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Canada has always been a tough place for outsiders to conquer and it is no less difficult for foreign law firms hoping to gain a toehold in this potentially lucrative market. Because the country is governed on a federal basis, each of the 10 provinces has its own legal system. As a result, lawyers have to reach different criteria to practice within Canada and numerous barriers exist to prevent foreign law firms setting up there.Toronto, Canada’s most important business and financial centre, is subject to some of the most restrictive regulations imposed by its legal governing body: the Law Society of Upper Canada, which holds sway in the province of Ontario.According to the society, legal partnerships practising in Ontario must be made up of Ontario lawyers – there cannot be mergers or takeovers by partnerships from other jurisdictions, although co-operation and alliances are permitted. This situation, which has hampered foreign firms establishing themselves, might be reviewed at its formal meeting this autumn.But there are some foreign firms that are based in Canada by working around the rules. A couple of big US corporate finance firms, Shearman & Sterling and Skadden Arps Slate Meagher & Flom, established themselves in Toronto more than a decade ago.Neither are contravening the regulations because they are acting as foreign legal consultants. A lot of the work involves advising private companies and governments on share issues, particularly those that are coming to US markets.Shearmans’ managing partner in Toronto, Brice Voran, says this kind of work keeps them busy enough and his firm would not want to get involved in practising Canadian law even if the present regulations were altered.He says: “We would not want to do this because our cost/fee structure could not compete with the Canadian firms at a local level.”Voran is delighted with his firm’s share of the corporate finance market, but doubts whether international firms will get involved in this area. “You have to look at the size of the market here and my guess is that other international law firms will not come in, but this might not be true of other practice areas,” he says. He cites areas such as environmental law, product liability and technology as possible hooks.One UK firm has taken advantage of such a specialisation to work in the lucrative Canadian energy and privatisation market. CMS Cameron McKenna became involved as consultants to the Ontario provincial government over its attempts to privatise its electricity company, Ontario Hydro, two years ago. Partner Fiona Woolf oversaw the project. The firm had built up expertise in the field of privatisation during the 1980s when it acted on issues including the share issue of the National Grid. The media interest that surrounded the deal prompted an approach from Peter Budd who, with Robert Power and Martine Band, wanted to set up a Toronto-based niche practice specialising in the same areas of work as Camerons: energy and environmental law, for domestic and cross-border work. Power Budd was established in April 1999 with Camerons involvement from day one.Founding partner Budd is open about the relationship: “If we were to offer excellent service to our clients we needed to be back stopped by an international firm that understood what it was that we were doing,” he says.“I feel very much one of the CMS Cameron McKenna team. We are very integrated in terms of marketing and clients, inevitably with the CMS Washington office so that we can provide a seamless service across North America.”He added that he expected to integrate within Camerons’ world partnership soon: “I expect our relationship to see me through to retirement in 20 years time, and I hope to have built up the second-largest firm [after Warsaw] outside London by then.”Throughout last year, Woolf developed this alliance with the smaller Canadian practice. She says: “We treat them as if they were part of our team, although they cannot be part of CMS.”She sees plenty of potential in Canada for the kind of work her firm has become known for: “We look for opportunities that play to our strengths and there is a Conservative government in Ontario, which has privatisation on its agenda. This is the kind of thing that we have built our name on. We see this trend of privatisation continuing for the next 10-15 years as deregulation continues throughout the public utilities traditionally run by the state.”Woolf does not rule out taking an interest in the work to be found in other provinces, but believes Toronto will remain her firm’s entry-point into Canada.Other foreign set-ups have been even more obvious in their intent at merger. Ernst & Young have an associated law firm, Donahues, which used to work from the same office and has now taken the firm’s name even though there are no rulings on multi-disciplinary partnerships.The rules on foreign law firms appear to be less rigid in Quebec. Three years ago, US international firm Coudert Brothers acquired a Montreal practice, McDougall Caron, but little has changed since and that firm remains staffed by Canadians and engaged on internal work.But it has not been one-way traffic. At the tail end of last year, Torys, a blue-chip Toronto firm, took over New York firm Haythe & Curley. This was allowed, as it remained a home-grown firm in the eyes of the Law Society of Upper Canada. “We have teams working on the detail and we are in full compliance with Law Society regulations,” says managing partner Les Viner.But a conundrum remains: when is a Canadian firm a Canadian firm? Confusion is increased in Toronto by the presence of Baker & McKenzie, which does not regard itself as foreign even though it has its roots across the border in Chicago. The office was set up more than 30 years ago using Canadian lawyers already practising in Toronto.Partner Stewart Saxe shudders at the thought of being considered foreign. All 55 lawyers in the Toronto law firm are Canadian-qualified. “Foreign is when a firm has come from somewhere else, but Baker & McKenzie is the world’s firm,” he says. “The only way we would be foreign is if we opened up an office on Mars.”He does however think Canada’s buoyant economy will attract interest from other corporate international practices.“The globalisation of corporate law in practice has happened and foreign firms are looking to enter Canada, possibly by merger or association, but we are established already as the leading player and have built up everything from the bottom.”How long will these fences continue to protect Canada’s domestic firms? Not long, according to Christopher Sweeney, director of recruitment firm, ZSA. “Canada has lots of outdated practices,” he says. “If you want to sell beer in Canada, you have to brew it in every province. Under the North American Free Trade Agreement, the Law Society rules would be considered as ‘restraint of trade’ – if anyone challenged them, they would be found wanting. No-one has yet – that is why they still exist.”

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