVERAGE – IS HOW THE LEGAL PROFESSION CAN PROVIDE HIGHER VALUE SERVICES, BOTH NOW AND IN THE FUTURE.” CXINLAW found 33 percent of calls were dropped before they reached the legal advisor, and a huge 44 percent did not reach the relevant person. Providing your clients with simpler ways to connect with you makes good business sense when adopting a Customer First strategy. Mobile integration through apps allows you to have one number for your clients to reach you with voice and video calling via their smartphone or tablet, which goes straight to you whether you’re down the hall or working from home. And now, TIPT also comes with an app that allows you to program all of that from your own mobile device, so you’ve literally got your TIPT phone in the palm of your hand wherever your day may take you. Cloud Collaboration – powered by reliable, high capacity networks with great breadth and depth of coverage – is how the legal profession can provide higher value services, both now and in the future. It’s a great example of how technology can be a lever to influence everything from the client experience and internal profitability to creating the best working environment possible for your people, and help build client-intimate productivity in any economy. Will Irving was appointed Group Managing Director of Telstra Business in August 2011. Prior to this, Will was Telstra’s Group General Counsel from January 2005. In that role Will was responsible for advising Telstra’s Board, CEO and senior management and played a wide-ranging role across the company, including a key role in Telstra’s $11B deal with NBN Co. Will joined Telstra in 1997 and progressively headed legal services in a number of business units. From 2001-2005 he was Deputy Group General Counsel. Prior to being employed by Telstra, Will worked at a large national law firm. In 2006 he was named Australian Corporate Lawyer of the Year. The Communications Law Committee of the International Bar Association gave him its Outstanding Achievement Award in 2008. More recently, the Telstra legal team under Will’s leadership was the ALB Australian Law Awards’ In-House Team of the Year for 2010. Will holds degrees in Law (Hons) and in Commerce (Economics and Accounting majors) from the University of Melbourne.
The Towards A Clever Australia Report is available to download at telstra.com/cleverausreport
Carter Newell Lawyers…
back to back… LAW FIRM of the YEAR
Brisbane Law Firm of the Year 2013, 2012 & 2008 FINALIST 2011, 2010, 2009 & 2007
Insurance constructIon & engIneerIng resources corporate commercIal property lItIgatIon & DIspute resolutIon avIatIon cn/194-alB
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THE RISKS OF
REWARD INSURANCE COMPANIES MAY BE WEATHERING NATURAL CATASTROPHES, BUT THEY FACE A STORM OF MACRO-ECONOMIC RISKS THAT COULD IMPACT THEIR PROFITABILITY IN THE YEARS AHEAD. BEN ABBOTT REPORTS.
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Andrew Miers
Ken Horsley
David Kearney
Patrick Monahan
Rhett Slocombe
n the 21st of January this year, what had begun as an ineffectual, meandering low-pressure system in the Gulf of Carpentaria strengthened, thanks to moist air and warm waters, into what is now well known as ex-Tropical Cyclone Oswald. During the course of the next week, the cyclone made landfall on the Cape York Peninsula, and then paved a slow destructive path down the coast of Queensland, causing severe storms and flooding in both Queensland and northern NSW. It is telling that, although the total damage incurred is estimated at just under $1 billion by the Insurance Council of Australia (ICA), the 2012/13 financial year is considered among the more ‘benign’ recent claims seasons for insurers. Following previous seasons that have included Queensland’s devastating floods in 2011, Cyclone Yasi, Victoria’s Black Saturday bushfires and the Christchurch earthquake just across the Tasman, 2012/13 was a respite of sorts. “The cost of natural peril events this financial year, compared with the previous financial year, were down by about 50 percent,” says Colin Biggers & Paisley partner and insurance group head Patrick Monahan. Insurers did need to make bottom line adjustments. For example, Cyclone Oswald cost QBE $72 million over the reporting period, while the disaster contributed to the poorer than expected result announced by Suncorp in August. However, insurers have benefitted significantly from premium increases introduced to the market following previous disasters. IAG for one was able to triple its annual profit thanks to higher premiums and less disaster claims. “Many insurance companies have made ground in personal lines such as property and home and contents, where natural peril events have given them the ability to charge higher premiums,” HWL Ebsworth partner Andrew Miers says. This includes the offer of flood cover now almost across the board, which the ICA has assisted via the creation of a common policy definition for flood. Indeed, it has not been the impending doom of natural disasters that has presented the greatest recent challenge, though the disasters have resulted in a period of significantly higher reinsurance costs for insurers. Instead, it is a metaphorical tsunami of market pressures putting pressure on the ability of local and global insurers to maintain profitability. “Generally insurers haven’t been impacted significantly by the record weather events in recent times; the industry is being driven more by the global economic environment,” says Wotton + Kearney chief executive partner David Kearney. In consulting firm PricewaterhouseCoopers’ insurance industry ‘Banana Skins’ report 2013, which ranked the risks facing insurers this year, natural disasters had slipped back to 11th, from a prominent 5th position the previous year. Weighing heavily on insurers instead were regulation and political interference (ranked 1st and 2nd respectively), though these headline concerns may have been mitigated following a change to a more ‘stable’ Coalition government. The next group of risks still remain. These include investment
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“GENERALLY INSURERS HAVEN’T BEEN IMPACTED SIGNIFICANTLY BY THE RECORD WEATHER EVENTS IN RECENT TIMES; THE INDUSTRY IS BEING DRIVEN MORE BY THE GLOBAL ECONOMIC ENVIRONMENT.” - DAVID KEARNEY, WOTTON + KEARNEY
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performance, ranked 4th, and the macro-economic environment, which insurers ranked 5th. A low interest rate environment has been conspiring to make life difficult for insurers. Relying heavily on fixed income investments, insurers have seen their profit margins squeezed by lower bond yields as interest rates have dropped. “A lot of insurance companies might be making good underwriting profits but they are suffering in terms of investment incomes, which is often equally if not more important than their underwriting income,” Miers says. To meet this problem, insurers need to continue to raise their premiums, but have found this difficult in areas other than the aforementioned personal lines, such as third party liability and professional indemnity insurance. “The market is very soft, and underwriters are concerned at their inability to put premiums up such that they may not be able to keep track with inflation,” Miers says. This is being amplified by an abundance of investment capital available to the insurance industry worldwide. As a flood of money from a diversity of sources including pension funds looks to the industry for stable returns, reinsurance costs are finally decreasing, but competition is also dramatically increasing. “The abundance of capital worldwide is bringing about downward pressure on pricing, creating a challenge in
“LARGE INSURERS ARE REVIEWING THEIR OPERATIONS AND STRUCTURE AND WHERE AT ALL POSSIBLE ARE SENDING A LOT OF THE BACK ROOM OPERATIONS OFFSHORE.” - RHETT SLOCOMBE, SPARKE HELMORE
...continued on page 44
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... WITH PITA WILLIAMS, GENERAL COUNSEL, QBE INSURANCE ARE LEGAL TEAMS IN THE INSURANCE SECTOR HAVING TO DO ‘MORE WITH LESS’? I think this is the case in every industry sector. In-house teams around the world all seem to be subject to the same downward pressure on legal budgets and an increasing requirement to demonstrate value. The real challenge is not necessarily to do more but to concentrate on the work which gives the “biggest bang for buck”. GCs need to look at the nature of the work and separate out those activities which, while they may be nice to have, don’t necessarily add a lot of value, from those that directly support the overall strategic goals of the business. The ultimate success of a legal team is how intrinsic it is to the way business is done and this flows from how well it collaborates with the business. Most in-house lawyers now must also not only have strong technical skills, but have equally strong business and relationship skills to help drive business outcomes. The challenge for new inhouse lawyers is learning that the best legal answer is not always the best commercial outcome for the business. WHAT IS ONE KEY CHALLENGE YOU ARE GRAPPLING WITH AS A GENERAL COUNSEL AT PRESENT? Managing change. The increasing complexity of business means that change is constant and has become the new normal. The challenge for any GC is shifting the mind-set of lawyers so that they embrace change. Understanding how lawyers think is the key to managing change in a legal department. Simply telling lawyers that they have to do something doesn’t work very well. Lawyers are trained to react and to challenge, and are usually logical, risk averse and comfortable with projects that have clear deliverables. This means that it is harder to sell long-term change where deliverables and outcomes are hard to measure. In order to successfully manage change in a legal team, you have to convince the lawyers that change is necessary, that they can own the change and that the outcomes will be better for them. It’s a bit like herding cats. IS THERE ANYTHING UNIQUE ABOUT THE WAY THE LEGAL TEAM PRACTICES AT QBE? QBE is a global organisation. This means that we have the opportunity to work collaboratively with QBE legal teams around the world. While the legal requirements for each country might be jurisdictional, we have the opportunity to share experiences, ideas and processes to make the legal function as a whole more effective and efficient. The great thing about the QBE legal team is how well it is regarded in the business, which is not always the case in some companies, where it’s often regarded as a road block or necessary evil. In my view the team is well regarded because we have specifically set out to build relationships in the business units, to become involved with day-to-day operations and to offer a range of practical solutions to issues based on our knowledge of the business but also of the industry as a whole. The team is accessible and regards itself as part of the business rather than separate from it.
IS COMPLIANCE IMPACTING THE LEGAL TEAM’S ROLE IN A BIG WAY? The financial services industry as a whole has experienced significant change in the law, regulatory and compliance requirements over the last 10 years, and the pace of change shows no sign of slowing. Major changes in legislation mean that processes across the business must be reviewed and amended so that they meet the new requirements. In an organisation the size of QBE this can be a huge task and the legal team is always heavily involved. As QBE is a global entity, changes in laws overseas can impact the whole organisation, so legal teams around the world work together to build training and processes which can suit the organisation as a whole. HAS THE EMERGING ISSUE OF CLIMATE CHANGE OR ENVIRONMENTAL CATASTROPHE RISK IMPACTED THE LEGAL FUNCTION AT QBE? To date this issue hasn’t had an impact on the legal function. HOW IS YOUR RELATIONSHIP WITH PRIVATE PRACTICE FIRMS EVOLVING? There is no doubt that the relationship between in-house counsel and external firms has shifted significantly in recent years. In-house counsel are now very clearly in the driving seat and this is how it should be, given that in-house counsel are much more knowledgeable about the business and how it works than an external firm could ever be. We are very likely to use specialist lawyers when we instruct work out. The vast majority of commercial work is handled in-house and we use external lawyers for specialist work where particular expertise is needed or for some high risk matters. When we use an external lawyer we are very specific about the scope of the advice we want. We tend to use the best specialist for a particular job rather than limit ourselves to particular firms. As the team contains some very experienced senior lawyers, we work closely with our external advisers and will challenge and question advice if it does not cover the issues we have identified.
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THE TOP THREE AREAS TO WATCH AMID THE GROWTH OF SPECIALIST INSURANCE PRACTICES IN AUSTRALIA, THERE ARE A NUMBER OF AREAS LAWYERS ARE WATCHING AS POTENTIAL AREAS OF GROWTH FOR THE FUTURE. THE INSURANCE CONTRACTS ACT (ICA) Lawyers agree the Insurance Contracts Amendments Bill passed in 2013 is primarily designed to ‘tidy up’ elements of law that needed reform. “For the most part it does not have a significant impact on the respective rights of insurers and insureds,” says Wotton + Kearney’s David Kearney. However, while lawyers warn against exaggeration, they do say the Act imposes a slightly greater emphasis on consumer protections, requiring caution and due diligence for insurers when writing risk and making disclosures. For instance, Andrew Miers points to the duty of utmost good faith that exists for insurers now under the law, rather than just as part of the contract. “These are pretty significant changes and I think there is a risk there and the industry needs to ensure it has all it’s ducks in a row,” Minters’ Ken Horsley says. CYBER RISK INSURANCE Cyber risk is a hot button issue because of the exponential explosion of data being held by an increasing number of entities, exposing them to risk. “The potential exposure for Australian businesses from cyber risk is enormous and the ability for the insurance industry to respond is an emerging issue that will be important over the next few years,” says Horsley. As a result of inadvertent data breaches – for example, a data migration gone wrong – safekeepers of data could be exposed to third party claims, from parties whose private data has been accidentally divulged. They could also seek to mitigate first party risks of their own, such as business interruption and reputation cost following a cyber hacking event.
“Lots of companies are doing online business and are involved in the storage of third party private details. There is a real risk of third party exposure flowing from something going wrong internally with a system,” says Kearney. D&O INSURANCE Colin Biggers & Paisley, which is representing a key individual involved in the current landmark Great Southern investor class action, has noted a rise in the number and severity of claims against D&O insurance policies. “D&O liabilities in the year of 2012/13 was among the three worse performing classes of business for insurers,” says partner Patrick Monahan. Current economic conditions and resultant insolvencies are seeing directors stand out as a target for recouping funds due to their D&O insurance policies. “When insurers are hit, they are hit badly. It’s not unusual for one claim to be over $100 million. When the policy covers defence costs as well, well defence costs in the tens of millions of dollars are not uncommon,” says Monahan. Management liability insurance, a form of insurance that packages D&O and other management liabilities for SME clients, is also on the rise.
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...from page 41
maintaining profitability,” Monahan says. “Unless you grow the international cake, you have too much money chasing too little business,” he says. “This can lead to insurers writing business on terms that are too generous, leading to potentially disastrous results.” Increased competition is pitting local insurers against the rest of the world. In a global market, even local insurance broking groups are able to access overseas markets such as the Lloyd’s market to offer products to customers. Monahan gives the example of local broking groups such as Steadfast Brokers and Austbrokers, who are able to access competitive pricing in overseas markets through large buying groups, bypassing the offerings of local insurers. It’s all part of a broader pattern. “In the current market there is considerable competition for premium dollars,” said Carter Newell senior partner Paul Hopkins. “The American insurers continue to increase their business and the Lloyds market is more active in Singapore which is an indication that the Asia Pacific market including Australia is favourable.” New technology is only accentuating competitive trends. The advent of online brokers such as iSelect, which offer a broad selection of products through an online portal, are driving a commoditised focus on price rather than brand. In such a market, insurance companies are seeking to simultaneously cut costs and grow their market. Both goals are being met by looking overseas. “Large insurers are reviewing their operations and structure and where at all possible are sending a lot of the back room operations offshore,” says Sparke Helmore partner Rhett Slocombe. Focused in offshoring centres such as the Philippines and India, insurers are outsourcing call centres, large volume claims handling and payment processing. The insurance industry globally is also looking at the as yet unexploited prize that is China and Asia. The new centre of economic gravity, these cultures are so far unaccustomed to the idea of risk transfer so accepted in the West. “In emerging economies – and China is the glaring example of this – the insurance industry is only in its infancy,” says Monahan. “For example, less than one percent of the damage caused by the earthquake in China in April was insured.” The lure of this untapped market has already drawn Australian insurers abroad. IAG, for example, is striving to generate 10 percent of premium revenue from Asia by 2016. As insurers navigate these challenges, they will also be watching the state of the global economy. Minter Ellison partner Ken Horsley says insurers are still caught up in the prevailing uncertainty about the economic outlook following the GFC. “There is a whole lot of uncertainty around the potential for a significant downturn globally and domestically and what the allpervasive knock-on effect of that would be. There is still a tangible risk,” Horsley says. And despite their resilience through the natural disasters of recent times, the question remains over how the potentially increasing frequency of natural peril events will impact the insurance industry over the long term. “During the last five years there have been some major losses domestically and internationally. Whether that is a blip or whether
“THE ABUNDANCE OF CAPITAL WORLDWIDE IS BRINGING ABOUT DOWNWARD PRESSURE ON PRICING, CREATING A CHALLENGE IN MAINTAINING PROFITABILITY.” - PATRICK MONAHAN, COLIN BIGGERS & PAISLEY that is something that is going to be here as a permanent feature or get worse, it is hard to say,” says Horsley. Insurance lawyers on the whole remain confident that the industry is well prepared for any natural perils, with historically strong capitalisation buoyed by strong regulation, typified by Australia’s recent LAGIC reforms. “The natural disasters of a couple of years ago proved how robust the industry was, in terms of its ability cope with those events, and not just the financial and prudential requirements, but their ability to adapt quickly to large volumes of claims in a short period of time,” says Sparke Helmore’s Slocombe. “While there was some criticism in some political circles about how they reacted, by and large that has been misdirected. I think they did a fantastic job, and next time something like that happens their ability to react will be even better.”
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“Flood exclusion clauses: Down the drain?” BY PAUL SPEZZA, RAISA CONCHIN & TROY GREIG – WOTTON + KEARNEY
Paul Spezza, Partner
Raisa Conchin, Special Counsel
INTRODUCTION The insurance industry continues to experience the aftershocks of the flood event which devastated Brisbane in December 2010 and January 2011. An estimated 18,000 properties were reportedly inundated in metropolitan Brisbane, Ipswich and elsewhere in the Brisbane River Valley.1 Wotton + Kearney examines a recent decision of the Supreme Court of Queensland concerning the operation of a flood exclusion in a standard industrial special risks (ISR) policy. LMT SURGICAL V ALLIANZ2 LMT Surgical Pty Ltd (the Insured) commenced proceedings against its insurer, Allianz Australia Insurance Limited (Allianz), to recover for physical damage to its business premises in Milton, Brisbane. The premises had been damaged by flood on 11 January 2011. The policy was in the nature of a standard ISR policy. Allianz declined the claim on the basis of the flood exclusion, which was in the following terms: “The insurer shall not be liable... in respect of... physical loss, destruction or damage occasioned by or happening through: (a) flood, which shall mean the inundation of normally dry land by water overflowing from the normal confines of any natural watercourse or lake (whether or not altered or modified), reservoir, canal or dam [our emphasis].” There was no dispute that the premises had been damaged, and that the damage had been caused by the inundation by water of normally dry land. The parties agreed that the inundation had occurred as a result of water backing up through 2 local storm water drainage pipes (the pipes). The water in the pipes was a combination of local run-off and a backflow of water from the Brisbane River. As the flood event worsened, the proportion of river water increased.
“GIVEN THE IMPENDING SEASON OF SEVERE WEATHER EVENTS, INSUREDS MAY WISH TO EXAMINE THE WORDING OF ANY FIRST-PARTY POLICIES AGAINST THEIR INDIVIDUAL RISK OF FLOOD.” The key issues for determination were: 1. whether the pipes constituted a watercourse which had been altered or modified, or a canal; and 2. taking the Brisbane River as the relevant watercourse, whether the inundation had been caused by water overflowing from its normal confines. Justice Jackson heard that, over the years since 1886, the pipes had replaced a natural watercourse. He accepted that the pipes served the drainage function previously served by the watercourse, but did not agree that they constituted a natural watercourse (whether modified or altered). His Honour rejected the proposition that the pipes qualified as a canal, concluding that the word “canal” would not ordinarily refer to an underground storm water drainage pipe. Finally, Justice Jackson considered whether the river water which had backed up the pipes could be treated as water overflowing from the normal confines of the river. His Honour concluded that the pipes were not part of the river’s normal confines. Accordingly, the Court held that the exclusion was not engaged and declared Allianz liable to indemnify the Insured. The decision may be of interest to parties locked in indemnity disputes arising from the floods which affected Brisbane and South East Queensland in December 2010 and January 2011. However, Justice Jackson emphasised that his interpretation of the relevant exclusion was undertaken with reference to the particular facts of the case. His Honour declined to make specific reference to other decisions which considered similar clauses in ISR policies. Given the impending season of severe weather events, insureds may wish to examine the wording of any first-party policies against their individual risk of flood, particularly with reference to the nature of any flooding to which they are exposed. The decision also provides a timely reminder for insurers about the difficulties encountered when attempting to impose limitations on the availability of cover in insurance policies. Authors Paul Spezza, Partner, and Raisa Conchin, Special Counsel, head up the team at Wotton + Kearney’s Brisbane office, which opened on 1 July 2013.
FOOTNOTES: 1 van den Honert RC, McAneney J. The 2011 Brisbane Floods: Causes, Impacts and Implications. Water, 2011; 3(4):1149-1173 2 LMW Surgical Pty Ltd v Allianz Australia Insurance Ltd [2013] QSC 181
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ENERGY & RESOURCES
SHALE:
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THE NEXT AUSTRALIAN RESOURCE BOOM?
WILL AUSTRALIA FOLLOW IN THE FOOTSTEPS OF THE UNITED STATES AND BECOME THE WORLD’S SECOND SHALE GAS GIANT?
C
hina may boast the world’s largest potential reserves of shale gas, but Australia looms as a serious contender in the race to be second behind the United States in bringing significant production on line. Given the hype surrounding shale gas, some of the more optimistic estimates of Australian shale gas reserves may need to be taken with a grain of salt. However, lawyers are quietly confident about the potential of this resource.“I think within 10 to 15 years we’ll have a very significant and productive shale gas industry,” says HopgoodGanim partner Martin Klapper. “I was working in coal seam gas when CSG first came about and all the nay sayers said what they’re saying about shale gas now: it won’t work, it’s too hard, the technology’s not there. It will happen because the gas is there. We don’t know exactly how much, significant capital is being directed towards developing those resources. It has the potential to be bigger than coal seam gas.” RACE FOR SECOND While it’s clear that the United States has gained, and will continue to enjoy, firstmover advantage, it’s also likely that the next shale gas producer stands to reap substantial benefits. For China, boosting domestic natural gas output would reduce dependency on expensive imports in the form of liquefied natural gas or pipelines from Russia and central Asia. For Australia, developing significant shale output could underpin a new round of LNG projects, either at existing plants or greenfield sites, that would give the nation
an unassailable global lead in the market for the super-chilled fuel. There is already some limited shale gas production in Australia; some of the players in this area include Beach Energy, Drillsearch Energy and Armour Energy. Chevron bought into two shale gas exploration projects in the Cooper Basin earlier this year. Santos has started shale output on a commercial scale and plans to feed the gas into an LNG plant it is building in partnership with Malaysia’s state-owned Petronas. But the shale gas plans for Australia - and China, for that matter are in their infancy and face significant challenges that have largely been overcome already in the United States. If shale gas were a marathon, the United States is already at the half-way mark, running at a comfortable pace. Australia is a few hundred metres into the race and China has barely crossed the starting line. The good news is that other potential runners are nowhere in the picture. Argentina and Mexico, which have the second - and sixth - highest potential reserves, are still in the changing rooms, as is eighth-ranked South Africa.
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is not the issue; the question is whether the characteristics are such that you’ll be able to get gas in the quantities and at the rates that you predict. And that’s what your customers are going to look at and that is what will drive development.”
Source: CSIRO, Geoscience Australia
Martin Klapper, Partner, HopgoodGanim
In those three countries, political and investment risks mean they are unlikely to start developing shale any time soon, if their governments wanted to. Other countries, such as Britain, have yet to decide if they can run the race, while France has declined to enter and Poland looks like it has pulled up lame. Australia has several advantages over China when it comes to developing shale gas reserves, despite its potential resource, estimated at about 437 trillion cubic feet by the Energy Information Administration, being about 40 percent of China’s 1,115 trillion cubic feet. Chief among them is that much of the shale reserves are located in remote basins, away from population centres. This means the potential opposition from farmers and environmentalists is reduced and shale drilling is less disruptive to other segments of the economy. Even though the reserves are in remote areas, there is existing infrastructure available as some of these areas, such as the central Australian Cooper Basin, have long histories of conventional gas and oil production. This gives shale gas output the ability to flow from the centre of the country to the east coast, where it could be fed into existing, or expanded, LNG plants. Other reserves, such as those in north Queensland and NT may not have the same ease of access. However, experts do not see such an obstacle as insurmountable. “For a significant source of gas putting in a pipeline – if gas is there and you’ve proven that – I can’t see it as being a real obstacle,” said Klapper. Klapper says the main questions to be resolved relate to the extraction process, and not the size of the reserves. “There seems to be some doubt about how the shales will behave when they start producing at high volumes,” he says. “That the gas is there
EASY INVESTMENT DESTINATION? Australia’s other significant advantage over China is that it is an easy place for global majors to invest and do business. However, there is no doubt that red and green tape, higher labour costs and taxes are taking their toll. “The time it takes to get a project from exploration to successful development in this country is absurd… there are good reasons for proper approvals processes, but you query whether three to six years to get a medium size coal project to production is realistic,” says Klapper. However, Australia also offers legal certainty for long-term investments and a tradition of foreign investment in the petroleum sector. This can be seen by the increasing involvement of oil majors in Australian shale plays, such as Chevron’s $349 million investment in February to buy into acreage. Others that have farmed into Australian shale include ConocoPhillips, France’s Total Japan’s Mitsubishi Corp and India’s Bharat Petroleum. Australia’s richest person, iron ore magnate Gina Rinehart, has also entered the business, buying into Lakes Oil early this year. In contrast, China seems to have been reluctant to allow foreign companies to make significant inroads in its shale reserves, although this may be changing. State-owned giants PetroChina and Sinopec have made some efforts to drill shale wells, but high costs appear to have tempered their enthusiasm. This prompted China to award exploration licences to 16 companies in late 2012 – problem was that none of them had ever drilled a shale well before. So far, only a handful of wells have been drilled and fractured in China’s most promising basin, Sichuan/Chongqing, and none have yet resulted in commercial output. Foreign firms are becoming more involved in China, with Hess Corp entering an agreement to develop a block with PetroChina in July. Hess joins Royal Dutch Shell, Total, ConocoPhillips, Exxon Mobil, BP and Chevron in trying to get China projects underway. But the need for joint ventures has slowed progress and most of the majors have yet to
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SPECIAL FOCUS: FUELS FOR THE FUTURE “CHINA’S DIFFICULTIES PLACE AUSTRALIA IN PRIME SPOT TO GET SECOND-MOVER ADVANTAGE, BUT THIS DOESN’T MEAN A SHALE GAS REVOLUTION ON THE SCALE OF THE UNITED STATES IS LIKELY.”
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
start serious exploration programmes. China’s target of 6.5 billion cubic metres of shale production by 2015 looks optimistic, and even if achieved, this would be less than three percent of what U.S. shale gas output was in 2011. China also faces pressure from competing land use, lack of water and a lack of infrastructure to take gas to major population centres. The initial wells drilled also suggest that the geology may be more challenging in China than in many of the U.S. basins, which will add to costs and have a negative impact on economic viability. China’s difficulties place Australia in prime spot to get secondmover advantage, but this doesn’t mean a shale gas revolution on the scale of the United States is likely. Far more likely is that development will be slower and linked to capacity to liquefy and export the gas. Also likely is that the junior firms active in the shale plays will chase higher value liquids first and gas second, as is happening in the United States. But even going for liquids will provide benefits to Australia as industry knowledge of local shale conditions increases and infrastructure and investment boosts development. Analysis by Clyde Russell of Reuters, additional reporting by Renu Prasad of ALB.
TIGHT OIL: BEYOND NORTH AMERICA TIGHT OIL IS NOT JUST A NORTH AMERICAN PLAY, WRITES ANDREW CALLUS
C
ommercially recoverable reserves of tight oil in the rest of the world could be double or more those of North America and the geology of the 23 best opportunities is better in some cases, according to a new study. The study by the analytics firm IHS nevertheless warned that development is likely to be slower than has been witnessed in the United States, held back by aboveground reasons including government policy and regulation, lack of access to specialised kit and skilled labour, and landaccess constraints. Other studies making similar forecasts have also highlighted such barriers and the potential for higher costs. According to the Financial Times, the IHS study puts the cost of the average well
outside North America at $8 million compared with $5.6 million inside North America, ranging from $6.5 million in Australia to more than $13 million in parts of the Arabian Peninsula. The study, outlined in a news release by IHS, maps the potential for “tight” or unconventional oil without the benefit of well data and so has estimated only what are known as “technically recoverable” reserves outside North America. Tight or unconventional oil requires the same hydraulic fracturing and horizontal drilling techniques as shale gas. Like shale gas, it has become a boom U.S. industry, transforming the economy through cheaper energy and reduced reliance on imports, leading other countries to look at developing similar reserves. The study found that more than half the global technically recoverable reserves outside North America were concentrated in just 23 of 148 potential development areas it analysed. It put the total at 300 billion barrels, with 175 billion in the top 23 areas – known as “plays” in the oil and gas industry. Commercially recoverable resources in North America have been estimated at 43 billion barrels.
AUSTRALASIAN LEGAL BUSINESS ISSUE 11.10
SPECIAL FOCUS: FUELS FOR THE FUTURE Jan Roelofsen, IHS research director and adviser for unconventionals, called the potential “very, very large”. “The final measure of technical or commercially recoverable resources cannot be truly known until the actual well data is available,” he said. “But this study’s unique, data-based assessment shows that the potential of just the highest-ranking plays is likely double the size of North America’s resources, and that is a conservative estimate.” IHS said each play was analysed on key geological and geochemical characteristics. “...The range of geological characteristics and risks of the 23 highest-ranking global tight oil plays compare favourably, or even better in some cases, than those of leading North American plays,” said Steve Trammel, also an IHS research director and adviser and the project leader for the study. The 23 highest-ranking tight oil plays identified by the study include well-documented areas such as the Vaca Muerta formation in Argentina, the Silurian “hot” shales in North Africa and the Bazhenov Shale in west Siberia. However, the list also includes lesser-known geological plays in Europe, the Middle East, Asia and Australia. Reporting by Andrew Callus of Reuters; editing by Dale Hudson
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