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Clients accept high rates to ensure deals work

|Written By Julius Melnitzer

It continues to mystify many, including many in the profession, how American lawyers are commanding hourly rates approaching four figures and some Canadian lawyers manage to charge almost as much, with barely a whimper from their clients.

Duncan Card of Bennett Jones LLP’s Toronto office says it’s no great mystery.

“You can charge that kind of money when you have the transactional experience that neither management nor in-house counsel have,” he says.

“Transactional experience” is the key phrase here.

No lawyer — no matter how many deals she’s done — is going to know more about the day-to-day operations and strategic decisions that management and in-house counsel must make. What lawyers often do know more about, however, are large, sophisticated mission-critical transactions.

A CEO or a general counsel, for example, will see a limited number of M&A transactions in his career; for a business law lawyer, by contrast, M&A may be the career.

In other words, one thing lawyers see a lot more of than their clients are deals — and all the better if the deals they have seen are in the industry to which their client belongs.

“The best transactional lawyers reach the stage where they provide the executive team with all kinds of business information and assistance that they can’t get in-house,” says Card.

While M&A lawyers are the most prominent example, simply because their transactional work tends to have the most at stake and generally has a high profile, the same can be said of practice areas like outsourcing, in which Card specializes.

“When it comes to outsourcing, the real repository of combined legal and business knowledge is with outsourcing lawyers,” Card says. “A CEO, [chief information officer], or general counsel might do one or two of these transactions in their entire career as opposed to the 20 or more Bennett Jones sees annually.

“That makes us the repositories of the deal, as well as repositories of the law. We combine the language of the business with legal knowledge, and it’s that combination that justifies the fees.”

Outsourcing, like M&A, is about restructuring a business and is therefore of great strategic significance. And there are quite a few similarities between the two types of transactions.

According to Richard Coleman of Osler Hoskin & Harcourt LLP in Toronto, both types of transactions involve five similar stages: planning, structuring, due diligence, negotiations, and closing.

“The key difference is that M&A deals are done over weeks and months with a huge push to the closing which is the finish line,” he says. “There’s a lot more money in most M&A deals, but in outsourcing the finish line for the transaction is the starting line for a relationship that will continue for five or 10 years.

“Law firms see outsourcing transactions as desirable work because they are like M&A in that they are business-critical, of substantial size, require large teams whose fees can be leveraged, and require a senior lawyer who can provide real added value to the client’s decisions.”

One sign of the value that companies place on highly specialized transactional lawyers is the extent to which they are attempting to recruit them in-house.

“When people like Geoff Beattie [formerly of Torys LLP] go to Thomson and people like J.P. Bisnaire [formerly of Davies Ward Phillips Vineberg LLP] go to Manulife or a David McAusland [formerly of Byers Casgrain, now merged with Fraser Milner Casgrain LLP] goes to Alcan, you can be certain that their title is not confined to general counsel,” Card says.

“They almost always become a senior or executive vice president with responsibilities on the business side. A good example is the entertainment industry, where lawyers are commonly referred to as senior or executive vice presidents of business affairs.”

In Card’s view, both clients and lawyers would be better off if companies kept what he calls “commoditized” legal services in-house.

“Business can do the commodity work cheaper themselves, and the difficulty for large law firms is that clients always seek steep discounts when they farm out that kind of work,” he says.

“But nobody complains about fees when the lawyer brings a combination of business, commercial, consulting and legal knowledge to the table. Clients don’t beat up on the fees of lawyers at that level any more than they would beat up on a consulting firm like McKinsey,” he says.

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Children’s taped statements are serious business

By Carole Curtis

The purpose of child protection laws is, in theory, the protection of children. But child protection cases raise unique evidence issues for lawyers.

Developing technology and recent amendments to child protection legislation, evidence legislation, and even the Criminal Code have resulted in changes to the way statements are taken from children and others. The use of audio and videotapes, once rare, is now the norm. No doubt the process has been affected by television police dramas, the speed of improving technology, and the declining cost of technology.

The use of videotape to take the statements of child victims is common and generally thought to result in a less traumatic process for the child. Less trauma for the child is only the result if the taped statement is used as the child’s evidence in court in place of making the child personally attend the court hearing.

The admissibility of children’s taped statements is, of course, a sub-set of the law on the admissibility of children’s hearsay statements. The Supreme Court of Canada in 1990’s R. v. Khan revolutionized the rigid application of the hearsay rule by applying what has come to be called the “principled approach” to hearsay.

The court established a new framework with respect to the admissibility of hearsay evidence, under which such evidence is admissible if it meets certain criteria with respect to reliability and necessity.  The party tendering the out-of-court statements of the child has to satisfy the judge that the reception of the statement is reasonably necessary and that the statement is sufficiently reliable to be admitted.

The tapes of a child’s statements are offered for the truth of their contents and, usually, instead of the child’s in-person attendance in court. In other words, if the tape goes in, the child does not have to be produced for cross-examination. This (the child not having to give evidence) is generally seen as a highly desirable outcome.

It is an odd system that, in trying to protect the child from harm, would require that the child come to court, give evidence, be cross-examined and surely experience some level of trauma from that process. It is only in the last five years or so that judges have been bold enough to draw this analogy in making decisions about the admissibility of taped statements.

Usually (if there is an analysis) the court finds this to be an aspect of the necessity test (that is, the court finds that it is necessary to admit the taped statement or else the result would be to cause harm to the child who is meant to be protected by the hearing).

Where there is a dispute as to the admissibility of a taped statement, in some cases, there is a formal hearing held in advance of the trial or hearing to determine the admissibility of the taped statement. The chid protection case has adopted the criminal law name for such hearings, the voir dire. In some jurisdictions, only the trial judge hears this application; in others it is heard by a case management judge, or any judge hearing the interim stages of the case.

The law in this area is hard to find, inadequate, not well thought out, and not well presented. This really should be viewed as a new and still developing area of the law. Part of the problem may result from the use of the voir dire as a discreet hearing process to determine admissibility. Often the trial decision is reported or available electronically, and if there were written or detailed reasons for the voir dire, those reasons may be separate from and do not form part of the trial decision. Where judges order the taped statement admissible, they make a finding that it meets the threshold tests of necessity and reliability, but rarely is there any analysis as to why.

Children’s taped statements have sometimes not been admitted. When the party offering the tapes as evidence failed to lead evidence as to their necessity and reliability and offered no explanation as to why the children (who were 14, 13 and 12 years old) could not testify, the court was not satisfied that the test of necessity in Khan had been met (New Brunswick (Minister of Health & Community Services) v. C.(R.),1995 (NBQB)).

Ontario Family Court Justice David Aston refused to admit the taped statements of children aged 15 and 13 (Children’s Aid Society of London & Middlesex v. B.(B.) (2000)) and found that although some hearsay evidence in a child protection case may be admissible for its truth without the necessity of meeting the test in Khan, the discretion to admit such evidence is very limited, and such evidence should not be admitted on the threshold issue of whether a child is in need of protection. Aston explicitly rejected the possibility of a relaxed admissibility standard in child protection proceedings.

And sometimes children’s taped statements are admitted. In 1996’s Children’s Aid Society of Simcoe (County) v. C. (R.S), the Ontario Superior Court gave oral reasons (which were not recorded in the trial decision) in the course of the protection hearing for the decision to admit the statements and drawings of a seven-year-old made in interviews with a social worker (the pictures drawn in the course of those interviews, and the statements made during the course of an assessment by an expert psychologist). The interviews admitted were either tape-recorded or videotaped and then transcribed.

Even once admitted, the tapes can be found to be of little weight for other reasons (this becomes confused/confusing where judges decide to give a tape little weight due to its “unreliability”).

Ontario Court Justice Penny Jones held a voir dire as to the admissibility of various videotaped and written statements from a 10-year-old regarding sexual abuse by her stepfather in Catholic Children’s Aid Society of Toronto v. L.(J.) (2003). There was a great deal of family turmoil at the time of the disclosures and of the statements, including charges of assault against the stepfather for assaulting the mother. The mother did not believe the child’s disclosure about sexual abuse, and the child later recanted, it was thought, under pressure from the mother, including recanting at the criminal trial of the stepfather. He was acquitted and the family resumed living together.

Jones admitted all the statements as she was satisfied they met the dual test of necessity and threshold reliability. All the parties agreed that the child was too emotionally fragile to testify in front of her parents, a conclusion supported by a psychologist. The child was also in her seventh foster placement. However, Jones determined there were too many indicia of unreliability for her to put any weight on the statements. The statements were admitted, but not relied upon.

Here are some practice tips regarding the admissibility of taped statements: Do not assume the other side is consenting. Put the other side on notice in writing at the earliest possible moment that you intend to introduce the tape as evidence, or that the issue of admissibility of this evidence is contested and requires adjudication. If necessary put the other side on notice that you do not intend to call the child as a live witness, or that you do intend to call the child as a live witness and serve a summons (the decision to call the child as a live witness is a tricky and difficult decision, and one that may back-fire, so it needs to be carefully considered). Put the court on notice at the first available opportunity (at the settlement conference or trial management conference).

Provide a full, complete, and clear copy of the tape you intend to produce at the earliest possible moment.  Ensure you and your client have received a full, complete, and clear copy of the tape and that you and your client have watched it all the way through well before the admissibility argument takes place. Your client should have seen this tape several times before it is played in court.

If possible, have a transcript prepared of the tape’s contents, for review by the lawyer and the client. Get detailed and specific instructions from your client about the reliability of each of the statements on the tape. Your client should be able to respond to every statement or allegation on the tape, preferably in writing.

Often the tape is in the possession (and ownership) of others (e.g., police) and can be difficult to get. Take steps early to secure the production of the tape, including bringing a motion for production/disclosure if needed. If the tape is not produced to you in a timely fashion to allow you to prepare for the voir dire or the hearing, bring the necessary motion for production/disclosure.

Do not even think of producing an edited version — the court will not admit it.

Read Khan, Smith, and Starr, and understand the law in this area. Be prepared to argue the law at a proper voir dire (what makes it necessary in your case? What makes it reliable?) Make sure there is proper technology available in the court house where the hearing will be for the judge and parties to watch the tape at the same time. Confirm that in writing to the court management (not just to the judge) before the hearing dates.

Determine whether it is advantageous (or not) for the judge and the parties to watch the tape at the same time.

Cases involving children’s taped statements are difficult and can have wide-ranging and very serious consequences for our clients. This is not an area for the lawyer to be guessing at the law, or just shooting from the hip.

Carole Curtis is a family law lawyer in a three-lawyer firm in Toronto. She can be reached at

carolecurtis@carolecurtis.com

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Competition lawyers ‘put the grease to the wheel’

BY julius melnitzer

For Law Times

It wasn’t until 1986 that Canada introduced modern antitrust legislation in the form of the Competition Act, which has been amended many times. The act contained the country’s first merger clearance regime. Little did its proponents know that two decades later, Canada’s largest law firms would be scrambling to build and promote their competition law departments and that competition considerations would be headline news in the country’s business pages.

“Competition considerations can be deal-breakers and that’s where competition lawyers come in,” says William Rowley of McMillan Binch Mendelsohn LLP. “They’re the ones who can put the grease to the wheel or a sharp sword to the knot.”

The primary reason for the growth of competition law as a practice area is deceptively simple: competition review creates risks, both in process and outcome, whose management requires the intervention of legal expertise. Indeed, the risks have become so significant some sellers have taken to accepting lower bids with fewer competition problems.

“Competition concerns are capable of shifting the leverage between buyers and bidders, so if you’re for sale, you need to assess the competition risk,” Rowley says. “In particular, you need to consider concessions the regulators may force you to make and how much those concessions will affect value.”

Globalization has made the process even more complicated. As the Inco-Falconbridge transaction and the associated battle for control of Inco demonstrates, Canadian companies and their lawyers can no longer confine themselves to domestic competition considerations, even when Canadian companies are merging with each other. At the same time, Canadians can no longer assume that international considerations will not affect them, even where domestic competition considerations are a relatively minor part of a transaction.

This marks a significant change from the incipient days of the globalization rush, when the international competition regulation infrastructure was lacking.

In 1990, there were fewer than 10 competition regimes in the world, and only four of them — in the United States, the European Union, Canada, and Australia — had a meaningful history. Today, over 100 countries have competition laws, thanks in large measure to the World Bank, which has helped countries establish market economies that include antitrust regimes.

“Not all these regimes are effective,” Rowley says. “Many of them are brand new and just learning, but that doesn’t change the fact that the world has adopted a competition culture driven by the realization that competition law and consumer welfare are intertwined.”

As the number of competition regimes grew internationally, they began to present completion risks to multinational mergers.

“The competition stakes in a deal went way up, because now there was risk that some two-bit jurisdiction might start eating into the economics of the transaction and maybe even thwart it altogether,” Rowley says.

What this means is that strategic thinking about competition considerations can’t occur midway through an M&A transaction and certainly not as an afterthought. All the more so because boards of directors are under increasing scrutiny to do their deal-related homework in advance.

“Ten years ago, boards made merger decisions before calling in the competition lawyers,” says Crystal Witterick of Blake Cassels & Graydon LLP. “That doesn’t happen anymore.”

Anthony Baldanza, chairman of the antitrust competition group at Fasken Martineau Dumoulin LLP, is of a similar mind.

“A fix-it-first approach, particularly one that includes a divestiture partner, is a very powerful weapon in securing merger clearance, because it can take the wind out of the Competition Bureau’s sails and avoid a prolonged inquiry,” he says.

In other words, fix-it-first thinking has made a significant contribution to competition counsel’s growing prominence at the deal table.

“Competition counsel are one of the first outside counsel contacted in any strategic merger,” Collins says. “In-house counsel engage them very early, even at the drawing board stage. And the questions asked are threshold queries around such fundamental issues as whether the deal is doable, what it would take to do it, and how long it would take to do.”

George Addy, who leads Davies Ward Phillips & Vineberg LLP’s competition practice and was head of the Competition Bureau from 1993 to 1996, agrees: “Clients have us there from the get-go,” he says. “They want advice about significant matters like the valuation of a deal, the execution risk, and what the final asset package will look like once the regulators complete their review.”

Competition counsel’s analysis is critical in a negotiation dynamic because vendors who foresee competition problems will try to get purchasers to take the competition risks with hell-or-high-water clauses or reverse breakup fees.

When Whirlpool recently triumphed over two other suitors with its US$1.79-billion bid for Maytag, for example, the proposed deal created a market giant that produced half of the

dishwashers and 70 per cent of the clothes washers and dryers manufactured in the United States. The competition risks for the deal were considerable, influencing Maytag to extract a $120-million reverse breakup fee from Whirlpool.

“There’s a very clear trend to vendors conducting sales in a way that relieves them of competition risk to the greatest extent possible,” says Neil Campbell, a partner at McMillan Binch Mendelsohn LLP. “Because these risks invoke complex and costly impacts, the vendor and all the bidders will bring in competition counsel to negotiate.”

When the bid is hostile, things can get even more complicated, especially in the public markets with their securities overlay.

“The competition process can take considerably longer than the 35-day securities waiting period that exists in Ontario,” says Peter Franklyn, chairman of Osler Hoskin & Harcourt LLP’s competition and antitrust group.

While extensions are common in the securities arena, it’s the rare bidder that wants its offer out there for too long.

“Delays raise the prospect of competing bidders, give targets time to find white knights, and aren’t good for share prices because they make the arbitrageurs nervous,” notes Jay Holsten of Torys LLP.

The possibility of delay increases with the number of jurisdictions in which a transaction must pass muster.

“It’s critical that parties avoid getting jammed up with the various filings, and the only way to do that it to file early and keep everything tightly co-ordinated,” says Randy Hughes of Fraser Milner Casgrain LLP.

For their part, targets must make a core decision whether to invoke competition law with the intention of buying time to obtain competing bids that are higher or have less

regulatory risk.

“But it may also eliminate or reduce the value of a bid that provides the highest value to shareholders,” Campbell observes. “So directors have to exercise their fiduciary duties carefully when contemplating such a strategy.”

And there’s another danger: “If the target says to competition authorities, ‘Don’t let the hostile party buy us because they’ll monopolize the industry,’ what happens if a strategic white knight who also raises competition issues comes into the picture?” asks Hughes. “It’s important to think three or four steps ahead when you’re giving competition advice to clients.”

The greatest threat to a deal, however, may come from marketplace complaints that don’t originate with the parties.

“Competition agencies have made it clear they’re open to submission from any interested parties,” says Paul Crampton of Oslers, who wrote the Compe-tition Bureau’s 1991 merger guidelines.

 In other words, customers, competitors, suppliers, trade unions, or other market

participants are all free to complain to the bureau. “And they’re doing so with a rising level of sophistication,” Crampton says.

“We’re doing an ever greater number of cases where complainants retain us to deal with a merger that affects them,” Campbell notes. “Their goal is to make proactive submissions that marshal the competition concerns which they believe the Bureau should address.”

Indeed, a wide range of stakeholders are seeking the advice of competition counsel.

“We’ve been getting calls from investors, debtholders, funds and financial services companies asking how mergers in a particular industry might affect them,” says Michael Osborne of Affleck Greene Orr LLP.

And when clients are doing that, we know what the bottom-line results are for their lawyers.

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