With a hearing for the civil action brought by the entire partnership of Herbert Smith Freehills Australia against eight former leading partners due before the Supreme Court of NSW next week, Lawyers Weekly can confirm that territory in Sydney and Melbourne’s prime CBD hot spots is the focus of one of the restrictive provisions at issue.
Maps annexed to a document filed to the court by HSF delineate huge quadrants of the Sydney and Melbourne CBDs. Bright blue boundary lines reach from the edges of the Sydney Botanical Gardens to Wynyard station and Circular Quay to Town Hall on one map. The black limit lines drawn on a map of Melbourne CBD extend from Flinders Street to Londsdale Street and Exhibition Street to King Street.
In pleadings filed by the firm, HSF argues that where ex-partners are able to render legal services “in closer geographic proximity” to their former office, they are in a position where they “tend to be able to maintain a higher level of connection” to the firm’s clients, former partners and other employees.
According to HSF, failure to enforce this provision is expected to have a major impact on legitimate firm interests including client relationships, workforce stability and preservation of confidential information.
HSF wants the court to make declarations as to the validity of certain restrictions that the new White & Case lawyers are bound to as part of two agreements entered into with their old partnership.
The top-tier firm is also seeking an order to prevent the defendants from breaching 14 protective provisions contained in its Partnership Record and Global LLP Members’ Agreement. The documents are subject to NSW and English law respectively.
The eight defendants to the action, whose legal representatives Seyfarth Shaw have proposed certain undertakings to overcome the challenges in the matter, argue that a number of the provisions that HSF wants enforced are unreasonable.
This includes the territorial restrictions the firm is seeking to subject the White & Case partners to in the cities of Sydney and Melbourne.
According to clause 13.7 of the HSF Partnership Record, any former partner is restricted from “directly or indirectly rendering services within the restricted area of the relevant [HSF] offices of such outgoing partner”. The clause applies to a specified “restricted period” under the agreement, being 12 months from the time that a partner issues a formal notice of resignation to the firm.
Former HSF partners Andrew Clark, Brendan Quinn, Tim Power, Joanne Draper, Jared Muller, Alan Rosengarten, Josh Sgro and Joel Rennie tendered their resignation from top-tier firm HSF on 1 September last year.
Two months after rumours floated that global firm White & Case was headed for Australian soil, and one month after it was announced the local team of top-tier lawyers poached from HSF would spearhead the launch of the global firm in Sydney and Melbourne, court documents reveal that signs of a potentially messy exit started to show.
By the end of 2016, an exchange of letters between HSF and the eight defectors indicate that the split was likely to head to court.
A letter from Seyfarth Shaw on behalf of the White & Case hires in November suggested that HSF was putting pressure on the group to provide written undertakings that they would comply with the partnership agreements with an inexplicable urgency.
“The urgency to which you refer is not clear to our clients […] given they provided notice of their respective resignation in September 2016 and this does not become effective until the end of February 2017,” the letter from Seyfarth Shaw to HSF read.
Subsequent correspondence between the parties quibbled over the need for the former partners to give written undertakings that they would comply with the restrictive clauses under the HSF partnership agreements, if they had intended to “comply with ongoing obligations to HSF to the extent that they were enforceable”.
By 23 December, 2016 a letter from the HSF CEO, on behalf of the firm’s board and the Global LLP Council, was sent to inform the former partners that final relief would be sought by way of arbitration in Singapore and interlocutory relief for the partnership agreement restraints was to be pursued in the Supreme Court of NSW.
That same day the eight lawyers wrote in a letter that they had been “effectively suspended from HSF Australia”.
Five days later Seyfarth Shaw responded to HSF, stipulating that the ex-partners would be prepared to settle the dispute in the Supreme Court, and had a preference to do so sooner rather than later.
“Our clients propose to join the partnership of White & Case immediately following the cessation of their partnership of HSF. In that regard, there is no provision in either the Partnership Record or the Global Members’ Agreement which would be enforceable to prevent them doing so,” the 28 December letter said.
The eight top lawyers, worth an estimated $30 million of combined practice value, are being sued by the remaining 166 partners of HSF Australia. The Herbert Smith Freehills Global LPP is also a party to the action, listed as the 177th plaintiff in the case.
HSF wants the court to issue an injunction against the eight lawyers “on an expedited basis”, canvassing dates from 2 March to 1 September 2017.
According to HSF’s remaining Australian partners, clause 13.7 in particular is valid and reasonable because its territorial restrictions are difficult to police and therefore provides limited protection only to firm interests.
White & Case opened its Melbourne office in December last year and had made known its plans to have a Sydney office up and running by mid-2017.