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Walkers wins legal battle at Privy Council

The Privy Council in London has ruled that the Bermuda Bar Council was wrong to deny law firm Walkers Bermuda Ltd a certificate of recognition.

The Bar Council had argued that the law firm was not controlled by Bermudians as required because of a licensing agreement with Walkers Global, based in the Cayman Islands.

The Supreme Court had found in favour of WBL but the Court of Appeal ruled that a company owned and directed by Bermudians could be controlled, directly or indirectly, by non-Bermudians through commercial arrangements and WBL appealed to the Privy Council.

However, Lord Hodge said in a written judgment: “The board has sympathy for the predicament of the Bar Council when faced with a proposal which, despite the robust protestations to the contrary, appears to amount to a franchise arrangement by which WG seeks to extend the provision of legal services under its brand into Bermuda.

“The board sees no reason to disagree with Sir Christopher Clarke’s conclusions in his judgment that there is a prospect that almost everything other than local legal work will be carried out by WG offshore and that the financial obligations on WBL under the licensing agreement are likely to confer very substantial power on WG over the conduct of WBL.

“But, agreeing with Chief Justice Ian Kawaley, the board concludes that the proposed arrangements regulating the operation of WBL as a professional company are not contrary to the Companys Act 1981.”

The Privy Council decision, delivered yesterday, said that the Supreme Court ruling by then Chief Justice Ian Kawaley had been correct and that the Bar Council should have granted WBL recognition.

Lord Hodge said in the judgment that the issue of legal control, not commercial control, was crucial to the case. He explained: “If it were sufficient to establish non-Bermudian control by commercial control alone, a local company might face intolerable uncertainty as to whether it was carrying on business legally or was committing an offence.

“For example, if a primary producer in Bermuda were to enter into an exclusive supply agreement with an overseas buyer which made it dependent on the commercial decisions of the buyer, the latter would have considerable influence over the supplier’s commercial decisions and in one sense have the potential to control the quantity and quality of the supplier’s products.

“If such control by itself sufficed, the legality of the supplier’s business would depend on the way in which the overseas buyer chose to exercise its commercial influence.”

Lord Hodge added that a similar problem would arise if a local company borrowed money from an overseas lender and found themselves in financial difficulty.

He said: “There would be great uncertainty as to what actions of, or advice by, the lender would amount to control thereby causing the local company to commit an offence.”

Michael Hanson, managing partner of international law firm Carey Olsen Bermuda, said the ruling could benefit Bermudian-based businesses.

Mr Hanson said: “The Privy Council has in essence concluded that so long as non-Bermudians do not have legal control over the manner in which directors and shareholders vote in the conduct of a local company’s business, local companies may confer upon non-Bermudians ‘de facto control by commercial arrangements’.

“Time will tell, but this looks to be a significant decision and one that could have wide-ranging implications for local companies.

“There will be polarising views as to its impact, but our initial assessment is that it will likely increase the range of options available to entrepreneurs and local businesses seeking capital or foreign investment.”

WBL was incorporated in Bermuda in 2015, with all shares owned by Bermudian barristers.

The Cayman firm would not have any legal control over or beneficial interest in the shares of WBL, but WG would lend up to $5 million to WBL to fund its start-up under the terms of the proposed licensing agreement.

WBL applied to the bar association for a certificate of recognition, but was refused in June 2016 on the grounds that their agreement with WG would contradict the Companies Act, which requires island-based companies that carry on business in Bermuda to be controlled by Bermudians.

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