After a lean 2009, Brisbane firms are sensing that the tide has turned. ALB talks to the key players.

Prime Minister Kevin Rudd has always been an exponent of immigration and a “big Australia” and now, as Brisbane’s urban sprawl advances inexorably along the eastern seaboard, Queenslanders have an exclusive preview of Rudd’s expansionist vision for Australia. In recent years, housing developments have broken out like a rash along hitherto undeveloped land in the south east, accommodating a rise in international and interstate immigration.  The result is that, in a period of economic conservatism, Queensland has continued to lead the way in infrastructure development. The A$1.7bn Gold Coast Rapid Transit, the A$1.6bn Sunshine Coast University Hospital and A$1.7bn Northern Link Tunnel linking Toowong to Bowen Hills in Brisbane are just some of many projects either mooted or already underway to service Queensland’s burgeoning population.

Mind you, Queensland could do with the boost - financial year 2009 was the weakest year for the Queensland economy since 1991. In line with the comparative resilience of the Australian economy during the economic downturn, the Queensland economy did manage to record a modest 1% growth. While household consumption slumped, business investment actually increased 10%, largely as a result of momentum from projects already under construction. Public investment was also an important stimulant.

Queensland law firms saw the warning signs in late 2008 and braced themselves accordingly. But while 2009 was in many respects a lean patch, it was not the disaster many had predicted. “It’s mostly business as usual – the whole firm stayed busy,” says Thynne & Macartney partner John Moore. “We battened down the hatches, but we haven’t had to survive any storm.”

HopgoodGanim, which achieved 34% revenue growth in 2008, managed to retain revenues slightly above 2008 levels last year. It’s a result which has pleased managing partner Bruce Humphrys: “We made the decision to protect jobs for the greater good. We worked to hold onto staff and also to be flexible on the debtor side of things, where clients were under pressure. To keep revenues at 2008 levels in those circumstances is a good result.”

McCullough Robertson’s revenues were down on 2008, but chairman of partners Brett Heading is a relieved man.  He describes himself as having been “scarred” by his experience of previous recessions and describes 2009 in comparison as a “picnic”. “We were becoming pretty worried in March, April, May, June [2009] but then the lights came back on in July,” he says. Mind you, he’s not necessarily discounting the possibility of a “W” recession, frankly professing that economic prognostications are not his area.

Some firms recorded revenue growth in 2009. Cooper Grace Ward grew by 5%, while Carter Newell is understood to have recorded “near double digit” growth – likely to be at least in part a reflection of the strengths these firms have in counter-cyclical areas such as insurance.

Despite the lukewarm performance of the Queensland economy, there has been some suggestion that the state has been a beacon of light for beleaguered national firms during the downturn. This theory is certainly borne out by revenue figures from Freehills. Despite a decline in national revenues in 2009, the firm’s Brisbane office actually grew by 13%. Partner Michael Back says that large scale infrastructure projects, plans by the state government to privatise public assets and activity in the resources sector have all generated work for the firm.

Clayton Utz was one of the few top tier firms to record national revenue growth in 2009 (about 4%). The firm’s Brisbane office grew its revenues approximately in line with this national figure.

 Brisbane firms – lawyer and partner numbers

Name	Number of lawyers	Number of partners
Carter Newell	49	11
Cooper Grace Ward	95	22
Herbert Geer	25	9
HopgoodGanim	62	24
McCullough Robertson	135	42
Mills Oakley	13	3
Thynne & Macartney	34	13

* This list covers firms interviewed for this feature and does not purport to be exhaustive. Figures were provided by the firms themselves.

Rent and salary

On the lighter side, the GFC brought firms some relief from the pressures of leasing and fitting out premises. Cooper Grace Ward is one firm to have benefited, having relocated from Eagle St to larger new premises in George St in Brisbane’s North Quarter precinct in October. Managing partner Chris Ward says he was pleasantly surprised at the cost.

“Rental prices in Brisbane were astronomical in 2007, but common sense has returned to the market,” says Ward. “We wanted a new space and we were able to get a really good deal. We took three floors with an integrated fit-out and the quotes for the work were very sensible. We would have been massacred if we’d done the same thing three years ago.”

Having made the move from Eagle St to Adelaide St several years ago to control costs, Carter Newell is another firm which has sensed the opportunity to canvass its options, although at the time of writing no decision had been made about whether the firm will expand its current premises or move to a new address altogether. “Right now, vacancy rates are reported to be around 12 to 15% - and they were around 2% at one point,” says CEO Peter Ellender “We’ve now got options, whereas 18 months ago we would have been scrambling – it’s certainly been an improvement.”

Other firms are already committed to leases. HopgoodGanim entered its current lease in 2003, but Bruce Humphrys says that he is satisfied with the firm’s current arrangement, particularly as the terms were agreed before the height of the boom.

Salary pressures have also diminished for the moment. Karen Waldock of recruitment firm Hughes-Castell reports that despite increased confidence in the past six months, there has been little movement in salary.  “However, it is important to note that not all firms froze salaries in 2009,” says Waldock.  She says that after a tough year, lawyers may begin to review their options for 2010: “With lawyers now drawing breath, they are now questioning whether all firms froze salaries and made redundancies and that just maybe, they may be best suited elsewhere.”

Insolvency and optimism

Solid revenue results for firms such as Carter Newell suggest that the counter-cycle is having its predictable impact on firm workflows. But while counter-cyclical practices have inevitably picked up, some lawyers have noted that this has not occurred to the extent as might have been expected. “There has been an increase in insolvency work - not an alarming increase, but certainly there has been an increase, but it hasn’t been absolutely hectic as it was in the late 80s and early 90s,”says Mills Oakley partner Stephen Dickens

And Dickens is optimistic about the new year – he’s already in recruitment mode.  “We have plans to expand our Brisbane offering. We’re looking for good candidates in the property commercial space and the workplace health and safety area, in the expectation that things will improve further.” he says.

Property and construction

Like their counterparts nationwide, Brisbane lawyers have seen the familiar pattern of disputes work overtaking front end work in the construction space, but some lawyers have also observed a recovery in front end work in the final months of 2009. However, it is mainly the large developers who are benefiting and it remains to be seen whether the fortunes of smaller developers will be similarly revived.  

“The big companies are still busy – you only have to drive around town to see all the Leighton signs round the place,” says John Moore. A good pipeline of work and a solid clout with the banks has put the big developers in a relative position of strength,  but the smaller companies have not fared so well. A recent example of this is the Brisbane-based civil engineering and construction company Civdec, which entered voluntary administration in November.

“I’ve seen a good number of property developers collapse, mainly at the lower end of the sub-stratum,” says Stephen Dickens. “The smaller companies have struggled because the banks perhaps haven’t been so willing to provide working capital.” John Moore agrees and says that that while projects under $20m commonly receive the green light, there is less enthusiasm for projects over this level.

Amid the cautious optimism, this lack of liquidity is causing concern. “I’ve got clients that are pulling their hair out because they can’t get funding,” says Bruce Humphrys. “The construction sector is a big employer of people – the smaller companies aren’t that small – and it concerns me that we have continual stories of people not being able to find capital.”

Meanwhile, back end work continues. Lawyers report a steady stream of claims under the Building and Construction Industry Payments Act. Paul Hopkins says that he has also observed a resurgence in the issuing of subcontractors’ charges under the Subcontractors’ Charges Act.

Infrastructure

Queensland’s ambitious infrastructure programme is showing no signs of slowing. While tunnel and road projects have received a good deal of publicity, there is a full range of projects from dams to hospitals to pipelines underway.

“The state government has not rolled back its infrastructure delivery programme  - they’ve made a commitment to keep infrastructure programme intact and go into deficit – that’s driving a lot of planning and delivery,” says Hebert Geer partner Ian Wright. “Most local councils brought forward large capital works programmes – particularly in water and sewerage to start trying to plan for growth. There’s a lot of civil contracting work going on.”

Some of these projects have been accompanies by uncertainty -  the federal government’s veto of the Traveston Dam project is one high profile example – but for law firms, the workflow can start well before the first sod is turned or even before the financing is put into place. Herbert Geer is one firm which has long understood that there is more to infrastructure than construction alone, and has put some energy into developing its planning and government capabilities, recruiting partner Ian Wright from Corrs last February.

“We’re doing an enormous amount of work for government in terms of planning of new towns, cities and infrastructure networks – before you even start thinking of building, you have to plan for it,” says Wright. “That work started years ago – it won’t stop today and it will continue forever. It’s important work which needs to be done – you never stop planning.”

It’s been a key part of the 2009 story for Herbert Geer – the practice has been so successful that the firm added two extra lawyers. Wright says that while infrastructure work has eased a little, this was off an “enormous” base.

Mining and resources

Coal seam gas continues to be the resource du jour in Queensland, but firms agree that activity across the whole resources sector picked up in the latter half of 2009, with exploration activity and capital raisings to fund opportunistic M&A taking place.

“The resources area was the strongest area for us [in 2009] but other than the coal seam gas, it had gone fairly quiet,” says Brett Heading.  “Now, it is reviving itself and companies that weren’t exploring are now exploring and companies that put development projects on hold are now starting to do that work again. We’ve got lawyers travelling around NSW and QLD and we’ve seen a lot of mine infrastructure work.”

 Heading nominates indigenous land access agreements as a particularly busy area, but says that the entire mining project cycle – from exploration, to approvals, to construction and sales and transport – is generating more work.

There is a shift in trends on the M&A front. While deals such as the BG Group’s acquisition of Queensland Gas and Gloucester Coal’s flirtation with Whitehaven and Noble Group have been dominant in the headlines, a good deal of activity of late has centred on companies in the small and mid cap space.

“A lot of smaller mining companies sprang up during the boom – mainly in Western Australia, but also in Queensland – some of them were [going into mergers] because there were synergies, some of them are cashed up, some are struggling to raise capital, and it’s a bit of the old story of the lion eating the antelope,” says Heading. And as always, there is the challenge of securing funding for the deal – and it’s not an easy task for everyone. “A lot of good deals went begging,” comments HopgoodGanim partner Michele Muscillo.

Paul Hopkins also notes that there is also a trend towards some mid-sized players looking to overseas parties, particularly from China, as investment partners to develop their tenement.

Taking on the top tier

Stories of mid-size firm taking market share at the expense of the top tier are not unique to Queensland, but according to Bruce Humphrys, Queensland firms are particularly well positioned to take up the challenge.

“Some of the local firms are probably a lot larger than some top tier firms in Brisbane,” he says. “Nationally, they’ve got the scale, but in this patch we’re quite large and there’s a greater opportunity for clients to consider their options.” Humphrys points to Bow Energy’s A$77m capital raising and Norton Gold Fields’ A$40.5m share placement as recent examples of top clients giving HopgoodGanim a greater share of work. However, Humphrys says that the trend should not be simplified into a GFC-induced pricing issue.

“The work has only shifted to the extent that we can demonstrate that we’re able to do it,” he says. “Clients aren’t racing out to give the mid-tier more work for the sake of it – you have to show you’ve got the wares to do the work.”

Carter Newell CEO Peter Ellender agrees that pricing is not a factor. In his view larger clients are largely using national firms for the scale offered by these firms. “In other words, quality is no longer a differentiator,” he says.

A spokesperson for Clayton Utz, which has 36 partners in Brisbane, said that the suggestion that local firms had more scale in Brisbane was “gilding the lily” somewhat. McCullough Robertson was cited as a possible exception.

And national firms are still winning important work. Allens, Clayton Utz, Freehills and Minter Ellison have all been successful in bids to advise the state government on the proposed sale of assets, with previous experience in similar work in NSW and Victoria likely to have been a competitive advantage. It’s an outcome which has disappointed local firms like McCullough Robertson, which also bid for the work. “That’s how it goes,” says Brett Heading. “That’s life – no doubt the experience in the divestments down south might have been useful to them. But we have a lot of ASX200 and international clients who aren’t concerned that we’re not a national firm.”

Freehills partner Michael Back says that it is difficult to assess whether the top tier is losing ground to local firms. However, he points to his firm’s own strong revenue growth (13%) and recent success in the tender for the proposed sale of Forestry Plantations Queensland as examples which would suggest otherwise. “In top end work, you tend to come across [national firms] more than the others,” he observes.