South America may not be the easiest place to do business, but the work and opportunities available for resource-based industries — and the lawyers who represent them — can be most interesting and very profitable.
As point men go, the decision makers at Macleod Dixon llp obviously have a lot of faith in the abilities of Glenn Faass. After five years of living in Moscow, where he ran the Calgary-based law firm’s office, while co-founding others in Kazakhstan and Mongolia, Faass (pronounced “foss”) was sent in 1997 to Caracas, Venezuela, to open yet another office. The move came several years after the country’s massive oil and gas industry was opened to foreign investors and service providers, fuelling a need for legal representation.
That’s putting it mildly. From the two legal professionals (including Faass) at its inauguration a decade ago, Macleod Dixon’s office in Caracas now boasts 46 lawyers. In addition to being the first, and still the only, major Canadian law firm to hang a shingle there, Macleod Dixon is also the biggest foreign firm in the Venezuelan capital, and one of the biggest practices there, period. In particular, it boasts the most legal professionals working in the resource industry in Venezuela — more, by Faass’ count, than the number in all the other foreign firms there combined.
And that’s not all. The experience and expertise garnered in Venezuela has served as a platform for Macleod Dixon’s expansion — with Faass leading the way — into other South American countries. In addition to being involved in several major mining- and resource-related projects in English-speaking Guyana and many of the continent’s Spanish-speaking countries — including the five Andean countries: Colombia, Ecuador, Peru, Bolivia, and Chile — Faass has represented his firm on many projects in Brazil.
He also spearheaded the opening of an office in Rio de Janeiro in 2001, when Macleod Dixon became the first foreign firm to be licensed in that exotic city, the capital of a resource-rich state that produces, among other things, 80-plus per cent of Brazil’s oil and gas offshore.
As a result, just 11 years after it first established a beachhead in South America, the region now ranks as Macleod Dixon’s biggest area of operation outside Canada in every important major term of reference, including head count and revenues. “Our trajectory there has always been up,” says Faass. “And we’re continuing to build bridges and expand into other areas.”
While Macleod Dixon has made the most significant and visible inroads into the region, it is not the only Canadian law firm doing business there — not by a long shot. In fact, of the half-dozen national and large regional Canadian firms contacted for this story — essentially a who-what-when-where-and-why overview of Canuck lawyers working in South America (rather than the larger region of Latin America) — all are actively engaged in the region and are eager to do more. Much more.
Their interest isn’t hard to understand. Since the mid-1990s, when commodity prices began their record-setting ascent on world markets, resource-rich South America has been a red-hot investment destination for blue-chip Canadian companies, lenders, and developers. According to a statistical snapshot of Latin America and the Caribbean from Canada’s Foreign Affairs and International Trade Department, which looks at the region as a whole, Canadian investments there have risen from $6 billion in 1990 to an eye-popping $100 billion in 2007.
That’s four times more than Canadians have invested in Asia. Similarly, Canadian exports to a region that 2.5 million Canadians visit annually (more than any other destination outside the United States), and which has accounted for approximately 11 per cent of immigrants to Canada this decade, also rose by a whopping 93 per cent between 2003 and 2007, when two-way trade surpassed the $20-billion mark. Canada also now ranks as the third-largest investor in South America and is a major player in the mining industry there.
With no deal in sight for the creation of a free-trade area of the Americas, whispers during the current U.S. presidential election that both candidates want to either drop out of or renegotiate NAFTA, and the failure this summer of World Trade Organization talks aimed at further liberalizing the multilateral global trade system, it’s little wonder that Canada is eager to sign and continue to pursue bilateral free trade, labour co-operation, and environmental agreements with several countries on the continent, including Chile, Peru, and Colombia. (See sidebar on page 37.)
“We are in the Americas for the long haul — as people who share common political values, as economic and business partners, as neighbours,” Prime Minister Stephen Harper said during a trip to the region in July 2007, to mark the 10th anniversary of the Canada-Chile Free Trade Agreement.
That deal was the first of its kind for Canada in the region. “Canada can play a dynamic role working with our partners in the hemisphere to build a prosperous and safe neighbourhood of nations committed to democratic values and social inclusion,” said the PM.
While the ardour of many Canadian investors in the region has cooled in recent months due to the political and social unrest in some countries — plus the relentless sabre-rattling of Chávez in Venezuela — many big-name money experts share Harper’s upbeat assessment of the region. “Sure there are risks, [but] there are many more good reasons to invest in South America,” says Donald Coxe, a onetime Ontario lawyer who is now a well-known international business writer and global portfolio strategist for BMO Capital Markets, one of North America’s leading full-service investment firms. In addition to a having a large and increasingly educated population, Coxe lauds the long constitutional history of most countries in South America, all of which (except French Guiana, which remains a colony of France) have earned their independence over the past 200 years. “Apart from Venezuela,” he says, “their constitutions are relatively stable, [and] there have been terrific improvements in regards to the respect of rule and law.”
Coxe also believes that South America’s European-based laws and languages are an added charm — plus a competitive advantage over Asia — when it comes to attracting North American and European investors. “Spanish and Portuguese are a lot easier to learn than Chinese or Hindi,” he says. “You can pick them up in one winter visit, which isn’t the case for complex languages based on characters.”
More important, he adds, is the fact that South America is teeming with proven and hoped-for deposits of natural resources like gold, copper, and other precious metals that have already attracted dozens of Canadian mining companies, from junior exploration companies, like B.C.-based Rusoro Mining, to this country’s two giants in the field: Barrick Gold and Teck Cominco. “It’s difficult to find mining properties in Asia,” says Coxe. “There’s really only Russia; but, with everything that’s going on there these days, nobody’s too eager to get involved.”
To be sure, the exploration and development of natural resources is the main interest of most Canadian businesses operating in South America. And their activities, which drive, define, and dictate the bulk of the work being done by Canadian lawyers on behalf of their clients, often require and involve the financing and/or merger and acquisition of resource-based companies and their assets in the region.
“We’ve seen a real interest for resource properties there,” says Stuart Olley, a partner in Stikeman Elliott LLP’s corporate securities group in the firm’s Calgary office. Olley works almost exclusively with Canadian public companies involved in mining. “It’s mostly oil and gas, but also mining.”
Although Stikeman Elliott doesn’t have an office in South America, Olley says it hasn’t prevented the firm from getting work in the area — through occasional visits to attend conferences and, more often, through referrals from other law firms and clients with assets in the region.
Earlier this year, for example, he did a disposition for Trafigura, a private European company and one of the world’s biggest base-metal traders (its crude oil assets in Alberta led to a relationship with Stikeman Elliott), as part of a $200-million sale of its mining assets in Peru to Toronto-based Iberian Minerals Corp.
Because Stikeman Elliott is not registered in South America either, Olley relies on local counsel to perform the legal tasks related to such deals, like the registration of documents and conveyance. “We only go [to South America] for due diligence and to meet [clients],” he says, adding the major problem with these types of deals tends to be getting disclosure of foreign assets, such as reserve reports, in a format that meets Canadian standards. “From a practical standpoint, that’s the biggest hurdle.”
Things have improved greatly, however, since Fred Pletcher first started representing Borden Ladner Gervais LLP on transactions involving mostly mining properties in Chile, Brazil, Peru, and Argentina back in 1993. “It used to require a lot of due diligence [and] work on the ground,” recalls Pletcher, a partner at his firm’s Vancouver office, where he practises in the areas of securities and capital markets, M&A, mining, and corporate-commercial law.
“A lot of transactions involved option arrangements with local owners of mining concessions [or] maybe mine sites or companies were family-owned. There used to be a lot of private companies because the capital markets are not as developed down there.”
Despite speaking what he calls “pretty horrible” Spanish and Portuguese, Pletcher says he has never encountered any serious language-related problems in South America. “Pretty much every mining lawyer worth their salt down there speaks excellent English.” He notes that as the volume and intensity of his relationships have grown with local firms, which tend to be smaller than in Canada and located in big cities, so too has his confidence in the level of service they provide.
“Business transactions have become routine. I only go down there now if we’re moving to a jurisdiction where we have no previous experience, or if there are quirks that require more hands-on attention from Canadian lawyers.”
To be sure, quirks can arise unexpectedly in South America, like the mining mandate proclaimed by Ecuador’s left-of-centre government last spring, in which it declared an outright moratorium on mining projects for six months (until a new mining code is issued) and imposed a limit of three concessions for every mining project, cancelling many concessions overnight.
“It was basically expropriation,” says Don Collie, a corporate lawyer and partner in Davis LLP’s Vancouver office who has extensive experience representing all levels of public companies, as well as a local property owner and prospector in Ecuador who has dealings with a Canadian company in copper and gold projects. “It threw the entire industry into a tizzy [and] was a big shock to stock prices.”
He adds that such unexpected events, together with fears of corruption and influence-peddling in some South American countries, are among the big reasons why most Canadian, and even many South American companies, choose Canadian, U.S., or British jurisdictions and laws to govern contracts involving properties in the region.
“They have indicated to me that they prefer the stability of our court system in case of disputes,” says Collie. Despite the risks, he predicts South America will continue to be a hot spot for Canadian investors and, as a result, Canadian lawyers. “Money goes where the resources are; [and] where investments go, lawyers go,” he says. “You just have to take precautions.”
For Denis Boulianne, the best hedge against legal problems in South America is finding — and relying on — solid local legal counsel. Once part of the Latin America practice group at Fasken Martineau DuMoulin LLP’s Toronto office, where he worked on a big copper-mining project in Chile, Boulianne spent 10 years in Paris with Shearman & Sterling LLP doing mostly securities work on the New York and European stock exchanges before returning home last year to become an in-house lawyer in charge of international acquisitions for Ivanhoe Cambridge, the $13-billion, Montreal-based real estate subsidiary of the Caisse de dépôt et placement du Québec.
One of his first tasks with Ivanhoe Cambridge was on a project already in the works, with the company’s Brazil-based partner Ancar, for the acquisition of São Marcos Real Estate Enterprises, co-owner of four high-quality shopping centres in Rio and São Paulo. Boulianne says the deal, which was completed last summer and announced on Aug. 4, was driven superbly by local lawyers according to local laws and agreements, including arbitration clauses for dispute resolution.
“One of the things I’ve noticed doing work [in South America] is that there are significant numbers of excellent law firms that are used to, and equipped for, catering to and advising North American companies.” He notes that Canadian lawyers are still needed to advise and protect their clients in regards to tax structuring and project co-ordination if they have the in-house capability. “[The second thing] is that these countries have legal systems based on civil law like in Quebec . . . so a lot of the basic legal principles are the same.”
Because civil law differs from common law in areas such as ownership, and because of his belief that the civil code is better equipped to deal with local intricacies, Boulianne believes North American lawyers should open their minds — and check their egos — if they intend to do business in South America. “I think many have the attitude that their way of doing business is the best way, [and] that’s wrong-headed,” he says.
“Depending on the country, you can deal with very wealthy people, families, and corporations that can make you feel disadvantaged, that you don’t have the same access to the legal system, which can be real or perceived. That’s why you need a local firm with strong local roots that can help by choosing, say, the right method of dispute resolution given the local context and the players involved. People who are investing their money in different parts of the world want and need that protection.”
For Faass, the different laws and legislations between countries — and even states — is another good reason for Canadian lawyers to rely on local firms in South America. He says while there are similarities in the kinds of things being done by Macleod Dixon’s two offices in the region — M&A-type work representing foreign clients who are purchasing local assets and/or making investments mostly in oil and gas and mining operations; and commercial-type work representing international companies, such as service providers which sell, lease, or manufacture equipment — the Venezuelan shop has developed a leading litigation practice, as well as an important labour law practice.
“Employment law is more important in South America than here in North America, [in that] it is very favourable to employees,” he says, in part because the continent’s brutal colonization history has left people there with an acute sense of social justice. “It’s much harder to downsize there, [and] there is high financial exposure for companies who make employment changes.”
He says Brazil is a whole different kettle of fish from its Spanish-speaking neighbours. “A major issue in Brazil is tax law. . . . It’s the easiest area to get into trouble,” says Faass. “Brazil is unusual in that it is a developing country [in which] legislation isn’t always clear, [but] it has developed country enforcement [and] a very strict system of audits, assessment, and fines. It requires skilled experts to navigate through it all.”
Those complexities, together with Brazil’s law that restricts foreign lawyers to the practice of international law, led to Macleod Dixon’s association with Veirano Advogados, one of Brazil’s biggest law firms. “It enables us to deliver an integrated package of domestic and foreign services for mostly foreign clients,” says Faass, who is still the managing partner of the Rio office, and who was, until last year, a member of the firm’s global executive committee. “Finding the right domestic partners is the key to doing business in South America.”
However, even the best-laid plans can be bedevilled by quick economic downturns and sudden shifts in policies, not to mention the unexpected failure of culture-shocked North American lawyers who perform well at home but fail to adapt to changes in their work and living environments. “You can’t assume that someone who’s highly skilled and highly motivated in Canada will make a smooth transition,” says Faass.
To help lawyers prepare to live and work in the region — and to better represent their clients — Don Coxe recommends reading novels like Death in the Andes, a whodunit by former Peruvian president and free market economist Mario Vargas Llosa. A Washington Post journalist called the work “a well-knit social criticism as trenchant as any by Balzac or Flaubert — an ingenious patchwork of the conflicting mythologies that have shaped the New World psyche since the big bang of Columbus’s first step on shore. In short, this is a novel that plumbs the heart of the Americas.”
Fiction is the best way to learn about a place, says Coxe, who served as general manager for the Ontario Federation of Agriculture and general counsel for the Canadian Federation of Agriculture in the 1970s before leaving law to enter the investment business. “And when you’ve got a billion dollars invested in a country, it’s worth it to read a book.”
In addition to huge economic opportunities, Faass says South America’s vibrant and intriguing culture — everything from music, art, and language to the importance of family and friends and people’s exuberant driving habits — make it both a fun and fascinating place to work, even when it involves jobs any seasoned corporate lawyer can do with his or her eyes closed.
“You see something different — even unbelievable — every day there,” he says. “And building something out of nothing is very rewarding.”