ALB 10.7

issUe 10.7

AUgUst 2012

www.legalbusinessonline.com

AUSTRALASIANLEGALBUSINESS

Workplace relations: THe HOTTeST prACTiCe AreA OF 2012?

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Freehills’ merger of equals takes to the sky

10IN-HOUSE

STArS OF THe in-HOuSe prOFeSSiOn

SUPPorTED BY

ALB_1007.indb 1 19/07/2012 3:53:13 PM

www.bplr.com.au Paul Burgess 0414 687 629 Doron Paluch 0438 004 445 Paul Garth 0434 113 355 Jackie Gillies 0422 288 685 [email protected]

BPL2436

Sydney

Corporate 3-4 PAE Join this Legal 500 recommended fi rm in its well respected corporate team. Work with a talented partner & deal with complex transactions, including M&A, joint ventures and private equity matters. Young, vibrant team.

Banking & Finance Senior AssociateDeal with leading lenders, underwriters and owner/developers on a wide variety of domestic and cross-border projects. Working with impressive peers, enjoy a generous package and good career opportunities.

Insolvency Senior AssociateJoin this premier fi rm, recommended in Legal 500, in a specialist role with a focus on high-end restructuring, insolvency & commercial disputes. Work alongside young, energetic partners renowned for attracting complex & high profi le matters.

Brisbane

Commercial Litigation 2-4 PAEOur client is a national fi rm seeking a mid-level commercial litigator with experience in complex and large scale disputes. A key role within a group that has scope for movement, this is a strong career move.

Employment 2-5 PAEAssociate level lawyer to work with well regarded partner advising major corporate clients. A solid ER/IR background will see you working on signifi cant matters at this highly regarded fi rm. Package highly negotiable.

Energy & Resources 3-5 PAEOur client is regarded as a premier employer and seeks out the brightest and the best, offering top rates and premium work in return. Though an E&R background is highly desired, a general corporate background will be considered.

Adelaide

Tax & Commercial 2-6 PAEJoin this leading tax practice in Adelaide and benefi t from its strong reputation, agile minded lawyers and blue-chip client base. Seeking to expand their team, the fi rm is interested in strong lawyers who enjoy a mix of tax & commercial fi les.

Melbourne

Property 3-5 PAE2nd tier fi rm with a strong property practice, sensible partners and a great team environment, seeks a talented property lawyer looking to drive their career forward. A mix of matters, including more than just leasing!

Insurance 3-6 PAEHighly rated specialist insurance fi rm seeks a career minded insurance lawyer for a broad defendant role. Focus on a variety of areas, including D&O, professional indemnity, general insurance & injuries.

Perth

In-house Corp/Comm 4+ PAE12 month contract - potential for future permanent role. Diverse role for a commercially minded lawyer with 4+ PAE at a premier company. Substantial legal/advice work and some management responsibilities, negotiation and work on complex matters and agreements.

Environment/Planning 3-6 PAELeading, high profi le fi rm with a reputation for forward thinking and dynamic practice management - particularly in its environment and planning group, seeks a lawyer with 3-6 years experience in environment and planning.

IP/Telecomms 3-6 PAEThis role represents an opportunity for a 3-6 PAE lawyer to further their commercial career off the back of the fi nest deals in the telecommunications, media and technology, and energy/resources industries. Cutting edge work.

Put yourself in the action... Our clients are busy and looking to attract quality lawyers.

ALB_1007.indb 1 19/07/2012 3:53:13 PM

1CONTENTS

Workplace relationsanalysis: Firms vie for workplace relations supremacy

Feature: Fair go for the Fair Work Act?

Opinion: Are we encouraging vexatious litigation?

FEATURES

COVER STORY

Herbert smitH FreeHillsFreehills has foreshadowed full financial integration with Herbert Smith – but is there a devil in the detail? 10

18

40

46

banking & FinanceWill hedge funds rule the world?Getting ready for FACTA

agribusinessFeature: The next boom practice area?

update: Opportunities in carbon farming

2024

54

60

NEWS

Deals

sponsoreD upDate Buddle Findlay

league tables

acla perspectiVe

appointments

proFiles in-house perspective Murray Hundleby,

Peabody Energy Australia

06

09

10

37

38

50

“THe diFFerenCe BeTWeen THe BeHAviOur And perFOrMAnCe THAT inTeGrATiOn GenerATed WAS SO FundAMenTAl We FelT THAT FinAnCiAl inTeGrATiOn WAS One OF THe THinGS We needed FrOM dAy One WiTH HerBerT SMiTH FreeHillS.”

Mark Crean, Freehills

australasian legal businessiSSue 10.7

10IN-HOUSE

28

ALB_1007.indb 1 19/07/2012 3:53:27 PM


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ALB_1007.indb 2 19/07/2012 3:53:31 PM

S Y D N E Y

M E L B O U R N E

P E RT H

S Y D N E Y

M E L B O U R N E

P E RT H

ALB_1007.indb 3 19/07/2012 3:53:32 PM

4 EDITORIAL

We interrupt this month’s editorial to bring you breaking news from the Legal Beat-up, the leading source of online misinformation for the legal profession.

The Legal Beat-up can reveal exclusively that prestigious but little known top tier firm Minter Utz Dawson has been rocked by another amicable departure. Two partners, Dee Equitizeme and Noah Lockstep will be making the switch to international firm Overy Piper. In a statement, Minter Utz Dawson said that there was “no acrimony” in the departure and urged the media to not engage in “irresponsible or exaggerated reporting” of the incident.

This departure is the most calamitous event in human history. The Legal Beat-up has learned from an anonymous source that one of the departing lawyers, Mr Lockstep, is alleged to have given the managing partner of Minter Utz a “backhander” before departing. While the source said that this apparently took place on a tennis court, we can infer that this is a sign of more widespread tensions within the firm (see separate report: Massive brawl at Minter Utz, Legal Beat-up, 5/07).

This incident also raises more serious questions about the long term future of Minter Utz and there is speculation that there soon could be a massive exodus of partners from the firm. According to statistics obtained by the Beat-up, the firm had 200 partners last year, a number which has now dwindled down to 197. If this appalling rate of attrition continues, the firm will be left with no partners at all by the year 2078. This is clearly a firm in crisis and the Beat-up will be following this story very closely to keep the public informed on this disturbing development.

Morale is also dropping at the junior levels. The Beat-up has learned that at least one Minter Utz associate is “unsatisfied” with their remuneration, a shocking and unprecedented revelation in this industry. The quality of fruit in the firm’s communal kitchen is also understood to be unsatisfactory. The Beat-up calls upon all firms to improve the standard of fruit and we will be adopting this issue as our official campaign for 2012. Making a difference on issues like this makes our job worthwhile.

renu prasaD australasia editor, Australasian Legal Business,thomson reuters

neWsFlasH


ALB_1007.indb 4 19/07/2012 3:53:33 PM

ALB_1007.indb 5 19/07/2012 3:53:36 PM

DEALS australasian legal businessiSSue 10.76

Allens

News Limited’s proposed acquisition of Consolidated Media Holdings

A$1.97 billion News Limited Kylie Brown, Stuart McCulloch, Jacqueline Downes

M5 West Widening project A$1.97 billion interlink roads nigel papi + 3 others

Zijin Mining Group Co’s bid for norton Gold Fields limited

A$212 million Zijin Mining Group Co

Campbell davidson

Connecteast Group’s refinancing of debt facilities

A$1.2 billion lead arrangers richard Gordon, Tim Stewart

GPT Wholesale Shopping Centre Fund’s acquisition of GPT Group’s stake in two shopping centres

A$551.2 million

GPT Group Nicholas Cowie, Victoria Holthouse

Billabong’s accelerated non-renounceable entitlement offer

A$225 million Billabong vijay Cugati, Stuart McCulloch

Osaka Gas, Toho Gas and Tokyo Gas stake in inpeX’s lnG ichthys project

undisclosed inpeX igorBogdanich, Tim lester

employees provident Fund (epF) joint venture with Goodman industrial Funds Management

A$500 million employees provident Fund (Malaysia)

Michael ryland + 3 others

Ashurst news limited’s proposed acquisition of Consolidated Media Holdings

A$1.97 billion Consolidated Media Holdings

Garry Besson, Carl della-Bosca

St Barbara’s acquisition of Allied Gold Mining

A$556 million

St Barbara Marie McDonald

Baker & McKenzie


A$500 million

Goodman Group

david Jones, rodney Stone

Consortium’s stake in Challenger lBC Terminal Jersey (lBC) from Challenger infrastructure Fund

uS$277.8 million

Consortium Hugh Stewart Kenneth Gray

Clayton Utz

Wah nam international Holdings bid for Brockman resources

A$456 million Wah nam international Holdings

Mark paganin

Echo Entertainment Group entitlement offer

A$454 million

Macquarie Capital and UBS (joint underwriters)

Stuart Byrne, Alex Schlosser

YoUr MoNTH AT A GLANCE

Firm Deal Value Client Lead lawyer

A$1.97 billionMediANEWS LiMiTED’S ProPoSED ACqUiSiTioN oF CoNSoLiDATED MEDiA HoLDiNGS

• Allens advised news limited on its acquisition of Kidspot last year. The firm has represented news limited in various matters, including its acquisition of the Federal publishing Company Community Media Group

A$551.2 millionprOperTyGPT WHoLESALE SHoPPiNG CENTrE FUND’S ACqUiSiTioN oF GPT GroUP’S STAKE iN TWo SHoPPiNG CENTrES

• Allens has advised The GpT Group (GpT), on many transactions. in April it assisted in the sale of its Homemaker City Bankstown to Baycrown for $25.2 million

A$556 millionMininGST BArBArA’S ACqUiSiTioN oF ALLiED GoLD MiNiNG

• norton rose Group also advised Allied Gold Mining on its restructuring and listing on the main market of the london (lSe), Australian (ASX) and Toronto (TSX) stock exchanges last year.

YOUR mONTh AT A gLANCE

ALB_1007.indb 6 19/07/2012 3:53:36 PM

DEALSaustralasian legal businessiSSue 10.7


Firm Deal Value Client Lead lawyer

A$454 millionGAMinGECHo ENTErTAiNMENT GroUP ENTiTLEMENT oFFEr

• Clayton utz has also recently acted for joint underwriters uBS and Macquarie Capital in relation to the Sp Ausnet A$434 million capital raising.

A$2 billionprOperTyBArANGAroo SoUTH DEVELoPMENT

• Freehills has a longstanding relationship with lend lease and is the company’s principal legal advisor.

Corrs Chambers Westgarth

Apax partners acquisition of paradigm Software Group

uS$1 billion Apax partners James delesclefs + five others

Baosteel and Fortescue Metals Group’s agreement to develop FMG iron Bridge

undisclosed Fortescue Metals Group

peter Jarosek, Tighe Whelan

DLA Piper

Aviva investors acquisition of a 50% share in the new Woolworths logistics centres

A$200 million Aviva investors Tom Cantwell

department of Human Services agreements with Telstra

A$474 million department of Human Services

Anthony Willis

Freehills

Ten network Holdings fully underwritten entitlement offer

A$200 million Ten network Holding

philippa Stone, Fiona Gardiner-Hill


A$500 million Goodman Group Greg Hing

Lion’s proposed acquisition of Little World Beverages

A$381.6 million

Little World Beverages

David Gray, Nick Heggart

pepper Home loans Group proposed acquisition of Ge Capital Woodchester Home loans

€600 million

pepper Home loans Group

Mark Crean

Barangaroo South development

A$2 billion Lend Lease Murray Dearberg + 6 others

7

A$381.6 millionFMCGLioN’S ProPoSED ACqUiSiTioN oF LiTTLE WorLD BEVErAGES

• little World Beverages have been a client of Freehills since their ipO in 2005.

deAlS repOrTed TO AlB, June And July 2012. please note that owing to the limited space in this table, only the higher value deals in any given month will be shown.

Philippa Stone, Freehills

Garry Besson, Ashurst

ALB_1007.indb 7 19/07/2012 3:53:39 PM

DEALS australasian legal businessiSSue 10.78

Sandra SteeleProperty, Development & Construction

King & Wood Mallesons

Lion’s proposed acquisition of Little World Beverages

A$381.6 million

Lion Meredith Paynter, Sharon Henrick

echo entertainment Group accelerated entitlement offer

A$454 million echo entertainment Group limited

Shannon Finch + 7 others

loy yang B power Station refinancing

A$1.06 billion international power, GdF Suez and Mitsui & Co. (project sponsors)

peter doyle, Claire rogers

Connecteast Group’s refinancing of debt facilities

A$1.2 billion The nine lead arrangers

Jeff Clark, Andrew Maynes

Billabong’s accelerated non-renounceable entitlement offer

A$225 million

Underwriters Evie Bruce

Medibank Health Solutions agreement with the Australian defence Force (AdF)

A $1.3 billion (per year)

Medibank Health Solutions

patrick Gunning, John Topfe, philip Ward

Australian Food Group’s acquisition of peters ice Cream business from nestlé

A$250 million plus

nestlé Michael Barker + 4 others


Firm Deal Value Client Lead lawyerA$381.6 millionFMCGLioN’S ProPoSED ACqUiSiTioN oF LiTTLE WorLD BEVErAGES

• lion (formerly lion nathan) has been a Mallesons client of 20 years.

A$225 millionreTAilBiLLABoNG’S ACCELErATED NoN-rENoUNCEABLE ENTiTLEMENT oFFEr

• evie Bruce advised both Goldman Sachs Australia pty limited and deutsche Bank AG, on their involvement in the 2009 Wesfarmers capital raising.

ALB_1007.indb 8 19/07/2012 3:53:40 PM

Since 2000, the duty of good faith has underpinned all employment relationships in New Zealand. The law interpreting this duty continues to develop and the Employment Court’s intervention in a protracted industrial dispute between Ports of Auckland Limited (POAL) and the Maritime Union of New Zealand Inc (MUNZ) over collective bargaining, which ultimately prevented POAL from operating its business as it wished, demonstrates just how far-reaching the practical implications of good faith can be.

Good faith has been described by the Department of Labour as a “tool, not a weapon”, but emerging law in this area, exemplifi ed by the POAL/MUNZ dispute, calls this into question.

The dispute attracted international media attention at a level similar to the Qantas and Transport Workers Union industrial stoush on the other side of the Tasman in 2011. POAL was brought to its knees with capacity reduced to as little as 30%, resulting in the loss of a number of major contracts, with sympathetic action by other unions nationally and a fl urry of related litigation.

GOOD FAITH DEFINEDGood faith is defi ned in the Employment Relations Act 2000 (Act) as being “wider in scope than the implied mutual obligations of trust and confi dence” and requires the parties to an employment relationship to deal with each other in good faith, not to mislead or deceive each other and to be “active and constructive in establishing and maintaining a productive employment relationship”. The Act also sets out consultation obligations for employers considering changes that could adversely aff ect employees’ employment.

Specifi c good faith obligations applicable to collective bargaining are also prescribed, including the duty not to undermine or do anything likely to undermine the bargaining, and the obligation to enter into a collective agreement “unless there is a genuine reason, based on reasonable grounds, not to”.

BACKGROUND TO THE DISPUTEPOAL had been tasked by its ultimate shareholder, Auckland Council, with improving returns from 6% to 12%. POAL initially sought to roll over the expired collective agreement and provide a wage increase, but MUNZ declined this off er and sought to protect its members’ continuing employment. It proposed in bargaining, that work covered by the new collective agreement, not be contracted

out. The expired collective, which under the Act continues in eff ect for 12 months post-expiry or until a new agreement is concluded, contained a provision restricting contracting out and there was an existing dispute over whether POAL had breached this provision.

Evidently, with a view to meeting the requirement to improve returns to its shareholder, in early 2012 POAL developed a proposal to contract out the work of several hundred MUNZ members and advised MUNZ that this could result in redundancies. POAL then informed MUNZ that it had decided to implement the proposal and terminate MUNZ members’ employment, who could then seek reemployment with the new employers to whom POAL would contract the work.

Various litigation was conducted regarding the parties’ actions, including in relation to the bargaining process and strikes and lockouts, before MUNZ obtained interim relief from the Court preventing POAL from proceeding with its contracting out proposal.

REASONS FOR INJUNCTIVE RELIEFThe principle of good faith was central to the Court’s reasoning in issuing interim injunctions in MUNZ’s favour. MUNZ argued that POAL’s actions seeking to contract out its members’ work “caused a fear of dismissals among union members and ... created pressure on their families and thereby undermined the bargaining for the new collective”. The Court found that there was a seriously arguable case and that the contracting out “was likely to undermine and arguably has undermined the bargaining” in breach of the Act.

The Court found other alleged good faith breaches were arguable, including allegations that in relation to contracting out, POAL had not been “active and constructive in maintaining a productive employment relationship”, and that “the decision to initiate mass dismissals of the entire bargaining unit was contrary to that duty”.

Additionally, POAL had allegedly “failed to provide information concerning the contracting out proposals” before making a decision and was arguably in breach of its consultation obligations. A fi nal ground on which the injunctions were issued was the potential for breach of the law relating to the performance of the work of striking employees, should the contracting out proceed.

GOOD FAITH AS A WEAPON?Generally, it is an employer’s prerogative to manage its business as it sees fi t and the courts will not interfere with this provided it is done fairly and with good reason. The Court’s intervention in this prerogative is noteworthy because it illustrates the practical impact of the duty of good faith in terms of the interaction between a contracting out proposal and collective bargaining.

As this article goes to print, POAL and MUNZ are in facilitated bargaining under the Act with the assistance of the Employment Relations Authority. The fi nal resolution of the matter therefore remains to be seen.

But in May 2012, the Government announced a proposed change to the Act, to remove the requirement to conclude a collective agreement (unless a party has a genuine reason based on reasonable grounds not to). The removal of this requirement is likely to impact on good faith and collective bargaining. Where without it, for example, POAL may have been able to quit collective negotiations rather than be forced to facilitation and, accordingly, to restructure as planned without intervention by MUNZ. In the meantime, the developing law in this area certainly indicates the potential for unions to use the duty as a weapon against employers, with very real consequences for business.

This article was written by Sherridan Cook, partner, and Kate Ashcroft, senior associate, both based in the Auckland offi ce of Buddle Findlay, one of New Zealand’s leading law fi rms. Sherridan and Kate specialise in all aspects of employment law, including industrial relations between employers and unions. Sherridan can be contacted on +64 9 357 1858 or sherridan.cook@buddlefi ndlay.com and Kate on +64 9 363 1348 or kate.ashcroft@buddlefi ndlay.com.

KATE ASHCROFTBuddle Findlay

SHERRIDAN COOKBuddle Findlay

GOOD FAITH – TOOL OR WEAPON? AN EXAMINATION OF THE PORTS OF AUCKLAND DISPUTE

NZ Commentary

Firm Profi le

ALB_1007.indb 9 19/07/2012 3:53:42 PM

LEAgUE TAbLES australasian legal businessiSSue 10.710

ToP M&A ADViSorS - AUSTrALiAN ANNoUNCED DEALS, YEAr To DATE

rANK LEGAL ADViSor VALUE ($MiL)

MKT. SHArE DEALS

2 Ashurst 6,586.44 16.9 20

3 Allens 6,148.61 15.8 26

4 Gilbert + Tobin 5,681.23 14.6 14

5 King & Wood Mallesons 5,383.17 13.8 32

6 latham & Watkins 3,309.12 8.5 1

6* Jipyong Jisung 3,309.12 8.5 1

8 Allen & Overy 2,168.97 5.6 9

9 Clayton utz 1,990.53 5.1 19

10 norton rose 1,745.07 4.5 12

11 Minter ellison 1,490.79 3.8 22

12 Corrs Chambers Westgarth 1,224.85 3.1 14

13 Clifford Chance 1,045.07 2.7 7

14 Baker & McKenzie 947.86 2.4 11

15 Johnson Winter & Slattery 856.23 2.2 1

16 Allende & Brea 840.03 2.2 2

16* Bruchou Fernandez Madero lombardi & Mitradi 840.03 2.2 2

16* Machado Meyer Sendacz & Opice 840.03 2.2 2

16* Galicia Abogados 840.03 2.2 2

20 Simpson Thacher & Bartlett 600.94 1.5 1

21 Middletons lawyers 521.56 1.3 4

22 dlA piper 409.23 1.1 6

23 Chapman Tripp 404.51 1.0 3

24 Mayer Brown llp 400.00 1.0 1

25 Herbert Smith 394.35 1.0 2

Subtotal with legal Advisor 29,436.51 75.6 220

Subtotal without legal Advisor 9,503.06 24.4 618

industry Total 38,939.57 100.0 838

(*tie) Based on ranking value inc. net debt of TargetSource: Thomson Financial date:2012-07-09 08:30:05 edT

NO.1 FrEEHiLLSvAlue ($Mil)

deAlS: 39 MArKeT SHAre: 31.6

12,289.00ToP M&A ADViSorS - CoMPLETED DEALS, YEAr To DATE

rANK LEGAL ADViSor VALUE ($MiL)

MKT. SHArE DEALS

2 Ashurst 16,363.11 35.8 21

3 Gilbert + Tobin 16,272.85 35.6 19

4 Freehills 16,166.32 35.4 43

5 Allens 15,961.20 35.0 20

6 Clayton utz 12,611.42 27.6 27

7 Corrs Chambers Westgarth 11,914.38 26.1 14

8 Minter ellison 7,362.47 16.1 27

9 Allen & Overy 5,291.11 11.6 15

10 Cravath, Swaine & Moore 4,074.33 8.9 2

11 norton rose 3,526.10 7.7 17

12 McCullough robertson 3,139.41 6.9 12

13 Baker Botts llp 2,739.72 6.0 1

14 Baker & McKenzie 2,555.16 5.6 13

15 Orrick Herrington & Sutcliffe llp 2,554.96 5.6 2

16 Stikeman elliott 2,414.38 5.3 2

17 Kirkland & ellis 1,440.61 3.2 2

18 Cassels Brock & Blackwell llp 1,351.86 3.0 3

19 Werksmans Attorneys 1,334.61 2.9 1

19* ClS Attorneys 1,334.61 2.9 1

21 lawson lundell lawson & Mcintosh 1,220.35 2.7 1

21* davies Ward phillips & vineberg llp 1,220.35 2.7 1

21* Kalamba & Associes 1,220.35 2.7 1

21* linklaters 1,220.35 2.7 1

25 lawrence Graham 1,194.03 2.6

Subtotal with legal Advisor 27,937.06 86.3 169

Subtotal without legal Advisor 4,441.31 13.7 313

industry Total 32,378.37 100.0 482

(*tie) Based on ranking value inc. net debt of TargetSource: Thomson Financial date: 2012-07-09 08:17:39 edT

NO.1 KiNG & WooD MALLESoNSvAlue ($Mil)

deAlS: 33 MArKeT SHAre: 46.5

21,229.18

ALB_1007.indb 10 19/07/2012 3:53:43 PM

BUSINESS OF LAW MASTERCLASSMAXIMISE IN-HOUSE POTENTIAL AND MINIMISE REGULATORY RISK

INTERCONTINENTALSYDNEY 23-24 AUGUST 2012

INTERCONTINENTAL MELBOURNE 30-31 AUGUST 2012

To book or fi nd out more information contact Savitha Iyer 02 8587 7960 or [email protected]

Visit www.thomsonreuters.com.au/eventsAUSTRALASIANLEGALBUSINESS

011_ALB10.07.indd 11 20/07/2012 11:19:24 AM

ANALYSIS AUSTRALASIAN LEGAL BUSINESSISSUE 10.712

The offi cial announcement of a Freehills Herbert Smith merger formalised rumours that had been circulating the Australian market

for the past six months. Now, we are not necessarily implying

in our analysis that there is anything inherently wrong about Herbert Smith Freehills – frankly, after three years of continuous re-arrangement of the Australian market, anyone’s assessment is as good as ours. But there is a touch of The Simpsons’ Max Power about this

FREEHILLS EMBARKS ON HOMERIC ODYSSEY...

announcement and not in a bad way: there is something admirably and recklessly decisive about the move to have a shared profi t pool from day one. This is an outcome which was put in the “too hard” basket at Norton Rose and Mallesons and it is an outcome which will take Ashurst three years to achieve – yet, by contrast, Freehills will apparently have a shared pool in place by October. The details are still a little hazy, but you have to admire the style: clean, decisive and with no regrets. As Homer would say, this is a merger to the Max. Less chat, more hat.

WELCOME TO THE POOLSharing profi ts has long been the stumbling block for international mergers and the issue is believed to be one of the reasons behind

FREEHILLS HAS FORESHADOWED FULL FINANCIAL INTEGRATION WITH HERBERT SMITH – BUT IS THERE A DEVIL IN THE DETAIL? RENU PRASAD INVESTIGATES.

012-015_ALB10.07_analysis.indd 12 20/07/2012 1:40:28 PM

ANALYSISAUSTRALASIAN LEGAL BUSINESSISSUE 10.7 13

...BUT MIND THE D’OH

the failure of the Mallesons/Clifford Chance merger talks last decade. The same challenges still apply today: the Australian dollar still traces an unpredictable course against the pound and every fi rm has its own unique approach to remuneration which needs to be reconciled before a potential merger. For example, Freehills has a nearly completely equitised partnership, while Herbert Smith has a mix of salaried and equity partners. Freehills has a performance-based remuneration system, while Herbert Smith has a rigid lockstep. So how did Freehills and Herbert Smith manage to reconcile these differences?

The answer is that they haven’t – not yet, anyway. It turns out that having a shared profi t pool is not the same thing as a shared remuneration system. While Freehills and Herbert Smith have

• combined fi rm will have about 2,800 lawyers, including 460 partners worldwide and revenues of approximately A$1.3 billion

• 20 offi ces spanning Australia, Asia, Europe, the Middle East and the UK

• joint CEOs will be David Willis (Herbert Smith) and Gavin Bell (Freehills)

• equal representation of both fi rms on global governing council

• full equity merger, with a single profi t pool from day one

• target launch date is 1 October 2012

QUICK FACTSHERBERT SMITH FREEHILLS

BREAKING NEWS: RICKETTS TAKES AUSTRALIA TOP JOBHerbert Smith Freehills has announced that the head of Freehills’ Perth offi ce, Jason Ricketts, will become the fi rm’s Australian managing partner. The move follows the promotion of current Freehills Australia CEO Gavin Bell to joint global CEO of Herbert Smith Freehills, alongside Hebert Smith’s David Willis.


ANALYSIS AUSTRALASIAN LEGAL BUSINESSISSUE 10.714

agreed to pool their profi ts, they have not yet agreed on a common system of distributing these profi ts to partners.

From October 1, profi ts from the two fi rms will be put into the same pool, and then split on a pre-determined ratio. The exact ratio is confi dential, but understood to be essentially in line with the value each party has brought to the merger. The two fi rms will then proceed to allocate their profi ts to partners in line with their existing remuneration systems. A common remuneration system is expected to be introduced within the next two years, superseding this arrangement.

In certain respects, this feels like Blake Dawson/Ashurst all over again: the big announcement has been made, but the really sticky details remain outstanding. In the meantime, is Hebert Smith Freehills a real fi nancial integration, or a compromise arrangement? Does failure to reach an agreement on remuneration down the track jeopardise the entire merger?

If the Freehills team are harbouring any doubts on the subject, they certainly aren’t showing it: CEO Gavin Bell was notably relaxed and at ease when questioned on the topic. “We’ve agreed what the new

system will look like, it’s a case of consulting with partners to fi ll in the detail,” he said. “Certainly we have different approaches, but not fundamentally so – the culture of the fi rms is quite similar and we’re both in agreement that we will move towards a common system.”

It is arguable that fi rm culture is driven by the remuneration structure and there are plenty of examples of partners switching fi rms to work under a structure which suits them. The apparent absence of a common remuneration system appears to be an important missing detail from this merger announcement. However, it is also clear that the two fi rms have had some in depth discussions on the topic and already have established some kind of preliminary common ground. It’s possible that the important compromises have already been made, but the fi rms are simply keeping the details to themselves for the moment.

AN INTEGRAL ISSUEALB has previously noted that fi nancial integration is becoming the key point on which fi rms are seeking to distinguish themselves.

WHILE FREEHILLS AND HERBERT SMITH HAVE AGREED TO POOL THEIR PROFITS, THEY HAVE NOT YET AGREED ON A COMMON SYSTEM OF DISTRIBUTING THESE PROFITS TO PARTNERS.

“INTEGRATED PARTNERSHIPS CAN GET TO AN INHERENTLY UNMANAGEABLE SIZE.” Stuart Fuller, King & Wood Mallesons


ANALYSISAustrAlAsiAn legAl BusinessISSUE 10.7 15

King & Wood Mallesons and Allens have insisted that a financially integrated partnership is not a prerequisite to seamless service, whereas Ashurst and DLA Piper have argued that it is. We can now add Herbert Smith Freehills to the latter category.

Chairman Mark Crean says that Freehills was simply applying the lessons learned from early last decade when a series of state based partnerships came together to form the old Freehill Hollingdale and Page. “The difference between the behaviour and performance that integration generated was so fundamental we felt that financial integration was one of the things we needed from day one with Herbert Smith Freehills,” he said. Crean noted that Herbert Smith had previously been involved with a non-integrated alliance in Germany, which may have helped inform the firm’s position on integration.

Freehills’ promotion of financial integration as a distinguishing point of this venture has attracted the attention of rivals. King & Wood Mallesons’ Stuart Fuller told The New Lawyer that pushing integration as a distinguishing point “focuses on the firm and suggests that the priority is on partner profits and profit sharing, rather than on client service and the platform that you bring to the clients.” More colourfully, Allens’ Michael Rose told the Australian Financial Review that he did not see why clients would give a “rat’s arse” (or should that be AARse, Michael?) about whether a partnership was integrated or not.

At first instance, it is easy to dismiss these comments as a defensive play by firms on the backfoot: the weight of evidence initially appears to be on the financial integration side of the equation. After all, the majority of large Australian firms – including Mallesons and Allens – integrated their state-based partnerships over 10 years ago and have never looked back since then. KW Mallesons and Allens are both pursuing financially integrated joint ventures within Asia, a state of affairs which seems to be at odds with the protestations that financial integration is not necessary.

Ultimately, however, these factors do not provide a complete rebuttal of the concerns raised by Fuller and Rose. The fact that financial integration worked in the 1990s within Australia is not convincing proof that it will work globally across multiple jurisdictions, currencies and in partnerships at least twice the size of any firm the Australian market has previously known. Nor can we read too much into the fact that firms are experimenting with different structures in Asia: the economies and advantages to be achieved with a merger of duplicate structures are obvious.

KW Mallesons is in the rather unusual position of downplaying the necessity of integration while pursuing an aspirational goal of full financial integration of its three partnerships by 2015. When asked what exactly was the firm’s preferred outcome, Fuller told ALB that either system would work: “I’m not ducking your question, but I wouldn’t say there is one right model,” he said. “But I do think a global rethink is required. If the argument is that you need to have a fully aligned international structure and an [integrated] partner income model, I’m sure that is correct in the current traditional firms. But I am far from convinced that it’s the only model going forward.” Fuller went on to note that size was a factor in choosing the appropriate model: “Integrated partnerships can get to an inherently unmanageable size,” he said. “If you’ve got all these partners in one profit pool, even on an aggregated basis, you’ve got a very large management task in terms of how you manage all

of those [lawyers] to equal profitability.” It does feel like KW Mallesons is quietly positioning itself for life as a permanent Swiss Verein structure and has felt the need to respond to the Freehills-Hebert Smith integration for that reason. There are strong arguments for and against both models and the correct choice and execution will go a long way towards determining the ultimate fate of these mergers.

Fly in, Fly outFreehills has only five partners permanently based outside of Australia and accompanying the merger appears to be a minor admission that the firm has outgrown its old “fly in, fly out model.”

“We’ve increasingly found that clients are very keen to have us involved offshore - [fly in, fly out] is getting harder and harder as more and more Australian clients are working offshore,” said Bell. “Certainly we can still do it and we still do it quite well but it does help to have the presence on the ground.”

Crean says the firm is responding to client demand: “As clients embed themselves on the ground, increasingly they’re going to look for firms that can do the same locally,” he said. “We’ve observed a greater flow between Australia and the rest of the world - some of our clients are less accepting of “fly in, fly out” because they’re going off-shore not just to do one deal, but a whole series of deals.”

If this is correct, it is a state of affairs which will put pressure on the remaining firms using a “fly in, fly out” model in Asia: Corrs Chambers Westgarth and, to a lesser extent, Clayton Utz and Gilbert + Tobin. There has been room in the past for more than one approach to building an Asia practice – the question implicitly raised by Crean and the growing cohort of Australian firms in Asia is whether we have reached the point where that is no longer the case.

“AS clIEntS EmbEd thEmSElvES on thE groUnd, IncrEASIngly thEy’rE goIng to look for fIrmS thAt cAn do thE SAmE locAlly.”Mark Crean, Freehills


ANALYSIS australasian legal businessiSSue 10.716

if there was ever a high watermark of silliness in the current phase of Australian law firm merger mania, perhaps it was last year’s flirtation by

Freehills with the idea of spinning off its workplace relations practice into a separate entity. This is a practice which counts most of Australia’s top 20 companies among its clients and has advised on just about every high profile industrial dispute over the past year, including the Qantas lockdown and BHP Billiton Mitsubishi’s coal woes in Queensland. Did we really expect Freehills to walk away from this bluest of blue chip client bases?

“They worked out it was a silly idea in the first place, which is just as well,” one lawyer told ALB. “I think they just got muddled. For a while they were following the idea of Mallesons, to slim the firm down and really just concentrate on M&A and banking & finance and everything else would be an adjunct. And it’s true that in London and the Magic Circle, that is what firms are like. But that’s a different market from us. They are dealing with banks and big capital houses where that’s an appropriate alignment; here in Australia we do that but we also do a range of other things as well.”

Freehills partner Graeme Smith, while emphasising that the idea is “well and truly dead and buried”, points out that the firm never proposed to abandon its workplace relations practice and the model would have seen the firm retain workplace relations in an affiliate structure. However, this clearly raises issues for workplace relations lawyers aspiring to join the main Freehills partnership and there would have been a serious question over whether these people would have been sufficiently motivated to see out the experiment or perhaps opt instead to pursue their

silliness aVerteD

options elsewhere. Fortunately for Freehills, that’s all academic now. Freehills and Ashurst are particularly well regarded for their workplace relations practices and it is interesting to observe how these firms appear to have embraced the area even in these days of slimmed down, globalised legal practice. But what is the story at King & Wood Mallesons? The stereotype of King & Wood Mallesons as a lean, M&A-centric practice is still something you hear regularly around town and there is a perception in the market that everyone’s favourite alpha firm has been curiously quiet in the area of workplace relations. “When I started off in this area in the 80s, it was just Mallies and us that had any presence,” recalls Smith. “Mallies let theirs go – Allens never really had a presence in this space and I suspect they regret that.”

It’s a common perception – but is it fair? Certainly the KW Mallesons workplace relations practice is considerably smaller than that at Freehills or Ashurst. However, KW Mallesons partner Andrew Gray says that the idea that Mallesons has relegated workplace relations to a secondary status is incorrect. “The idea that we’re not a player in this space is simply wrong,” he says. “We see ourselves as competitors with Freehills and Ashurst; we do work in the same space.” KW Mallesons has managed to win new clients from its top tier rivals in recent years – Citigroup and Goldman Sachs have made the switch from Ashurst and Freehills respectively – and the firm continues to provide high level strategic advice, such as briefing BHP on the recent OH&S harmonisation. “Safety is BHP’s number one priority – they’re not going to give the job to someone who just dabbles in the area,” observes Gray. The firm has also approved the recruitment of extra headcount in the workplace relations practice following a decision to pursue concerted growth in this space.

The myth that KW Mallesons is grooming itself to become Australia’s answer to Slaughter & May appears to still hold some currency in some parts of the market, a point not denied by Gray. However, he says that the firm has moved on. Merger partner King & Wood has a good name in the workplace relations space and other practices outside of corporate and banking & finance, and it makes sense for Mallesons to pursue a similar model. However, this does not necessarily mean a return to the traditional full service model. KW Mallesons global managing partner Stuart Fuller told ALB it was more a case of building expertise in areas of strategic focus, such as energy and resources. “We undertook a fundamental review which led to an analysis of where did we want to [build capacity] – and employee relations and safety are very aligned to the energy and resources practices,” he observes.

CerTAin TOp Tier FirMS HAve FlirTed WiTH SOMe STrAnGe STrATeGiC OpTiOnS On WOrKplACe relATiOnS in reCenT yeArS – BuT nOW THey’ve reTurned TO THe FOld WiTH reneWed enTHuSiASM, WriTeS rENU PrASAD.

ALB_1007.indb 16 19/07/2012 3:53:57 PM

ANALYSISaustralasian legal businessiSSue 10.7 17

resUrgeNceMany firms have identified workplace relations as a key growth area and recent examples of firms which have made lateral hires in this area include Hunt & Hunt, Johnson Winter & Slattery, Middletons, Lander & Rogers and Harmers. The perception is that this is a practice area where large national firms are vulnerable and the mid-size and specialist firms are investing accordingly.

“I can tell you right now that our law firm would have more [workplace] lawyers in it than most big firms have in their employment departments,” says Harmers CEO Shana Schreier-Joffe. “If we have a major matter, we can mobilise the entire firm just on that issue – firms like ours bring a different dimension to corporate clients; we have a breadth of expertise that perhaps a multi-disciplinary firm does not have.”

At the time of writing, Harmers had a total of about 45 lawyers, a figure which puts the firm in good stead against national firms such as Corrs, which has 38 lawyers in this space. However, at the other end of the scale Freehills has 101 dedicated workplace relations lawyers, including 18 partners.

Middletons partner Alice DeBoos told ALB that her group has 60 lawyers while according to Chambers, the size of workplace relations practices at other firms ranges from around 70 at Ashurst and Norton Rose through to around the 20 lawyer mark at DLA Piper and Maddocks.

The conclusion we can draw is that specialist firms such as Harmers are indeed approaching a similar scale to employment practices within some full service firms and in some cases have probably exceeded them. However, the largest practices such as Freehills remain some distance ahead and will no doubt continue to argue, with some justification, that they are better resourced to handle intensive, protracted disputes work.

That is the first part of a two stage argument from the large firms which continues with the contention that specialist expertise is most useful in its full context. “Advice given in a vacuum is never helpful to a client – and being part of a larger network of specialists allows expert advice to be given within a broader legal and commercial context,” explains Baker & McKenzie partner Bryony Binns. “For

example, at Baker & McKenzie, specialists within our employment, tax and corporate regulatory team work closely to advise on executive remuneration and benefit plans taking account of employment laws, contractual limitations, business protection, tax implications of equity structuring, corporate regulations and listing rules around payments, and most importantly, market best practice and global trends in executive remuneration.”

It’s a theme picked up by Corrs Chambers Westgarth partner Heidi Roberts: “Boutique firms lack the necessary understanding of a client’s business imperatives and drivers, and the industries in which a client operates to effectively advise clients on workplace relations strategies and responses,” she says. “An effective workplace relations strategy is often integral to the value of a commercial deal or the success of a business restructure and in a top tier law firm, workplace relations issues are identified and addressed early as part of a multidisciplinary team approach which cannot be provided by a boutique firm.”

Workplace relations is a field characterised by some high profile individuals – Michael Harmer of Harmers Workplace Lawyers; Joydeep Hor of People & Culture Strategies and rising boutiques such as Australian Business Lawyers and FCB Workplace Law. Purchasers of legal services will no doubt be evaluating these players very carefully against their large top tier counterparts to see which provider is the best fit in the continuing pursuit of value.

Freehills CEO Gavin Bell (right) presents the Leading Practices Review to an unhappy workplace relations partner.

To read more about the latest trends in workplace relations law, please refer to the workplace relations feature appearing from page 40 of this issue.

ALB_1007.indb 17 19/07/2012 3:53:57 PM

NEWS australasian legal businessiSSue 10.718

Q&A with damian Huondamian Huon is a legal technology strategist with over 23 years experience advising Australia’s leading firms. As CeO of Huon iT, damian and his team achieve business outcomes for professional service organisations with ‘everything technology’.

The process tool every management team needs now.Many firms are frustrated by a mix of disjointed paper and electronic systems, and inefficient processes that complicate simple tasks. Here, seasoned CiO Advisor damian Huon shares a simple solution for effective business process management.

Q1 Our practice has so many different systems, following process is actually slowing staff down. how can we simplify without compromising on features?

Many firms are tangled in a web of part-manual, part-automated systems, add-ons and complicated integrations.

Fortunately there are now smart ‘Business Process Management’ options that can overlay your multitude of systems to create a simple tool for “non-IT savvy” managers to create tasks and workflows, manage processes and run reports between systems without waiting for developers to write scripts or integrate programs. This allows firms to leverage the best features of each system while building consistency across the business.

Q2 how do Business process Management tools work?

The simple software empowers all managers to contribute to the design of workflows, processes and automation to ensure staff and systems are working in harmony, without the need for any programming skills. They use a visual drag-and-drop system which is user-friendly and once set up, requires minimum training or input from IT.

To maximise results, ensure you pick a product that is broadly compatible with your standard operating environment, offers the right levels of security settings to control access, and has reporting capabilities to help management make informed decisions.

Q3 What tangible benefits can the firm expect?

In the simplest of terms, process management tools will reduce time and resources (such as paper) from everyday tasks, ultimately saving you money.

The payback extends far beyond this however, as you squeeze more out of existing systems, accelerate turnaround times for clients, and actually improve the quality of work through limiting process errors. It also provides all levels of management, particularly Practice Managers, Operations, Finance and even Managing Partners, with greater visibility and control across the business.

As a safe first step, ask about a proof of concept program where you can test it on a low risk, problematic process to assess its real value without disrupting your systems or making a commitment.

Email your questions to [email protected]

TeCHnOlOGy in prACTiCe>> in case you missed it…..ThE mONTh’S TOp hEADLINES FROm WWW.LEGALBUSiNESSoNLiNE.CoM

AuSTrAliAn HeAdlineS

storY oF tHe montHclyde & co taps Allens for Australia launchClyde & Co is set to launch in Australia with a team of lawyers recruited from Allens. Six Allens partners from Sydney, Perth, Hong Kong and Singapore will be joining Clyde & Co in what will be a mainly contentious practice with a strong focus on insurance and reinsurance. Clyde & Co will establish offices in Sydney and Perth and the launch date will be 1 October.

Several senior Allens partners are involved in this move and they include John Edmond, group leader of Allens’ insurance & reinsurance practice in Sydney, who will also become Clyde & Co’s Australian managing partner. The primary motivation for the Allens partners will be the opportunity to build a practice free of the “frustrating and increasing” client conflicts which were occurring at Allens, Edmond told ALB.

Edmond said that while the initial focus of the firm in Australia will be insurance, the possibility of expanding into other practice areas could not be ruled out. No decision has been made yet as to how many Allens senior associates and associates will also make the move to Clyde & Co.

5 JulyM&A activity dives in first half 2012The first half of 2012 has proved to be challenging for the M&A sector, according to the latest Thomson Reuters data. Australian M&A activity plunged by almost 50 percent in the first six months of the year compared to the same period last year. Cross border activity totalled only US$27.6 billion during the past six months, representing the worst result since 2009.

Even China, the region’s hub of M&A activity, reported a downturn in the past six months. China cross border activity dropped 22.8 percent to US$27.9 billion. This is the lowest first half result since 2007. However, outbound M&A from China increased by 16.7 percent, compared to the same time last year, up to US$6.7 billion. A majority of that investment occurred in the energy and power sectors.

2 Julyilh acquires a quarter of rockwell BatesASX-listed Integrated Legal Holdings (ILH) has acquired a 25 percent interest in Melbourne-based Rockwell Bates, with plans to

ALB_1007.indb 18 19/07/2012 3:53:58 PM

NEWSaustralasian legal businessiSSue 10.7 19

Emily StothersLegal Counsel,

Funtastic

In-house Q&A >>

1In your opinion, why have in-house lawyers become an increasingly indispensable part of an organisation?

In-house lawyers provide a cost effective way of managing risk within any organisation. I think we provide peace of mind to management that the commercial decisions of the company are being made with an appropriate assessment of risk and with the incorporation of any necessary safeguards. If and when things go wrong, it is beneficial to have someone within the company, close to the detail, to assist to overcome any issues swiftly and effectively.

2 What were your main considerations in making the move to an in-house role and what have you found to be the main challenges in that transition?

I commenced my role at Funtastic as a secondee from Clarendon Lawyers. Funtastic’s inclusive culture and the multi-faceted nature of the role itself contributed significantly to me accepting the offer to become Funtastic’s in-house legal counsel. Between toys and movies (Madman entertainment is a wholly owned subsidiary of Funtastic), my days at work are never dull. The biggest challenge I have faced since commencement of this role is expanding my knowledge base to develop skills in areas of law that I previously had no experience. I have invested quite a bit of time conducting research and attending external seminars to assist with this. Another significant challenge was learning how to apply commercial consideration to the legal tasks I am given. The skill of combining commercial thinking with legal advice is not something I had been exposed to as a junior lawyer in private practice and I am grateful to many of my colleagues at Funtastic for helping me hone this valuable skill. Additionally, the ongoing support I receive from my former colleagues at Clarendon has greatly helped ease my transition into an in-house role.

3 In your opinion, what do you consider to be the main challenges you will face in the new financial year?

Funtastic is heading into an exciting new phase at the moment given its acquisitions earlier this calendar year of the Pillow PetsTM brand and the rights to an exclusive licence agreement to distribute LeGo®-licensed product worldwide. Furthermore, our recently announced capital raising means that we now have the funding to ensure these growth levers are maximised to their fullest extent. The company has historically licensed its rights from other brand owners so with Pillow PetsTM particularly, there will be a significant amount of work involved in transitioning our way of thinking into that of a brand owner, rather than a brand licensee. From a legal perspective, this means intellectual property portfolio management, enforcement of our rights internationally, and negotiation of licence and distribution agreements from the principal’s perspective……All this while trying not to get too distracted by remote controlled helicopters flying over my head!

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

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increase its share to 49 percent during the next two years. Rockwell Bates commenced operations in September 2008 and specialises in mid market mergers and acquisitions within the Asia Pacific Region. The firm consists of founder and managing principal Adam Levine, three principals and seven lawyers, and has a annual fee income of approximately A$4 million. The firm has an affiliate relationship with Indian law firm Rajani Associates, based in Mumbai.

29 Junefreehills, herbies to create ‘fully integrated firm’The Freehills and Herbert Smith partnerships have voted overwhelmingly in favour of merging to create a new firm, Herbert Smith Freehills, which is expected to be a full equity merger with a single profit pool from day one.

The newly combined firm, the launch of which is targeted for 1 October 2012 will focus on providing an integrated service to clients across 20 offices in five continents. Herbert Smith Freehills will comprise of 2,800 lawyers, including 460 partners, making it the world’s eighth-largest law firm based on total lawyer numbers and the largest in the Asia-Pacific region.

21 Junefresh start as Minters and squires set up new officesWhile the Minter Ellison Perth partnership officially split last October, the two new firms Minter Ellison and Squire Sanders are only now settling into new premises.

Minter Ellison has moved into three floors of space in Allendale Square on St Georges Terrace while Squire Sanders will move into the top two floors of Raine Square on Murray Street. Minters celebrated the opening of its new premises with an official function complete with West Australian Premier Colin Barnett as the officiator. For the past eight months the Minter Ellison team had been working out of serviced offices.

4 July Malaysia to grab Asia ipO top spot with U.s.$2 bn ihh listingMalaysia launched on Tuesday the $2 billion initial public offering of state-backed hospital operator IHH Healthcare Bhd, marking the third-biggest listing of the year globally.

IPOs in Malaysia, where the equity market is dominated by local investors and a large domestic pension fund system, have defied a trend in financial markets such as Singapore, where motor racing firm Formula One decided to postpone its near $3 billion flotation. Some commentators believe that Malaysia could be Asia’s top IPO market this year.

cOrrectiONA table in the New Zealand feature in issue 10.5 of ALB magazine listed Buddle Findlay as having 1.85 lawyers per partner. This figure was incorrect and should have been 3.85. ALB regrets the error.

ALB_1007.indb 19 19/07/2012 3:54:00 PM

australasian legal businessiSSue 10.720 bANkINg & FINANCE

tHe Future oF HeDge FunDsSOMe COMMenTATOrS Are TAlKinG up THe prOSpeCTS OF HedGe FundS – BuT reuTerS’ FELix SALMoN iS nOT QuiTe COnvinCed.

ALB_1007.indb 20 19/07/2012 3:54:06 PM

australasian legal businessiSSue 10.7 21bANkINg & FINANCE

You may have seen a recent story in the Wall Street Journal by Juliet Chung, talking about a new report from Citigroup and leading with the eye-popping number that the amount of money managed by hedge funds could soar to $5

trillion over the next five years. Barry Ritholtz certainly saw it, and responded with derision: “I highly doubt the industry is doubling in size,” he writes, “or that assets will triple.”

My initial reaction, on reading the WSJ story, was exactly the same. But then I thought it might be worth reading the report itself. Finding the report wasn’t easy, since Chung evidently decided that everything we needed to know about the report was contained in her article, and that therefore there was no need to link to it. And if you go to the Citi Prime Finance website, the most recent report there is dated December 2010. But Citi’s crack PR team did send me their press release, which includes a link to the report. And it turns out that the $5 trillion number is taken straight from the headline of the press release; it doesn’t actually appear anywhere in the report at all. In that sense, this is a replay of the Kauffman report on hedge funds last month: it’s a very worthwhile report, undermined by a stupid press release desperately trying to sensationalise something quite subtle and interesting.

That said, Barry raises some valid points, many but not all of which are addressed by the report. Firstly, he says, withdrawals from hedge funds have been rising. And that’s true — at least when it comes to the high net worth individuals and family offices who have historically invested in these things. Here’s the chart:

As you can see, individuals and families are basically keeping the amount of money that they invest in hedge funds flat, even after returns, and despite the fact that they have gotten a lot wealthier over the past three years. As a percentage of their total assets, the amount of money these people are investing in hedge funds is definitely falling.

On the other hand, institutional investors are still increasing the amount of money they’re allocating to hedge funds. Not quite as quickly as during the go-go years of 2004-2007, when institutions poured $1 trillion into the asset class. But Citi estimates that institutions transferred some $179 billion in total into hedge funds in 2010 and 2011, even as they were recovering from the financial crisis. And I’d agree with Citi here that at the margin institutional investors are more likely to accelerate those flows than they are to reverse them and start withdrawing money. Big institutional investors move slowly, and once they start on a course of action they tend to be committed to it for the long term.

Barry’s second point is that hedge funds have underperformed

in recent years. And indeed that helps explain the way that individual investors have soured on the asset class. But institutional flows don’t tend to mirror previous-twelve-month performance in the way that individual investors are wont to do. Institutions tend to determine investment strategies and risk allocations, and then decide how best to position themselves; while hot funds might see inflows and weak funds might see outflows, the total amount of money that institutions allocate to hedge funds is actually very weakly correlated with hedge-fund performance. Here’s the Citi report:

Institutional investors entering the market were looking for risk-adjusted returns and an ability to reduce the volatility of their portfolios. This was a very different mandate from the one sought by high net worth and family office investors— namely, achieving outperformance and high returns on what they considered to be their risk capital.

Thirdly, Barry says that the hedge-fund industry is contracting — which is also true, and also entirely consistent with fewer and much bigger institutional mandates. Here’s one quote from the report:

We only take money from institutional investors and the minimum investment levels are high (passive $50 million, bespoke $500 million). This is due to only wanting “like-minded” investors to be part of the platform in order to reduce the risk of excessive withdrawals by less stable/less long-term investors in case of a market crisis of some sort.

This is the new world of hedge-fund management: setting minimum investment levels so as to deliberately exclude precisely the kind of investors that built up the asset class in the first place. The number of people who can do that, however, is by its nature much smaller than the number of people who have founded a hedge fund. So consolidation and contraction is inevitable. While the Citi report does forecast an increase in the amount of assets under management, it doesn’t for a minute forecast an increase in the

ALB_1007.indb 21 19/07/2012 3:54:07 PM


number of hedge-fund managers.“It is not a particularly great time to be a fund manager,” says Barry, and he’s right. But that doesn’t mean that Citi is wrong.

Fourthly, Barry points to the fact that the fund-of-funds industry is doing badly. On this point,the Citi report actually goes further than Barry: it basically says that fund-of-funds were a fad, and that they won’t last much longer. This chart, for one, is striking:

Here’s how the report puts it:

As many investment committees and boards became uncomfortable with the fees they were paying to fund of funds, many institutional investors began making direct allocations to hedge funds. Many of these investors began their direct investing program by again placing a singular allocation with a multi-strategy manager and relying on the CIO of that organization to direct capital across various approaches based on their assessment of market opportunities.

Essentially, as the hedge-fund world consolidates, the functions formerly performed by fund-of-funds managers can now be performed within huge hedge-fund groups. And they won’t charge you extra for the privilege. Finally, Barry says that investors are getting fed up with high fees — and the question of 2-and-20 is one that is surprisingly ducked by Citi in this otherwise comprehensive 76 page report. While sophisticated risk-allocation strategies are all well and good, at some point one has to ask whether it’s worth paying 2-and-20 to get the level of risk you

want, and whether you might not be better off over the long term with less risk optimisation and also lower fees. If the hedge fund industry doesn’t grow as much as Citi says it will, the reason will surely be that institutional investors will finally have decided that 2-and-20 is too high a price to pay for what they’re getting.

So if you read the actual report, rather than the press release, it stands up quite well to Barry’s criticisms. But I’m still not completely convinced by it. For instance, the report has a whole section under the headline “Directional Hedge Funds Gain Traction for Their Ability to Dampen Equity Volatility”. It says:

Remember, most institutional investors are focused obsessively on capital protection, as they have limited pools of assets they are managing to meet obligations. For pension funds, these obligations relate to the institution’s need to meet liabilities owed to their members. E and Fs need to fund activities over a long-term period. Sovereign wealth funds need to diversify their account balances. In all these instances, there is an extreme aversion to losing money.

“E and Fs”, by the way, is investmentese for “endowments and foundations”. And this passage just doesn’t ring true to me. Bond investors focus obsessively on capital protection; long-term institutional investors looking to capture an illiquidity premium, on the other hand, actively want more volatility, if it means that their long-term returns will be higher. If the institutional investors that Citi talked to are focusing on capital protection, I find it hard to believe that they’re going to significantly increase their allocation to hedge funds. Partly because of those fees, and partly because no hedge fund is immune to blowing up. It’s true that hedge funds as a whole lost less money than the stock market did during the plunge of 2008-2009. But they still lost money — if they were promising capital protection (something the stock market never promises), then they clearly failed at their job.Another thing missing from the report is the move from defined-benefit pensions, which create massive pension funds, to defined-contribution 401(k)s and the like, which just create lots of much smaller investors. The sophisticated strategies outlined in this report are all well and good, but they’re out of reach to anybody with a 401(k). As the report notes, the U.S. accounts for 58.5 percent of all pension fund assets. And if those assets move out of pension funds and into 401(k)s, then they’re significantly less likely to get invested in a hedge fund.And while the report does foresee an increase in the amount of money that small investors allocate towards things

ALB_1007.indb 22 19/07/2012 3:54:07 PM


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which look a bit like hedge funds, that’s its weakest point. For one thing, there are significant regulatory obstacles in the way. And for another, hedge funds know that catering to small investors carries a lot of risk, even as they generally have to reduce their fees to get at that money. See chart 31: What you’re seeing here is a real rise in the amount of money which belongs to retail investors and is being managed either by hedge funds or by conventional mutual funds offering total-return strategies. The increase of $369 billion over the past five years is significant. But it’s also dangerous, as the Citi report highlights: Several respondents noted that these products were only suitable for strategies using highly liquid products.

There were also concerns that these products would not get the same attention and focus from hedge fund managers as their core funds, since the fee potential was not as great. Many worried that managers would just view these products as an opportunity for asset gathering and that their lack of performance could hurt the brand of the hedge fund industry overall.

So is there a bright future for hedge funds or not? My gut feeling is to split the difference between Barry and the report. Here’s the most interesting chart, for me, See chart 14:

Pension funds, here, are by far the largest pool of money; sovereign wealth funds are smaller, and endowments and foundations are smaller still. Basically, the larger the amount of money you’re managing, the smaller the percentage of that money that you’re investing in hedge funds. Over time, I suspect that these three lines are likely to start converging — somewhere. And if the convergence point is anywhere north of about 4 percent, then the total amount

of money in hedge funds will go up, just because pension funds are so big. In order for the hedge fund industry’s assets under management to fall, the blue lines in this chart are going to have to stop rising and start falling. And while that’s possible, I don’t think it’s going to happen. Not yet.

So will hedge funds find themselves managing $5 trillion by 2016? No. But will they be managing more money than they are today? Yes, I think they will. And the increase won’t just come from internal returns. It will come from substantial capital inflows too.

ALB_1007.indb 23 19/07/2012 3:54:08 PM


SEPArATiNG FACTA FroM FiCTioNreAdy Or nOT, THe inTrOduCTiOn OF FACTA iS lOOMinG – BuT HAve AuSTrAliAn inSTiTuTiOnS Been pAyinG ATTenTiOn? WiETSKE JArViS-BLEES OF THOMSOn reuTerS ACCeluS inveSTiGATeS.

With the deadline for the implementation of the U.S. Foreign Account Tax Compliance Act (FATCA)

looming, many firms remain uncertain about the impact that the new regulations will have. This, in turn, is affecting their ability to prepare for the new requirements and indeed to meet the deadline for implementation.

According to a global survey of 200 governance risk and compliance practitioners, conducted by Thomson Reuters Accelus, the implications of FATCA remain mired in uncertainty. The survey found that more than 50 percent of respondents were unsure of the effect that the new requirements would have on their firm and more than 40 percent of respondents from Asia Pacific, Canada and the Middle East said they would be unlikely to meet implementation deadlines.

While there was widespread awareness of the impending regulations, the results showed that firms were making some distinctly polarised choices where FATCA compliance was concerned. Some firms have chosen to prepare proactively for the potentially onerous requirements, while others have opted to take limited action because the final rules are still surrounded by uncertainty.

Chris Cass, partner in financial advisory services at Deloitte, told Thomson Reuters that in Australia the level of preparedness primarily depended on the sub-sector of the industry in question. “Parts of the Australian financial industry, the banking

sector in particular, are well aware of the requirements and are well-prepared vis-à-vis their global peers. Other sub-sectors of the financial services industry are not so well aware and certainly not so well-prepared, which is perhaps not too different from their global peers,” Cass said.

Cass said it was natural that the banking sector was somewhat ahead since the FATCA legislation specifically targeted U.S. bank accounts. “Typically these types of extra-jurisdictional legislation tend to come onto the radar of global organisations first. That is partly because of cross-border imperatives, but also because the primary theme of this legislation, and in keeping with many other global financial services regulations, is often calibrated more towards banking in the first instance and then rolled out to other financial services sub-sectors,” Cass said.

FATCA is designed to limit tax evasion on the part of U.S. taxpayers. As of July 1, 2013, upon entering a foreign financial institution (FFI) agreement, non-U.S. financial institutions will need to identify their account holders to determine whether they are U.S. residents and, if so, must then report on them to the U.S. Internal Revenue Service (IRS).

Alison Noble, director, tax, at Deloitte, said Australian banks were well aware of the deadlines and were working towards meeting them. “From the Australian banks’ perspective, the deadline is June 30, 2013. If they enter into an FFI agreement prior to that date they will be exempt from FATCA withholding on any of their own U.S.-sourced income. To enter into that FFI agreement the main requirement is that FATCA-compliant on-boarding processes must be in place. The banking industry in particular is well aware of that deadline and working towards it. Other parts of the industry might experience more pressure to get there, but on balance affected entities in Australia are taking FATCA seriously,” she said.The penalties for non-compliance are potentially severe. If the FFI is “non-participating”, the U.S. account holder is “recalcitrant” or the non-financial foreign entity (NFFE) has not disclosed its U.S. owners, then a 30 percent withholding tax may be applied to all U.S.-source dividends, interest and asset-sale proceeds. U.S. financial entities and FFIs will be liable for any tax that they failed to withhold plus interest and potential penalties.

ALB_1007.indb 24 19/07/2012 3:54:08 PM


cONcessiONs iNtrOdUced By drAft regUlAtiONsWhile the original FATCA proposals caused significant concern for the global financial services sector, however, revised draft regulations published in February 2012 contained a number of important concessions. These included an increase in the exemption thresholds applicable to existing customer accounts, potentially taking more accounts out of the scope of FATCA; and allowing for greater reliance on existing “know your customer” (KYC) processes for new customers when identifying U.S. persons.

FATCA’s focus on robust customer identification is not unique. The capacity to conduct and provide evidence for robust due diligence about the clients with whom a firm is dealing is a required core competency for all financial services firms and KYC requirements have become a standard part of account-opening procedures.

Given the current level of uncertainty about the proposed FATCA requirements, half the firms surveyed said that they had not yet updated or written new KYC policies and procedures as the practical implications were still unclear. However, 78 percent of respondents thought that the introduction of FATCA would influence the due diligence which needed to be undertaken for new customer relationships, at least to a certain extent, with some tweaks being needed in approach. Seven percent of firms had already decided that they would have to re-write their due diligence procedures completely. Similarly, nearly a third of firms said they had already had to make changes to KYC policies and procedures, while 8 percent of respondents said they had had to implement completely new ones.

Cass said that it was fairly common for on-boarding information to change on a regular basis, so in this respect FATCA was no different. The important part was to ensure the on-boarding infrastructure was sufficiently robust and flexible so that it could adapt to these changing requirements, which he said was typically the case in Australia. “On-boarding processes are generally fairly robust in OECD countries. While the information requirements change all the time, the basic infrastructure can be significantly leveraged to meet FATCA and save financial resources,” Cass said.

Cass said there were many opportunities for firms to adapt their existing systems. “We think that one of the most cost-effective ways to roll out something like FATCA and any sister pieces of legislation that might follow is through the effective recycling of what is already a very extensive regulatory and risk and operational infrastructure in Australia. Given the data architecture systems, human resources, governance and oversight that are already available, there is an enormous opportunity to recycle what is already in place, leveraging cost savings and operational efficiencies, rather than building a new project for each iterative piece of legislation,” Cass said.

Firms would also need to report on existing customers, however, and here the available data might not be sufficient to identify U.S. clients. The survey responses showed that the majority of firms had reservations, with 25 percent intending to undertake a comprehensive review to gather the customer data likely to be required. Another 58 percent were only moderately confident and expected to have to review some data, while only 17 percent of firms worldwide were confident that their customer data was accurate and complete enough to identify U.S. clients effectively. Respondents from the Asia Pacific region stood out as being the least confident in their customer data, with only 7 percent considering it sufficiently accurate and complete for FATCA purposes.

Cass said that some Australian banks might need to collect additional information from pre-existing customers. “If existing customers haven’t been asked for the information then of course you are not going to hold that on file. One of the critical issues here is that forms of identification and verification for KYC purposes may not contain sufficient information to meet FATCA purposes, so you will need to get either different or new information to meet those criteria,” he said.

cONflict With lOcAl dAtA prOtectiON lAWsThat, however, might pose another challenge which many firms, including those in Australia, will need to consider. According to the survey, half the respondents anticipated a conflict between the likely final FATCA requirements and the local data protection regulations, while a further 36 percent said FATCA would definitely conflict with local requirements.

Noble agreed that this would certainly be a consideration in Australia. “Privacy laws apply in Australia and FATCA projects will need to take into account the requirements of the privacy legislation. That can potentially affect the ability to provide information offshore or for purposes other than for which it was originally collected,” she said.

“The perspective of FATCA is that if you are someone identified as having U.S. indicia you can provide a waiver of privacy and consent to your information being provided. If you fail to do so then you may be a recalcitrant account holder and subject to withholding, but consideration of local privacy laws will need to be part of any FATCA project,” she added.

The proposed regulations released in February did, however, introduce some relief for pre-existing accounts, with de minimis thresholds limiting the range of existing clients on which such due diligence would need to be conducted. For pre-existing accounts of individuals of less than $50,000 no further due diligence will be required, and for pre-existing accounts of individuals between $50,000 and $1,000,000 firms will be allowed to mine data electronically for U.S. indicia, so firms will only need to conduct additional inquiries for accounts in excess of $1,000,000.

Nevertheless, Cass said the requirement to keep KYC information current and complete was typically considered a

ALB_1007.indb 25 19/07/2012 3:54:09 PM


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challenge by Australian businesses.Domestically and globally the remediating of customer databases to find out if you hold either hard or soft copy information on your customers to meet a regulatory or government requirement is a significant operational and costly challenge for any financial institution,” he said.

strAtegic cONsiderAtiONsFrom a strategic perspective there was a wide variation in respondents’ current thinking. While a third of firms did not expect their approach to U.S. client strategy to change with the introduction of FATCA, nearly a quarter of respondents said that they were expecting a fundamental change. Indeed, 8 percent of firms had taken the major strategic decision to terminate all existing U.S. client relationships and to turn away any new U.S. clients, while 16 percent were at least expecting to turn away any new U.S. clients. Overall, 43 percent of firms were still unsure of their strategic approach. The survey also found that 60 percent of respondents had not yet allocated a separate or specific budget to fund preparation for FATCA, despite the

potentially large costs involved for the compliance, legal, IT and tax functions, and the work which would be needed to identify U.S. persons (on a one-off and then a continuing basis), update systems and controls, collect and maintain potentially significant additional evidence and build new withholding engines. Only 40 percent of firms deemed existing resources sufficient, with a further 20 percent still unsure whether additional expert or other resources might be required. Nearly two-thirds (64 percent) of firms said they were managing the implementation of FATCA as part of business as usual or as a specific project within existing risk and control functions. Cass said the scale and complexity of the regulations would require additional funding that was unlikely to be accommodated by existing compliance budgets. “Financial institutions are cautious about the appropriation of funds for regulatory change that still isn’t certain in terms of its final form, but there will need to be a separate FATCA budget. Given the width and breadth and the change and impact of the regulations, these costs are unlikely to be contained within existing compliance budgets which are under strain from a large number of other forms of regulatory change as well. The critical issue at the moment is to know exactly what you will need and when you will need it, and that is still being played out,” Cass said.

Thomson Reuters GRC surveyed nearly 200 practitioners from firms around the world to assess their readiness for FATCA. The respondents included compliance, risk, audit and legal practitioners from across Africa, the Americas, Asia, Australasia, Europe and the Middle East. They represented firms from across the financial services sector, including banks, insurers and investment managers.

ALB_1007.indb 26 19/07/2012 3:54:09 PM

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australasian legal businessiSSue 10.728 2012 ALb IN-hOUSE 10

10IN-HOUSE

ArTiCle By oLiViA CoLLiNGS.

AlB preSenTS Our AnnuAl SHOWCASe OF THe COrpOrATe lAWyerS WHO epiTOMiSe THe vAlue THAT THe in-HOuSe prOFeSSiOn BrinGS TO COrpOrATe AuSTrAliA. SOMe OF Our Ten Are SeT TO HAve A very CHAllenGinG reMAinder OF THe yeAr - BuT We SAluTe THeir COMMiTMenT TO eXCellenCe And COMMerCiAl AdviCe, THrOuGH THe GOOd TiMeS And BAd.

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ALB_1007.indb 28 19/07/2012 3:54:10 PM


in the past 12 months the Australian economy has been shaken and stirred by regulatory change, market volatility and global instability – creating more work and new challenges for in-house legal teams. From capital raisings to litigation, takeovers to divestments; general counsels and senior in-house lawyers are there to advise on it all, often under increasingly tight budgets and shorter time frames.

AlB, with the help of long term in-house 10 partner Herbert Geer, has compiled a list of what we consider to be some of the stars of the profession. While no list can ever be truly comprehensive we believe that these 10 corporate lawyers have gone above and beyond the call of duty to assist, protect, guide and grow their employer’s business.

Andrew Clarke has in the past three years assisted Origin energy transform into a top 20 ASX company with energy operations across the country and energy contracts across the region.

in the past 18 months Clarke, with the help of his team of 30 lawyers including AlB in-house lawyer of the year daniel Krutik, have successfully purchased nSW energy retail assets Country energy and integral energy for A$3.25 billion; established GenTrader rights for the eraring and Shoalhaven power stations; launched a underwritten pAiTreO worth A$2.3 billion, which represents one of the largest such rights issues in Australian corporate history; completed the purchase of the Whirinaki peaker plant for A$33 million and undertaken a euro 500 million hybrid issue – the fi rst hybrid issue of its kind.

Clarke and the legal team also advised on the sale of 25 percent of the AplnG project (a joint venture between Origin

energy and Conocophillips) to the Sinopec Group for approximately uS$2.6 billion, as well as a supply contract for more than A$80 billion of lnG during the next 20 years. Clarke has also been busy building the legal team from four to 30 lawyers. However, never one to rest on his laurels, Clarke says he is committed to transforming and deepening the skills of the legal team so that they are able to assist the business into the future.

“There is an enormous workload behind us and an equal one in front of us, and we will not be doubling or changing our numbers in any signifi cant way,” he says. “The legal skills we will need in the next 18 months might be very different to the skills we needed in the past 18 months... The biggest job for me is to get the team effectively delivering the services the company will need.”

ANDrEW CLArKEorigin EnergyGeneral counsel and company secretary

10IN-HOUSE

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ALB_1007.indb 29 19/07/2012 3:54:12 PM


John Fitzgerald and his team provide legal support for AGl’s three operating businesses in upstream gas, retail energy and merchant energy. in addition to providing day-to-day support, the team also provides significant legal advice on the development and the contracting and trading of AGl assets.

He and his team have also managed a number of significant strategic transactions for AGl in the past 18 months. The most significant of these was the recent acquisition of loy yang A power Station and the adjacent coal mine (at an enterprise value of A$3.1 billion) and the associated A$650 million subordinated note raising and the current A$900 million renounceable entitlement issue of ordinary shares. The acquisition involved Fitzgerald and his team managing a sensitive ACCC negotiation associated with the acquisition as well as the company’s ongoing compliance with ACCC and the other requirements within the highly regulated

energy market. AGl energy has also sold its Hallett 5 Wind Farm to eurus energy for A$145 million, although it will continue to operate and maintain the facility, as well as retain the rights to all large-scale generation certificates and electricity output until 2036.

However, AGl has also had one of its projects in the Hunter come under the media spotlight as a result of community objections. proceedings were brought against the planning Assessment Commission (pAC) and AGl in the new South Wales land and environment court by the Barrington, Gloucester, and Stroud preservation Alliance in relation to the company’s Gloucester Coal Seam Gas project. The project approval was granted subject to more than 70 conditions which must be satisfied prior to project commencement. AGl plans to establish 110 wells in the region.

JoHN FiTzGErALDAGL Energy Head of legal

DAN LASTFoster’s GroupGeneral counsel and company secretary

dan last has had what can only be called an initiation by fire in the past 12 months. Having successfully assisted Foster’s Group with a demerger of its wine business and the subsequent ASX listing of that business, last assumed the title of general counsel of Foster’s Group in May last year. less than three months later, he and his management team at Foster’s were being faced with takeover proposals from international beer giant SABMiller. After several rejections by the board and a potential investigation from the Australian Takeovers panel, following a complaint by SABMiller, in december last year Foster’s was successfully sold to SABMiller for approximately A$12 billion. The company was delisted from the ASX and a new CeO was appointed.

As general counsel of the Australian division of a global company last says his and his teams’ duties have changed substantially compared to when Foster’s was a standalone company. in the coming 12 months he will be working to ensure continued transition of the business, both in regards to its new owners and its previous partner, Treasury Wine estates.

last is also acutely aware of the changing nature of the liquor industry and the potential for more regulatory involvement. “Alcohol is relatively lightly regulated compared to tobacco and gambling and we are always keen to ensure we maintain that privilege,” he says. “if you look at plain packaging around tobacco, which is a warning sign that we need to ensure that we respect our licence to trade.”

ALB_1007.indb 30 19/07/2012 3:54:17 PM


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LYNETTE irELAND Foxtel Chief general counsel

in the past 12 months lynette ireland and her team have undertaken one of the most intensive ACCC approval processes in recent history: Foxtel’s takeover of fellow subscription television provider Austar. “The ACCC approval process took close to 11 months and the process itself was extraordinarily demanding on the team,” says ireland. However, the hard work paid off, and in April the ACCC granted approval for the A$1.9 billion takeover.

even the change of CeO during the approval process from Kim Williams to richard Freudenstein did not lessen ireland’s or her team’s determination to push through the approval. “We were convinced that this was a very sensible transaction and made absolute commercial sense,” she says. “While we were always of the view that the transaction did not require an undertaking, the s87B undertaking that Foxtel provided to the ACCC was highly innovative and represented a good compromise.”Along with all the regular hurdles a transaction of its size involved, the Foxtel takeover of Austar also required a A$1.2 billion loan fi nanced by joint lenders AnZ, CBA, nAB and Westpac. As a result of the takeover, ireland’s legal team has increased to 17 staff, including fi ve new lawyers from Austar and XyZ networks (a channel production company that Foxtel acquired via the merger). “Our client base has now signifi cantly increased as a result of the merger which has really forced us to become more organised in how we service the business,” she says. “As a result, i have taken the opportunity to set up each of the Foxtel legal counsels as legal business partners where they act as the key contact within our team for a particular part of the business.” The legal team is also instrumental in Foxtel’s acquisition of broadcast rights for channels, programs and sporting events such as the AFl, the 2010 Winter Olympic Games and the 2012 london Olympic Games. ireland also oversees the on-air classifi cation offi cers, who are responsible for the on-air classifi cation of all Foxtel programs.

10IN-HOUSE

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ALB_1007.indb 31 19/07/2012 3:54:23 PM


GAiL HAMBLYFairfax MediaGeneral counsel and company secretary

Few general counsels have seen or been through the volume of change Gail Hambly has. Since joining Fairfax Media in 1993, as group general counsel, Hambly has been there to guide the company through a multibillion dollar takeover of rural press, the move to new premises in Sydney and Melbourne, the construction of a new printing operation and has worked with five CeOs, some of who have resigned in less than ideal circumstances. However, what Hambly has accomplished during this time is set to be superseded as Fairfax undertakes its most ambitious project in decades. The traditional media company is to move further away from its print heritage into the digital media world, through significant job cuts and the closing of the Chullora and Tullamarine printing facilities. Hambly, who has in her time overseen significant voluntary and non-voluntary redundancy programs at the company, will again be faced with significant ir work in the coming 12 months as Fairfax

sheds 1,900 staff as part of its Fairfax of the Future plan. negotiations with the relevant unions for those staff have already begun, but more negotiating will undoubtedly occur as the company seeks to reach its reduction in headcount targets. The company’s new Zealand operations have also been a source of activity for the legal department with the company’s sell down of online buying site Trade Me, which was bought by Fairfax for nZ$700 million in 2006.

in the past six months the media company and its management have also increasingly become the news as a result of mining magnate Gina rinehart’s significant share purchases and board ambitions. Ongoing discussions about the responsibilities of board members in allowing editorial independence are a key focus for those in the company at this point and are likely to continue to be a sticking point for some time.

MUrrAY HUNDLEBYPeabody Energy vice president and general counsel Australia

despite having only been with peabody for six months, in August last year Murray Hundleby undertook one of the biggest M&A deals in Australia in recent years; the A$5 billion takeover of Macarthur Coal.

Hundleby joined the uS-based mining giant from u.S. airline manufacturer Boeing with no prior experience in mining or energy and resources. yet, despite previous failed attempts to takeover Macarthur since March 2010, under Hundleby’s guidance the A$16 a share bid by peabody and ArcelorMittal was successfully approved by the directors of Macarthur in August and then the Foreign investment review Board in december. “Murray has had a very busy and successful year, not only working on the A$5 billion takeover, but also dealing with significant regulatory change in the coal industry,” says Freehills partner Tony

damian who worked with Hundleby on the Macarthur Coal deal. in 2011 the coal industry saw the passing of two key pieces of legislation set to dramatically impact on its profitability and operation: the carbon price and Mineral resources rent Tax (MrrT). “it is always dynamic in mining and things change very quickly in mining,” says Hundleby of the developments.

in addition to dealing with legislative and market changes, in the coming 12 months Hundleby will be also be busy assisting the business as it takes operational control of some of its mines currently operated by contractors. He is also looking to grow the internal legal team further, to better meet the future needs of the Australian business, which now accounts for more than 50 percent of peabody revenues worldwide.

ALB_1007.indb 32 19/07/2012 3:54:25 PM


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BriAN SALTErAMP General counsel and company secretary

Just over 12 months ago Brian Salter and his team at AMp were fi nalising the A$13 billion merger with AXA Asia pacifi c. Fast forward to 2012 and he and his team are fi nalising the implementation of an alliance with Mitsubishi uFJ Trust and Banking Corporation (MuTB), which has allowed AMp Capital investors to signifi cantly expand its opportunities in China and india to further accelerate its Asian expansion.

The alliance will give AMp access to 80 percent of Japan’s institutional investors, around 14 percent of its retail and high net worth banking networks and 100 retail securities brokerage branches. “Salter has played a signifi cant role in supporting AMp’s move into the Asian market,” says one top tier partner of the move.

Just recently AMp also acquired superannuation fund Cavendish Group for approximately A$20 million as part of its strategy to increase its exposure in the fast-growing self-managed superannuation fund market. AMp, which already owns rival diy administrator Multiport and has a stake in a third business, will now have about A$7 billion worth of super funds under administration.

Having successfully implemented a unifi ed legal team and established two new legal panels (a general and a commercial), Salter is again looking at how best to serve the legal needs of the business without spending more than necessary. He is to hold an international law fi rm panel tender later in the year, as AMp’s business becomes more international. “it is my responsibility to manage legal risk, that includes internationally,” says Salter. “We need to have a structured process around the selection of our law fi rms.”

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ALB_1007.indb 33 19/07/2012 3:54:27 PM


PETEr HUSToNFortescue Metals Group General counsel peter Huston and his team are undertaking a Goliath task. As general counsel for Fortescue Metals Group, it is Huston’s legal prowess guiding a High Court challenge to the Commonwealth Government’s controversial Mineral resources rent Tax. While Fortescue is by no means the only company challenging the new legislation, the challenge comes at a time when Fortescue and chairman Andrew Forrest are already embroiled in a six year legal stoush with the government’s corporate watchdog, the Australian Securities and investment Commission (ASiC) over statements to the market made by the company when Forrest was CeO between 2004 and 2005. Having successfully won the case and then lost the appeal to ASiC, Forrest and Fortescue now find themselves at the High Court and the Federal Court on two separate matters. Fortescue is arguing that the MrrT is unconstitutional on several grounds,

including that it discriminates between the states, curtails the states’ sovereignty and restricts a state’s ability to encourage mining. Huston says the MrrT curtailed a state’s right to impose royalties because of the Federal Government’s pledge to reimburse all state royalties to mining companies. Along with court appearances, Huston and his team have also been busy advising the business on significant financial loans and contracts such as the uS$2 billion worth of senior unsecured notes raised in March this year. Fortescue is also currently in the midst of a uS$8.4 bn infrastructure expansion program which will be carried out across the pilbara region until early 2013. From fund raisings and multimillion dollar contracts to High Court and Federal Court cases – it’s undeniable that Huston is set to be one of the most high profile general counsels in Australia in the coming 12 months.

DiMiTri KiriACoULACoSCentro retail Australia group General counsel

in the past year dimitri Kiriacoulacos has steered the Centro Group on the legal and governance issues associated with one of the most complex restructuring/M&A deals in Australia’s corporate history: the restructure of Centro properties Group and its managed funds; which included the sale of the u.S. business to Blackstone for A$9 billion, the A$5.4 billion aggregation of the Australian funds and launch of a new ASX listed AreiT Centro retail Australia. “The Centro Group was the most complex entity group i have ever seen,” says Kiriacoulacos. “it was complex because it was over leveraged, it had an onerous and complex capital structure, the size of the group ($20 billion in assets complicated by geographic considerations in the u.S. and Australia), convoluted co-ownership structures of two listed vehicles, funds, assets and the existence of related party issues at every major decision.” The restructure was named the insolvency & restructuring deal of the year at the AlB Awards in May. Kiriacoulacos and his team

managed the inter-conditional security holder and stakeholder approvals required for the restructure and aggregation involving the passing of more than 16 resolutions, in consecutive extraordinary general meetings, all in one day. They also facilitated the approval for schemes of arrangement to implement to restructure, despite objections and challenges from pricewaterhouseCoopers and class action litigants. “The conditions overall were intense and hostile,” says Kiriacoulacos. “But, we continued to work throughout the restructuring process on gaining the consensus of all relevant parties, working through extensive mechanics and execution steps, reinforcing to the parties that a solvent restructure was the best possible solution for all.” The recent settlement of the class actions is the final chapter for the restructure, which according to Kiriacoulacos, “involved the most complex litigation” he has been involved in, and had a multitude of cross claims and parties. it settled for a record A$200 million.

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peTer HOrTOn

WoolworthsGeneral counsel and company secretary

As a leading Australian retailer Woolworths is subject to high levels of media, political and regulatory scrutiny. As general counsel peter Horton and his team have advised Woolworths on a number of significant strategic initiatives for the company including various acquisitions and disposals of businesses; property transactions, carbon pricing, new consumer laws and managing relations with various regulators - most regularly the ACCC.

“The legal department, in conjunction with our energy procurement team, have worked with our energy suppliers to negotiate and implement a range of initiatives to reduce energy demand, cost and our carbon footprint,” says Horton. “The introduction of a carbon price of course has an impact on a wide range of other suppliers including Woolworths’ transport providers and fuel suppliers. The legal team has assisted the business to understand the impacts of carbon price in each of those business activities and made appropriate amendments to its contracts to accommodate the impacts of the new carbon price.”

in January Woolworths announced that it would close up to 100 dick Smith stores before selling the electrical chain. it has also sold eight shopping centres to a 50/50 joint venture entity owned by Charter Hall reit and Telstra Super for A$266 million and boosted its presence in the retail liquor space.

regulators have also added to the team’s work load. “There has been a significant comment from industry bodies, politicians and others including those representing interests and companies larger than Woolworths, in relation to the market segments Woolworths is involved in,” says Horton. “There has also been a significant amount of commentary in relation to Own Brand products. in turn there is increased pressure put on the regulators including the ACCC, to investigate and determine if there is substance to any of the matters raised. The result for Woolworths, and in particular the legal team, has been a significant increase in workload to prepare and coordinate the numerous responses to these queries.” The focus from the ACCC has had some key impacts on the legal department, according to Horton; including uncertainty around business dealings, significant additional internal legal and business time spent dealing with inquiries and significant additional external legal fees incurred due to responding to requests for information and amending documentation to deal with delay in ACCC response time. 10

IN-HOUSE

ALB_1007.indb 36 19/07/2012 3:54:35 PM

australasian legal businessiSSue 10.7 37FEATURE

To reform or not to reform, that is the question. Or at least that is the question on the lips of Federal Attorney-General, Nicola Roxon,

in relation to Australian contract law. The Attorney-General’s Department recently released for public comment a Discussion Paper designed to explore the scope for reforming Australian contract law. The paper seeks to stimulate discussion among businesses, legal practitioners, academics and other stakeholders about whether Australian law is fit for its purpose and prepared for the challenges of the future, particularly in terms of competitiveness for international trade.

As with many debates, there are likely to be both champions for reform and defenders of the status quo. The A-G recognises this but points out that the European Commission has identified potential gains of €26 billion from harmonising contract law across 27 member states of the European Union. She argues that this must raise questions as to whether Australian contract law is also in need of renovation and can similarly benefit from reform.

Australia’s system of contract law is derived from a mixture of different sources. It is primarily made up of common law rules and equitable principles which are developed by judicial decisions in individual cases. The basic common law rules are derived from English law. Many date back centuries. Commonwealth, State and Territory legislation has supplemented and, in some cases, altered these judge-made rules. Although the common law rules are the same throughout Australia, non-uniform State and Territory legislation means that some areas of contract law vary in different jurisdictions. In some situations, international instruments may also be

By ToNY DE GoVriK, leGAl AFFAirS & COMMuniCATiOnS direCTOr, AuSTrAliAn COrpOrATe lAWyerS ASSOCiATiOn.

in-HOuSe OBServATiOnS

relevant. This complex relationship between common law, equity and legislation and the large number of cases and statutes involved may make it difficult to discover the applicable law or to predict the outcome of a particular case. Some important issues – such as what material can be used when interpreting written contracts – remain unsettled. Contract law may also need to adapt to new technologies and ways of doing business, such as electronic contracting.

The Discussion Paper makes it clear that contract law reform is not an “all or nothing” affair. There is a wide spectrum of options lying in between “no action” and “radical overhaul”. The paper identifies three possible types of reform:•Restatement: expressing the existing law in a single text to

increase its accessibility, while making only minimal changes to the substance of the law•Simplification: changing the law to eliminate unnecessary

complexity without attempting a general overhaul•Full-scale reform: making significant changes to the substance

of contract lawThe big ticket items so far as this very broad review is concerned

include such meaty issues as harmonisation, internationalisation and codification of our contract laws. There will also be the question of whether the various Australian jurisdictions should adopt a co-operative federalism approach to reform or be party to a referral of powers to the Commonwealth to head off any constitutional challenge.

The Australian Corporate Lawyers Association welcomes the review and is presently seeking the views of its members. Whatever proposed changes might eventuate from public exposure of the Discussion Paper, ACLA would want to consider these before indicating its views on how they should be implemented. For instance, they could be implemented as an opt-in reform (so that the new rules only applied if the parties agreed that they should), an opt-out reform (so that the rules would apply unless the parties excluded them from doing so), or as a mandatory reform. Equally, ACLA would want to consider any proposed changes before providing an opinion on whether the changes should be applied to all contracts or should be limited, at least initially, to international contracts.

Any codification or other major reform of Australian contract law will have an impact on the business community. Accordingly, the input of the in-house legal profession into the reform process is vital. In-house counsel who wish to contribute to the debate are encouraged to contact Tony de Govrik at ACLA. Comments can be sent to [email protected]

Tony de Govrik

ALB_1007.indb 37 19/07/2012 3:54:36 PM

australasian legal businessiSSue 10.538 pROFILE

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ALB_1007.indb 39 19/07/2012 3:54:37 PM

australasian legal businessiSSue 10.740 WORkpLACE RELATIONS

pOliTiCiAnS And THe MediA AliKe HAve Been lininG up TO Give THe Fair Work act A THOrOuGH CriTiQue – And One reSulT iS THAT WOrKplACe relATiOnS lAWyerS Are in THe SpOTliGHT liKe never BeFOre. repOrT: rENU PrASAD

The planets have aligned and workplace relations lawyers have found themselves front and centre of one of the hottest topics in corporate Australia: employee relations in a fraught economic and political context.

Workplace relations is often described as a counter-cyclical practice and Corrs partner Val Gostencnik says that some familiar trends have begun to manifest themselves in today’s troubled environment: “Given the tough economic times, businesses have been increasingly forced to review their operations to find efficiencies or cost savings, or to review strategic direction, and often this has workplace relations implications,” he notes. ”It has also meant businesses can’t afford to absorb the costs of wages

Fair cop

ALB_1007.indb 40 19/07/2012 3:54:39 PM

australasian legal businessiSSue 10.7 41WORkpLACE RELATIONS

and conditions increases to the same extent as previous years, which has made negotiating collective arrangements a much tougher business and created an impetus amongst employers to take an assertive approach to bargaining and industrial action. On the flip side, some businesses are downsizing so we are seeing challenges to redundancies and other terminations, particularly through the use of the general protections provisions.”

There are other reasons why businesses are taking a particular interest in workplace relations. “The last 12 months has also seen legislative change in relation to safety in most states and territories, an associated focus on officer and management accountability and more rigorous debate around the suitability of the current industrial

“SO peOple SAy everyTHinG CHAnGed under THe FAir WOrK ACT BuT iT’S HArd TO puT A FinGer On iT. THe MAinSTreAM eleMenTS Are eXACTly THe SAMe.” richard Bunting, Ashurst

ALB_1007.indb 41 19/07/2012 3:54:40 PM


relations system in a two-speed economy with productivity waning in some sectors,” observes Baker & McKenzie partner Bryony Binns. All of this has two important implications for workplace relations as a legal practice area. First, it means that the level of work has increased to the extent that some practitioners have described 2012 as their “busiest year ever”, surpassing the previous peak of 2011. Secondly, it has resulted in a subtle revival of fortunes for the practice area a whole: given the level of business interest in the topic, this is an area where all the top firms want to improve their profile and to be seen as authoritative.

That hasn’t always been the case and there are some firms which appear to have run hot and cold in their enthusiasm for workplace relations over the years. The reasons may partly originate in Canberra: while some legal practice areas rise and fall on economic cycles, it might be argued that workplace relations has risen and fallen on political cycles. From the election of Howard in 1996 to the rise of “Kevin ‘07” eleven years later, successive governments have used workplace relations as a key area upon which to establish their policy credentials. It means a spike in work when there’s new legislation afoot – but correspondingly, a drop off once the environment stabilises. “We had a change of legislation back in 1996,” recalls Freehills partner Graeme Smith. “Over a long time that legislation became well known and unions became less active - probably the only area in that period that grew was OH&S. What’s changed more recently is the introduction of the Fair Work Act which has no doubt stimulated business, as has the OH&S harmonisation.”

Other factors have also reinvigorated workplace relations practices, such as high profile actions by individuals enforcing their rights. “We’ve seen some very high

profile litigation around the country taken on by individuals,” observes Smith. “Those high profile cases have stretched into boardrooms and changed the whole dimension of the importance of workplace relations.” Harmers is one firm which has been at the forefront of these high profile individual actions – two of the firm’s current clients are Commonwealth staffer James Ashby and HSU Secretary Kathy Jackson – and this state of affairs has provoked some curiosity from rivals as to whether Harmers is attempting to reinvent itself as a plaintiff firm. Harmers CEO Shana Schreier-Joffe told ALB that plaintiff claims only made up 20 percent of the firm’s work and the firm remained “very much an employer corporate advisory law firm.” “You do read more about the plaintiff stuff in the paper because our corporate clients don’t want [publicity],” she explained. “Unfortunately just because of the nature of the difference between corporate matters and individual matters, the perception might be that we do more plaintiff work – but that is not factually correct.” However, Schreier-Joffe also noted that the proportion of individual claims did rise in economically difficult times owing to the higher number of senior level redundancies.

fAir WOrk ActCertain elements of the media have been busy running campaigns against the Fair Work Act (FWA) and indeed the Commonwealth government in general. Readers will be familiar with the kind of criticisms levelled at the Act: bureaucratic, inefficient and another example of government policy failure.

Many workplace relations lawyers are not particularly enamoured with the FWA, but they also point out that the Act needs to be seen in context. Unlike other government reforms such as the carbon emissions reduction scheme or the mining tax, the FWA was not an attempt to radically reshape the policy landscape.

“A lot of the laws are essentially the same under the Fair Work Act as they were under the Workplace Relations Act (WRA) – both before and after Work Choices,” observes Ashurst partner Richard Bunting. “Take for example lockouts and when the industrial tribunal can intervene in major disputes - essentially that pattern has been pretty well settled for a long time now, for 15 years. So people say everything changed under the FWA but it’s hard to put a finger on it. The mainstream elements are exactly the same.” Other lawyers agree that there is a substantial commonality between the FWA and its predecessors. So why all the criticism? Lawyers believe that, despite the commonalities, the FWA still represents an important variation of the terms of the old legislation – for example, on the use of AWAs.

“One particular thing the WRA had which the FWA doesn’t have is the possibility of using AWAs,” says Bunting. “That would be pretty irrelevant in a highly unionised dispute because you wouldn’t be able to just wave AWAs around and get a different outcome – but in some areas, notably the hard rock mining environment in WA or NT or SA that was a significant point: while unions had exactly the same rights as they had now, employers had other options. They could instead go down an AWA path and in a highly paid environment like mining in those states that may have proved very successful. Also, there used to be state systems – they’ve now been eliminated – in some states they added another dimension but they were eliminated under Work Choices.” Freehills’ Smith provides a further example: “ Under the old legislation an employer could lock out in anticipation of a dispute – now you can only lock out in response to a dispute,” he observes. “Does that decrease the level

“JuST BeCAuSe OF THe nATure OF THe diFFerenCe BeTWeen COrpOrATe MATTerS And individuAl MATTerS, THe perCepTiOn MiGHT Be THAT We dO MOre plAinTiFF WOrK – BuT THAT iS nOT FACTuAlly COrreCT.” Harmers CEO Shana Schreier-Joffe

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of disputation? Probably not, as it removes a weapon the employer had in the armoury. Unions would have previously proceeded more carefully because the employer could lock them out [in anticipation of a dispute] – now the employer has to wait until there is industrial action before they can do so.”

priMed fOr dispUtesSome lawyers believe that the terms of the FWA have encouraged unions to take a more aggressive approach to disputes. Certainly there has been no shortage of high profile examples: the Maritime Union of Australia’s waterfront disputes with DP World and Asciano; the Schweppes lock-out at Tullamarine; BHP Billiton Mitsubishi’s continuing stoush on the Queensland coalfields and perhaps most infamously of all, Qantas grounding its own planes.

Little wonder that Freehills, which has been advising on all of the above disputes, is having a record year of activity in its workplace relations practice. “We’ve seen an environment where disputation has increased, but particularly around bargaining,” says Graeme Smith. “If you look at the volume of bargaining related issues going through Fair Work Australia, the volume is very high. You only have to pick up the list on any day and see the number of bargaining disputes: a lot of those centre around secret ballots, industrial action, conciliation, trying to sort out matters before they get to protected industrial action and in more recent times you’ve seen applications to terminate protected industrial action.”

But to what extent is the FWA to blame for the increased level of disputation? While lawyers draw a causal link between the provisions of the Act and a certain “spring in the step” in union behaviour, there is also an acknowledgment that many high profile disputes had been simmering for years and were always going to erupt, regardless of the legislative regime which was in place. Qantas, for example, faces fundamental structural issues and global competition challenges which were always going to place it on a collision path with unions. “Disputes such as Qantas were always going to come up,” concedes Smith.

And it is not only employers who are facing structural challenges. Unions too are dealing with declining membership numbers and may have felt a strategic imperative to become more aggressive – particularly given the improved capacity to move under the Act. “We’ve seen the re-empowerment of trade unions,” says Smith. “They feel it’s time to make a mark and rebuild membership and the best way to do that is to make yourself relevant at an enterprise level and through enterprise bargaining.”

And now is the right environment for unions to try and demonstrate their relevance and build membership. “The right of entry has been profoundly changed – previously unions could only exercise a right of entry if they had award or enterprise agreement coverage: they were pretty much for incumbent unions, not aspirant unions,” says Bunting. “But now all a union needs to show is that there are people working on that site with eligibility for membership of the union. So it’s pretty much open slather for any union to go to any workplace anytime they like.”

Employers under pressure, unions under pressure and an Act which has in subtle ways redressed the power balance between the two. The FWA may not be the cause of the heightened tensions in the perennial struggle between workers and employers – but according to lawyers, it may not be the cure either.

Bunting, for example, sees the Act as a “continuum” of the previous regime, but adds that he has found it cumbersome. “The

To read more commentary from these lawyers about the rivalry between top tier, mid tier and specialist firms in this practice area, please refer to the analysis piece on page 14 of this issue.

Bryony Binns, Baker & McKenzie

Val Gostencnik, Corrs Chambers Westgarth

Graeme Smith,Freehills

Andrew Gray, King & Wood Mallesons

Alice DeBoos, Middletons

Shana Schreier-Joffe,Harmers CEO

Heidi roberts, Corrs Chambers Westgarth

richard Bunting, Ashurst

ALB_1007.indb 44 19/07/2012 3:54:48 PM

australasian legal businessiSSue 10.7 45WORkpLACE RELATIONS

Act has proven more bureaucratic, a bit stultifying; it has a narrower range of options and has driven a more bureaucratised approach,” he says. However, he is not convinced that the often cited criticism that the Act fails to promote productivity is particularly apposite. “It’s true the Fair Work Act doesn’t assist with productivity, but then neither did the predecessor Act,” he says. “Productivity is just not a criterion which the Act allows Fair Work Australia to take into account when certifying collective agreements or in any of its processes. It’s not an issue for the commission; it’s an issue for the employer.” The FWA is emblematic of many of the problems faced by the Gillard government in implementing policy: it is unloved, not always fairly analysed in public debate and a victim of an aggressive political and industrial relations environment. And like many other Gillard initiatives (carbon tax, anyone?) the Act faces an uncertain future: a change of Commonwealth government is likely next year and while the current Opposition is yet to unveil its own workplace relations policy, it is widely presumed that some kind of reform will be attempted at some stage in the future.

So how does one attempt to provide legal advice in this uncertain environment? “I’d advise employers to proceed on the basis of the status quo,” says Bunting. “Even if there is a change of government, that doesn’t mean a change of legislation. The Opposition is clearly taking a conservative approach on the matter – they haven’t yet declared they would change anything and even if they wanted to make changes, they may not control the Senate. So I would advise by reference to the status quo. The life of enterprise agreements is not that long, at any rate – the maximum is four years and that goes

by very fast.” In an observation which will resonate across many other practice areas, Bunting makes the point that life is too short to be in a permanent state of policy anticipation. “The legislation is relevant but you can’t be too driven by it,” he says. “Employers would be well advised not to be too driven by legislation – they have their own approaches to the workforce, unions, how to run business which comes from sources other than legislation. Legislation is a means, not an end.”

THe lAST 12 MOnTHS HAS AlSO Seen leGiSlATive CHAnGe in relATiOn TO SAFeTy in MOST STATeS And TerriTOrieS, An ASSOCiATed FOCuS On OFFiCer And MAnAGeMenT ACCOunTABiliTy And MOre riGOrOuS deBATe ArOund THe SuiTABiliTy OF THe CurrenT induSTriAl relATiOnS SySTeM in A TWO-Speed eCOnOMy.Bryony Binns, Baker & McKenzie

ALB_1007.indb 45 19/07/2012 3:54:48 PM

australasian legal businessiSSue 10.746 FEATURE

MorALiTY AND THE FAir WorK ACT: litigation Doesn’t cost enougH.

THe STATuS OF FAir WOrK AuSTrAliA AS A “nO-COSTS” JuriSdiCTiOn iS CreATinG A neW Breed OF veXATiOuS liTiGAnT WiTH nOTHinG TO lOSe, ArGueS MillS OAKley pArTner ADAM LUNN

Just as the moniker of a former US President is synonymous for the internal struggle between morality and cost; so too, it may be said, is the

title of one of our fundamental legislative instruments, the Fair Work Act.

So far as we are concerned, long gone are the days of the Dickensian workhouse and the mace wielding beadle; and there are few employers who would genuinely question the morality of the advancements that have had such a positive effect on the rights of most employees and workers over the course of the past hundred or so years. By and large, the entitlements of the employee of the 21st century are indeed fairer than those enjoyed by Mr Twist and his comrades.

There are probably almost as few employers who would, in good conscience, argue that a return to the funk of the workhouse would be morally justifiable or even economically desirable. However, given the persistence in some parts of the market of unscrupulous work practices, whether by design or through ignorance, we can fairly assume that by and large, there is general acceptance of the need for legislative intervention to preserve as

reasonably as possible, if not enshrine, generally accepted modern concepts of employee rights and entitlements. Thus, the Fair Work Act, and indeed its predecessors, for better or worse.

Regardless of one’s political persuasion it is a reasonable assumption that in enacting legislation to regulate rights between employees and employers, it is usually the intention of our legislators to endeavour to achieve that elusive balance between the morality of ensuring there is no return to the workhouse against the cost to the employer and the economy of achieving the balance sought. There are, of course, a variety of views as to where the balance lies, but that is a matter for the electorate to determine from time to time.

Taking a sideways step for a moment, it is a cornerstone of our legal system that, vexatious litigants aside, one is pretty much entitled to bring whatever claim (or defence), whether well founded, ill-conceived, entirely spurious, even fictitious, that they may choose to bring, against whomever they choose; subject of course to the overriding governor that vengeance may be exacted by the other party in the form of a particularly nasty costs order if the position advanced was ill-conceived, entirely spurious or fictitious and, consequently, it might be said, devoid of morality.

How then do we reconcile the status of Fair Work Australia as a “no-costs” jurisdiction?

Well, on the one hand, it is somewhat mischievous to suggest that Fair Work Australia is entirely a “no-costs” jurisdiction. Indeed our legislators have incorporated a number of provisions in the Fair Work Act that permit the imposition of costs penalties upon litigants (and indeed their lawyers) in the event that a claim or a defence is (using loose terminology) ill-conceived, entirely spurious,

ALB_1007.indb 46 19/07/2012 3:54:51 PM

australasian legal businessiSSue 10.7 47FEATURE

fictitious or otherwise without merit or morality. (I might add that it is not without some trepidation that I have committed to paper on this topic, lest it may be seen as an invitation to their Honours to demonstrate a greater willingness to test the extent of their powers upon the author.)

On the other hand though, the reality is that in Fair Work Australia it is only in quite limited circumstances that a costs order may be imposed. The irresistible juxtaposition goes something like this: The usual common law principle is that costs will be awarded against the unsuccessful party and a particularly nasty costs order will only be made in limited circumstances. In Fair Work Australia, a costs order will only be ordered if the circumstances are particularly nasty. So, whilst a party considering bringing a claim through the courts has a powerful incentive to consider the merits and morality of their claim, a party considering bringing a claim (or entering a defence) in Fair Work Australia is, for all intents and purposes, under no such imperative. Indeed, it might be argued that a “what the hell, we’ve got nothing to lose, let’s go for it” imperative prevails.

Now, for a very large number of matters, for a very large number of parties who have precious little means to prosecute a genuine claim in a costs jurisdiction, the no-costs approach is a very useful and indeed powerful, tool. It is almost always the case that there is a significant imbalance between the ability of respective parties to sustain litigation and in circumstances where the consequence of the litigation may be relatively insignificant to the party in whose hands power resides, a no-costs approach provides significant encouragement to that party to simply pay up and move on. This approach would, presumably be acceptable to most parties (albeit begrudgingly for some) and acceptance might be enhanced if there could be a greater degree of comfort that costs orders would in fact be made in the case of particularly nasty circumstances. For the moment, let’s say that these matters are, by and large, the unfair dismissal matters and for the balance of this note at least, let’s work on the assumption that there is probably no particular need to disturb the status quo on those claims (save perhaps to encourage their Honours to consider an occasional flexing of muscle against real miscreants).

However, Fair Work Australia is increasingly being presented with matters in which the potential consequences for all parties are not insignificant and all manner of claims are being instituted by relatively pecunious parties, safe in the knowledge that, on the whole, it’s still a “what the hell, I’ve got nothing to lose” jurisdiction.

The General Protections provisions are a pretty good analysis of what most would regard as fairly fundamental workplace rights and there seems to have been a positive increase in general

awareness (at least on the employee side) as a consequence of the introduction of the National Employment Standards and the General Protections provisions.

Whilst most of us in the game anticipated that the introduction of the adverse action regime would open the flood gates within a month or two of the introduction of the Fair Work Act, it ended up taking the better part of a year for the gears to be cranked. Perhaps that is because it took that long for awareness to develop and for the claims to filter through. Now though, there appears to be a preponderance of employees earning above the high income threshold (dismissed or wanting to “assert their rights”) whipping adverse action claims out of their back pocket alleging all manner of workplace rights and any number of adverse actions against those rights, real, fictitious, spurious, ill-conceived or occasionally immoral.

This is all well and good; in a world in which the party concerned is first required to consider the merits of bringing a claim against the risk that there may be a price to pay that extends beyond the inconvenience to one’s self for doing so and in which the onus is upon that party to prove their case (which is not the case in adverse action claims). Indeed, it is open to employers to take similar action, though in reality there are corporate governance principles that tend to work against this happening. In the practical absence of a costs penalty, there are no such principles governing the individual.

So, employer and former employee march off to conciliation, ka-ching, conciliation fails and the parties head off to court, ka-ching, ka-ching. A gazillion in fees later, ka-ching, ka-ching, the decision goes one way or the other in court; but still, unless the circumstances are particularly nasty, no costs order. Where’s the fairness in that? For the employer who has had to defend a claim without merit? For the employee who has had to pursue to the ends of the earth a perfectly reasonable claim?

The National Employment Standards and the General Protections provisions do, as mentioned above, provide a pretty good roadmap for employees and employers to follow in the continuing search for the balance between morality and cost. However, with the practical absence of costs consequences, does the Fair Work Act do its best to help the parties find that balance? Close, but no cigar.

THere AppeArS TO Be A prepOnderAnCe OF eMplOyeeS eArninG ABOve THe HiGH inCOMe THreSHOld WHippinG AdverSe ACTiOn ClAiMS OuT OF THeir BACK pOCKeT AlleGinG All MAnner OF WOrKplACe riGHTS And Any nuMBer OF AdverSe ACTiOnS AGAinST THOSe riGHTS, reAl, FiCTiTiOuS, SpuriOuS, ill-COnCeived Or OCCASiOnAlly iMMOrAl.

ALB_1007.indb 47 19/07/2012 3:54:51 PM

australasian legal businessiSSue 10.748 OpINION

once again industrial relations reform is the subject of political debate. This is not a surprise. It started with the foundation of

the Labor Party in 1891 and since federation in 1901 it has been a perennial. While the industrial wing of the labour movement underpins the political wing it will be ever so. The coalition government was reminded of this Australian political axiom in the Kevin ‘07 election.

Our peculiar institution is of course industrial tribunals which administer compulsory conciliation and arbitration for the prevention or settlement of industrial disputes, and a guild or industry industrial awards system of a quasi legislative kind.

In 2006 the coalition delivered legislative power to the Commonwealth, in the so called Workchoices reforms, until then a power mostly the domain of the states. The High Court of Australia abandoned a black letter view of our constitutional arrangements and was persuaded that 22 million Australians did not need seven wages tribunals. Who can say that was wrong?

The coalition however delivered legislative competence in this field to both sides of politics. For reasons which it does not publically articulate, the coalition sought, in part at least of its reform, to emasculate the trade union movement. Consistent with Newton’s third law of thermodynamics, the Labor Party on gaining power legislated a return to a legal super-structure which re-enfranchised the trade union movement.

Until recently it may have been thought that the coalition had neutered itself on the

issue of so called IR reform; assuming it had, such was never going to last. Recently it was again added to the list of political issues and so, here we go again.

Industrial law practices are busy. Lawyers have had some role since federation. The sheer bulk of regulation and level of complexity, for which Commonwealth legislation is renowned, irrespective of which party occupies the treasury benches, means legal practitioners will remain gainfully employed even with restricted rights of appearance.

Reform of our industrial laws which keeps abreast of changes in the way work is done and changes in the labour market is necessary. Reduced protectionism, the demise of single income households, female participation, casualisation and the rise of social welfare have driven essential reforms. Reduction in union membership in the private sector was a result of the way work was being done in our tertiary economy. The focus on the welfare of the enterprise and enterprise bargaining, engendered by the Hawke-Keating reforms commencing in 1983 was a consequence. Enterprise bargaining substituted for industry or guild award bargaining.

The recent focus on modern awards is fundamentally atavistic. Whether modern awards survive into our industrial future is moot. Not such a radical a thought when one has regard to two considerations; firstly awards are designed to create a basic level of entitlements. Secondly, our 122 modern awards set standards notable for what those awards have in common, rather than in difference.

Reforms driven by ideology, of either the right or the left, typically make for bad law. The Commonwealth could learn much from the states. In the states, expressed broadly, the amplitude of the swing of the reform pendulum for 25 or so years prior to Workchoices was modest. The industrial statutes were better drafted and the degree of regulation less. It is worth remembering by illustration, that in New South Wales there was no legally sanctioned right to strike and therefore no necessity for the plethora of rules and regulations facilitating such a right: apostasy or a thought to be conjured?

As to form; the Australian Constitution can no longer be proffered as an excuse for turgid Commonwealth industrial legislation. As to substance; a refocus on the welfare of the enterprise and easier access to arbitration might reduce the amplitude of the reform pendulum for our Commonwealth.

our peculiar institution

THe SMell OF induSTriAl relATiOnS reFOrM iS in THe Wind – And A liTTle leSS pArTiSAnSHip And A liTTle MOre FOreSiGHT Will GO A lOnG WAy, WriTeS MiddleTOnS pArTner BrYAN BELLiNG.

ALB_1007.indb 48 19/07/2012 3:54:52 PM

ERT AWARDS

2012

AlB is delighted to announce details of its inaugural AlBerT (Berties) Awards 2012. Focusing on corporate social responsibility, the Berties aim to recognise fi rms that are actively connected to the contemporary world of work, the care of the environment and ethical business practices.

Fostering a culture of social responsibility within the legal profession, the Berties will highlight the efforts and achievements of some of Australia and new Zealand’s most progressive law fi rms.

The Berties will be judged by an independent industry panel of judges.

Categories award excellence in: diversity, pro-Bono, environment & Sustainability across large and mid sized fi rms in Australia and new Zealand.

nominations close 27th August 2012

To nominate visit: www.legalbusinessonline.com.au

To fi nd out more informati on contact Paul Ferris on 02 8587 7114

ALB_1007.indb 49 19/07/2012 3:54:53 PM

australasian legal businessiSSue 10.750 pROFILE

A hUMBle gc MUrrAY HUNDLEBY, PEABODY ENERGY AUSTRALIA

FOllOWinG A SuCCeSSFul CAreer in THe AviATiOn And TrAnSpOrT SeCTOrS, MUrrAY HUNDLEBY iS nOW ApplyinG HiS SKill And ApTiTude TO ASSiST leAdinG COAl COMpAny peABOdy enerGy AS iT nAviGATeS iTS WAy THrOuGH A neW pOliTiCAl envirOnMenT, repOrTS oLiViA CoLLiNGS

it seems fi tting that Murray Hundleby ended up working for American corporations. The current vice president and general counsel Australia for

Peabody Energy spent a year in Minnesota at the end of high school in the heart of the Mid-West. “I absolutely loved it,” says Hundleby who originates from Christchurch. “The people were welcoming, hard working, honest, fun and with great values.”

After a private practice career which included Christchurch, London and Sydney, Hundleby went to work for the Federal Airports Corporation, a role that led to his appointment as the Australian general counsel of American-based airline giant Boeing. As the Australian chief legal counsel for Boeing, Hundleby spent a lot of time in the United States and was even seconded to the airline maker’s headquarters in Seattle for almost two years. When the company’s activities in Australia contracted, Hundleby sought other opportunities and quickly found himself at Peabody. “I had been in the

IN-HOUSE PERSPECTIVE

aviation industry for a long time, I was very comfortable there,” says Hundleby. “Coming into a new industry has been very challenging but in a stimulating way.”

Peabody is the world’s largest private-sector coal company, servicing customers in more than 25 countries on six continents around the world. In late 2011 the size of Peabody’s Australian operations increased considerably following its acquisition of Macarthur Coal for A$5 billion. “It was a team response,” says Hundleby of the acquisition. “It’s good to be leading the legal team in Australia during this period of growth and increased international demand.” The transaction was named Energy & Resources Deal of the Year at the ALB Awards in May. Peabody’s Australian operations continue to account for approximately 50 percent of the company’s profi t.

No man is an islandHaving only been at Peabody for 10 months, Hundleby relied heavily on his team and external lawyers during the acquisition of Macarthur: “We are lucky in that one of the team’s senior lawyers Chris Chambers is a very experienced and hard working M&A lawyer … He was an invaluable contributor,” says Hundleby. “We also had assistance from specialists in our U.S.- based law team, led by Alex Schoch, our global chief legal offi cer – and of course our external lawyers – Freehills led by Tony Damian. Overall though, it was a great team effort from our law team members and support staff.”

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australasian legal businessiSSue 10.7 51pROFILE

From l to r: Chris Chambers – Senior

Counsel Corporate, Diana Farrelly - Senior Counsel

Operations and Murray Hundleby - Vice President

ALB_1007.indb 51 19/07/2012 3:54:55 PM

australasian legal businessiSSue 10.752 pROFILE52 pROFILE

Following the Macarthur Coal acquisition, all members of Macarthur’s legal team were offered roles at Peabody, and most of them took up the opportunity. “We are now one unified law team working across the expanded enterprise,” says Hundleby. The team of 10 lawyers is structured so that specific lawyers are designated to particular mining operations: “One of the things I was particularly interested in doing after joining Peabody was organising the legal structure so that we had lawyers focused on particular mines, so that we were not just a corporate head office operation.” In addition to having operational lawyers, the team also has lawyers dedicated to corporate infrastructure and M&A work, as well as coal sales and coal trade.

Shortly after the acquisition the entire legal team went to Phoenix for an all-of-Peabody legal conference. For Hundleby, the timing of this conference could not have been better as it gave his new team members as well as the existing Peabody lawyers the opportunity to get to know each other better, and to meet the rest of the legal group face-to-face. “We got to learn about each other and more about the company,” he says. “Having met face-to-face, it is much easier to be able to pick up the phone and work well together.”

The legal conference is just one example Hundleby cites to illustrate the approach Peabody takes to business and staff. “Peabody provides a very good environment – the people are very open, work very well with other teams internally and there is a lot of communication between the U.S. and Australia,” he says.

Having now fully integrated the team, Hundleby says his next project is to grow the team: “I would like to add a few internal lawyers, to match the growth of the business. It would also be more economical to do a little bit more work

in-house than what we have been able to do in the past,” he says. In addition Hundleby would also like to further embed the team in the business. “This is my fourth general counsel role, and in all companies I have worked in there are pockets of resistance to engage the legal department, so it is up to me and my team to win the hearts and minds of our colleagues to the point where they want to engage with us early and seek us out for our input”. He adds that he knows the legal team is working well when they are being consulted by all levels of management for individual judgments, not just legal issues.

Bigger and busier Having successfully integrated the internal legal teams of Peabody and Macarthur Coal, Hundleby is now looking to also unify the existing external legal providers of the former two companies. “One of my jobs over the next few months is to set up a tender for a legal panel of external lawyers, so that we can optimise spend, get the right synergies and not lose the knowledge that some of these lawyers have about our business,” he says. When and what the tender process will involve is yet to be finalised by Hundleby who is eagerly watching the legal market and its recent bout of international arrivals. “It’s an increasing consideration; there have certainly been times in my short tenure at Peabody where there has been a connection between the U.S. operations and a particular law firm, which also operates in Australia,” he states. “In a few years time you could see us more closely aligned internationally, but I think it is still too early to realise. I think many in the market are still watching to see how it all comes together.”

In addition to the panel review, there will also be ongoing corporate and project work at the company to keep Hundleby and his team on their toes. “A couple of our mines which had previously been operated by contractors are transitioning to become owner-operator by Peabody, which will mean a lot of work for us and the managers of the business,” he says.

However, these are only a small piece of the puzzle for the coming year; a raft of legislative changes and an ever changing economic environment are also set to test the skill and capability of the Peabody legal team. “It is always dynamic in mining and things change very quickly,” says Hundleby. “There are frequent legislative changes – we will continue to adapt to ensure our business remains aware and legally compliant.”

Indeed, since joining Peabody Hundleby has seen the introduction of two key pieces of legislation set to directly impact on the business, the Mineral Resources Rent Tax and the carbon tax. “It seems there are always challenges and opportunities in mining,” says Hundleby. “We have done everything we can to prepare for those new taxes legally. Our in-house tax department is very skilled and we are supporting them. It is important to note that the core of our law support is to ensure that we advise the business as appropriate to maximise and optimise operations in a legally compliant way, at the same time ensuring all safety and health requirements and environmental goals are fully met.”

Given the speed and number of legislative changes in Australia Hundleby says in the past year his external legal advisors have been able to assist him and the team by keeping them abreast of what the changes are and their exposure to them. “As we are often time poor, they can provide us with the information we need in a considered manner that is easy for us to digest,” says Hundleby. “One of the things I believe law firms are good at, is keeping us abreast of what is going on by way of new legislation.”

“One OF My JOBS Over THe neXT FeW MOnTHS iS TO SeT up A Tender FOr A leGAl pAnel OF eXTernAl lAWyerS, SO THAT We CAn OpTiMiSe Spend, GeT THe riGHT SynerGieS And nOT lOSe THe KnOWledGe THAT SOMe OF THeSe lAWyerS HAve ABOuT Our BuSineSS.”

ALB_1007.indb 52 19/07/2012 3:54:55 PM

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ALB_1007.indb 53 19/07/2012 3:54:55 PM

australasian legal businessiSSue 10.754 AgRIbUSINESS

FielD oF DreamsAuSTrAliAn lAW FirMS Are inCreASinGly AnXiOuS TO JuMp On THe AGriBuSineSS BAndWAGOn – BuT Will THiS reneWed FOCuS pAy dividendS? repOrT: rENU PrASAD

The grasslands of North Australia’s tropical savanna stretch from Broome in the west to Townsville in the east. The area is not particularly well known for its fertile

soils, but last summer at least one potent seed managed to take root: the media became rather excited that this zone could become Australia’s next food bowl and the Federal Government foreshadowed the possibility of policy changes to allow large-scale agricultural investment by China in the area.

There are parallels between this project and the experience of the legal industry with agribusiness: the potential is obvious, but the details are still somewhat sketchy. When the resources industry rose to prominence as a driver of Australian M&A a few years back, lawyers were quick to nominate agribusiness as the next boom area for inbound investment. It hasn’t quite happened like that yet – but those with an understanding of demographics and China’s purchasing power are quietly confi dent that it’s just a matter of time.

tOp tier hits the fArMAs a legal practice area, agribusiness is in danger of going down the same path as mining & resources: it’s one of those fashionable concepts that will probably appear on every fi rm’s website at some point in the future, but what exactly is meant by “agribusiness” and what kind of legal services it entails may vary from fi rm to fi rm.

This is an area that has somewhat modest origins and mid-size fi rms have been active in agribusiness for years. Firms such as Piper Alderman, McCullough Robertson, Holding Redlich and Kemp Strang have long been involved with typical rural issues such as buying and selling properties, water rights and more recently dealing with farm assets under the Personal Property Securities Register.

McCullough Robertson actually started life as a pure agribusiness practice, although it’s long since moved onto agri-deals and broader corporate work, such as Cofco’s acquisition of Tully Sugar last year.

ALB_1007.indb 54 19/07/2012 3:54:58 PM

australasian legal businessiSSue 10.7 55AgRIbUSINESS

ALB_1007.indb 55 19/07/2012 3:54:59 PM


But where exactly does the top tier come into the picture? This is not a new area for these firms either, but what may be new is the idea of agribusiness as a strategic high level focus area. While each firm may have different motivations for wanting to be involved with agribusiness, it would be fair to say that a key driver at the top tier level is the expectation of increased inbound foreign investment in the Australian agribusiness sector.

“You’ll find a lot of M&A and corporate partners have an eye on this space – that’s probably the main area of interest from our perspective,” observes Freehills partner Tony Damian. “Agribusiness [legal practice] has been around for a number of years, but certainly it’s been on our radar more in the last 2-3 years – we’re seeing more attention on it now.”

The analogy between agribusiness and the resources sector is clear: while both are sectors where an intimate understanding of the particular industry-specific challenges is vital, it may be the transactional and the M&A expertise where the large firms really make their mark. However, it is also true that firms such as King & Wood Mallesons are investing a good deal of time in promoting their capabilities in the non-transactional aspects of agribusiness too; the firm’s Agrithinking bulletin is typically thorough in scope. When ALB paid a call on the KW Mallesons offices recently, partner Scott Bouvier and his team were in the final stages of organising a CLE session on agribusiness-related topics, to be attended

by 150 lawyers. Clearly this is an area which is viewed by Mallesons as more than simply an appendage to the M&A practice and there may be structural reasons for this: last year the firm introduced a new system which organised lawyers into industry sectors in additional to the traditional practice area groups. Agribusiness is a headline sector alongside consumer and retail business. “We’ve had clients in the agribusiness sector for a long time, but it wasn’t a coordinated national practice before [the reorganisation],” observes Bouvier.

regiONAl cONtextWorld population is predicted to grow by two billion people over the next 40 years, with Asia and Africa the key growth continents. China in particular will be a crucial case: the nation has 20 percent of the world’s population, yet less than 10 percent of the world’s arable land and only a little over 5 percent of the world’s fresh water. Will China turn to overseas investment as a way of feeding its burgeoning population?

The Chinese government takes pride in the extent to which the nation has become self-sufficient for much of its food needs. In a 2012 report to the United Nations General Assembly, Special Rapporteur Olivier De Schutter praised the country’s progress in agricultural productivity, which has seen the country move from a food aid recipient to a food aid donor in recent years and achieve a grain self-sufficiency rate of 95 percent.

However, De Schutter also noted that the country still faced significant challenges including continuing food insecurity within poorer areas and increasing land degradation. The report found that China had lost 8.2 million hectares of arable land since 1997 and that this shrinking of arable land represented “a major threat to the ability of China to maintain its current self-sufficiency in grain.” Water also looms as a major challenge and there are wider regional implications too. More than a quarter of China is classified as desert and plans to divert rivers for hydroelectricity have caused consternation in downstream India.

Even if China does successfully maintain its food self-sufficiency, there is still the prospect of a substantial level of imports of foods which the Chinese have opted, for one reason or another, not to produce themselves. Soybeans – popular as a source of livestock feed as well as for human consumption – are one example of a commodity market which has been fundamentally transformed by Chinese demand and there is an expectation that corn will follow suit.

Ultimately, investment driven by the need to feed the world’s growing population can be seen from two perspectives: first,

AUstrAliAN trOpicAl sAvANNA regiONs

source: Charles Darwin University, Tropical Savannas CRC

“CHinA in pArTiCulAr Will Be A CruCiAl CASe: THe nATiOn HAS 20 perCenT OF THe WOrld’S pOpulATiOn, yeT leSS THAn 10 perCenT OF THe WOrld’S ArABle lAnd And Only A liTTle Over 5 perCenT OF THe WOrld’S FreSH WATer.”

ALB_1007.indb 56 19/07/2012 3:55:00 PM


there is the possibility that emerging economies may not have the means to produce even the basic staple foods for themselves and will need to source these from elsewhere. Secondly, and perhaps of more immediate relevance to Australia, are the changing tastes of the growing Asian middle class and a new demand for meat, dairy, wines and other products more commonly associated with the West. This is not simply a case of “selling the farm” – it is also a case of selling a particular lifestyle and the produce, technology and consumer branding which goes with it. Land, intellectual property and collaterals such as fertilisers are all part of this equation, as well as the basic commodities themselves.

deAlflOWThe Australian agribusiness landscape is dotted with significant deals of both domestic and cross-border nature. Examples at the time of printing included Qatar-owned Hassad Australia purchasing 40,000 hectares of grazing land on the South Australian-Victorian border and Hangzhou Wahaha Group planning to spend up to A$220 million on dairy farms in Western Australia.

But it may be more useful to look off-shore to understand the real strategic significance of agribusiness and how this sector can drive the mega-deals: transactions such as BHP’s hostile US$40 billion bid for Potash Corp in 2010, motivated by increased demand for fertilizer to feed the global population or, more recently, commodities trader Glencore’s acquisition of Toronto-listed grain trader Viterra for US$6 billion and Japan’s Marubeni acquiring grain trader Gavilon for US$3.5 billion.

These are long term strategic investments made with one eye on the growing Asian middle class: the Gavilon deal, for example, is said to have been motivated by the prospect of servicing the growing Chinese demand for corn.

“You can point to a global trend here – it’s gathering momentum and has the attention of serious players,” says Damian. “These are long term investors and they’re thinking about what industries they should be in – not in five weeks or months time, but in five years time. Where is the strategic push? So these deals are significant deals that demonstrate that those players believe agribusiness is something they should be involved in.”

The other side of the story is that agribusiness, perennially rated

as a top potential driver of Australian deals by M&A commentators, has fallen well short of the hype to date. Agribusiness dealflow is on the rise, but not in any dramatic fashion. It’s a point readily conceded by Damian. “It’s an important sector; we will see more deals than we have but in the final analysis when you stand back and look at M&A in resources, M&A in the general industrial space, I’m not sure by deal number that we are going to get swamped by the number of agribusiness deals,” he observes. “I agree that it’s gone up, there are some other agribusiness deals that look likely candidates at some stage, so it will continue to be active and important. It certainly will get more than a fair share of airplay with press and politicians.”

AggregAtiONDespite the persistent stereotype of the small acreage “mum and dad” farm, the truth is that farming has not proved to be immune from broader industry trends; particularly the need to consolidate, innovate and vertically integrate to remain viable.

“The challenge is that a lot of the [Australian agribusiness industry] is disaggregated – there is still a lot of it in family hands and it hasn’t been vertically integrated,” says King & Wood Mallesons partner Meredith Paynter. “What we’re now on the brink of is a quite widescale opportunity for transformation in the size and scale of businesses both horizontally and vertically. That needs money, so there’s the scope for a different form of investment to generate that transformation.”

Scott BouvierKing & Wood Mallesons

Meredith PayntonKing & Wood Mallesons

Tony DamianFreehills

ALB_1007.indb 57 19/07/2012 3:55:09 PM


A recent example is a joint venture between international food producer Cargill and Australia’s second largest beef processing company, Teys Bros, which saw the integration of a range of meat processing and beef assets. “That’s a story which involves a successful combination of a family business seeking more capital to scale up, and a global conglomerate wanting to expand their reach into an established sector,” observes Scott Bouvier. Paynter adds that there is a clear international angle too. “It’s a good example of the global interest in our market and its potential; they’re participating in what is actually on its face a domestic JV – but they’re not doing it just for the domestic market,” she says.

vAlUe AddIf there was ever a sign that we live in fortunate times, it can surely be found in the fact that the current agribusiness discussion in Australia is largely shaped not around war or famine, but a more amenable question of consumer preference. It is this part of the equation that has most interested lawyers, who point out the value of agribusiness deals does not lie solely in the land or commodity in question, but in the “value add” which Australians can contribute.

This may take the form of developing specialised produce for particular markets – for example, premium grade tuna or variants of Wagyu beef for the Japanese export market – through to developing new export brands, such as premium wines.

“Look at the success of Yellow Tail – that’s entirely an international brand that’s not seen on Australian shelves,” says Paynter. “It’s a good demonstration of how the value of a brand can generate global demand for a product that otherwise probably wouldn’t be available for sale.”

It’s another manifestation of the old “innovate or perish” imperative. “If we are to have a manufacturing base that survives the current pressures with the Australian dollar and other domestic demand challenges, it will be by adding value that is relevant to the region – moving away from commoditisation to processed value added products, whether branded or not, for which consumers are prepared to pay that price differential,” says Paynter. It is clear that intellectual property is an important part of this process. “It’s not as simple as buying land,” says Paynter. “You need a management team and you need a way to market – so literally just buying the assets will not be sufficient to achieve the investment outcome. Foreign investors are not just investing in the land; they are also investing in the “know how” – because of our experience in tough climates we are competitively very efficient farmers.”

It is for this reason that lawyers expect much investment to take place in the form of JVs. Land management skills, however, are only one part of the IP overlay.

“There are a whole range of things CSIRO are doing to improve yields, processes, flavour and ability to resist pests,” says Bouvier. “Plus most of the food commodities traded have plant breeders’ rights associated with them.”

From food security to technology and IP, agribusiness promises to be a sector of key strategic importance this century. That steady flow of deals will inevitably become a flood at some stage – the trick is trying to predict when.

ALB_1007.indb 58 19/07/2012 3:55:11 PM


Your officeOur legal expertise

McCullough Robertson understands the issues and concerns of the food and agribusiness sector better than any other. After 80 years providing legal services to this sector, we understand our clients’ business, their objectives and challenges – and we share their passion.

But, in an increasingly global market, it’s the future that’s important. We help our clients anticipate the impact of that next

challenge, whether it’s caused by forces of nature, market fluctuations or government policy.

McCullough Robertson keeps in touch with what’s happening in the sector by working with you in your ‘office’.

For further information on how we can help with your next transaction please visit our website.

Brisbane | Sydney | Newcastle

www.mccullough.com.au

Are We selliNg the fUtUre?According to some political commentators, Australia is in danger of selling itself short: failing to adequately monitor foreign investment in agricultural assets and jeopardising the food self-suffi ciency of future Australians. How accurate are those claims?

According to the 2011 Agricultural Land and Water Ownership Survey by the Australian Bureau of Statistics, 11.3 percent of Australian agricultural land was wholly or partly owned by foreigners. Within this “wholly or partially owned” bracket, about 50 percent had majority Australian ownership. The survey also found that only 1 percent of Australia’s 135,648 agricultural businesses was wholly or partly foreign owned.

This fi gure has been criticised by Commonwealth Senator Bill Heffernan, who noted in a speech to parliament that the ABS defi nition of an “agricultural business” involved an income threshold of A$5,000, thereby causing the overall number of businesses to be infl ated by the inclusion of hobby farms.

The operation of the Foreign Acquisitions and Takeovers Act has similarly caused some angst. The threshold attracting the operation of the Act in the rural sector is A$244 million or, in the case of U.S. investors, A$1 billion and acquisitions below this threshold are not subject to scrutiny by the Foreign Investment Review Board.

A number of commentators, including Opposition Leader

Tony Abbott, have pointed out that very few farms would meet the A$244 million threshold, making the Act an ineffective review mechanism of the foreign acquisition of Australian farms. A number of proposed amendments have been suggested, including lowering the threshold to as little as A$10 million and introducing a registry of foreign agricultural investment.

However, an issues paper prepared by the Australian Bureau of Agricultural and Resource Economics and Sciences last year expressed the view that there was “no foreseeable risk to Australia’s food security” as Australia “produces twice as much food as it consumes” and “can easily afford the food it imports.” The paper cited some examples: Australian wheat production was said to average around 3.5 times the volume needed for domestic consumption, while beef and veal production has been around 2.8 times the quantity consumed locally.

ALB_1007.indb 59 19/07/2012 3:55:11 PM

australasian legal businessiSSue 10.760 FEATURE

The carbon price creates liability for some businesses, but presents opportunities for many others, including farmers and Indigenous

landholders. Carbon offset projects may generate significant income if they satisfy the Carbon Farming Initiative (CFI) requirements under the Carbon Farming Initiative (Carbon Credits) Act 2011 (Cth) and associated regulations.

The CFI is a mechanism enabling the generation of Australian Carbon Credit Units (ACCUs), to be issued by the Clean Energy Regulator, for offset projects that involve carbon sequestration or emissions avoidance. Each offset project must: permanently offset carbon, pass the ‘additionality test’, and the CFI’s ‘negative list’ must not expressly exclude it.

Under the CFI, permanence means more than 100 years. In order to pass the additionality test a project must not be required by law and must be specifically listed on the CFI’s ‘positive list’. The positive list establishes relevant activities that satisfy some additional factor to the ordinary course of industry practice. Each activity must then comply with an approved methodology. The negative list expressly excludes activities that will have adverse impacts on the availability of water, conservation of biodiversity, employment, the local community or land access for agricultural production. The appropriateness of particular CFI projects

for participants will depend largely on the nature of the agri-business or function of the land. For example, landholders and farmers might consider sequestration offset projects on their land to absorb carbon in plants or increase organic matter in the soil. Others may develop offset projects by separating a section of their land to be specifically designated for reforestation, revegetation, or restoring rangelands.

Alternatively, projects involving avoidance of carbon emissions may be more appropriate. For example, pig farmers can generate ACCUs by adding new processes to manage manure. Manure contains significant levels of methane, which has a greenhouse gas potency over 20 times more than carbon dioxide, and the destruction of methane generated from manure in piggeries can generate ACCUs. Under this carbon offset methodology the process includes covering anaerobic lagoons, installing gas collection and combustion systems, collecting biogas, and combusting the methane biogas component.

Another methodology currently being considered and relevant to farmers is the manipulation of digestive processes in livestock, effectively reducing emissions output. In instances of either carbon avoidance or sequestration, the amount of emissions avoided or reduced will generate an equivalent number of ACCUs that can be sold to liable entities to satisfy their Clean Energy Act obligations.

As the CFI evolves, it is anticipated more methodologies will be finalised and additional activities incorporated into the positive list. Regrettably, there have only been four methodologies approved at the time of the carbon pricing mechanism coming into effect and while there remains a limited list of methodologies available, significant uptake of CFI projects is likely to be delayed. There are various other methodologies under consideration by the Domestic Integrity Offsets Committee, which is a necessary step in the process for the methodology being approved for use under the CFI. With each additional activity that is approved it can be expected that the number of offset projects in Australia will increase to provide agri-businesses with entirely new and untapped revenue streams.

carbon Farming initiatiVe: OppOrTuniTy AWAiTS

THe CreATiOn OF A neW ‘CArBOn eCOnOMy’ MeAnS AGri-BuSineSSeS, lAndHOlderS And OTHer prOJeCT pArTiCipAnTS ArOund AuSTrAliA Are lOOKinG FOr WAyS TO CASH-in On OppOrTuniTieS And develOp neW revenue STreAMS, WriTeS MCCullOuGH rOBerTSOn pArTner iSAAC WEST

ALB_1007.indb 60 19/07/2012 3:55:12 PM

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ALB 10.7

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Transcript of ALB 10.7