Caymanian lawyers are deliberately marginalised in the workplace, denied fair opportunities to advance and are subject to a system designed to ensure that Caymanians fail, claims Ian Paget-Brown, the chairman of the Law Reform Commission. At the same time, offshore law firm employers staff their satellite offices with lawyers practising Cayman law to circumvent Cayman Islands immigration laws, he says. Alasdair Roberston, president of the Cayman Law Society, and Cayman’s offshore law firms strongly disagree.
Alasdair Robertson, the president of the Cayman Law Society, says law firms, as employers of Caymanian lawyers, can only thrive in an environment built on meritocracy and hard work, where opportunities exist to compete for advancement. The overseas offices meanwhile are not a form of outsourcing, rather they drive business and government revenue to the Cayman Islands. The issue is one of the reasons the Legal Practitioners Bill has been shrouded in controversy for many years.
There is little disagreement that an updated Legal Practitioners Law is needed to provide a framework for the regulation of the profession, disciplinary proceedings for those not complying with the regulations and for licensing and regulating lawyers practising Cayman Islands law inside and outside of the jurisdiction.
The bill has been in discussion since the late 1990s without being passed into law, mainly as a result of attempts to resolve issues through the bill which, many law firms say, should be outside the scope of the law.
They include, among others, the access of Caymanians to the legal profession, the training and development of Caymanian attorneys and the opportunities for career progression for Caymanian lawyers.
Robertson calls it a “misunderstanding of the objectives of the Bill” that resulted in it becoming “something more than merely a bill to regulate the profession”.
Yet government presented a new draft bill in November 2012 that would allow only qualified firms to practise Cayman law in overseas offices. The proposed qualification regime would be subject to the decision of a newly introduced council on the basis of a wide range of criteria that aim to ensure access and promotion of Caymanians within the legal profession. The council would also look for evidence of corporate social responsibility.
To become a qualified firm, the law firms for instance would have to list in which way they support the poor, youth programmes, drug programmes, rehabilitation of offenders, as well as sports, arts and cultural programmes.
The inclusion of immigration criteria, completely unrelated to the practice of law and more reminiscent of what would be included in a business staffing plan, in a law that seeks to regulate the legal profession is an indication of a political unease that the immigration law may not be working. In particular it expresses concern about the discrimination of and lack of opportunities for Caymanian lawyers in the offshore law firms.
The issue was explicitly raised during the opening of the Grand Court, not typically a place for controversy. In a speech about the state of the Legal Practitioners Bill the Law Reform Commission Chairman Ian Paget-Brown said, “I must admit I was deeply saddened when the Government Team shared allegations of discrimination within the legal profession last year.”
The Government Team, a body of three Caymanian lawyers, comprised of Theresa Pitcairn, Sherri Bodden and Sammy Jackson, was appointed by Cabinet to advise on the advancement of Caymanians within the legal profession.
“I was horrified to hear and read the evidence that had been gathered. It is clear that we need some effective and enforceable rules of etiquette at the Cayman Bar to deal with such behaviour,” he said.
The evidence that had been gathered, according to Paget-Brown, included that Caymanians are deliberately being marginalised in the work place, denied fair opportunities to advance and “used as pawns to secure status grants and permanent residence and once the Caymanian has outlived his or her usefulness in securing these grants, they are unfairly or constructively dismissed”.
He added there was a feeling among Caymanian lawyers that the major law firms “have established a glass ceiling, operating to the detriment of Caymanian professionals; give Caymanian professionals inadequate and unequal training; there are unequal opportunities for Caymanian advancement within the firms; and a system has developed over the years that is designed to ensure that Caymanians fail”.
What the motivation for this conduct would be, Paget-Brown did not say. But the allegations sounded eerily like the claims made by Government Team member Theresa Pitcairn-Lewis in a law suit against her former employer Maples and Calder in 2009 after she had resigned from her post. The law suit was later settled.
Whether discrimination of Caymanians is thus common practice in large offshore law firms, occurs only in individual cases or whether the allegations are based on “sour grapes” is a matter of debate.
Antonia Hardy, managing partner at Walkers, says all of the firms spend a lot of time, money and effort trying to attract and retain the best legal talent. But, Hardy says, not everyone is going to succeed in the way they imagined they would.
“In my experience most people who have not made it to the top think they should have made it to the top. In every organisation, which is ultimately a pyramid, there are people that are going to feel that they were being discriminated against because they did not get where they feel they ought to have got. If you talk to the best and the brightest you won’t find any comments about discrimination.”
She says all the firms have a strong interest in attracting talented Caymanians at an early stage and retain them throughout their career. To achieve this every Caymanian has exactly the same opportunities for training as any expat. “We bend over backwards to ensure that that is the case.”
When talking about discrimination, adds Robertson, another important fact is that Caymanians have made it to the top of the profession. “If you look at the current, never mind former, people, Jimmy Bergstrom, he is the current global managing partner of the whole of Ogier, not just Cayman. Bryan Hunter is the managing partner at Appleby. Sherri Bodden has a [large local] firm. So it is absolutely wrong to say Caymanians have not made it.”
However, he admits that there is a “disconnect” between the Caymanians that made it to the top and younger Caymanians coming through, because the profession grew so quickly during the past 10 years. This disconnect is now being corrected. Of the 110 Caymanians that are practising lawyers today, 48 qualified within the last five years.
Hardy also notes that it makes commercial sense for the firms to hire Caymanians, when work permit, relocation and recruitment costs are factored in and the risk is considered that a new lawyer might not settle in Cayman. “It is good business to hire good Caymanians, but they need to be of a calibre that could compete in the global marketplace and that is where the real war for talent is for us, because Cayman prides itself and sells itself on being top quality.”
The law firms are very sensitive about their reputations and they train people hard to bring them to the right standard, she says. But they cannot hire everyone and they cannot hire students with bad grades who barely passed their exams, whether they are Caymanian or expat.
At the same time, Hardy believes, that the law students have responded to the demands of the profession and the calibre of Caymanian students coming out of the law school is very high and improving year on year.
“The competition to get into those firms has become tougher and the students have responded. They upped their game, they work hard. You talk to a newly qualified or an articled clerk, they don’t want to see a drop in standards. They are comfortable that they can compete, they are comfortable that their academics and their drive and their work ethic and their intelligence will take them to the top.”
Universal experience shows that not everyone graduating from law school can be expected to work as a lawyer some years later, something that stands in contrast to the political desire to see all qualified Caymanians succeed in the legal profession. “Globally less than 50 per cent of the people who graduate are still practising law two years later,” says Tim Buckley, a partner with Walkers.
In a small community this becomes more visible, particularly because examples of expats leaving the profession are often ignored because they tend to leave the country.
“When it comes to law school, some will finish, some won’t, then some will get articles but not all and then they will start phasing out of the profession for a variety of reasons. Sometimes for family [reasons] or they just hit a level in terms of what they can achieve,” states Kevin Butler, who heads Conyers Dill & Pearman in Cayman.
“So eventually you are going to have people who feel that they were hard done by, because they did not make it all the way to the top. So it comes down to perception that a few people in a smaller community can lead you to think that there is that discrimination, where it actually is the opposite here in Cayman, when you look at the numbers.”
The numbers show Cayman has a higher share of lawyers than other jurisdictions. The legal profession has grown particularly fast during the past 10 years. In 1991 there were 97 attorneys licensed to practise in Cayman. Eleven years later there were 310 licensed attorneys and another 10 years later, in 2012, that number had increased to 582.
Caymanian lawyers represent 0.62 per cent of the Caymanian workforce and lawyers overall make up 1.54 per cent of the total labour force. In the UK and Ireland respectively, 0.4 per cent and 0.59 per cent of the working population are lawyers, indicating that Cayman is able to produce more lawyers in relation to its workforce in response to the demand of the offshore financial services industry. But the figures also show that this demand simply cannot be met with local labour alone.
A bone of contention is that not all Caymanian law school graduates were accepted by law firms to complete their articled clerkships. Yet Cayman’s statistics stack up well internationally, as 87 per cent of graduates have become articled clerks, similar to Canada (89 per cent) and Ireland (88 per cent) and higher than England and Wales (82 per cent) or Scotland (71 per cent), the only jurisdictions that are comparable to Cayman in terms of legal systems and training structure.
In 2010 and 2011 all graduates found places as articled clerks. It was only in 2008 and 2009 when a peak in the number of student graduates coincided with the financial crisis that private practice was unable to absorb all of those who had passed the professional practicum course, the Law Society says.
Since 2008 there have been 16 articled clerks in employment with 48 Caymanians having qualified. This record number for Cayman stands in contrast to England, Scotland and Ireland where the number of articled clerks during the same period dropped by up to 30 per cent.
The share of articled clerks to practising attorneys in Cayman is at 6 per cent, also higher than in Canada, Scotland, England and Ireland, according to the Law Society.
The law firms further point out that articled clerkships are not the only training they provide. From 2006 to 2012, 12 offshore law firms have sponsored 110 legal scholarships and 203 non-legal scholarships of which 33 and 40 remain current.
Changing legal landscape
Paget-Brown embedded his criticism of the alleged discriminatory behaviour in the context of a changing legal landscape. In the 1970s when he started his legal career “the loyalties of the legal profession were to Cayman first and the common good of the people of these Islands,” Paget-Brown claimed. “We treated ourselves as guests and behaved accordingly; we felt honoured to be part of Cayman’s success story.”
Nowadays, it is the impression among Caymanian lawyers that the large law firms “are in the hands of people who do not care about the islands or where work is conducted”, “have no real interest in living or investing in these islands” and “prefer that the business of the offshore industry be conducted elsewhere to avoid the immigration/work permit regime”, he alleged.
This was among others evidenced, he said, by the 180 lawyers working outside the Cayman Islands as Cayman attorneys, a number that has increased from 132 in 2007. Meanwhile, the number of firms advising on Cayman Islands law from outside the Islands has climbed from 2 in 2002 to 14 in 2012.
“Another way of looking at the expansion […] is that 12 firms realised how easily the two firms referred to were able to circumvent, prior to and subsequent to 2002, Cayman Islands immigration laws and regulations by employing persons outside of the Islands who did not have practising certificates, but were nevertheless held out as entitled to advise on issues of Cayman Islands law,” said Paget-Brown.
Through this alleged circumvention of existing laws the offshore law firms had “enhanced their bottom line by increasing profits by using persons who were not Cayman lawyers to generate fees for them as though they were”.
The law firms disagree. They argue that their overseas lawyers cannot get admitted and obtain a practice certificate, unless they are resident for the purpose of a work permit. The lawyers operate under a structured supervised basis, managed and trained from the Cayman Islands and supervised in the same way as Cayman attorneys.
“Even though they are not technically admitted, they are equivalent to Cayman-based lawyers and could be admitted if they came here,” Robertson says.
Butler adds it would also be in the interest of the law firms to be able to obtain practice certificates for lawyers working in overseas offices under a new Legal Practitioners Law. “This type of law is a consumer protection law. If lawyers are not licensed and properly regulated it actually damages the jurisdiction and in time that can really have a bad effect if we are the only ones that are not giving practising certificate to lawyers outside Cayman.”
The requirement to obtain practice certificates would also bring “a level playing field” and ultimate recourse to the firms that have no presence in Cayman at all, but still employ lawyers practising Cayman law.
Not only is there agreement from the law firms that their overseas lawyers practising Cayman law should be regulated and required to obtain practice certificates, they even say they are sympathetic to the political desire to impose another layer of fees for the certificates.
“We get it,” says Robertson. “We completely understand that the government has financial difficulties. The answer for us is that we are willing to pay, but it has to be at a sensible level. The current proposal, to be frank, is not.”
When the issuance of practice certificates was first brought up in 2008, the work permit fees were less than half of the current level. But even then the suggested difference between local and overseas practice certificates was too large, Robertson says. Now it would be even larger. “It is going to get to a point where it is getting uneconomic for us.”
Practicing certificates at a cost of $30,000 or $40,000 will simply result in fewer lawyers promoting Cayman as a jurisdiction, says Butler. “We have a budget that we are going to spend on the practising certificates and we are going to spend the whole budget, but we are not going to spend over just because the fees are increased.”
In the long term Cayman will lose to jurisdictions like Bermuda or the BVI, which impose no or significantly smaller fees, because the law firms can employ more lawyers selling Bermuda or BVI law in their overseas offices.
Outsourcing or attracting work?
When presenting the Legal Practitioners Bill in November 2012, government referred to concerns “about the ability of some law firms to operate satellite offices abroad”. Some Caymanian lawyers “are worried that one day, Cayman legal services could potentially be solely provided from other countries”, former Premier McKeeva Bush said.
Walkers partner Tim Buckley says there is a misunderstanding as to why these overseas offices exist. Rather than the perception that these offices take work out of Cayman, the exact opposite is true, he says. In a globalised world these offices are needed because clients want advice in their own time zone. Ultimately the sales offices drive work to the Cayman Islands.
It is also not unique to Cayman or offshore, adds Butler, explaining that Canadian law firms, for example, have also opened Hong Kong offices to give their clients face time with their lawyers. A dozen years ago, he says, only Appleby and Conyers were present in Hong Kong, practising Bermuda law. At the time almost all the initial public offerings on the Hong Kong stock exchange were Bermuda companies. Over the past 10 years, Cayman firms have set up sales offices there with the result that now 75 per cent of the IPOs in Hong Kong are Cayman companies. “If we were not there selling Cayman law, the jurisdiction would not have benefitted.”
In Hong Kong the typical structure consisted of a Cayman company on top, cheaper BVI holding companies underneath and the Hong Kong and Chinese companies below the BVI entities. The structure developed because BVI companies were unable to list on the Hong Kong Stock Exchange. That has changed, says Hardy.
“So far only two are listed and that is because everybody wants to use the Cayman lawyers who have done these kinds of deals before. If we reach a point where these lawyers can’t get admitted or won’t get admitted because it is too expensive, the preference will grow for products from competing jurisdictions. It won’t happen overnight, but you will see a gradual shift away from Cayman.”
The overseas offices exist to both win new business and as a defensive measure to retain market share, she notes. Opportunities for Caymanian lawyers exist not despite, but because of the international offices.
Only a successful profession that can compete globally in an intensely competitive market will continue to create those opportunities, says Robertson.
Government revenue and jobs
Even if the legal work is done in the overseas offices the entities that are formed and administered in Cayman generate considerable revenue for the Cayman Islands government.
To quantify the economic impact of their overseas offices for Cayman, 12 offshore law firms agreed to work with Grant Thornton on a Law Society commissioned study. The firms, which are notoriously reluctant to share information with each other, supplied transaction data to Grant Thornton which aggregated the responses.
Based on the analysis the firms’ foreign offices generated close to US$28 million in direct fee and licensing revenue for the Registrar of Companies and CIMA in 2012, a 16 per cent increase on the $24 million in direct revenue generated in 2011.
In terms of economic impact this is just “the tip of the iceberg”, says Hardy, as fee revenue and the employment impact from related services such as administrators, auditors and directors also need to be taken into account. “All of that work has to be done here.”
“Now would some of that work possibly come to Cayman in the short term, if we had no offices outside of Cayman?” she asks. “Maybe in the short term, but in five years time it would diminish rapidly. No financial services work is actually generated from Cayman. It all comes from the international markets and that means New York, London, Singapore, Hong Kong, Dubai.”
In Dubai there is also a cultural expectation to be physically present in order to win business. Buckley says a massive amount of outbound capital in Dubai that drives a significant number of structures in Cayman. “If we were not there we would not get it because there is a cultural expectation to physically be there.”
The allegation that overseas offices were used in some way to circumvent Cayman Islands immigration regulations is plain false, the law firms say, because it is much more expensive to operate the overseas offices than to employ lawyers in Cayman.
“Look at the cost of employing someone in London,” says Hardy. “Never mind the cost of having expensive office space, never mind that you have to pay tax on every profit that you make, never mind we have to pay national insurance contributions and a compulsory pension that is way higher than it is here.”
The potential way forward
While the law firms broadly agree that the overseas lawyers should be regulated and obtain practicing certificates for a “sensible fee”, they would like to see a separate solution with regard to the access of Caymanians to the legal profession, as well as the training, development and career progression of Caymanian attorneys.
To this effect the Law Society has presented a number of commitments on behalf of the law firms. In addition to mentor and training measures, events, scholarships and a guarantee to offer interviews for articled clerkships to all students that have achieved a specific high grade standard, the law firms propose to maintain an agreed ratio of articled clerks to attorneys-at-law.
The firms are further willing to commit to clearly communicating the partnership requirements and prospects for individual attorneys and to make available overseas opportunities for Caymanian attorneys. By and large, the firms say, the commitments are already common practice at the larger firms.
For instance, Grant Thornton found that law firms had offered 27 opportunities to practice abroad and 18 Caymanian attorneys accepted an overseas secondment.
With regard to the issue of regulating lawyers practising Cayman law overseas, the Law Society has proposed to include two key provisions in the Legal Practitioners Law. These will require all firms to maintain a substantial presence within the Islands and to maintain an agreed ratio of non-Caymanian lawyers practising Cayman law outside of Cayman to attorneys within the Islands.
The proposal would entitle the firms to overseas practicing certificates for their Caymanian lawyers and cap the number of overseas certificates for non-Caymanian lawyers according to a formula. The formula suggests one overseas practicing certificate for each non-Caymanian partner, two for each Caymanian partner and two certificates for each articled clerk employed by the firm during the preceding 12 months.
One might argue that this move is designed to create barriers of entry for new firms willing to enter Cayman in the future, but Robertson says Cayman’s law firms have thrived on competition, for example by allowing Bermudan companies to enter Cayman. Bermuda meanwhile had locked the competition out and, as a result, not grown so much.
Hardy adds that in order to establish a level playing field the Legal Practitioners Law needs to insist on a significant nexus between the firms practising Cayman law and the Islands.
“Otherwise you can have no control and no way of pursuing someone in Hong Kong who gives negligent advice. The ultimate recourse will be to the firm here. The partners here have a huge incentive to ensure that these people are properly trained and supervised.”
Buckley agrees, saying that to practise Cayman law on an institutional basis, firms need to be present in Cayman. “I am not convinced that the quality of the jurisdiction can be maintained as the first choice if people are practicing Cayman law without a foundation back in Cayman.”