Law Times

LAw times • August 5, 2013 Page 13 BRIEF: LITIGATION BOUTIQUES Conflict issues fuel growth of litigation boutiques BY CHARlOTTE SAnTRY Law Times W hen is a litigation boutique so big that it's no longer, strictly speaking, a boutique? Many of Ontario's litigation boutiques are growing as the complexity of the work increases, clients shop around for better value, and conflict of interest questions at full-service firms continue to fuel referrals. Will boutiques deliberately limit their own expansion in order to retain the more intimate environment they signed up for? Outside of Canada, super boutiques carrying out litigation work are thriving: U.S. boutiques such as Boies Schiller & Flexner LLP have more than 200 lawyers while Stewarts Law LLP in Britain has grown to more than 130 lawyers. Robert Rueter, senior founding partner at Rueter Scargall Bennett LLP, believes many of Ontario's litigation boutiques will also expand. "If you look around Toronto, you will see a number of boutiques that started out as four, five, six partners and they have grown to become a great deal more than that," he says. His own firm started out with three lawyers, recruiting a further 13 over a 10-year period. Being too small "runs the risk of not being able to Strategy emerging Continued from page 12 "It's interesting that there have been a number of Islamic commercial banks established in the U.K. and, as a result, many of the country's major law firms have Islamic finance practices." What's clear, however, is that nothing will happen if and until all levels of government are on side. But just when the federal government intends to move on the issue, if at all, isn't certain. "Canadian government outposts in the Gulf see this in a positive light because it helps Canada distinguish itself from the U.S. in terms of being supportive and open and behaving consistently with a broad view of the world and at the same time attract an industry that is growing rapidly," says Graham. In reality, however, the federal government has work to do, particularly in the area of creating a tax environment that treats alternative and traditional financing on a tax-neutral basis. A simple example involves the sale of a $500,000 house. Using conventional financing, HST would be payable on the $500,000. Under the Islamic system, interest on a notional mortgage would be incorporated into the sale price, raising it, hypothetically, to $750,000. Despite the fact that $250,000 of the sale price actually represents future interest, HST would be payable on the full amount because Canadian law makes no allowance for the vagaries of alternative financing. "The U.S. and the U.K. have gone much further in making themselves tax-neutral," says Walid Hejazi, associate professor of international business at the University of Toronto's Rotman School of Management that boasts the only master of business administration course on Islamic finance in Canada. "There's no doubt that we're behind the curve." Otherwise, several efforts to establish Islamic banks in this country have reportedly been "less productive" than the applicants' sponsors had hoped them to be. "There's some sense that there's a bias or at least a reluctance to allow the establishment of an Islamic bank in this country," says one observer familiar with the situation. "But the real problem might be the high entry standards we have." The Ontario government, committed to supporting the continued growth of Ontario's financial services sector, has publicly recognized the potential for alternative financing. "The provincial government has been fully supportive of events relating to Islamic financing," Hejazi says. Indeed, the Ministry of Finance's response to a Toronto Financial Services Alliance list of priorities that included positioning Toronto as the North American hub for alternative financing has been encouraging. "The Ministry of Finance has agreed to participate in any potential working group led by the federal government to review tax and regulatory issues related to alternative financing with the goal of developing a feasible, cost-effective package of potential federal and provincial legislative and regulatory amendments that subject to federal-Ontario approval, would: result in alternative financing having similar tax and regulatory treatment to conventional financing; and be based on fiscal neutrality for the province, tax neutrality, the integrity of the tax and regulatory systems, economic growth and consumer protection," it stated in its response. Dany Assaf of Torys LLP's Toronto office is optimistic about the growth of Islamic financing in Toronto but he notes that plans are still embryonic. "The contours of a specific strategy are just starting to come together and we're still looking for leaders," he says. "What we are doing well, particularly at the Rotman School of [Management], is developing the professional tools and skills to work with alternative finance and the connections to bring the business here." LT do the work you want to do," says Rueter. But growing in size requires boutiques to be "mindful of what it was we set out to create." For him, this was a "work atmosphere that's happy and challenging." The firm carries out a significant amount of pro bono work that brings "great personal satisfaction," says Rueter. Milton Davis, managing partner of Toronto-based Davis Moldaver LLP, agrees that greater control over client selection is one of the major benefits of working at a small boutique. "We get all sorts of very interesting cases and try to deal only with people we like," he says, highlighting a recent decision to drop a client. "I didn't like the particular individual and thought he was difficult to deal with and I thought he was causing too much stress," he explains. Davis, who was called to the bar in 1978, says his upbringing during the 1960s influenced a rebellious streak that deterred him from very big, bureaucratic environments. Since Davis Moldaver was founded in 2000, it has grown to the equivalent of 6-1/2 lawyers from two lawyers. "The goal was never to grow really large," he says. Instead of holding long internal meetings to discuss relatively simple matters, the boutique's smaller structure means colleagues can simply "yell down a hallway," says Davis. Financial decisions can also be made relatively quickly. "This firm has a pretty high level of technology," he states. "The reason for that is we can make a decision that might need $5,000 to $10,000 but at a larger firm . . . will cost $1 million." Peter Greene, senior partner at Affleck Greene McMurtry LLP, can't see litigation boutiques in Toronto growing to the size of some of their international peers, in part because it would increase overheads and potentially force them to hike fees. "We try to keep in the region of 15 to 25 lawyers because the more bodies making decisions, the more internal conflicts [of opinion] you have between the partners," he adds. A former partner at Fasken Martineau DuMoulin LLP, Greene echoes Davis in his appreciation of the cozier culture at boutiques. "We're all personal friends, and if you're having a tough case, you just walk down the hallway and ask someone a question," he says. Ontario's largest litigation boutique by number of legal staff is Lenczner Slaght Royce Smith Griffin LLP, which employs 50 lawyers. Managing partner Peter Griffin believes litigation boutiques will continue to grow given full-service firms' concerns about conflicts. The firm still has the "collegial environment" of smaller boutiques, he states. "I have a sense of what everyone's up to on a day-to-day basis, which I find very comforting," he adds. Lenczner Slaght's bigger headcount gives it the capacity to deal with multilayered cases and create career opportunities. "You don't attract [lawyers] unless they think they can become partners," argues Griffin. Greene points out that associates are also attracted to the "healthier" lifestyle and mentoring offered by smaller firms. But while boutiques may set less-demanding billable hour targets than national firms, they also require associates to attract their own clients rather than relying on work being fed to them. "They need personality," he says. Even if Ontario's litigation boutiques wanted to significantly swell their ranks, several partners are skeptical as to whether the local market is large enough to support that. Could national or international alliances be the answer? Stewarts Law is scaling back its two U.S. offices and is entering into a referral relationship with New York plaintiff firm Lieff Cabraser Heimann & Bernstein LLP. It's said to be looking for other international firms to partner with. This could be an interesting model, says Andrew Faith, a partner at Polley Faith LLP. Class actions spanning multiple jurisdictions are the "most obvious" area in which alliances could work, says Faith, citing money-laundering cases as another possibility. How would this kind of international collaboration fit with the boutique definition? Maybe the answer lies in shedding the tag altogether. Polley Faith chooses not to describe itself using the term. "Litigation firms are going to be the way of the future because of conflicts," says Faith. "They will be much more mainstream, so people will be referring to them as litigation firms." LT We litigate Excellence in Commercial Litigation and Competition Law www.lawtimesnews.com Law Times 5.8125 X 6.625 Affleck Greene McMurtry LLP 365 Bay Street, Suite 200 Toronto, Canada M5H 2V1 T 416.360.2800 agmlawyers.com thelitigator.ca

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