Bermuda's Lawyers Await Privy Council Ruling as Competition on the Island Heats Up

Lawyers in Bermuda are awaiting a ruling from the Privy Council of the United Kingdom that could have a seismic impact on the island’s legal market.

That market has already been in a state of heightened competition ever since the offshore law firms Walkers and Harneys entered in 2015. But in January, the Privy Council will decide whether Walkers (and, by extension, other non-Bermudan entities) can have a “Certificate of Recognition” allowing the law firm to operate in Bermuda with limited liability.

The Bermuda Bar Council has sought to deny Walkers such a certificate. A provision of Bermuda’s Companies Act of 1981 mandates that companies in Bermuda must have at least 60 percent local ownership. In the Bar Council’s view, even if Walkers may technically meet the requirements of the “60-40 rule,” it still violates another provision of the same act requiring that the firm be “controlled by Bermudians.” Regardless of the breakdown of Walkers Bermuda shareholders, the Bar Council argues, it is Walkers Global that pulls all the strings and has final say over Walkers operations on the island.

In its successful appeal of an earlier chief justice’s ruling which had been favorable to Walkers, the Bar Council argued that it had ample justification to deny a certificate of recognition on ownership grounds. “If Walkers Bermuda was not controlled by Bermudians and had no license from the Minister, it would be committing a criminal offense.”

The case subsequently landed before the Privy Council in London. Walkers is free to operate in Bermuda, but not as an LLC.

“The outcome of the case may have some bearing on the extent to which overseas firms operate in Bermuda,” said Mark Chudleigh, a partner at Bermuda law firm Kennedys. “I’m led to believe that a number of potential entrants to Bermuda are waiting for the outcome of the Walkers case before deciding what to do.”

A Practical or Symbolic Impact?

Though Walkers has an obvious vested interest in the ruling coming down in its favor, the decision is not likely to be a game changer, attorneys say.

“I don’t think the Privy Council decision is an existential issue for Walkers. At worst, it could be an impediment to the type of structure that the law firm assumes,” Chudleigh said.

But the ruling will have symbolic importance as a barometer of how welcoming Bermuda’s bar association is to new entrants, Chudleigh added. And the practical benefits of operating under limited liability are not to be taken lightly.

At the present juncture, a favorable ruling may embolden new entrants just as much as an adverse ruling may discourage them. For all the fanfare with which Walkers and Harneys moved into Bermuda, by some accounts they have yet to erode the market share of the long-established law firms on the island.

“For us, there’s no evidence that the change that they would like to happen has actually happened,” said Ernest Morrison, managing director of Cox Hallett Wilkinson, who is skeptical of the notion that enhanced competition was needed to help local firms out of a state of lethargy and entrenched ways of doing things.

“I’m not sure how true it was that the established Bermuda law firms needed some sort of wake-up call. So far I think most of us have been successful in maintaining our client base,” Morrison said.

Morrison sees slow, incremental gains by new entrants on the island as a more likely scenario than a wholesale gobbling up of the clients who until now have utilized Appleby, Conyers Dill & Pearman, CHW, MJM Limited, BeesMont Law, and other local firms for their legal needs.

“They have built up groups of highly qualified lawyers, but whether those people attract the big clients remains to be seen. I have not heard of any of them moving to any degree to the offshore firms,” Morrison said.

Even so, the lure of working for a global firm with the name prestige of Walkers has not been lost on attorneys on the island. So far, Walkers has poached two of CHW’s best lawyers, Jonathan Betts and Natalie Neto.

“I am not going to be surprised if more lawyers are brought in by the new entrants and given large checks to go after client bases,” Morrison acknowledged.

But if the new entrants do eat away at the long-established firms’ market share, it will come only at great expense and effort. Morrison described the insurance industry on the island as extremely tough to penetrate because of the number of long-established relationships between law firms and their clients and the diligence and zeal with which the local players strive to keep clients happy and further entrench the relationships. The attentive and thorough wooing of clients is likely only to increase with new competitors active in Bermuda.

Local Firms Have Strong Ties

Colin Riegels, managing partner of Harneys, is under no illusions about these realities.

“Competing with established market participants is always a challenge for offshore law firms when opening a new product jurisdiction office. Trying to win market share away from more experienced local firms is a very steep slope to climb, and everyone understands and expects that,” Riegels said.

At the same time, larger firms entering the Bermuda market have a vast and loyal global client base with myriad fiduciary and legal needs, and it is not hard to sell Bermuda services to those clients, Riegels noted.

Natalie Neto, who joined Walkers from CHW, said that Walkers’s global network has already been a major source of referrals, particularly from clients based in Asia. Neto does not see the legal market in terms of a see-saw, where if one part of the legal market is up the other must be down. On the contrary, in Neto’s view, the long-established firms and the entrants both stand to flourish.

“Our sense is that the pie is getting larger, as opposed to us having to take a swipe at an existing pie, and it’s growing to the benefit of all,” Neto said, pointing out that the presence of Walkers enables Bermudans to take advantage of the law firm’s vast training resources.

Kevin Taylor, the managing partner of Walkers Bermuda, argued that his firm’s role can only benefit the jurisdiction as a whole. When Walkers conveys the message to clients in Dubai, Hong Kong, and SIngapore that Bermuda is a highly advantageous place to do deals, this can only enhance Bermuda’s international profile, to the advantage of Bermudans generally.

“We’re seeing new money and new opportunities come in that we don’t think would have come in but for our being here,” Taylor said. “For the Bermudan firms and the global firms, goals are very much aligned here.”

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