International Law Firms in Bermuda: the Supreme Court of Bermuda considers the legality of their structural arrangements

In Walkers (Bermuda) Limited v Bermuda Bar Council [2017] SC Bda 3 App, the Supreme Court of Bermuda has considered the legality, from a Bermuda law perspective, of a Licensing and Service Agreement and a Loan Agreement entered into between a Bermuda law firm professional services company, Walkers (Bermuda) Limited, and an international law firm, Walkers Global, for the purpose of enabling the Bermuda company to trade as the Bermuda office of the international firm (thereby enabling the international law firm to market itself as capable of providing Bermuda legal services through its international offices, in conjunction with BVI and Cayman legal services).

The central question for the Court was whether or not the effect of the contractual arrangements between the parties was such as to leave the Bermuda company under the control, in practical terms, of non-Bermudians, rather than a 60% majority of Bermudians (taking into account various provisions of the Bermuda Bar Act 1974 and the Companies Act 1981).

The Court concluded that the contractual arrangements were not such as to offend the provisions of the Companies Act 1981 or the Bermuda Bar Act 1974.

Since the Court made a confidentiality and sealing order with respect to the contracts in question, and only summarized their main elements in its judgment, it is quite hard to offer an independent legal analysis of the Court’s reasoning and conclusions, and it may well be the case that the Court’s judgment is revisited on an appeal to the Court of Appeal for Bermuda in any event.

In reaching its conclusion, however, it is noteworthy that the Court does not appear to have engaged in any analysis of the Partnership Act 1902, notwithstanding its potential application to the arrangements between Walkers (Bermuda) Limited and Walkers Global, assuming them (and their principals) to be a group of persons carrying on a business in common with a view of profit (which might be inferred from the Court’s statement that “Walkers Global will provide substantial financial support on terms which reflect a symbiotic relationship between licensor and licensee with Walkers Global in a dominant position“). The partnership issue does not appear to have been considered or addressed by the parties’ Counsel in their arguments, although this might have been because of the parties’ interpretation of the rules of section 2 of the Partnership Act 1902, which suggest that, in determining whether or not a partnership exists, “the advance of money by way of loan to a person engaged or about to engage in any business on a contract with that person that the lender shall receive a rate of interest varying with the profits, or shall receive a share of the profits arising from carrying on the business, does not of itself make the lender a partner with the person or persons carrying on the business or liable as such” and “a person receiving by way of annuity or otherwise a portion of the profits of a business in consideration of the sale by him of the goodwill of the business is not by reason only of such receipt a partner in the business or liable as such“.

Chief Justice Kawaley sensibly noted, in his judgment (but way by way of obiter dicta), that “the Bermuda Bar Council would be assisted by legislative support to regulate … the terms on which foreign legal brands can be used by local professional companies“.

The Bermuda Bar Council is certainly struggling to work out how, precisely, it can and should regulate international law firms in Bermuda.

Bermuda is not the only jurisdiction to be struggling with the proper regulatory approach to the regulation of international legal practice (see, for example, the English SRA’s consultation on this issue in 2012).  And Walkers (Bermuda) Limited is not the only international firm that invites regulatory scrutiny in this respect, given the presence in Bermuda of other international (or internationally affiliated) firms such as Conyers Dill & Pearman, Appleby, Bennett Jones, Harneys, and Sedgwick Chudleigh; and the frequent involvement of foreign lawyers and foreign law firms in Bermuda-law transactions and Bermuda-jurisdiction disputes (whether in Court or in arbitration), including barristers based in London.

The issues which are thrown up are enormously complicated, in terms of the public interest, public policy, professional ethics, the integrity of the rule of law, competition, employment, immigration, capital investment, maintenance and improvement of standards, and protection of Bermudian interests (including the users of legal services, employees, and business owners).

Regrettably, the combined facts that the issues are so very difficult and policy-laden; that the Bar Council is a self-regulatory body, whose elected, volunteer representatives are inevitably subject to conflicts of interest, personal biases, and pressing professional commitments; and the Bermuda Government has many more pressing issues on its agenda as it approaches a General Election in 2017; all mean that there is no realistic prospect of balanced and independent regulatory reform being introduced in a hurry.

This is a real shame, since the absence of a clear and certain regulatory structure is likely to be having a chilling effect on some Bermuda lawyers that might be interested in setting up a new law firm (and raising capital for those purposes), which could be for the greater good; and yet it is likely to be allowing certain Bermuda (and foreign) lawyers to exploit the regulatory gap by engaging in certain activities that are not necessarily for the greater good, one way or the other.

Is there a solution to the problem?

To my mind, the most effective solution would be for the Bermuda Government to re-assign the Bar Council’s regulatory responsibilities to a professional, and independent, regulatory body (with a proper budget and independent executive), analogous to the Bermuda Monetary Authority or the Regulatory Authority of Bermuda (or the Bar Standards Board and the SRA in the UK).

The operating costs of such a regulator could obviously be raised by way of practicing certificate fees (and, in any event, the Bermuda Bar Council already has considerable net assets at its disposal). Once established, such a regulatory body would hopefully be able, in short order, to consider and implement the proper approach to the regulation of international law firms doing business in Bermuda.

 

 

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