Herbert Smith Freehills has won a legal challenge against eight of its Australian partners who have defected to White & Case, preventing them from becoming partners of the US firm for six months.
Following a two-day court hearing in Sydney beginning on 27 February, Justice Robert McDougall has today (2 March) ruled in favour of the 166 HSF partners who brought the claim, and the global LLP.
The decision comes on the day the eight partners were supposed to officially start at White & Case, having completed a six-month notice period following their resignations last September.
The court ruling means they can still join the firm from today, but as non-partner practitioners for six months. They are also now subject to restrictions that stop them from poaching HSF’s clients and employees until 2 September 2017.
The court refused to enforce a restraint of trade clause in dispute, which prevents the partners from working for White & Case.
During the court hearing, it emerged that HSF amended its Australian partnership deed to add White & Case as a specific competitor, one day before the eight partners officially handed in their resignations. The amendment means partners leaving the firm cannot work for the list of competitors for six months after serving a standard six-month notice period.
“Today’s decision prevents the departing partners from joining White & Case as partners, and from soliciting our clients for a six-month period,” said a spokesperson for HSF.
“These proceedings had the objectives of protecting the firm’s interests, including protecting our valued relationships with clients,” she added.
Last September, 10 partners in HSF’s Australia project finance and infrastructure practice resigned to join White & Case in Australia and Asia.
Subsequently, 34 lawyers and several support staff have reportedly resigned to join White & Case.
A White & Case spokesperson said: “We’re glad that these individuals will join White & Case in the near future as we continue to grow our Australia practice.”
He said the firm’s Melbourne office has been active since 1 December 2016 and the Sydney office will open very shortly.
“The Sydney office will be fully operational upon its opening,” he added.
HSF filed the lawsuit in Sydney in February against eight Australian partners who exited the firm for White & Case last year.
The mass exodus last September dented HSF’s project finance team. The group are understood to have taken around £20m in combined revenue to White & Case.
The defendants are Melbourne partners Andrew Clark, Brendan Quinn, Alan Rosengarten, Josh Sgro, Tim Power, Jared Muller and Joanne Draper and Sydney partner Joel Rennie.
The two Asia partners who left, Fergus Smith and Matthew Osbourne, are not named in the legal challenge.
A written judgement is expected to be issued at a later date.
This is the second time White & Case has been embroiled in legal action in the region caused by its aggressive hiring approaches from rival firms.
Back in 2003, it lost a case to Hong Kong firm Deacons over a team of star insolvency partners it recruited the summer before.
When White & Case poached heavyweight Deacons partners Mark Fairbairn and Edward Cairns, Deacons hit back with a Hong Kong lawsuit claiming the pair were in breach of their partnership covenants and that White & Case had encouraged the pair to break them.
The judge said White & Case’s conduct, “amounts to a cynical disregard for the rights of Deacons, putting profit before honour, it is below the belt”. The Hong Kong case eventually settled in 2004.
In light of the current HSF lawsuit, market observers expect White & Case’s growth and strategy plans in Australia to be delayed.
“It will certainly delay White & Case’s plans in Australia. It may also give HSF the opportunity and time to assign new partners to take over the matters and clients that the departing partners are currently working on,” said a partner of a global firm.
“It may result in the group of partners taking away less business to White & Case. It also sends a strong message from HSF that it will be difficult to pull partners away from them,” he said.
It is rare for Australian firms to take legal action against former partners. In recent years, Clayton Utz is one of the few firms to have done so. It filed a claim against former partner Grant Fuzi in 2010 over a retirement payout, when he and 13 other Clayton Utz partners joined Allen & Overy and launched the Australian offices for the magic circle firm.
The dispute was settled after Fuzi returned his retirement handout as a goodwill gesture.
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