Humorously or otherwise, New Zealand’s south islanders often refer to themselves as “mainlanders” – but the latest economic indicators may introduce a somewhat sobering note to the mock north-south rivalry. While the NZX50 enjoyed  13% growth in the first quarter of  2010, Deloitte’s South Island Index declined by  5.3%, losing  NZ $166m.

While South Island business optimism lags behind that of the North, there are some positive indicators. A Hudson survey of employer sentiment reported an improvement in confidence – although only a very modest one. Two per cent of South Island employers intended to increase permanent staff levels during the first quarter.

There is clearly a limit, however, on the extent to which these trends can be related to the legal services sector. Bell Gully chairman Roger Partridge says that it is difficult to make generalisations about the performance of South Island workflows in comparison to the north, and this appears to be the general consensus. While national firms have identified practice areas – such as resource management – which they regard as performing particularly well on the South Island, the firms have not suggested that there is a dramatic variation in the fortunes of their North and South Island offices.

Private clients

Given the relatively smaller size of the southern legal market, it comes as no surprise that local law firms are smaller than their North Island counterparts. “You could count on your fingers the number of large South Island firms; meanwhile there are many moderate-sized firms with maybe four or five partners,” says Janice Fredric, the CEO of Christchurch-headquartered law firm Duncan Cotterill.

Private client work is typically a staple of South Island firms and this legacy can be seen in those practices which have gone on to develop a national presence. Duncan Cotterill was originally founded as a private client firm – and still retains this aspect of its business. Anthony Harper is another firm which has a private client team.

The practice may not always constitute a major part of a firm’s activities, but it is still a welcome balance during a downturn. “Having a private client base helped insulate us from the GFC,” says Fredric. “People still need wills or trusts, they still have to buy houses and family disputes still happen.”

Good from afar

The challenges of a national firm entering the South Island market are well documented, such as alleged parochialism in some centres and different expectations as to price, which stem from salaries often being offered at lower levels than in Auckland and Wellington.

Some national firms such as Bell Gully and Russell McVeagh have not found it necessary to open offices in the South. “We haven’t needed to have an office there to date,” says Partridge. “But if there was client demand for it, we certainly wouldn’t rule out opening an office.”

Among the national firms which do have a South Island office, there is a divergence of strategy as to the appropriate range of services to offer. Buddle Findlay sees its Christchurch office as an essential part of its national partnership and has a full service offering in the South Island. “It doesn’t make sense to be too narrow and it would also affect your ability to respond to and anticipate client needs,” says partner John Buchan. “The work we do in Christchurch is not necessarily different from the work we do in our other offices – we serve a very wide spread of clients.”

Simpson Grierson is another national firm to have a Christchurch office, but the aim is not to provide a full service offering. Rather, the firm’s strategy is to target high-level work which may not be catered for in the local market. Chairman Kevin Jaffe says that Simpson Grierson made a conscious decision to keep a low profile in Christchurch and not take on local firms. “It’s not sensible to compete with firms that have been here for generations. People prefer to support their local community and to use local lawyers,” says Jaffe.

“We’re not here to take away work from local providers or to promote ourselves as the new boys in town – we have a client-driven strategy where we will offer capabilities and experience that perhaps might not be common in that market.”

Chapman Tripp has one of the largest South Island offices of any national firm, and the range of work undertaken is similar to that of its other offices, with core practices such as property, resource management, restructuring and insolvency. But do national firms need a presence in Christchurch at all? There is an argument that with digital communications technology and the fact that typical clients operate nationally or globally, a strong Wellington presence would suffice.

The opportunity to be exposed to North Island ‘best-practice’ is also thought to be an advantage for South Island clients – who may well have a North Island focus themselves. “So many of our clients on the South Island are doing business elsewhere in New Zealand – for example, Christchurch has a lot of technology companies which tend to deal with the government or larger corporates in Auckland,” says Kensington Swan partner Quentin Lowcay. “We have a very large Wellington office and a good sounding base for South Island work, and not having an actual South Island office hasn’t been a limiting factor.”

It is a point which is also borne out by the fact that a lot of the business undertaken by national firms for southern clients does not necessarily have a geographical nexus with the location. South Canterbury Finance’s NZDX-listed bond offering and Pyne Gould’s capital raising are two examples of work undertaken by Bell Gully for southern clients – with an eye on the national investment community and beyond.

But not surprisingly, firms which do have a South Island office disagree that it is possible to service clients from a northern base. “Having a presence is important, both for perception and reality,’ says Buddle Findlay’s Buchan. “It’s a relationship-based industry – there’s nothing like sitting across the table from someone.”

Economic recovery

While indicators have been flat, there are many who believe that this circumstance needs to be interpreted within the context of what is alleged to be South Island conservatism. The result is that while the south did not reach the same dizzying heights as did Auckland during the boom years, it also did not reach the same depths during the GFC.

Evidence on this point, however, is ambiguous. National firms have not reported any significant variations in workflow derived from South Island activity during the GFC, but this may be a reflection of the particular mix of work undertaken. “We rode out the GFC as well as we could have hoped,” says John Buchan. “I would say that the patterns are consistent across the firm.”

Duncan Cotterill has had good growth in its Nelson office but Christchurch has been fairly flat. Yet Fredric says this is not as much a reflection of the market as the particular circumstances of the firm, where one partner had retired and another had moved to another position.

Nonetheless, the CEO agrees with the proposition that the financial crisis hasn’t wrought the expected havoc upon the firm. “We are tracking fairly well. We were waiting for the train wreck to arrive, but it never came,” she says. Fredric says the litigation and environmental law practices are particularly busy in the Christchurch and Nelson offices. “Aquaculture is particularly big in Nelson. More broadly, work under the Resource Management Act is driving a lot of activity.”

The recent change in the government has also brought legislative changes in the resource management area, designed to simplify the scheme and eventually reduce the number of disputes. Phase Two of the reforms – which aim to provide greater central government direction on resource management, improve the economic efficiency of implementation and eliminate the duplication of processes under the Act – is currently in process.

The aquaculture, water and infrastructure provisions will come under particular scrutiny. “Electricity generation and securing New Zealand’s long-term electricity needs – particularly using sustainable energy sources such as wind and water – is a major area,” says Partridge. And Bell Gully has been active in the wind energy sector, most recently advising Meridian Energy on the complex project consent process required for establishing wind farms.

Water fight

The battle over water rights under the Resource Management Act remains a source of much claim and counter-claim in the drier regions of the South Island. Canterbury, in particular, has been the source of some hard-fought disputes over water allocations.

At stake is the right to maximise the profitability of land use and the increased value and productivity of irrigated land. While in the past farmers have been content to use the land for sheep farming, there has been a collective recognition of the benefits of switching to more lucrative land use, such as dairy farming and vineyards, which require more water.

Buddle Findlay partner in the Christchurch litigation team Rachel Dunningham says that the situation has reached a crisis point for several reasons. “Much of the available water has been allocated, or is nearly fully allocated, in which case there is a “gold rush” situation where people are anxious to secure an allocation before the supply ends,” she says. “Secondly, the Canterbury Regional Council has made the decision that there has been an over-allocation of water in some areas and is looking to cut back, which raises another set of issues.”

Dunningham is also advising the Central Plains Water Trust on a controversial plan to take the remaining water allocation from the Waimakariri and Rakaia rivers for use in irrigation. She says there are a number of key issues which need resolution by the courts, including the establishment of priority between competing applicants for water rights and how priority is determined.

Clearly this is as much a political issue as a legal one. Projects to establish water storage for irrigation, including the Central Plains Water project and, more recently, a proposal to dam a branch of the Hurunui River in North Canterbury have met with strong opposition from affected landowners and conservationists.

“It is hoped that the recently released draft “Canterbury Water Management Strategy”, which is the culmination of several years of consultation between the local authorities and key stakeholders, will provide a blueprint for facilitating storage options and further irrigation development, in a way which has buy-in from recreation and conservation interest groups,” Buddle Findlay’s litigation partner says.