Michael McKiernan

Michael McKiernan

Monday, 02 July 2012 09:06

The new subclass?

“We. Are. The 99 per cent,” went the refrain echoing around Wall Street and Bay Street at the height of the Occupy movement in late 2011. But the same cries could soon be coming from within the glass towers that line the streets at the world’s financial centres if big law firms face the backlash some analysts are predicting from marginalized lawyers chasing an increasingly elusive seat at the equity partnership table.
“Somebody needs to start Occupy Big Law,” says Steven J. Harper, a retired partner formerly with U.S.-based international giant Kirkland & Ellis LLP. According to Harper, the increasing ranks of non-equity partners chasing the mirage of full partnership, or recovering from de-equitization, risks creating a “permanent subclass” in law firms. Even within equity partnerships, he says the widening gulf between the lowest- and highest-paid members is a recipe for disaster.
At the recently collapsed Dewey & LeBoeuf LLP, some have estimated that spread at between 20: and 30:1. In more conservative Canada, where ratios are firmly in the single digits, and rarely higher than 5:1, it still hurts to be the “one” getting multiples less than your so-called partner, says Harper. “The gap at some of these firms is staggering, in a way that was not true 10 years ago,” he says. “What it means is you wind up with an even smaller group at the top that really controls things, and they can embed themselves there.”
Edmonton-based law firm strategist Patrick McKenna says law firms have moved to shrink their equity partnership ranks because they’ve exhausted all other options to increase, or simply maintain, partner profitability. He says there are four factors that play a role in its calculation: margin (revenue minus expenses), billable hours, rates, and leverage (associate-to-partner ratio).
In the 1980s and 1990s, McKenna says law firms basically worked lawyers harder, pushing billable hour targets to their limits. From about 1995 to 2008, firms simply raised rates, which worked just fine until the global economic downturn hit. Since then, margins have shrunk because expenses continue to rise, while revenue has flatlined or fallen thanks to reduced demand for legal services. Leverage, traditionally low in Canada anyway, has not been an option elsewhere as corporate clients balked at high rates for inexperienced and allegedly unproductive associates. “Well, there’s only one other mechanism to increase partner profitability, and that’s to have less partners sharing in pie,” says McKenna.
Pulling up the drawbridge
One way firms reduce the number of equity partners is by delaying entry. In the last couple of decades, young lawyers have found the path to partnership follows a longer and more convoluted route than it did for their predecessors. “I had one lawyer tell me the chances of being hit by lightning are higher than being made an equity partner,” says McKenna.
Last year, a Robert Half Legal survey of lawyers at large Canadian law firms found associates will wait an average of seven years to make partner. “Competition for partner positions has intensified,” said John Ohnjec, division director of Robert Half Legal in Canada, at the time. “In fact, some firms have been thinning the ranks of partners by promoting fewer associates.”
An increasingly common stop on the partnership track is non-equity partnership. According to Harper, firms are attracted to two-tier partnership by the ability to generate an extra couple of years of leverage out of associates who would otherwise have been promoted. For lawyers, they get the prestige of the partner title, and a billing rate to match, which also suits firms. “The underlying driver is non-equity partners are extremely lucrative. You don’t have to pay them anything near what they generate,” points out Harper.
According to Adam Pekarsky, who runs the Pekarsky Stein recruitment firm in Calgary, non-equity partner positions have been a useful tool for some local firms that are reluctant to dilute the profit pool but want to retain talented lawyers. “There’s lots of examples of firms who have gone two, three, four, five years with no new equity partners. The problem is those people you are passing over,” he says. “Non-equity partnership is supposed to be temporary, but the cynic would say that’s only because firms can’t get away with extending it.”
The danger, according to Harper, comes when firms have some success evolving the position from a transitory state to a permanent one, something he notes is happening more frequently. “Once it becomes clear that you’re staying there, these lawyers become second-class citizens. They know it, and everyone at the firm knows it. They’re delegated the work nobody else wants to do, and it gets very demoralizing.”
Pekarsky says a generational shift, combined with more exacting requirements from law firms, has made their search for potential equity partners more difficult. If a firm hires 10 articling students, he says they’ll do well for one of them to end up as an equity partner a decade later. “Organic, homegrown partners are a rare breed. It’s no longer the brass ring for the vast majority of young lawyers entering the profession,” he says. “There’s so much more pressure on lawyers to do more, that partnership becomes a less appealing prospect. The personal sacrifice is too much for many in a time when both spouses work.”
One Bay Street non-equity partner finds himself torn in exactly that way. In a position to apply for equity partnership, he’s not so sure it’s the right option. “There’s always that sense that I’m perhaps not getting as much as I might, but I’m comfortable where I am with the certainty of income. It makes sense so long as they continue to pay me well,” he says.
And a six-figure buy-in is not an overly attractive proposition at a time when equity partner draws are limited. “They want you to pony up, and for what exactly? The market is constricting, if anything, and everyone thinks they’re [McCarthy Tétrault],” he says. “There’s a great deal of risk putting up that amount to ensure firm does well.”
Simon Margolis, the managing partner at Bull Housser & Tupper LLP, says there’s a five- to seven-year window for income partnership, the non-equity version at his Vancouver firm. He views it very much as a temporary station for equity partner candidates, who have a few years to move up or move on. “The big step to me is entry to income partnership. Some don’t develop quite as you expected, but if you’re not sure about someone, then they shouldn’t become income partners, because the plan is that within a reasonable amount of time they’re going to make it to equity,” Margolis says. “You don’t want to end up with a bunch of people stuck there.”
At the London, Ont., office of Lerners LLP, managing partner Ian Dantzer seems aware of the potential underclass described by Harper, bristling at the term “two-tier” to describe the firm’s partnership structure. “Two-tier is a tough word because it implies one is better than the other. We have a path to equity partnership,” he says. “Non-equity partnership is a testing ground, an intermediate stage between associate and equity partnership. It gives them greater tools and status to go out and market themselves, generate work, and build a practice.”
Even lawyers who have finally arrived at the promised land of equity partnership must constantly look over their shoulder to make sure they stay there. “You don’t allow partners in unless they have their own book of business, and you kick them out if they can’t keep it. We eat our own if they can’t sustain themselves and pay for some others,” says McKenna.
The most vulnerable to de-equitization are lawyers whose promotions were well timed, gaining admission to the partnership in better economic times, when firms were a little less stringent with entry requirements. “We went through a period in the 1980s and 1990s, where if you put in your six to eight years, it didn’t matter, you were just made a partner. Later on, we assessed those partners, and decided maybe they weren’t the right material for us,” says McKenna. “Some partners have retired on the job, but haven’t informed the firm.”
Ed Wesemann, a consultant at Edge International, says de-equitization is particularly popular in the U.S. and U.K., where law firm finances and partner profitability rates are much more public than in Canada. By shifting an equity partner into the non-equity ranks, law firms are able to give a boost to their profit-per-equity-partner rate, a key indicator of law firm performance. “It’s very hard to fire an equity partner, but it’s a little easier to make them into non-equity partners. The biggest problem with equity partners is when they don’t have their own supply of business. So this is a good place to park them, and you can usually give them a little cut in pay,” he says. “You’ve done something and helped the statistical base. Nobody makes any more money, but the math looks a little better.”
According to an American Lawyer report on the top 200 firms in the country released in December, 39 per cent of managing partners said their firms de-equitized partners in 2011, and 38 per cent planned to de-equitize more in 2012. In the U.K., Magic Circle firm Clifford Chance LLP began consulting partners in April on a new termination policy that will allow them to ship out under-performing partners more quickly. That came on the heels of a partnership restructuring by Clifford Chance’s rivals Linklaters, which resulted in the departure of 25 partners and the demotion of 16 more.
De-equitization also comes into play for partners reaching retirement age. In addition to a training ground for lawyers on their way up, Margolis says non-equity partnership is also a “good spot for people to rest in on their way down.” “We have some senior people who are still valuable for us, but not in the position to, or not wanting to, devote themselves in quite the same way as we expect of an equity partner,” he says. “It’s a way of keeping them in the fold, but just compensating them appropriate to their contribution.”
Colin Cameron, the president of Vancouver-based Profits for Partners Management Consulting Inc., says Canadian firms are pushing mandatory retirement ages earlier, with the phase-down process beginning as soon as the partner’s 60th birthday in some shops. “To maintain their profit levels, the business model requires partners to move out of the equity partnership ranks in the 60- to 65-year range. The move down to non-equity status is the most common first step,” he says. “In large Canadian firms especially, they have to be financially as strong and capable as they can to defend themselves against much other bigger, and international players, like Norton Rose. There’s more parties going for a smaller group of clients, who are also pushing for alternative fees, so firms will be pushing retirement as much as they can legally in order to survive.”
The continuing case of Mitch McCormick, the B.C. lawyer who launched a discrimination suit against Fasken Martineau DuMoulin LLP over its mandatory retirement policy, has cast some doubt over just how far law firms can go. The B.C. Court of Appeal heard arguments in April on whether the B.C. Human Rights Tribunal has jurisdiction to hear the merits of the case. The situation is equally unclear south of the border, where law firms were denied a precedent-setting decision when 1,700-lawyer Sidley Austin LLP settled a discrimination case with 32 de-equitized partners in 2007. However, the $27.5-million cost of the settlement is enough for firms there to proceed with caution.
Whether they arrived there by virtue of age or substandard performance, de-equitized partners have boosted the ranks of non-equity partners even further. Edge’s Wesemann says the short-term focus on profitability that has driven the increase could spell trouble in the long run. “We’ve created this monster. They’re not real partners, but they bill like partners, and they have no natural predator,” he says.
According to Wesemann, the lack of genuine partner-level work at law firms means non-equity partners, particularly long-standing ones, end up doing work that is more appropriate for fourth- or fifth-year associates. “We have a rebellion coming. The recession has given us more empowered clients who are actually reading the bills we send them, and they are saying, ‘why on earth are we paying a partner rate for this?’”
He notes the non-equity trend is more fully developed in the U.S., where firms are now taking an axe to their non-equity partner ranks, as well as the equity partnership. A May 2012 report by Altman Weil Inc., “Law Firms in Transition,” found that with the exception of support staff, non-equity partners were the most likely
position American firms will cut in the next
year. Equity partners followed closely behind in third place.
Star power
As Dewey & LeBoeuf stumbles through bankruptcy, Canadian law firms should see the firm — created less than five years ago — as a beacon to the dangers of partnership inequity, advises Harper. Just before the firm imploded, some partners reportedly earned at least 20 times what the lowest-paid partners were drawing from the firm. The problem was exacerbated by guaranteed incomes promised to some lateral stars as part of the big-money deals that brought them to the firm over the last two years. Existing equity partners found their earnings squeezed in order to subsidize guaranteed incomes the firm could not afford, of which there were about 100 such agreements according to bankruptcy filings in Manhattan. “What does partnership actually mean if you have a ratio of 20:1? It’s incredibly de-stabilizing,” says Harper.
He says the firm bought into a star culture that overvalued rainmaking lawyers, and that compensation packages spiralled out of control. “The notion a top lawyer is worth 10 times more than another partner makes no sense at all. You get into a vicious circle, where you panic about losing somebody and get into a truly irrational bidding war.”
While Dewey may be an extreme example, McKenna says partner compensation is increasingly skewed at large American firms towards partners at the top end. Ratios routinely hit 10:1 for partner income at opposite ends of the scale, he says. “You’ve got partners with a smaller book of business who, if you look at the economics very carefully, are actually supporting the stars. When you get a spread that gets too great, you end up with a partnership within a partnership,” says McKenna. “And if people come for money, they leave for money. There’s no loyalty.”
Guaranteed incomes or joining bonuses are not unusual in Canada where rainmakers are concerned, according to Cameron, who says that most “would be quite hesitant to pass on clients without some sort of guarantees.” But in conservative Canada, where partner income ratios rarely top 5:1, the impact is reduced. But Christopher Sweeney, CEO of ZSA Legal Recruitment, says rainmakers have increasing influence at a time when corporate clients are placing their faith in a smaller group of trusted advisers. “Firms like to think clients come to them because of the brand and overall service. That is true, but increasingly, sophisticated corporate clients have specific relationships because of individual lawyers,” he says. “That makes it critical that firms adequately reward their top lawyers.”
At Bull Housser, Margolis says the spread of equity partner earnings from top to bottom is 3:1, but that he’s open to widening the gap. “Three-to-one is where we’re currently at, but it doesn’t mean it always has to be. We would have the capacity to get bigger than that, and if it’s done correctly, I don’t think it’s a problem. If someone’s doing all the right stuff, we all do better by that,” he says.
Margolis says the firm tries to avoid fine distinctions between individual partners by creating clear bands of partner pay with distinct entry qualifications, and that the firm’s size makes it easier. “We don’t have hundreds of partners, so you can get a good feel for what people are doing,” he says. “There aren’t too many raised eyebrows.”
Shekhar Parmar, director of the Calgary office at legal recruiter The Counsel Network, says Canadian firms may be particularly wary of overpaid rainmaking because of this country’s own cautionary tale in the 2007 dissolution of Goodman and Carr LLP. “That was a scenario in which some partners were cut pretty large cheques compared to their book size,” he says. The firm abandoned its lockstep partner compensation scheme, which rewarded lawyers based on their seniority, in the 1990s, and recruited a clutch of star performers, including some with high-paid special deals outside the equity partnership. “That kind of thinking can work out well, but you’re taking a gamble. Sometimes things don’t work out and you have to pay the house,” says Parmar.
A string of missed budgets and a failed merger sparked an exodus of equity partners at Goodman and Carr, and the firm’s management decided closure was the only option.
Parmar says he helps Canadian firms evaluate the risk of bringing on new partners laterally, and he finds that most are thinking longer term since the demise of Goodman and Carr. “We help them work out whether they’re bringing real value or if it’s more smoke and mirrors,” he says.
At Lerners, Dantzer says his firm won’t break the bank to land a star performer. “We’re very cautious about lateral hires. We won’t do it just for the sake of bringing someone on. Any merger is very difficult. I think it’s very divisive if you give special treatment to someone new. Unless a significant group recognizes the long-term importance of that practice or person, you’re just creating problems for yourself, resentment, and maybe desertions, so you sort of work against yourself.”
Dantzer says Lerners will resist the temptation to go after star-free agents, and focus instead on its own prospects. “I think more and more we are becoming convinced we have to build from within and develop a sense of loyalty. It takes much longer to do, but it’s much more stable and profitable long term,” he says. “The idea of going out like the Toronto Maple Leafs and buying a few stars sounds good in theory, but it doesn’t deal with chemistry, long-term cost, and the chance that they could move on again.”
But Sweeney says that approach may not work for all Canadian firms if the market sees further incursions from abroad. Norton Rose Group landed in Canada with the wholesale takeover of Ogilvy Renault LLP, before adding Macleod Dixon LLP. Another global giant, Allen & Overy, which has been linked in the past with Canadian law firms, elected for a more organic growth strategy when it entered the Australian market, by poaching leading partners from top firm Clayton Utz to establish a presence in the country. A similar move in Canada could force large Canadian firms to shell out extra cash for their star performers in order to hold on to them and the clients they bring with them. “If a big international firm came in and started building up with just the cream of the crop, that could mean 60- or 70-per-cent increases, which would be a game-changer,” says Sweeney. “It’s not going to happen with the existing major players.”
The last time something similar happened in Canada, says Sweeney, was when Osler Hoskin & Harcourt LLP opened its Montreal office in 2001, recruiting partners by offering them considerably more money. To cover the increased cost of holding on to their stars, firms city-wide bumped rates by around $100 per hour. “There was some flexibility because Montreal was underpriced at the time, so it was able to absorb that shock,” he says.
Increased rates are not an option this time around, with corporate clients looking to save, and that means Canadian law firms will have to absorb the shock themselves. “There’s always a marketplace for stars, and I foresee their value to law firms climbing. We’re almost bordering on free market agency for the top talent in law. These lawyers will spend three to five years at a firm, and if the firm isn’t able to increase what they’re earning, they’ll see what kind of bids are coming in from another team,” he says. “Using the one-per-cent analogy from Occupy Wall Street, even in law firms, there will be those rewarded on a different scale from everyone else. That’s going to cause internal problems from people, and firms have to deal with that. It’s just part of running a law firm in the modern era.”
Cover: Carl Wiens
Cover: Carl Wiens
“We. Are. The 99 per cent,” went the refrain echoing around Wall Street and Bay Street at the height of the Occupy movement in late 2011. But the same cries could soon be coming from within the glass towers that line the streets at the world’s financial centres if big law firms face the backlash some analysts are predicting from marginalized lawyers chasing an increasingly elusive seat at the equity partnership table.
Monday, 04 June 2012 10:34

What's hot, hot, hot

What's hot, hot, hotMoney isn’t everything when it comes to the law. Much like possession, it’s about nine-tenths of it. For the Money Issue, Michael McKiernan looks at the most potentially lucrative practice areas for individual lawyers, as well as the hottest fields where every law firm is scrambling for a piece of the action.
Thursday, 14 June 2012 09:04

Sidebar: Managing leases in a merger

Companies must take care not to let leasing considerations slip through the cracks of a merger deal, according to a Toronto real estate lawyer.
In transactions that proceed by way of a stock deal, Stikeman Elliott LLP partner Mario Paura says the buyer understandably focuses its attention on active leases and currently occupied premises. But that’s only part of the picture in a full assessment of the risks assumed by the purchaser in the deal, he says. “It’s easy to forget about the ones that have been disposed of by the target, whether by assignment or sublet,” Paura says. “But unless the landlord has released that entity of its obligations, it continues to be liable for the duration of the term, and depending on the lease language, it could potentially be liable beyond that to the extent that the lease gets renewed. You need to flush out as part of the due diligence process which stores used to be occupied whether the leases have been properly surrendered or terminated.”
Another potential stumbling block comes in the form of landlord consents. Very few leases allow changes of control to go through without landlord consent, and some could trigger extra responsibilities to the buyer or benefits to the landlord.
“The rent may increase as a result of the transaction, or landlords could have a right to terminate, or to demand the tenant fix up the place. Those are all things going into transactions you need to inform yourself of before you approach the landlord,” Paura says.
Often landlords will be constrained by a clause in the lease that prevents them from unreasonably withholding consent, but in the hot retail sector in particular, consent is not something you can take for granted, according to Paura.
“Retail has been a very hot market in the last couple of years. Rents have been rising very steadily over the last decade, and there are lots of foreign retailers looking to come to Canada. So landlords certainly have no problem, to the extent they have smaller independent chains, trying to find reasons to make room for these newcomers,” he says. “In an upswing market, if they’ve signed unfavourable leases, they may be willing to get their space back and re-let it out.”
Paura’s firm was at the heart of the deal that brought one of those foreign players into the Canadian market. Stikemans represented the Hudson’s Bay Co. in its sale of almost 200 Zellers leases to U.S. retail giant Target. “That has been a revolutionary transaction in terms of increasing the value of those shopping centres. With a significant attractive anchor tenant, it’s going to revitalize them, and there will certainly be opportunities in terms of redevelopment and rising rents,” Paura says.
Ironically, the $1.8-billion deal’s unusual structure meant many of the normal concerns in lease transactions were not in play. Landlord consents were not an issue because it was virtually inconceivable that landlords would object to Target as a tenant.
“Any shopping centre owner who was able to attract Target would win pretty much regardless of the rent that Target was paying them,” says Doug Klaassen, Stikeman’s real estate partner on the Zellers deal team.
Instead, the deal was engineered to maximize Target’s leverage in negotiations with individual landlords. Instead of purchasing Zellers’ entire portfolio of 275 leases, the deal closed in January 2011 with Target committed to buy up to 220 leases in the following eight months. That meant landlords could not be certain that their location would make the final cut, and Target was given some wiggle room to secure better terms during the selection process.
Representations and warranties from HBC were also at a bare minimum, while Target was prepared to swallow any ongoing liabilities owed by Zellers under the leases it selected.
“The bottom line was that Target’s covenant is good enough. In many cases we were released, but where it didn’t happen, Target is indemnifying us, and it wasn’t really a concern on that simply because they have an investment grade rating in the U.S.,” says Klaassen, who adds that the absence of a third-party lender allowed both parties to get more creative in the structuring of the deal.
Selected leases were immediately subleased back to Zellers by Target, with the U.S. retailer given an option to terminate with notice, allowing them to complete a staggered takeover of stores in the next couple of years.
Companies must take care not to let leasing considerations slip through the cracks of a merger deal, according to a Toronto real estate lawyer.
Thursday, 14 June 2012 09:04

Choosing arbitration to mend leasing woes

The relationship between a landlord and tenant can get just as fraught with ups and downs as any long-term union.
With commercial tenancy terms typically measured in five-year blocks, and renewal options that can easily double or triple that length, parties are going to have to get used to living with one another.
Without a reliable way to predict future market conditions, many leases provide for a mid-term rent review, but even when the price is fixed for the first five years, that still leaves a big decision for the following half-decade.
“You have a deal between two parties where they’re committed to a future relationship, but the cost hasn’t been determined. That can be problematic, so really it’s natural there’s going to be issues,” says B.C. lawyer Brian Wallace, who runs an arbitration practice with offices in Victoria and Vancouver.
Landlords and tenants are increasingly turning to arbitrators like Wallace and Toronto-based David McCutcheon to settle these inevitable disputes, attracted by the confidentiality and speed of the process. “Normally, the parties select an arbitrator because they have industry knowledge and expertise that you might not get if you’re in front of a judge, which means they don’t take a lot of time to grasp and resolve those issues,” says Fraser Milner Casgrain LLP partner and dispute resolution specialist McCutcheon. “It’s also procedurally a lot more efficient, I think. I’ve had some on major items that last for six months, which is considerably less than you would get in the courts. Everything is case managed by the arbitrator, so you don’t have to wait for a motion date. You just phone up the arbitrator and say I want to have a motion heard at 9:30 a.m. on some morning, the arbitrator books the time, and you argue the matter.”
Kenneth Glasner, who works as a mediator in Vancouver, says the move to arbitrate has been driven by in-house counsel seeking relief from the spiraling expense and confrontational atmosphere that frequently come with litigation. He compares the landlord-tenant relationship to that between employers and unions. “It’s a long-term relationship and they can’t just dismiss each other, because each has got such a substantial investment in the other,” he says.
According to Glasner, both sides will benefit from drafting an arbitration clause at the time the lease comes into effect, rather than waiting until a dispute has arisen.
“After you hit the dispute, they can certainly still go to arbitration, but there’s often already a lot of animosity at that point. Get it in there at the beginning,” he says.
And while arbitration clauses are becoming almost standard as part of the commercial lease, Glasner says that parties are not always getting the best out of the process. “All too often what happens is the parties will spend a month or two negotiating a commercial lease, and then at the very end, someone will spend two minutes, and say ‘let’s throw in an arbitration clause’ without thinking through the effects of that clause,” he says.
A poorly worded clause can cause problems and delays right from the outset of arbitration, by failing to reflect the wishes of the parties or take into consideration the peculiarities of an individual lease. “Arbitration clauses must be designed uniquely for contract itself. Generally there’s no such thing as a good standard clause,” he says.
Harvey Haber, a senior partner at Toronto’s Goldman Sloan Nash and Haber LLP, says a vague and overly broad agreement to arbitrate any dispute under the lease can “create absolute havoc,” noting that the dollar value and complexity of many disputes may not warrant arbitration and may not be the most efficient mechanism for settling all disputes that may arise between landlords and tenants. “Any provision of the lease could have objections, all of which could give rise to arbitration. Maybe you’re picking a panel of three and you could be talking a fortune already for a relatively minor dispute,” Haber says.
According to Glasner, parties should also give careful consideration to the powers they will hand to the arbitrator in order to keep things moving along, as well as the ability to impose penalties for misbehaviour. “Give the arbitrator powers to deal with games that can be played by one or other of the parties,” he says.
For example, in B.C., one party is unable to move for dismissal of the arbitration for failure to prosecute the claim when there has been a large delay, unless the arbitration agreement specifically provides for that right.
Milton Davis, the managing partner of Davis Moldaver LLP in Toronto, is still scarred by one of his earliest arbitration experiences. As counsel to one of the parties in an eight-year slog, he says it was sometimes difficult to distinguish the case from regular litigation through the courts. “The wound from having been involved in that is something that I won’t forget ever,” says Davis.
Some of the procedures associated with litigation can easily be cut out of many arbitrations, he says. For example, discovery of documents is not always necessary, while oral examination of witnesses can be eliminated in favour of written evidence, with a time-limited cross-examination.
Realizing and exploiting the power they have over their own process is one way parties can cut the costs and time they invest in an arbitration, according to Gerry Ghikas, a litigation and arbitration partner in the Vancouver office of Borden Ladner Gervais LLP. “The parties have an opportunity to write their own rules. If they want, it can be done quick and dirty,” Ghikas says, adding that he’s done entire arbitrations where his total fees come in at not much over $10,000.
That flexibility can be particularly valuable in more straightforward disputes, which could involve smaller retail premises, landlord and tenant appraisals without a gulf between them, or unchallenged assumptions over whether the valuation should be based on the original unimproved space or its current condition. “You don’t want to spend more money resolving the issue than is at stake. Each side has the same interest in that,” Ghikas says.
Wallace points out that arbitration also provides parties with a chance to experiment with different styles of dispute resolution. In one, known as baseball arbitration, both sides present a single best offer and the arbitrator is only allowed to select one as the winner. “There’s a great benefit to that because it really narrows the issues and forces parties to be realistic in what they propose. You know you can’t just hope to fool the arbitrator, because if they don’t fall for it, the risks are too high,” he says.
Glasner also favours flexible rules for examination of experts, including the use of hot-tubbing, which places experts retained by opposing sides in the witness box at the same time, encouraging them to identify areas they agree on and isolate the matters on which they disagree. “All of a sudden, the expert can’t be a prima donna. They’ve got a colleague sitting right there and they can’t get away from it. They have to remember they’re there not for the benefit of the party that retained them, but for the benefit of the decision-maker,” Glasner says.
Another simple way to cut costs and time, according to Haber, is by cutting the number of arbitrators. He says arbitration clauses in commercial leases often provide for a three-person panel, with each side proposing one name, and the two nominees selecting a chair. An extremely complex dispute may call for a larger panel, but Haber says they are the exception. “The difficulty with that is it is horrendously expensive. You’ve got the cost of three arbitrators, where you could be talking $30,000 or $40,000, then the cost of two attorneys, two appraisers, and the whole thing could cost you $60,000,” he says. “It also makes scheduling very difficult, which is going to delay things.”
Illustration: Kim Rosen
Illustration: Kim Rosen
The relationship between a landlord and tenant can get just as fraught with ups and downs as any long-term union.
Monday, 07 May 2012 09:04

The home field advantage

Regional law firms in Quebec are hoping to prove the home field advantage is just as much a factor in legal services as it is in sports.
Canadian Lawyer returns to Quebec this year for our latest regional firm survey, to find the province’s full-service outfits jockeying with local and national rivals alike for a position on Plan Nord, the multibillion-dollar project for the development of Quebec’s north. “In Quebec, everybody talks about Plan Nord, which I think is simply applying what you already do in a new conjuncture. There’s a lot of opportunity there,” says Chantal Chatelain, managing partner of the Montreal office at Langlois Kronström Desjardins LLP. “The fact of being a regional firm I think is a great advantage because we’re already spread out across the province, we already have the business relationships with entrepreneurs in the construction industry in the north, and we have experience in dealings with government regulations and authority.”
Top-ranked Lavery de Billy LLP and its predecessors have spent the better part of a century cultivating roots in the province, and Richard Dolan, the chairman of the firm’s board, says that continues to give them an edge over larger newcomers to Quebec’s legal market. “Our deep understanding of the Quebec business market has positioned us really well. It allows us to quickly understand the opportunities and challenges that the Quebec market presents to not only our Quebec clients, but also national clients,” he says.
At Lapointe Rosenstein Marchand Melançon LLP, another firm with more than 50 years of history, co-managing partner Bruno Floriani says the recent economic downturn has increased demand for regional firms like his, even from international businesses looking to expand in North America. “We got looked at a lot more seriously by some in-house counsel who were looking to retain the same quality of service, but perhaps without the infrastructure that goes along with the national firms,” he says. “There is a growing realization among some of the larger international companies that there are very good lawyers in these regional firms that are as good as any of the national firms.”
At the other end of the scale, Delegatus Services Juridiques Inc. makes its first appearance on our list in just its seventh year of business. The firm has established itself with a unique business model that offers senior lawyers flexible work arrangements and pricing options. The strategy has paid off, attracting lawyers from larger, more traditional firms and an impressive roster of clients. “We allow our lawyers to self-determine the amount of time they put in in billable hours yearly, so our work environment is much healthier. They don’t take as many clients maybe, but the ones they have they are extremely well looked after,” says vice president Paul St-Pierre Plamondon. “We’ve tripled our revenues in only a year and a half, because our lawyers are anything but laid back. They care about an excellent life, but they’re also very proactive and entrepreneurial.”
At LKD, Chatelain has also made headway attracting talent from national firms. “What lawyers see as a big advantage is they have more flexibility. They could be a very small fish in a very big pond, or a big fish in a smaller pond. Financially speaking, there’s not that much difference between the two. In fact, sometimes they get a better cut in a firm like ours than one with a very large business structure to support,” she says. “We’re living proof that not only is there space for regional firms, but there’s a vibrant space for us and a need.”
Read on to find the full list of Quebec’s Top 10 Regional Firms. The 2010 positions are noted in parentheses.
Photo: Luc-Antoine Couturier
Photo: Luc-Antoine Couturier
Regional law firms in Quebec are hoping to prove the home field advantage is just as much a factor in legal services as it is in sports.
Monday, 02 April 2012 08:45

Looking to the future — Part 2

Looking to the future — Part 2This article is a continuation of "Looking to the future" from the April 2012 issue of Canadian Lawyer magazine. Click here to read part one.
Monday, 02 April 2012 09:03

Looking to the future — Part 1

Canada’s litigation boutiques are looking to the future. Finding a firm with the right mix of experienced and emerging talent was a recurring theme in this year’s top boutiques search, and some of our winners have been the most successful at striking that balance, proving that succession planning works at firms of all sizes.
“A number of boutiques in Canadian legal history have started with great strength, but have been unable, or simply unwilling, to carry it on. Sometimes people don’t want to and it lasts as long as the careers of founders,” says Tom Curry, a partner at Lenczner Slaght Royce Smith Griffin LLP — a firm he says has shown a commitment to outlasting the five name partners who departed McCarthy Tétrault LLP in 1992 to go it alone and start the firm. “From the beginning, people have been attracted here by the reputations of the lawyers, and it remains true, because we’ve been able to duplicate that strength in the younger generations. I’m fascinated by the challenge of maintaining the strength over the long term, and I find one of the things that really adds to my law practice is the opportunity to develop other people and pass along things,” says Curry.
And while litigation boutiques have been able to thrive in the shadows of their full-service counterparts, sweeping up referrals on the largely conflict-free sidelines, they aren’t afraid to go up against Bay Street in the market for the hottest new litigators.
Randy Kaardal, a senior partner at Hunter Litigation Chambers in Vancouver, says his firm has no problem recruiting the top candidates out of law school, including those who’ve had clerkships at the Supreme Court of Canada and other appellate courts across the country. “They get to see our people before those courts and get a sense of the type of files that we are on, which tend to be interesting and exciting to be a part of,” he says.
At the same time, Kaardal says the big-firm history of Hunters’ senior litigators has been crucial, allowing the firm to develop a style that some of their larger corporate clients will recognize. “Clients that are involved in sophisticated litigation expect the work product to look a certain way. We have that capacity, so it’s relatively seamless when we’re referred by one of the large commercial law firms,” he says.
And ex-Big Law partners aren’t confined to the litigation field. Barbara Jo Caruso left Gowling Lafleur Henderson LLP in 2006 to form Corporate Immigration Law Firm with Gowlings immigration consultant Harry Goslett, although the pair didn’t move physically too far from their old digs. “When we branched out, having a Bay Street address was important, because it provided us with a certain amount of credibility with existing clients that were prepared to deal with us outside of the national law firm. Some were concerned that we didn’t just set up in our basements, and do the work there,” she says.
Caruso says lawyer referrals have helped the firm flourish since its founding. “I think other firms feel comfortable referring to a boutique knowing we’re not going to take their employment or their real estate work, or forget where the file came from,” she says.
Few large law firms place an emphasis on business immigration, which has left plenty of room for boutiques in the marketplace. One of the largest players in the market is Egan LLP, an affiliate of accounting giant Ernst & Young, which also made our list. Another EY affiliate, Couzin Taylor LLP, is on our tax law boutique list, where accounting firm affiliates are a growing player in the market.
But Brent Perry, a partner at Alberta-based tax firm Felesky Flynn LLP, says there will always be a place for boutiques like his, with no professional services firm affiliation, because of the certainty they can offer over solicitor-client privilege, especially in an era of heightened scrutiny from the Canada Revenue Agency. “We’re seeing an increased level of appetite for challenge by CRA, even for transactions that may have been previously blessed by them. That in turn leads to a higher degree of sensitivity of solicitor-client privilege,” he says.
Matthew Williams, a partner at Thorsteinssons LLP in Toronto, says tax law is particularly well suited to a boutique environment because the area’s reputation for being extremely complicated is well earned. He says the concentration of expertise benefits practitioners as well as clients. “We think size matters. It’s a very specialized area and if you’ve got lots of people with decades of experience, you’ll have a lot of it covered. I would be terrified to work in a place with just two or three people doing tax,” he says.
Canadian Lawyer’s editorial team began the process of selecting Canada’s top five tax and business immigration (both areas for the first time) firms and top 10 litigation boutiques by creating a short list of the most notable firms in their respective fields. We ran a short online survey and from there, we drew on the experience of in-house counsel and large-firm lawyers who refer work to these boutiques, conducting a series of confidential interviews to identify the cream of the crop. That input was used to compile the following results, listed in alphabetical order.
Looking to the future — Part 1Canada’s litigation boutiques are looking to the future. Finding a firm with the right mix of experienced and emerging talent was a recurring theme in this year’s top boutiques search, and some of our winners have been the most successful at striking that balance, proving that succession planning works at firms of all sizes.
Sunday, 01 April 2012 12:46

Regulator at a crossroads

Illustration: Marco Cibola
Illustration: Marco Cibola
The Ontario Securities Commission is looking far beyond the province’s borders as it formulates a plan for its future approach to regulation.
Monday, 05 March 2012 08:04

Eyes to the soul of justice

When a California jury acquitted O.J. Simpson of two counts of murder in 1995, the verdict delivered a where-were-you-when moment to people around the world. But the trial also gave Canadian advocates for cameras in the courtroom their biggest and longest-lasting headache. The case has become a textbook argument against putting cameras in the courts, with grandstanding lawyers on both sides, an allegedly star-struck judge, and an orgy of commentary stoking a media frenzy around the televised trial.
That same year, the Supreme Court of Canada allowed CBC Newsworld to broadcast live a tax case concerning spousal support payments, Thibaudeau v. Canada, and shortly thereafter began broadcasting its proceedings regularly on the Canadian Public Affairs Channel. But rather than setting a precedent for televising proceedings, progress outside the country’s top court has largely stalled, with the spectre of O.J. raising its head in every province that tackles the issue.
“I think the O.J. Simpson trial and some other sensational cases in the U.S. are responsible for the visceral reaction you find by many people against it,” says Dan Burnett, a media lawyer at Owen Bird Law Corp. in Vancouver. Burnett, who has been a key player in the campaign for cameras in the courtroom in B.C., sees the Simpson case as an anomalous one. “They have been televising trials for a long time in the U.S. and for the most part, it works fine,” he says. “They may have a problem there with celebrity trials, but I don’t see us having that same problem in Canada, and of course if we did, the ongoing discretion of the judge to just turn off the cameras would kick in.”
In 2001, Burnett argued unsuccessfully on behalf of broadcasters seeking to televise the criminal trial of former B.C. premier Glen Clark, who was charged with breach of trust in relation to home renovations performed by a neighbour who had also applied for a casino licence from the province. The broadcasters, vigorously opposed by the province’s attorney general, appealed to the Supreme Court of Canada, but Clark was acquitted before it could be heard, rendering the appeal moot.
In late 2010, then-attorney general Mike de Jong softened the stance of his office, launching a pilot to video record sentencing proceedings at three provincial court locations. Then in early 2011, Burnett convinced B.C. Supreme Court Chief Justice Robert Bauman to allow cameras in to record the closing arguments in a hearing over the constitutional validity of Canada’s anti-polygamy laws. The CBC streamed the arguments online with a 10-minute delay. “Most Canadians haven’t actually sat down and watched our courts in action. It might not be the most sensational thing around, but it is very impressive. You realize that this is a fair process, that these are serious people who are trying to treat witnesses and parties fairly, and it’s a shame that citizens can’t see that more for themselves,” says Burnett.
He says he was surprised last year when the provincial government completed its turnaround, announcing that it, rather than media organizations, would initiate applications to televise trials for alleged Vancouver rioters following the Canucks’ 2011 Stanley Cup loss. “In a way it’s been coming. Obviously, attitudes have changed, and probably for the better in terms of openness of the courts,” says Burnett. “It’s just an opportunity, as I see it, to use technology to expand the courtroom gallery. We start with this principle that the courtrooms are open, but that principle loses a lot of its reality when you take into account that the massive majority of citizens really can’t come and attend court in person. They work during the day, or they live out of town. Even if they could come, there’s very limited seating, so only a tiny fraction of the public can actually see the court firsthand. Having the open door and the gallery seats there is, in many cases, nothing more than symbolic openness.”
The B.C. government’s push for cameras met with an unenthusiastic response from the Crown attorneys who were forced to make the applications to televise. Six prosecutors are working on the riot file, recommending charges against about 80 individuals. “They have concerns around their personal security. Their position is that they’re not going to consent to their own images being televised, which is something the court needs to consider,” says Jamie Chaffe, president of the Canadian Association of Crown Counsel.
And while the attorney general may be able to impose her will on the Crown’s office, the ultimate decision-makers, the judiciary, are another matter altogether. De Jong’s successor in the office, Barry Penner, was forced to shelve his sentencing pilot after running into stiff resistance from provincial court judges, while the Canadian Judicial Council’s official position on televised trials is that it “is not in the best interests of the administration of justice.”
In mid-February, however, B.C. Attorney General Shirley Bond was forced to scale back her plans after Provincial Court Justice Malcolm MacLean denied the first application to televise, in the sentencing of a rioter who had pleaded guilty. MacLean rejected an argument that the application was politically motivated, but said there were too many unanswered questions around the safety of court personnel and the re-broadcast of footage, instead suggesting the appointment of an amicus curiae to study his concerns in greater detail.
That prompted Bond to rescind her direction to Crown counsel, citing the delays MacLean’s approach would cause, but reaffirmed her commitment to cameras in court. “In the meantime, we will carefully consider Judge MacLean’s decision, and we will continue to look for opportunities to make the justice system more transparent to all British Columbians,” Bond said in a statement.
But some had already dismissed the government’s move as a gimmick, and some advocates fear that what may have been seen as a leap forward, may in fact have set back the campaign for televised court proceedings. Robert Holmes, president of the B.C. Civil Liberties Association, has suspicions about the provincial government’s long-term commitment to the idea. “If this is meant to be a test run, as a precursor towards a broader use of cameras in the courtroom, then all power to it,” says Holmes. “On the other hand, if the government is solely doing this to add an extra degree of stigmatization to a particular group, and they plan on never letting cameras in again, then I’m not sure I want them on my side, because their motives are suspect.”
Paul Burstein, the former president of Ontario’s Criminal Lawyers’ Association, concedes that the time may have come for cameras in the courtroom, but is unimpressed by the intial approach of the B.C. government. “It should be for the right reasons, and this is clearly for the wrong reasons. It promotes public shaming and potential vigilantism, which is just wrong,” he said prior to MacLean’s ruling. “I think it’s appalling. Not only is the intention to shame, but the subtext seems to be that the government wants people to know the faces of those responsible, so that if the courts don’t mete out enough punishment, the public can sit in judgment as to what else should appropriately be administered to these individuals by way of public ridicule, spitting on the street, and so on. I’m exaggerating to some extent, but what else is the purpose?”
Donna Turko, a Vancouver criminal lawyer and former television journalist, earned her MA in sociology and anthropology a decade ago with a thesis that examined the deep-seated division between legal and media professionals over cameras in the courts. She says it was never likely judges would grant applications to televise riot trials, especially over the objections of defence counsel. “In general, the legal profession doesn’t trust the media, because there’s an innate sense that for the media, it’s about making money, and not protecting rights,” she says.
According to Burnett, the more judges see cameras in action, the more comfortable they will become with the idea. He says judges who have led commissions of inquiry, which are often televised, rarely come away opposed to the idea. “Generally what they see is that it all works in a pretty civilized way, and it’s not such a big deal. The fear of the bogeyman disappears.”
Chaffe says he’s keen to see courts retain the final say on whether or not to allow cameras, and says that view is backed up by the January 2011 Supreme Court decision Canadian Broadcasting Corp. v. Canada (Attorney General). In that case, the top court upheld the constitutionality of a Quebec Superior Court directive that limited journalists’ use of cameras and recording equipment to certain areas of the courthouse.
But it’s another critical courtroom player that is central to his organization’s opposition to cameras in court — the witness. “One of the real challenges, particularly with serious criminal offences, is whether or not we can actually get witnesses to come forward and testify. It’s a challenge that gets much more difficult when witnesses feel that not only will they be in open court facing the accused, and possibly media in the courtroom, but that their image could be projected on a daily basis across the country contemporaneous with the trial,” says Chaffe. “Television may actually inhibit access to justice and access to the court if witnesses or victims don’t want to speak out.”
But Holmes says judges can easily work around sensitive witnesses by obscuring images or distorting voices where they deem it appropriate. “That’s fair because there are valid excuses and reasons for limiting it in some contexts,” he says. Burnett agrees that the judge should have control over what can be broadcast, and says concerns about witnesses are “overblown.” “It isn’t as if you turn on the camera and there’s no turning back,” he says. “The reality is high-profile cases attract lot of attention, and you’re going to have a packed gallery, sketch artists, camera crews outside doing reports, the judge sitting up at an imposing-looking desk, and people being cross-examined aggressively. The idea that this one little camera sitting on a tripod at the back of the room is going to be the thing that suddenly makes a witness unable to testify properly is a bit of a stretch as far as
I’m concerned.”
Chaffe doesn’t object as strongly to the potential broadcast of appeal court proceedings. Live witnesses there are not an issue, which may help account for the Supreme Court’s pioneering position on this area.
Its decision in the 1981 Patriation Reference case was the first in the country to be televised live. From 1993 to 1995, the court allowed cameras in three times to cover cases involving the tax deductibility of nanny expenses, the right to assisted suicide, and the tax deductibility of spousal support payments, before CPAC began regularly broadcasting from the court. Since 2009, the court has branched out even further, launching live webcasts and archiving video footage of hearings.
Ironically, that puts the Canadian Supreme Court at odds with its American counterpart, which has traditionally eschewed television cameras, despite their widespread use in state-run courts. All 50 states allow cameras in their courtrooms. The U.K.’s experience broadly mirrors Canada’s, where the only court that allows cameras is the Supreme Court.
Appeal courts have also been at the heart of provincial experiments with cameras in court. Nova Scotia invited applications to broadcast hearings from its appeal court for two years from 1996 to 1998. Meanwhile, in Ontario, the province’s 2006 Panel on Justice and the Media, including luminaries from the legal and media spheres, recommended an amendment to the province’s ban on cameras in the Courts of Justice Act, to allow them for proceedings in the Court of Appeal and the Divisional Court, as well as motions and applications in Superior Court that involved no witness examination. “In such cases, televising should be broadly permitted. The court should always have discretion to exclude television, but only after giving due consideration to the value of openness,” the panel wrote. “Some may see this as a small step. We do not think so. . . . The people of this province will have an opportunity to be eyewitnesses to important aspects of the justice system in action. Whether they watch for inspiration, education, or even entertainment, they will be observers of a historic process, which is a critical element of our democratic system.”
A three-month pilot followed in late 2007, when one courtroom at the province’s Court of Appeal was outfitted with cameras and microphones. The $365,000-project saw 21 cases streamed online across 20 court sessions. Only one of the cases, an appeal by a man wrongly convicted of killing his young niece, garnered much media coverage, but the court’s web site logged 18,000 visits, and 95 per cent of those interviewed for an evaluation report said the pilot enhanced openness, while 85 per cent called for an expansion to other courts.
The 2008 report on the pilot was only released in March last year after a freedom-of-information request, and then-attorney general Chris Bentley said he was open to revisiting the issue. Brendan Crawley, a spokesman for the Ministry of the Attorney General, tells Canadian Lawyer that privacy issues remain a concern, but that consultations are underway with chief justices of all three of the province’s courts. “We need to ensure that we approach this in a thoughtful and comprehensive manner. These are informal consultations, and we have not placed any firm timelines for them to be completed,” says Crawley. In the meantime, there are no cameras in Ontario’s courts.
John Honderich, the former editor and publisher of the Toronto Star, was a member of the 2006 panel on justice and the media. He says he was advocating to have cameras present at all levels of court, but has been disappointed at the lack of action even on the panel’s watered-down recommendations. “This was a compromise that everyone was supposed to be able to live with, but I think they just weren’t prepared to take on the legal establishment,” says Honderich. “The establishment in this province has been very strongly imbued, and I guess the government just didn’t see this as a battle they wanted to fight.
For Turko, the problem with the focus on appeal proceedings is that they are the ones of least interest to the public at large. “It’s like watching paint dry,” she says. “From an academic point of view, there are certainly things to be learned, but the exercise doesn’t really go anywhere if nobody watches it. It comes down to the quantum of what you’re going to get for costs that could be put elsewhere in the system.”
In the B.C. context, Chaffe says he would rather see the money and court time being spent on applications to televise instead being used towards dealing with inadequacies in the court system there. “They’ve got 2,500 cases over 18 months waiting for trial, and they’re 20 judges short of full complement at the provincial court level. This is going to hamper the ability of the justice system to react to other cases that the public may very well regard as a higher priority, like sexual assaults and homicides, which we think is harmful,” he says.
Illustration: Carl Wiens
Illustration: Carl Wiens
When a California jury acquitted O.J. Simpson of two counts of murder in 1995, the verdict delivered a where-were-you-when moment to people around the world. But the trial also gave Canadian advocates for cameras in the courtroom their biggest and longest-lasting headache. The case has become a textbook argument against putting cameras in the courts, with grandstanding lawyers on both sides, an allegedly star-struck judge, and an orgy of commentary stoking a media frenzy around the televised trial.
Monday, 27 February 2012 08:04

Articling how-to

As law societies grapple with a crisis that could change articling forever, students are still looking for their own ways to clear the final hurdle to a career in law. Staff writer Michael McKiernan asked articling students past and present for their advice on setting up articles away from the mainstream and at smaller firms.
As law societies grapple with a crisis that could change articling forever, students are still looking for their own ways to clear the final hurdle to a career in law. Staff writer Michael McKiernan asked articling students past and present for their advice on setting up articles away from the mainstream and at smaller firms.
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