Law firm takes on state over policy

• Legal sector requirement ‘imposes unrealistic transformation targets’

The SA unit of Norton Rose Fulbright, a heavyweight in the legal world, has launched a lawsuit against the government, seeking to overturn a newly implemented policy aimed at the transformation of the legal sector.

The legal confrontation, initiated last month by trade, industry & competition minister Parks Tau, will prove to be a test for the government’s determination to push through transformation in the sector via the broad-based BEE (BBBEE) legal sector code, a policy initiative introduced last year aimed at giving black practitioners a fighting chance in the industry.

The battle comes amid longstanding complaints by black lawyers about the slow pace of transformation in the sector that is dominated by the big five law firms: Bowmans, Cliffe Dekker Hofmeyr, ENSafrica, Webber Wentzel and Werksmans.

Brent Botha, a director at Norton Rose Fulbright, which entered SA with a tie-up with what was then one of biggest names in the industry, Deneys Reitz, in the 2010s, argues that the new policy imposed unrealistic targets on law firms, potentially jeopardising their status in the government’s transformation agenda.

“It changes the manner in which ownership, management control, enterprise development and skills development are measured.

“It imposes targets that are unreasonable, impractical and unrealistic, given the nature of large law firms,” Botha said.

Under the new policy, which replaces the generic BEE code policy, large firms such as Norton Rose Fulbright have been handed ambitious targets to jack up black ownership, management control and procurement. For instance, these firms must achieve 30%-50% voting rights for black practitioners, the same range for executive management roles and source 40%60% of legal services from black advocates.

“The impact of the legal sector code is severe and irreparable. In an instant, as at the date of its next BBBEE verification (which is in April 2025), (Norton Rose Fulbright) will drop from a level one (135%) BBBEE contributor to a level six (60%). This will, in turn, severely affect its ability to attract local clients and all but extinguish its ability to obtain work directly from the state,” Botha’s affidavit reads.

The firm split its plea into two parts. First, it is urgently seeking an interim order to suspend the legal sector code’s operation. The second part of the application wants the high court to declare the legal sector code unlawful and unconstitutional.

The government views the policy as a game changer for accelerating transformation in the legal sector.

In a government gazette about changes to the policy, the state highlights challenges facing black lawyers, from being handed inferior work assignments and facing discrimination in procurement to inconsistent brief

ing patterns and being overlooked for senior roles.

Tau’s office did not respond by the time of going to press. He has until January 24 to file an answering affidavit.

The Black Lawyers Association, a lobby group set up in 1977, was gearing up to jump in as an interested party to oppose the application, its president, Nkosana Mvundlela, said.

“We believe in the transformation of the legal sector. Our view is that the application is something that should be dismissed and we believe after the court hears our arguments it may agree with that,” he said.

As one of the policy drafters, Mvundlela said the association was confident the policy was in line with the constitution.

“We believe its contents are legally sound and constitutionally sustainable. Should the court find that they are constitutionally unsustainable then it would be expected for the court to guide the government for the government to achieve the objectives of the constitution which is transformation.

“The legal profession is a feeder system to the judiciary. Almost 90% of judges are sought from the legal profession. When you transform the legal profession, you empower the judiciary,” he said.

In challenging the government’s transformation agenda policy, Botha was adamant the firm was not against the principle of transformation.

“This application is therefore not an attack on the principle or idea of the legal sector code, or the objective of achieving greater transformation in the legal sector. However, the legal sector code is an unlawful, irrational and unconstitutional means to achieve that objective.”

He described some of the changes made in the legal sector code as “counter-transformative”. “It is also notable that, unlike under the generic code, the legal sector code is limited to black practitioners, and not to black people generally. Moreover, it imposes higher targets on black ownership which has increased from 25% under the generic code to 30% under the legal sector code in year one and 50% in year five; and black women ownership has increased from 10% to 15% in year one and 25% in year five.”

The firm was concerned about the new ownership requirements for black youth under 35, black people with disabilities and those from rural areas, with Botha saying it was rare for anyone under 35 to make equity partnership and black people from rural areas were not typically employed at urban law firms.

“This is an almost impossible requirement for law firms such as (Norton Rose Fulbright SA) to meet,” Botha said. He added the new code focused almost exclusively on legal practitioners, with only two out of 24 points recognising staff being problematic.

“What it means for a law firm, is that a substantial portion of its staff such as those in finance, human resources, information technology and the like who are not legal practitioners, but without whom a law firm cannot function, and who hold senior management positions, are not counted for purposes of management control,” he said.

Botha warned that the firm’s relationships with major banks could take a hit, saying Norton Rose Fulbright must keep a specific rating to remain on the legal panel of major banks. He added that if it failed to do so, it must inform the bank and submit an improvement plan. “In addition, 20% of the bank’s scorecard rating is based on the law firm’s BBBEE level,” he said.

Norton Rose Fulbright risks losing points. The firm would lose further points after spending millions of rand on suppliers who do not meet the new requirements, Botha said, adding that nearly R30m in procurement spend went to vendors who met the old generic requirements but not the new legal sector code. “This is, in essence, nearly R30m of ‘wasted’ expenditure from a BBBEE score perspective.”