Legal Business

Deals Yearbook 2022: Caroline Rae, Herbert Smith Freehills – partner since 2016

Deals Yearbook 2022: Caroline Rae, Herbert Smith Freehills – partner since 2016

Why did you decide to become an M&A lawyer? Was there anyone in particular who inspired you early on in your career?
Once I had decided to become a lawyer there was never a doubt that I would specialise in M&A. When I was younger, I wanted to be in the cCty and to work on deals on the front page of the FT. For me, that meant M&A and it never crossed my mind that I would do anything else. It was a great source of disappointment when I realised that lawyers never get mentioned in the FT of course… but by then it was too late. When I interview graduates, I do encourage them to have an open mind about different areas of law, but I confess for me it was only ever M&A.

Legal Business

Herbert Smith Freehills: Between two peaks

Herbert Smith Freehills: Between two peaks

London. A bitingly cold day at the end of January and Legal Business ventures out on a novel expedition to Liverpool Street. An enforced pandemic-induced break from office-dwelling has made deciphering which of Exchange House’s two entrances will gain us access to the Herbert Smith Freehills (HSF) offices a little more challenging than it should have been.

Luckily it’s not just us. Ironically, Justin D’Agostino, HSF’s chief executive, encounters the same quandary. This is his first in-person meeting since taking the top job in May 2020. It is also his first day in London for nigh on two years.

Legal Business

The management interview – James Palmer

The management interview –  James Palmer

Legal Business: What has the pandemic taught you about leadership?

James Palmer: Everything teaches me. The last 15 months or so have been – and I’ve said this internally – the most extraordinary of my lifetime in most respects. Who would have anticipated this? I like change and challenge, but nothing prepared me for a year at home. Has it taught me things? Oh boy – yes!

Legal Business

Financials 2020/21: Profits soar 30% and revenues surpass £1bn at Herbert Smith Freehills

Financials 2020/21: Profits soar 30% and revenues surpass £1bn at Herbert Smith Freehills

Herbert Smith Freehills announced a striking 30% increase in profitability as part of its 2020/21 financials today (13 July), with strong international contributions underlining the firm’s robust overall pandemic performance.

The firm’s profit jumped to £366.9m from last year’s £283.2m. This represents an emphatic comeback after profits tumbled by 8% last year amid steep operating costs.

Profit per equity partner (PEP) similarly shot up by a significant margin, increasing 28% from £857,000 to nearly £1.1m.

There was also a respectable 5% rise in revenues, which sees the firm pass the £1bn turnover threshold for the first time. Revenue grew to £1.038bn from last year’s £989.9m, marking eight consecutive years of turnover growth.

The impressive results are no doubt in part a reflection of the firm’s swaggering response to the pandemic, in which HSF picked up headline mandates for the Financial Conduct Authority in the landmark Covid-19 insurance test case and advised Travelport in its dispute with Wex – one of few genuine force majeure cases directly related to the pandemic.

Chief executive Justin D’Agostino (pictured) hailed the firm’s revenue increase, which he attributed to ‘client demand and increased market share’ and the impact of HSF’s international network, telling Legal Business that London revenues were up 10%, while they were up by ‘a similar margin’ in Australia and China was up 7%.

He also reported that a drastic reduction in various operational costs as a result of the pandemic, such as travel and office overheads, also contributed to the major uptick in profit. However he refused to consider the positive year as a one-off: ‘Some savings are one-off but a lot of it comes from embedded different approaches we have taken to travel and other discretionary costs since before the pandemic. I came in with a mandate to improve our productivity and financial performance. Twelve months ago we had seen falling profits, so we shifted towards real financial rigor and discipline.’

D’Agostino also highlighted the contributions from the firm’s entire staff, who he said ‘performed at the highest level in the toughest of conditions’. In March, HSF announced a one-off payment of 5% of salary for all its staff, in recognition of their hard work throughout the year. Also in March, the firm elected a new senior partner, with Australia-based partner Rebecca Maslen-Stannage nominated to succeed London’s James Palmer.

Tom.baker@legalbusiness.co.uk

Legal Business

HSF shrugs off Covid concerns to reward staff with bonus as new senior partner is unveiled

HSF shrugs off Covid concerns to reward staff with bonus as new senior partner is unveiled

After posting resilient financial results  in the wake of the pandemic, Herbert Smith Freehills (HSF) has recognised the efforts of staff worldwide by gifting everyone a 5% bonus at the same time as announcing its new senior partner, Rebecca Maslen-Stannage.

In a statement, HSF chief executive Justin D’Agostino said: ‘The firm is performing well so far this year. In recognition of that, we will be paying all staff globally a one-off financial payment of 5 per cent of salary, payable in March. I am delighted that all our people will be sharing in our good performance. This is an acknowledgement of their dedication and hard work, in the face of the tremendous disruption and challenges experienced in the last year. This special payment is made in addition to our usual 2021 bonus round.’

The firm has also lifted salary freezes in ‘some jurisdictions’ to ‘recognise promotions for both lawyers and business services and progression for lawyers’. These revised salaries were effective from 1 January, 2021. HSF’s standard salary review cycle will also recommence this year.

The bonus is another indicator that the international legal profession has coped well with the Covid-19 pandemic. For HSF, the signs were already positive when in July last year the firm closed in on £1bn in turnover after a 2.5% rise in revenues.

And other Global 100 firms have shown resilience in the new year, with Reed Smith unveiling in February a healthy 5% growth in turnover and robust 16% uptick in profit per equity partner (PEP).

Among the key mandates that have driven growth for HSF in the last year, the firm represented the Financial Conduct Authority (FCA) in the high-profile Covid-19 business interruption insurance case  and also won a lucrative place on Sainsbury’s new panel of legal advisers .

Also this week, HSF announced the results of its senior partner elections, elevating Australia-based partner Rebecca Maslen-Stannage as successor to London’s James Palmer. After winning the partnership vote, M&A partner Maslen-Stannage, who has acted as the firm’s deputy senior partner since 2015, will begin her four-year term on 1 May 2021. Palmer, who enjoyed six years in the role, will return to full-time client practice.

D’Agostino added: ‘Rebecca is uniquely qualified for this role. She has always excelled as a dynamic and inspirational leader. I look forward to working closely with her to realise the firm’s ambitions.’

tom.baker@legabusiness.co.uk

Legal Business

HSF ensures victory for regulator in major Covid-19 insurance test case 

HSF ensures victory for regulator in major Covid-19 insurance test case 

Herbert Smith Freehills  (HSF) has ensured victory for the Financial Conduct Authority (FCA) in a landmark test case intended to provide clarity on whether companies have valid business disruption insurance claims as a result of the Covid-19 pandemic.

The High Court judgment handed down this morning (15 September) by Lord Justice Flaux and Mr Justice Butcher will be a heavy blow to insurers, with tens of thousands of businesses now potentially in line for payouts on their business interruption policies. 

HSF fielded global insurance and disputes head Paul Lewis on the matter, while Mishcon de Reya teamed up with litigation funder Harbour to represent the Hiscox Action Group. Allen & Overy, Clyde & Co, DAC Beachcroft and DWF were among those to advise the eight defendant insurance companies on the case. Meanwhile, HSF instructed Colin Edelman QC of Devereux Chambers, as well as Leigh-Ann Mulcahy QC and Richard Coleman QC of Fountain Court Chambers.

While the decision provides some needed clarity, the insurance industry is expected to appeal the decision, meaning business owners will still face uncertainty. The outcome could affect up to 370,000 business interruption policies across a number of sectors.

Commenting on the decision, Christopher Woolard, interim chief executive of the FCA, said: ‘We brought the test case in order to resolve the lack of clarity and certainty that existed for many policyholders making business interruption claims and the wider market.  We are pleased that the court has substantially found in favour of the arguments we presented on the majority of the key issues. Today’s judgment is a significant step in resolving the uncertainty being faced by policyholders. We are grateful to the court for delivering the judgment quickly and the speed with which it was reached reflects well on all parties.’

HSF’s Lewis commented: ‘This is a really significant judgment. It brings guidance to how business interruption insurance wordings should operate in the context of the Covid-19 pandemic, which has had such a devastating effect on businesses across the country. The decision should bring welcome news to a significant number of policyholders who will need to read the judgment carefully and see how the principles laid down by the court apply to their particular policy wording. The speed with which the proceedings were brought is testament to the hard work of the FCA, Herbert Smith Freehills and counsel teams to bring this urgent case to the courts.’

thomas.alan@legalbusiness.co.uk

Legal Business

Resilient HSF closes in on £1bn revenue but profits fall with increased operating costs

Resilient HSF closes in on £1bn revenue but profits fall with increased operating costs

Herbert Smith Freehills (HSF) has become the latest international firm to post resilient turnover growth in the face of the Covid-19 crisis but increased operating costs and a drop in productivity saw profits tumble in 2019/20.

Revenues at the Anglo-Australian giant increased 2.5% to £989.9m, up from £966m last year when revenues grew 4%. However, profits saw a significant decline, falling almost 8% to £283.2m while profit per equity partner dropped almost 10% to £857,000 from £949,000 last year. 

‘We’re very pleased with how resilient the firm has been,’ senior partner James Palmer told Legal Business. ‘Throughout Covid-19, the firm has performed ahead of expectations. Optimism is as high as it could be off the back of the robustness of the revenues.’ 

Recently installed CEO Justin D’Agostino (pictured) added: ‘There is a huge amount of optimism; there’s been significant growth in Asia, EMEA, and New York, all the jurisdictions where we wanted to grow. We have been pleasantly surprised at how well revenues have held up.’ 

The firmwide revenue growth came off the back of a 12% rise in the material output of EMEA while the firm’s deep Asia presence produced an 11% growth in turnover and bucked the global trend by growing profits 28%. The firm’s New York outpost also grew, with turnover up 27% while the firm’s New Law business lines were up 9%.

However, the growth in turnover were not enough to ensure a continued growth in profits, which grew a healthy 11% in 2018/19. Added Palmer: ‘Our revenue did not go up at the rate of our operating costs. If operating costs go up ahead of revenue, you have a dip. Our revenue performance was resilient but our cost base and productivity went slightly in the wrong direction.’

The firm has now fast-tracked existing measures to secure an increase in profitability, according to D’Agostino, who replaced the charismatic Mark Rigotti as CEO in the spring.  

In some ways things are completely different and in other ways it reinforces the manifesto I came in on. What it has done is accelerate things we did not think we could get done in the first 12 months. Things like changing the culture so that people care for one another in a different way and other things like financial measures that Covid-19 has been a catalyst for.’ 

thomas.alan@legalbusiness.co.uk 

Look out for a full interview with HSF CEO Justin D’Agostino coming soon on The Legal 500 Podcast 

Legal Business

Disputes perspectives: Paula Hodges QC

Disputes perspectives: Paula Hodges QC

Becoming a lawyer was suggested to me by other people. I was about 15, and doing a lot of debating and public speaking in school. People started saying to me: ‘You should think about becoming a lawyer.’ The school was supportive, and sent me to conferences and such.

It was also because of watching TV. A lot of people say Crown Court, but I liked the American ones. The media attraction got me thinking about the advocacy side.

Legal Business

Guest comment: HSF disputes chief assesses the City litigation market’s Covid-19 response

Guest comment: HSF disputes chief assesses the City litigation market’s Covid-19 response

In light of the human impact of Covid-19, the immediate concern for businesses is the health and safety of their people and clients.

In addition, the pandemic has caused unprecedented turmoil for the global economy and many businesses are struggling to cope with the huge challenges. Most are feeling the strain financially. Some are fighting for economic survival. 

Against that background, many firms need urgent legal advice to help them deal with the current crisis, including guidance on where they stand contractually. This will continue in the short to medium term but, if the global financial crisis is a reliable template, it may be several years before this leads to a surge in marquee commercial litigation. At the same time all businesses, including law firms, are having to dramatically change their ways of working, not least a move almost entirely to remote working.

The justice system, too, is adapting to this new reality. Despite the lockdown in most areas of public life, the Lord Chancellor has made clear from the outset the Government’s determination to keep the courts running. Indeed, many have been surprised by what a robust approach has been taken given the stark challenges virtual hearings will face. However, not only does the rule of law require a functioning judicial system but, as a matter of practicality, a pause in all proceedings would mean the system will be burdened with severe backlog and delay once this crisis is behind us. And, after all, justice delayed is (often) justice denied.

That is why the courts have committed to using technology at a level that only a short time ago would have been unthinkable. As the Lord Chief Justice announced on Monday (23 March), hearings requiring the physical presence of parties and their representatives should only take place if a remote hearing is not possible and if suitable arrangements can be made to ensure safety. For the time being, the default position is that hearings will be conducted remotely, using either telephone or video conferencing.

Guidance issued over the weekend on remote hearings in the civil courts states that it will normally be possible for all short, interlocutory, or non-witness, applications to be heard remotely, and that some witness cases will also be suitable for remote hearings. Where a remote hearing is not possible, and it is undesirable to proceed with a hearing in court, an adjournment will be necessary. Moreover, hearings may need to be adjourned for other reasons if, for example, people are unavailable due to illness.

As the guidance emphasises, remote hearings should, so far as possible, still be public hearings and the principles of open justice remain paramount – though it also says that in current exceptional circumstances, the impossibility of public access should not normally prevent a remote hearing taking place. Possible means of allowing public access include broadcasting the hearing to an open court and/or allowing journalists to log in to the remote hearing. The Civil Procedure Rules Committee has introduced a new practice direction that provides that, if such measures are not practicable, the court can direct the remote hearing to be held in private ‘where it is necessary to do so to secure the proper administration of justice’.

For documents that need to be filed at court, the court’s online ‘CE-file’ system is used for most pre-trial filings in any event. Bundles for hearings and trials have until now been largely a hard-copy affair, but electronic bundles will obviously be needed for remote hearings.

So are these provisions being implemented in practice? In my firm’s experience, yes, in some cases and a glance at the daily case list shows that our experience is not unique. Some hearings are going ahead, via Skype and other technologies, though it seems others are being adjourned (for example, bankruptcy petitions). The latest update from HMCTS this morning (26 March) states that the High Court and Court of Appeal are only covering urgent work – though I assume that is a temporary situation given indications from the senior judiciary that business should continue where possible.

In the longer term, is this likely to revolutionise the conduct of litigation in English courts? That may be going too far, but the current crisis looks to be a catalyst for the dramatically increased use and acceptance of technology in the courts as in many other areas of life, as we all adapt to the changes thrust upon us.

Damien Byrne Hill is UK and US head of dispute resolution at Herbert Smith Freehills

Click here for all our latest coverage on the on-going coronavirus crisis

Legal Business

HSF’s accounts show revenue hit £447m amid a 23% profit hike and a sharp fall in debt

HSF’s accounts show revenue hit £447m amid a 23% profit hike and a sharp fall in debt

Herbert Smith Freehills (HSF) has increased profit and turnover, its latest LLP accounts reveal, while also bolstering its borrowing capacity and significantly reducing debt.

HSF increased revenue 6% to £447m in 2018/19 as operating profit at the Anglo-Australian giant increased 23% to £127.5m. The firm has also bolstered its borrowing capacity following the implementation of a new Revolving Credit Facility put in place in April 2019.

The new facility – which is funded by a syndicate of eight banks – allows HSF to borrow a maximum of £300m, an increase of £25m on the previous facility. Its implementation coincided with debt falling 55% at the firm from £146m to £65m.

The accounts also revealed partners were required to provide extra capital, with overall partner capital increasing by £13.4m over the last financial year. The LLPs state the firm has ‘historically operated with lower levels of direct partner capital than our competitors’ with the increase intending to place HSF more in line with its peers.

Revenue growth in its non-Australian business surpasses the firm’s global performance of a 4% increase to £966m. Moreover, the profit growth comes as the firm reported an 11% increase in profits globally to £307m in July 2019, while profit per equity partner likewise grew 11%.

In a change to it LLP structure, in January HSF finalised its plans to bring its German offices into the UK LLP as a means of mitigating Brexit concerns. The move was implemented last December as City firms in Germany faced a complex regulatory environment in light of the UK’s imminent departure from the European Union.

Meanwhile, Justin D’Agostino (pictured) is primed to take over as chief executive officer at HSF, after current CEO Mark Rigotti announced he would be standing down from the role in spring of this year.

thomas.alan@legalease.co.uk