38 LAW SOUTH EAST Law firm mergers soar 65%
As the legal sector’s consolidation continues, law firm mergers soar. Is this good for business? Adam Wilson, partner at top 20 accountants Wilkins Kennedy, explores
The number of mergers between law firms has soared 65% in the past year; with 385 taking place in 2013, up from 234 in 2012. This staggering statistic shows that the legal sector’s push towards consolidation is continuing. Just five years ago there were only 146 mergers in the same 12-month period.
The trend indicates that firms with an appetite for acquisitions are increasingly snapping up smaller players in order to grow profitability and combat the increased competition from other providers of legal services.
The rising trend for mergers shows no signs of slowing down, as financial pressures, increased competition, and to a perhaps lesser extent, regulatory issues, are still having a major impact.
M&A, corporate finance and property work for lawyers,
particularly in the south are all recovering but are generally still below the heady days of pre-2007.
While some firms need to find a ’white knight’ quickly in order to stave off potential financial collapse, others are turning to mergers to deliver all-important economies of scale to drive competitive advantage.
Recently there has also been a trend for mergers, particularly international ones, aimed at gaining access to new sectors and services, or to achieve greater global exposure. Mergers are also a useful way for firms to diversify their business and broaden their appeal to wider markets. It wouldn’t be surprising to see national and international mergers gaining even more momentum going forward.
Examples of law firm tie-ups in the past year include:
• Leading Hampshire firm Churchers merger with Bolitho Way
• Blake Lapthorn and Morgan Cole who successfully merged into a new top-50 firm, Blake Morgan
• Pitmans LLP acquired Southampton-based law firm Lamport Bassitt in a £25 million merger
• Manches joined forces with Penningtons to create Penningtons Manches.
Clearly those operating in the legal sector believe that consolidation needs to be considered as an option in order to achieve future success. But is it good for business in general?
On the whole we believe it probably is. Increased competition within the professional services sector ensures firms do not rest on their laurels. More competitive fees, better client service, better access to specialists, as well as
When can you claim under an indemnity?
The recent case of Durley House Ltd v Firmdale Hotels plc [2014] EWHC 2608 (Ch) examines whether a party can claim for sums under an indemnity that it has not yet itself paid out, writes Paris Smith partner James McNeil
The facts of the case are straight forward. The defendant entered into a contract with the tenant to: 1. pay the tenant’s rent to the landlord; and
2. indemnify the tenant against its rent and other operating expenses.
The defendant, in breach of contract, failed to pay anything to the landlord or to the tenant. The tenant sued the defendant for breach of the indemnity given by the defendant in favour of the tenant in respect of the tenants’ rent obligations. This was irrespective of the fact that the tenant had not paid the overdue rent to the landlord.
The High Court considered if a party can claim under an indemnity for sums it has not yet paid. The Court concluded, among other points, that:
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• since 1875, it has been clear a party can enforce an indemnity even before it has paid out the liability covered by the indemnity;
• there are various remedies for breach of an indemnity, including a declaration or an order directing payment to the indemnified party, to that party’s creditor or into a fund;
• the Court can order payment straight to the indemnified party, even before it has paid out the sums covered and is not limited to cases where the paying party is jointly or primarily liable for the obligation or contractually bound to pay the creditor; and
• an order for payment to the indemnified party does not oblige the indemnified party to pass the money to its third-party creditor.
unpaid rent as damages for breach of the indemnity.
The case reiterates the principle that an indemnity is a primary obligation and therefore creates a direct and independent liability which may mean that a party is obliged to pay under an indemnity, even before the party being indemnified has paid anything to the relevant counterparty.
Applying these and other conclusions, the High Court found in favour of the tenant. The tenant asked the court for a money judgment of the overdue rent, as damages for breach of the indemnity. The defendant objected because the tenant had not paid any of the overdue rent and had therefore not suffered any loss. Applying the conclusions reached by the court, the court ordered payment to the tenant of the sum of
If a party is therefore asked to give an indemnity, the wording of the indemnity should be carefully drafted so that it clearly states who the party giving the indemnity is to pay, when it is to pay, how much it is to pay and that payment by the indemnified party is a condition precedent to liability under the indemnity.
Details: James McNeil 023-8048-2108
james.mcneil@
parissmith.co.uk www.parissmith.co.uk
maintaining a local presence and local knowledge, should provide a winning combination for firms and their clients in the south who are looking to grow as the economy swings in the right direction.
Details: Adam Wilson 023-8024-7070
Adam.Wilson@wilkinskennedy.com www.wilkinskennedy.com
THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – OCTOBER 2014
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