Who’s Who Legal brings together Andrew Tulloch of CBP Lawyers, Edward Kuznetsov of Marine Legal Bureau and Bruce Paulsen of Seward & Kissel to discuss maritime financing, transactional work and the growth of shipping practices within law firms.
Andrew Tulloch: The past decade has seen significant expansion in the mining, oil and gas industries in Australia. Much of that development has occurred in Western Australia and, more recently, in Queensland. This has brought associated legal work involving contractual arrangements for major projects. With significant increases in iron ore shipments out of Western Australia – largely to meet demand in China – there has been an increased need for chartering advice, particularly when, in a global economic downturn, chartering rates fell and charterers sought to reduce their exposure to long-term commitments. That has also led to some increase in contentious work, as aside from the disputes arising from the long-term charter arrangements the sheer volume of shipping now occurring from mining ports has led to delays and vessel queuing in some instances and to demurrage disputes.
Edward Kuznetsov: In our work only 20-30 per cent of cases are resolved in courts and arbitrations. The first reason is that the market has been gradually recovering after the recession and that the deals have not yet reached the stage of dispute. The second reason is that most disputes are settled outside court because most of the clients tend to avoid long contentions in court with unknown outcomes and extra legal costs.
Bruce Paulsen: There has been a substantial uptick in transactional work on the maritime side. This includes, at our firm, a dramatic increase over recent years in lending work, as well as a substantial increase in capital markets activity in the shipping space. Although all of this work continued apace following the market crash in 2008, much of the work on the lending side consisted of restructurings of old debt rather than new loans, and, on the capital markets side, public companies were seeking to raise capital from the public by way of follow-on offerings, but there were few new companies going public. All of that has changed with the improvement in the world economy and with some improvement in shipping (varying from sector to sector). Overcapacity issues still dog some of the sectors in shipping, and it will be a while before shipping returns to true profitability. However, in the meantime, transactional work is vastly increased, which is a good leading indicator not only for the shipping industry but for the world economy.
Andrew Tulloch: The Australian banks have exercised greater caution in their lending practices in recent years and it is becoming more common to see non-traditional lenders, including Asian banks, becoming more involved as a source of finance.
Edward Kuznetsov: Most commercial banks in our jurisdiction have had a negative experience with financing in the shipping industry and suspended the process. For a few years the biggest shipowner in Latvia was a Latvian bank, as it was forced to seize the ships from the insolvent shipowners. Recently, the banks have recommenced financing shipping. Alternative resources of financing are not common in our jurisdiction.
Bruce Paulsen: There has been a significant amount of activity on the private equity side in shipping for some years now and it continues at a strong pace. As mentioned in our answer to the previous question, banks are most certainly lending in our jurisdiction. While lending transactions may still not be quite up to pre-recession levels, they have increased substantially.
Andrew Tulloch: It is true that there seems to be an increased interest in shipping by some firms – and notably the global players that have seen opportunities in Australia when there is a downturn in work in other jurisdictions. We have also seen a continuing trend of mobility in the profession in Australia, with many senior lawyers moving – often from the largest and global firms to the mid-sized law firms. I am not convinced that there is actually a significant growth in the available legal work in the shipping area – so we tend in many cases to see more firms fighting over the same pie. My firm, CBP Lawyers, has benefited from the trend to move work from the large firms to the mid-sized firms and is growing fast in all areas, and my own move to the firm in 2013 was in recognition of the advantages in joining a firm that was committed to growth of the transport practice and saw opportunities to further build its reputation and practice in this field.
Edward Kuznetsov: Many legal companies are showing an interest in shipping. However, due to the specifics of the industry not all of them are able to provide proper legal services.
Our company specialises in marine legal services and adjacent areas not only in Latvia, but also abroad, so our plans for the future are further development of business and bringing in new clients.
Bruce Paulsen: There is no question that general practice law firms, especially global firms, are seeking to gain a foothold in shipping law, particularly on the corporate side. This is happening in New York where firms not frequently seen in shipping transactions or litigations are now popping up. We believe that shipping companies are better served by law firms such as ours that truly understand their business, rather than firms that are new entries into the market which, while they may understand how to structure financing transactions or handle litigations, do not have the experience in what makes shipping matters different: the international nature of the business, shipping operations and the fact that the assets – the lenders’ collateral – are mobile. Our firm will continue to focus on this industry, as it has for many years, with its understanding of shipping structures, tax issues, international law and litigation issues that arise in shipping that make our firm’s knowledge and advice unique.
Andrew Tulloch: The global practice is a relatively new phenomenon in Australia but one which has gathered extraordinary pace. After an initial rush of enthusiasm and a perception that Australia presents unique opportunities for these practices, I suspect there will be a period of reappraisal as overseas entrants realise that Australia is already well served, if not over-served, with quality legal practices and it may prove difficult for some global practices to compete for work at the constrained market rates. There will doubtless be successes but I also suspect there will be some global firms that will either withdraw over time or will see their Australian practice break free from the global practice.
Edward Kuznetsov: We haven’t noticed any interest by large international legal companies in starting business in Latvia. This can be explained by the limitations of the Latvian market. The shift will only be possible with a massive upsurge of the local market.
Bruce Paulsen: While there are many global law firms now practising in the shipping area (see our answer to question 3) our firm has consciously chosen to remain a New York firm with an office in Washington, DC. Our firm has relationships with other firms globally in the shipping space that assist frequently in the matters we are handling. We have maintained our size and independence, which allows us to handle transactions in a far more cost-effective basis than the larger firms, we have maintained our stable of well-known experts in the shipping field within our partnership, we have the ability to act far more nimbly than larger firms and clients will get a higher level of attention from partners in our firm than they would get working with a large team from one of the global mega-firms. Finally, if nothing else, it is far more pleasant to work at a firm that is not large and bureaucratic. Our partners know each other well, have for years, and many of our partners have spent their entire careers at the firm. This benefits not only our clients, but our lawyers and our non-legal staff in their day-to-day work.