Lexpert surveyed business law firms across the country to learn about emerging client needs
How can business law firms best respond to emerging client needs? Lexpert spoke with firms across Canada and learned that several of them are serving clients in new ways.
Here are the “Top 10” growing client legal needs, as set out in interviews with business law firms from Atlantic Canada to Vancouver and in multiple practices. If there is a common theme that pervades the selections, it is the interconnected nature of client needs, both on domestic and global mandates, all but eclipsing the traditional silo model.
Leveraging Canadian expertise internationally
A key driver for Canadian law firms is the need for strategic advice on business operations and transactions beyond Canadian borders. “We are following our clients wherever they do business and that in turn is leading to new client opportunities,” says Alan Hutchison, a partner with Dentons Canada LLP in Vancouver. “This is certainly the case in the mining sector, where Canada is a world leader in expertise in all facets of the industry.”
Increasingly, says Hutchison, “we are seeing Canadian lawyers and firms on international panels, which traditionally were the exclusive domain of leading New York or London firms. Part of this is likely due to the presence in Canada of international law firms, as Canadian lawyers are now able to leverage locations in other global centres, but even firms that have not done international mergers seem to be active on a global scale as not seen previously.”
Hutchison says Canadian mining lawyers have long had clients involved in operations and transactions in different jurisdictions (most are listed on the Toronto Stock Exchange, the leading global market for mining projects), which has given them a greater understanding of other legal regimes and different business cultures. “But we are now gaining additional credibility on the global stage and are increasingly being retained to provide transactional advisory services on transactions that have no connection to Canada.”
As an example, about six months after the formation of Dentons, the firm was engaged by MMG Limited, an Australia-based company controlled by Chinese state-owned enterprise Minmetals, on its acquisition of the Las Bambas copper project in Peru. “That transaction had nothing to do with Canada,” says Hutchison, “but the firm had experience with Latin American mining projects and were familiar with the issues that would arise in the course of the deal.”
Global inbound finance
Deal activity in Canada is at levels not seen since 2007, says John Leopold, a partner at Stikeman Elliott LLP in Montréal. A dominant theme in this deal market is the presence of foreign investors in many of the Canadian deals, he says, including from Europe, the Middle East and Asia. The US, however, continues to be the primary source of foreign buyers.
Leopold’s view is that a strong economy in the US, combined with the meteoric rise of the stock market, robust debt markets and readily available capital, have created an environment in which both strategic and financial buyers in the US have been aggressively pursuing investment opportunities, with Canada being one of the principal targets of that investment. He says Canada is an attractive target for a number of different factors, including the depressed Canadian dollar, lower pricing than comparable deals in the US and a favourable regulatory environment.
“By regulatory, I mean both the Competition Act, where we have seen a more flexible approach from the Commissioner, and the Investment Canada Act, where the vast majority of deals are either not subject to review or, where reviewed, approved within a reasonable period of time,” says Leopold. “We have seen a number of sectors, which have seen a high level of activity based on this reality, with the health care and insurance sectors being the most obvious examples. This is of course in sharp contrast to the resource sector, which has seen a significant decrease in activity from abroad with the decline in commodity prices.”
In Atlantic Canada, the energy market and renewables continues to be a growing sector for legal advice. As an illustration, says Sadira Jan, a partner in the business group with Stewart McKelvey in Halifax, for one hour during a low-use period in June, Nova Scotia had a record 50 per cent of its electricity generated from wind.
“The incredible growth of renewable energy in Nova Scotia can be attributed to a solid regulatory regime and a government-established structure for the sale of renewable power by private developers,” says Jan. In addition to large-scale renewable energy projects, she says, Nova Scotia has an established community feed-in-tariff program that has led to smaller-scale renewable energy projects, mainly wind, providing a good return for their investors and community partners.
In terms of other provinces, in Newfoundland and Labrador, she says the ongoing construction of the Muskrat Falls hydroelectric dam and the associated Maritime Link, which will allow for the hydroelectricity to be sold to Nova Scotia and beyond, is also driving the growth in this sector in both provinces.
As to areas in which legal advice will be sought in the future, Jan says, “our clients are always asking about additional markets for the development of renewable energy projects and the associated sale of energy. There will be exciting opportunities in New Brunswick, with that province looking to establish their Locally-owned Renewable Energy Projects that are Small Scale Program (LORESS), similar in nature to the community feed-in-tariff program in Nova Scotia.”
Looking forward, Jan suggests some of the most exciting growth opportunities in the sector can be found in tidal energy. The region is home to some of the highest tides in the world and the technology to fully harness the renewable energy of these tides is currently being developed and tested with the imminent deployment of test turbines. “While that sector of the renewable energy field is in its infancy,” she says, “it has unbelievable potential and could make Canada a global leader in the area.”
The need for expert legal advice in the area of social innovation is growing quickly as charities and not-for-profit organizations look for sustainable new ways to generate revenue and deliver social impact, says Susan Manwaring, who is the National Chair of Miller Thomson LLP’s Charities and Not-for-Profit Group. Some of this need is motivated by dwindling resources, she suggests, as according to the 2014 Generosity Index – an annual survey of private giving in Canada and the US – donations to charitable causes are declining.
At the same time, however, organizations of every kind, from charities and not-for-profits to corporations, are beginning to understand that the distinction between “purpose” and “profits” is artificial and outdated. “Increasingly, we’re working with clients to design innovative structures that help them achieve their goals as efficiently as possible,” says Toronto-based Manwaring. “Imagine, for example, helping a charity generate profit from an innovative commercial software product.”
Manwaring says in response to the new pressures and regulations, some non-profits that are not charities are restructuring and becoming cooperatives, which operate under different rules and regulations. Also, charities are considering pursuing their revenue-generating activities in other structures, including hybrid structures such as community contribution corporations or community-interest companies.
Miller Thomson is also seeing increased interest in “impact investing,” investments designed to generate maximum social or environmental impact while also delivering a financial return. “Part of this interesting work involves helping our clients measure the real social impact – the true value – of these investments,” says Manwaring. “Institutions, organizations and individuals need to ensure they remain accountable to investors and do not run afoul of federal and provincial laws as they move their money away from traditional investment vehicles.”
Crisis management and enterprise risk
Nothing hurts businesses more than turmoil and uncertainty, says Robert Granatstein, Firm Managing Partner at Blake, Cassels & Graydon LLP in Toronto. “Companies in Canada and abroad try to avoid these by making the right choices. But while great businesses are good at what they do, dealing with a crisis is not something they are wired to do.”
Granatstein says various types of social media have amplified the risk. At the same time, increased regulation in a variety of spheres has vastly increased the compliance burden. As a result, increasingly clients view risk and compliance from a holistic perspective, he says, so service providers need to overcome specialist silos in order to be fully responsive to client needs.
“What makes it somewhat of a new trend is how interconnected markets are, allowing risks to percolate from anywhere. The increased risk is reflected in the increasing attention being paid to compliance by many of our clients,” he says.
For example, consider the needs of an Asian private-equity entity investing in a publicly owned energy company that is based in Québec. For them, says Granatstein, “the question is no longer ‘Am I risk free when it comes to foreign investment regulations?’ More and more, the question will be ‘Am I legally equipped to face not only the foreign investment rules in a specific jurisdiction, but also risks associated with environmental impacts of the company we invest in, potential data breach, opposition from environmental groups, potential shareholder activism, disclosure obligations, employment specifications of the jurisdiction or other unforeseen enterprise risks where we are investing and which we know little about?’”
Drug and medical device regulation
Another growth area for business law firms is the drug and medical device regulatory landscape in Canada, which, according to Timothy Squire, a partner and Co-chair of the International Life Sciences Industry Group with Fasken Martineau DuMoulin LLP, is undergoing massive change, making it a significant growth area for specialized legal services. Behind this change is a new, more vigilant approach to monitoring and enforcing drug and device safety by Health Canada, says Toronto-based Squire, culminating with the implementation of Bill C-17 (otherwise known as Vanessa’s Law) late last year.
Squire says under Bill C-17, the federal Food and Drugs Act was substantially amended to grant Health Canada a wide range of new powers over industry stakeholders, including the power to order the disclosure of information, to conduct post-market tests and studies, to change product labelling and packaging, and to implement product recalls. The amendments also grant Health Canada the statutory right to publicly disclose confidential business information received from industry stakeholders in certain circumstances. “More importantly, Bill C-17 dramatically increased the maximum potential fine on conviction for a violation of the Act and regulations from $5,000 to $5,000,000 per day, and introduced officer and director liability,” he says.
What this means for business law firms, says Squire, “is in response to this new legislation and Health Canada’s more aggressive approach, many industry stakeholders are stepping up their regulatory compliance efforts and are involving outside legal specialists in matters typically handled in-house. This includes matters such as product labelling and advertising, quality control, drug and device approval submissions, post-market reporting and responding to Health Canada investigations and other regulatory inquiries.”
The risks of operating abroad
Norton Rose Fulbright’s 2015 Litigation Trends Annual Survey found 39 per cent of respondents cite regulatory and investigations matters as their top concern. This has increased by more than two-thirds since 2012. “Global regulation is a top concern for our clients. It’s a complex and growing area that is no longer specific to jurisdictions or areas of law,” says Janne Duncan, a senior partner with Norton Rose Fulbright Canada LLP in Toronto.
“Globalization has led to a fundamental readjustment in the relationship between governments and businesses around the world, including unprecedented levels of intervention. As a result, there has been a clear increase in this type of work,” says Duncan, a member of the firm’s global regulation and investigations practice, launched in 2014. In the future, she expects “when it comes to sanctions and export controls, for example, the web of compliance is just going to get more complicated as we go along.”
Duncan says there has been a corresponding greater scrutiny on business practices, which is forcing a re-think of traditional areas of law. Client companies must deal with what can sometimes be unclear and shifting international standards, together with laws at the ground level that often cross multiple practice areas and require a global perspective.
“Compliance is now critical for managing both legal and reputational risks,” says Duncan. “As an example, failure to manage the actions of suppliers in the area of anti-corruption, human rights and environmental compliance can have a serious and negative impact on a company’s reputation and increase legal risk. Whether it’s regulatory investigation across multiple jurisdictions, a global campaign alleging violations of international standards, or a transnational class action raising international standards in supply chain management to support the claim, this is an issue that touches upon both reputational and legal risk.”
Helen Fotinos in Toronto, Co-chair of McCarthy Tétrault LLP’s National Franchise & Distribution Group, and former General Counsel at Kia Canada Inc. and St. Louis Bar & Grill, believes that franchising will always be a growth area for lawyers who approach their client relationships holistically. “Franchise systems have numerous and varied legal needs in complementary practice areas, such as corporate law, taxation, real estate, employment, technology and litigation, to name a few. A good franchise client, therefore, can quickly become a good firm client.”
Fotinos anticipates the influx of US franchise systems entering the Canadian market will continue to support franchising as a growth sector. Foreign franchisors rely on Canadian counsel to ensure that they are compliant with local franchise statutes and other legal, regulatory and business practices. Similarly, many Canadian franchisors are expanding into foreign jurisdictions with greater frequency through area development and master franchise arrangements, which require strategic legal advice to execute.
Still other accelerators, says Fotinos, include the influence of e-commerce and omni-channel distribution networks, which have radically altered the traditional franchise model, forcing franchisors and franchisees alike to reconsider their rights and obligations around issues like territorial exclusivity, profit sharing, marketing, cybersecurity and privacy. Additionally, franchising is still a relatively young area of law; new franchise legislation continues to be introduced, most recently in Manitoba and soon in BC.
In addition, franchise litigation is a growth area for legal growth and clients needs given the many developments in this area of law. “A string of early appellate decisions over the last several years set out a very strict interpretation of franchisors’ obligations under the franchise legislation in force in the five statutory provinces,” says Adam Ship, a litigation partner at McCarthy Tétrault LLP in the firm’s Toronto office and Vice-chair of the National Franchise & Distribution Group. “These decisions continue to incent certain franchisees, those who come to regret their decision to invest in the first place, to sue for full compensation from franchisors under the franchise legislation.”
P3s and working with the government
The P3 approach continues to grow across Canada. For example, in Québec, “since the Quiet Revolution in the 1960s, the Québec government has always been a major partner of the private sector in economic development, the Caisse de dépôt et placement, Hydro-Québec and Investissement Québec being just a few examples,” says Gérard Coulombe, a business law partner at Lavery, de Billy, L.L.P. in Montréal. “The staggering government deficits and Québec’s bout with the construction industry, and the findings of the Charbonneau Commission have highlighted even more the need for competition in the construction market, and the potential for amplified checks and balances systems, which P3s allocate among public and private actors, could convert into even greater use of P3s in the future.”
Coulombe says recent developments show the size of major P3s in Canada could be a concern as only a limited number of sophisticated players have the required expertise to bid for large-scale projects. However, at the same time, he says, “smaller contractors and players will have the ability to bid on P3s as newly emerging sectors, including local or community projects (outside of the traditional sectors attracting P3s, such as transportation and health care), have gained interest in P3 structures.”
Consequently, the growth in public – private partnerships opportunities will result in a greater, more diversified and enhanced local expertise, which should give Canadian players a competitive edge over foreign and international players.
Looking farther afield, “even our American neighbours have embraced P3s as a means to attract investments. This could result in interesting opportunities in the US for Canadian public and private actors experienced with P3s at an international level, including investment opportunities,” he says.
Foreign corrupt practices
According to George Eydt, a Toronto-based partner with American law firm Hodgson Russ LLP, “trends that start in the United States, legal or otherwise, often find their way to Canada. The enforcement of anti-bribery statutes is no exception.”
Eydt says although the US Foreign Corrupt Practices Act (FCPA) came into effect in 1977, it was essentially ignored until its enforcement by both the Department of Justice and the Securities and Exchange Commission began in earnest in the mid-2000s. By 2014, the average value of an enforcement action was US$156 million, with the total value of all actions in the billions of dollars.
“Interpretation of, and compliance with, the FCPA are not settled. In Opinion Release 14-02, issued last year, the DOJ indicated that a purchaser may not acquire post-closing financial benefit from contracts obtained through bribery. This expands the scope of successor liability under the FCPA. The fact that the guidance around the FCPA is not settled likely means more work for the US and Canadian lawyers who deal with it already,” says Eydt.
“To date, Canada’s enforcement of the Corruption of Foreign Public Officials Act (CFPOA) has been limited,” he says. However, the Royal Canadian Mounted Police has recently established a special unit dedicated to investigating international bribery and enforcing the CFPOA.
“Although the scope of the CFPOA is narrower than its US counterpart, this may change,” he continues. “The Minister of Justice has recently made attempts to amend it. With the RCMP ramping up efforts to enforce the CFPOA and possible expansion of its scope, it is likely that Canadian lawyers will see an uptick in work related to the CFPOA as occurred in the United States.”