Getting the Deal Done: Ethics and Due Diligence in Cross-border Transactions in the US, South America and China

GETTING THE DEAL DONE
Ethics and Due Diligence: Cross-border Transactions
in the US, South America and China
Faculty of Ethics and the Deal
The Commons Institute | Ottawa, Ontario
June 2, 2014

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Prepared for
Faculty of Ethics and the Deal
The Commons Institute | Ottawa, Canada
June 2, 2014
This program has been accredited by the Law Society of Upper
Canada and contains 1 Professionalism Hour.

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Prepared by
SkyLaw is a boutique corporate law firm offering sophisticated
legal and strategic advice to public and private companies.
www.skylaw.ca

Kevin R. West
Founder
• Kevin West is the founder of
SkyLaw, an innovative boutique
corporate law firm in Toronto.
• After clerking for Justice Binnie at
the Supreme Court of Canada,
Kevin practiced with Sullivan &
Cromwell in New York and
Australia and as a partner at
Davies in Toronto.
• Kevin obtained his LLB from
Dalhousie University in 1998.
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Presented by

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Timeline
Kevin R. West
LinkedIn: www.linkedin.com/in/kevinrobertwest
E-mail: kevin.west@skylaw.ca

• Acquisition of Corriente Resources Inc. by Tongling Nonferrous Metals Group
Holdings Co. Ltd and China Railway Construction Corporation Limited for
$679 million.
• Acquisition of Northern Peru Copper Corp. by China Minmetals Nonferrous
Co. Inc. and Jiangxi Copper Company for $455 million.
• Xstrata plc hostile take-over of Falconbridge Limited for $24 billion.
• Acquisition of PetroKazakhstan Inc. by China National Petroleum Corporation
for $4.2 billion.
• Royal Bank of Canada’s acquisition of Centura Banks, Inc. for $2.3 billion.
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Selected Transactions List
Kevin R. West

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AGENDA
Part 1: Anatomy of a Cross-Border Tran
saction
1.1 – Types of Transactions
1.2
–
Stages
of
a
Transac6on
1.3
–
Selec6ng
Local
Counsel
and
Services
Providers
1.4
–
Overview
of
Professional
Responsibili6es
1.5
–
Helpful
Resources
Part 2: Ethics and Professional Responsibilities
2.1 – Confidentiality
2.2
–
Competence
2.3
–
Know-‐Your-‐Client
Rules
2.4 – Importance of Retainer Agreements

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AGENDA
…CONTINUED
Part 3: Providing Legal Services on Cross-Border Transactions
3.1 – Confirming the Scope of Work
3.2
–
The
Importance
of
Planning
3.3
–
Understanding
Cultural
Differences
3.4
–
Understanding
Legal
Differences
3.5
–
Choosing
the
Governing
Law
3.6
–
Finding
the
Right
Advisors
Part 4: Due Diligence Issues
2.1 – Understanding Diligence Practices
2.2
–
Bilateral
Trade
Agreements
2.3
–
Foreign
Investment
Review
and
Compe66on
Laws
2.4 – Practical Considerations

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AGENDA
…CONTINUED
Part 5: Dispute Resolution in Multi-Jurisdictional Transactions
5.1 – Arbitration or Litigation?
5.2
–
The
Advantages
of
Arbitra6on
5.3
–
The
Advantages
of
Li6ga6on
Part 6: Anti-Corruption Legislation
6.1 – Bill S-14 Amendments
6.2
–
2014
and
Beyond
Part 7: Concluding Remarks

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Part 1
Anatomy of a Cross-Border Transaction

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Part 1 – Session 1.1
ANATOMY OF A CROSS-BORDER TRANSACTION:
TYPES OF TRANSACTIONS

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Part 1: Anatomy of a Cross-Border Transaction – Session 1.1
TYPES OF TRANSACTIONS
• Acquisitions of Canadian companies by foreign
companies
• Acquisitions of Canadian companies with significant
foreign operations
• Joint ventures in Canada with a foreign partner

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STAGES OF A TRANSACTION

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STAGES OF A TRANSACTION
• Initial discussions and Non-Disclosure
Agreement
• Letter of intent
• Due diligence
• Negotiation of definitive transaction
documents (Share purchase
agreement, etc.)
• Signing
• Closing
• Post-closing integration
Image
Source:
hXp://vincitlaw.com/wp-‐content/uploads/Crossborder.final_.jpg

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SELECTING LOCAL COUNSEL
AND SERVICE PROVIDERS

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SELECTING LOCAL COUNSEL
AND SERVICE PROVIDERS
• Get a referral from a reputable source
• Prefer counsel trained in New York, London or
similar jurisdiction
• Google search firm and specific lawyers
• Check websites
• Have a call or meet in person

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OVERVIEW OF PROFESSIONAL
RESPONSIBILITIES

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OVERVIEW OF PROFESSIONAL
RESPONSIBILITIES
• Rules cited in this presentation are from the Law Society
of Upper Canada’s rules of professional conduct
• Lawyers in other jurisdictions may have very different
approaches to issues like conflicts
• Planning and communication are key. If you are
required to make a filing in a foreign jurisdiction, plan
for it. Avoid that feeling of dread when you find out
that the filing you need to make for a client can’t be
made on time because the government office is closed
for a local five-day holiday.

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HELPFUL RESOURCES

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HELPFUL RESOURCES
• Dateandtime.com – Plan your meetings efficiently
• Local government websites, e.g. Industry Canada
• Export Development Canada (EDC) has excellent
publications, e.g. “Doing Business in China”
• Law firm and accounting firms have helpful online
summaries often comparing jurisdictions

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Part 2
Ethics and Professional Responsibilities

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ETHICS AND PROFESSIONAL RESPONSIBILITIES:
CONFIDENTIALITY

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Part 2: Ethics and Professional Responsibilities– Session 2.1
CONFIDENTIALITY
Rule of Professional Responsibility 2.03:
A lawyer at all times shall hold in strict con!dence
all information concerning the business and
affairs of the client acquired in the course of the
professional relationship and shall not divulge
any such information unless expressly or
impliedly authorized by the client or required by
law to do so.

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Part 2: Ethics and Professional Responsibilities– Session 2.1 ...CONTINUED
CONFIDENTIALITY
• Understand rules of confidentiality that apply in the
local jurisdiction
• Expressly state that information must be kept
confidential
• Only disclose what you need to disclose
• At conflict check stage, consider if the first step of
the conflict is to clear the name of the opposing
party instead of your client

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CONFIDENTIALITY
• Local law may not provide privileges the same way,
e.g. lawyer and client privilege
• Attorney whistleblowing rules could permit or
require disclosure of client confidential information
to regulators.

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COMPETENCE

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COMPETENCE
Rule of Professional Responsibility 2.01:
A lawyer shall perform any legal services
undertaken on a client’s behalf to the standard
of a competent lawyer

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COMPETENCE
• Be careful not to practice law in respect of a
jurisdiction in which you are not qualified
• Consider the rules for foreign legal consultants,
LSUC By-Law 14:
No person shall give legal advice in Ontario
respecting the law of a foreign jurisdiction except
in accordance with this By-Law

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KNOW-YOUR-CLIENT RULES

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LSUC By-Law 7.1, Part III:
Subject to specific exceptions, a lawyer shall,
(a) when retained to provide her or his
professional services to a client, comply with
the client identi!cation requirements; and
(b) when giving instructions in respect of the
receiving, paying or transferring of funds,
comply with the client identi!cation
requirements and the client veri!cation

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• If working with someone internationally, you might
need a local solicitor to verify information
• Check local corporate registries
• Google searches or other background searches
• Be careful of fraud – check with LawPro

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IMPORTANCE OF RETAINER
AGREEMENTS

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IMPORTANCE OF RETAINER AGREEMENTS
• Retainer or engagement agreements are not
required under law society rules, but it is advisable
to set out the terms of the retainer and have the
client sign an acknowledgement of those terms
• Limited scope retainers must be reduced to writing
(Rule 2.02(6.2))

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IMPORTANCE OF RETAINER AGREEMENTS
• Agreements avoid misunderstandings that can
result, particularly when the customary scope of
work for a matter may differ in the local jurisdiction
• Consider obtaining a cash retainer in your trust
account
• Can be difficult to enforce outstanding legal bills in
foreign jurisdictions

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Part 3
Providing Legal Services on
Cross-Border Transactions

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PROVIDING LEGAL SERVICES ON CROSS-BORDER TRANSACTIONS
CONFIRMING THE SCOPE OF WORK

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Part 3: Providing Legal Services on Cross-Border Transactions – Session 3.1
CONFIRMING THE SCOPE OF WORK
• Standards for lawyers can vary greatly from what
we are used to in Canada
• Asking a local firm to conduct due diligence on a
corporation or a property in the local jurisdiction
may result in significantly less, or significantly more,
work than you would expect in Canada
• Law firms may outsource certain functions, e.g.,
search functions
• Confirm the state or provincial jurisdictions in
which property or people are located

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THE IMPORTANCE OF PLANNING

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• The additional amount of time required because of
the number of people involved
• Time zones and travel require careful planning
• Translators or interpreters required?
• Holidays may be different
• Build in time to incorporate comments and work
product from the various jurisdictions

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Part 3: Providing Legal Services on Cross-Border Transactions – Session 3.2 ...CONTINUED
• Getting documents signed or filed in time
• How will closing occur in multiple jurisdictions?
• Check with banks for timing on wire transfers
• Use trust accounts and escrow arrangements

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UNDERSTADING CULTURAL
DIFFERENCES

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UNDERSTANDING CULTURAL DIFFERENCES
• Determine who has decision-making authority
• Understand the work ethic and speed of work
• Importance of in person
• Research basics about
appropriate greetings,
e-mail communications,
etc.
Image
Source:
hXp://www.cartoonstock.com/newscartoons/cartoonists/ato/lowres/travel-‐tourism-‐japanese-‐japan-‐protocol-‐wwii-‐mergers__acquisi6ons-‐aton1407l.jpg

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UNDERSTANDING CULTURAL DIFFERENCES
• Don’t make assumptions
• Some cultures are less time sensitive, for example:
“Mañana” literally means tomorrow. But when
conducting business in some Latin countries be
prepared that when someone says they will do
something “mañana”, they don’t mean
tomorrow literally. Rather they mean that they
will get to it eventually.

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UNDERSTADING LEGAL
DIFFERENCES

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UNDERSTANDING LEGAL DIFFERENCES
• Terminology can be confusing, e.g. articles of
incorporation may be a certificate of incorporation, a
public deed of incorporation, a constitution, etc.
There may be other constating documents as well.
• Data privacy laws can vary
• Employees may be treated differently, particularly
with respect to severance and constructive
termination
• Directors may have personal liability for taxes,
employees, etc.

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UNDERSTANDING LEGAL DIFFERENCES
• There may be a need for more than one shareholder
• There may be minimum capital requirements
• Types of agreements may be different, e.g. civil law
countries have a general good faith understanding
and do not need extensive representations and
warranties
• Some civil law countries require notarization for
things like share transfers
• Be careful of public statements. Some jurisdictions
have a truth in takeovers policy, like Australia.

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CHOOSING THE GOVERNING LAW

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CHOOSING THE GOVERNING LAW
• Where is the transaction happening?
• Does a court or regulator need to be involved?
• If there is a dispute, where will it likely be?
• Familiarity
• Getting local counsel
• Enforceability of judgments

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FINDING THE RIGHT ADVISORS

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• Confirm your advisors have cross-border
experience
• Always consider tax
• There can be significant
legal differences, e.g.
how employees are
treated, how approvals
are obtained
Image
Source:
hXp://www.ifrasia.com/Pictures/web/m/o/t/A6jigsaw_web.jpg

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• Consider government and political issues
• Consider PR, community meetings, integration
issues

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Part 4
Due Diligence Issues

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DUE DILIGENCE ISSUES
UNDERSTADING DILIGENCE
PRACTICES

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Part 4: Due Diligence Issues– Session 4.1
UNDERSTANDING DILIGENCE PRACTICES
• Public registries may have different information,
e.g. some types of liens and other security interest
are not generally available in civil law jurisdictions
• Litigation searches may not be centralized
• It may take a long time for public searches and they
may not be reliable

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BILATERAL TRADE AGREEMENTS

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BILATERAL TRADE AGREEMENTS
• Check if there are any treaty or trade agreements
that could benefit your client
• Foreign investment promotion and protection
agreements (FIPAs) are bilateral agreements aimed
at protecting and promoting foreign investment
through legally-binding rights and obligations

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FOREIGN INVESTMENT REVIEW
AND COMPETITION LAWS

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FOREIGN INVESTMENT REVIEW AND
COMPETITION LAWS
• Most countries have some type of review for
significant transactions made by foreigners
• Competition or anti-trust laws can be complex
• Some areas can be very sensitive, including
cultural, telecommunications, resources, etc.

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PRACTICAL CONSIDERATIONS

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PRACTICAL CONSIDERATIONS
• Use technology such as online data rooms to
collaborate efficiently
• Can you read the documents in the local language?
• Consider immigration and visa requirements, even
for short stays
• Consider political risks
– EDC offers political risk insurance for breach of
contract, expropriation, political violence, etc.

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Part 5
Dispute Resolution in Multi-Jurisdictional
Transactions

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DISPUTE RESOLUTION IN MULTI-JURISDICTIONAL TRANSACTIONS
ARBITRATION OR LITIGATION

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Part 5: Dispute Resolution in Multi-Jurisdictional Transactions – Session 5.1
ARBITRATION OR LITIGATION
Consider whether to:
• use litigation in a particular jurisdiction, or
• use arbitration
Image
Source:
hXp://www.llmstudy.com/files/editorial/law_-‐_scales1.jpg

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ADVANTAGES OF ARBITRATION

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ADVANTAGES OF ARBITRATION
• Typically faster
• Determine language to be used
• Less procedural formalities like service of process
• Reliability of local courts can vary greatly
• Typically confidential
• Can be flexible and suit the needs of the parties
• Can determine arbitrators with specific industry
experience

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ADVANTAGES OF LITIGATION

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ADVANTAGES OF LITIGATION
• The right to an appeal
• Lower costs to start, although can be expensive if it
is lengthy
• Carefully consider local jurisdictions – civil vs.
common law, certainty of laws, political influence,
availability of discovery
• Easier to obtain injunctions, etc.

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Part 6
Anti-Corruption Legislation

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ANTI-CORRUPTION LEGISLATION
BILL S-14 AMENDMENTS

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Part 6: Anti-Corruption Legislation– Session 6.1
BILL S-14 AMENDMENTS
• Bill S-14, the Fighting Foreign Corruption Act
• Amendments:
– Changing Definition of “Business”
– Increase in the Maximum Penalty
– Elimination of Facilitation Payments
– New Books and Records Offence
– Expanding Jurisdiction
– RCMP has Exclusive Ability to Lay Charges

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ANTI-CORRUPTION LEGISLATION
2014 AND BEYOND

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Part 6: Anti-Corruption Legislation– Session 6.2
2014 AND BEYOND
• 35+ ongoing investigations; 5 people facing
charges
• Canadian companies should ensure that they
comply
• Examples:
– Appointing a Compliance Officer
– Proper internal auditing procedures
– Continuing employee & executive education and
training
– Guides that show the company’s policies

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Part 7
Concluding Remarks

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CONCLUDING REMARKS
Part 7: Concluding Remarks
• Plan, plan, plan (who, what, when, where, how)
• Ensure compliance with professional responsibilities,
even abroad
• Choose your local agents carefully
• Understand cultural and legal differences
• Think about issues unique to cross-border transactions,
like governing law, and arbitration vs. litigation
• Stay on top of current legislation and potential changes

QUESTIONS?
Contact Kevin West:
SkyLaw Professional Corporation
2 St. Clair Avenue East, Suite 800
Toronto, Ontario, Canada M4T 2T5
Tel: 416.644.3190 Fax: 1.866.832.0623
LinkedIn: www.linkedin.com/in/kevinrobertwest
E-mail: kevin.west@skylaw.ca
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Getting the Deal Done: Ethics and Due Diligence in Cross-border Transactions in the US, South America and China

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Getting the Deal Done: Ethics and Due Diligence in Cross-border Transactions in the US, South America and China