After a brief hiatus, Perth is ready to resume its role as a national and regional powerhouse – and one of the world’s biggest law firms wants a piece of the action. 

Perth’s time has truly arrived. WA lawyers have been saying it for years and now it seems that some of the industry’s global heavyweights are starting to take notice. Allen & Overy’s decision to establish its second Australian office in Western Australia comes as a vindication of the optimism in the Perth legal profession which, in spite of some dubious economic moments in 2009, has never really been absent.

There is however more than one way to interpret the arrival of A&O in Perth. One interpretation is that WA’s resource-fuelled prosperity and proximity to Asia were simply too good an opportunity to miss. The other, less charitable, view is that the magic circle firm needed some urgent respite from the grim state of the UK economy. Either way, local lawyers are feeling energised, rather than threatened, by the esteemed newcomer and some are even predicting that A&O will bring enhanced business opportunity to the market.

“It’s a positive for Perth – a real endorsement that a name like A&O wants to establish itself here,” says Michael Blakiston of Blakiston & Crabb. “Perth has long been a centre of excellence in minerals – we just needed to promote it. This puts Perth and Australia on the map.”

It may seem odd that firms would welcome a competitor, particularly one as well credentialed as A&O, but the theory is that the presence of A&O will encourage national clients to undertake more of their work in Perth, rather than the east coast. “If one company starts using A&O in Perth, the counterparties may also want to consider using a local firm,” explains Blakiston.

Blakiston says that the shift is already starting to happen. He says that larger organisations such as Sinosteel and BHP are upgrading their corporate presence in Perth and there is a gradual trend towards decentralisation of national mining companies, away from the traditional east coast bias.

Greg Gaunt of Lavan Legal also believes that A&O has given “a tick to the Perth  market”. He says that A&O would not be competing in the same space as Lavan Legal and that the magic circle firm would be more likely to be a threat to national firms. That may well be the case, but as Freehills’ Jason Ricketts points out,  A&O’s contingent of ex-Clayton Utz lawyers are a known quantity. “We know them, we’ve been competing with them for years,” says Ricketts.  “It’s not very different from other Australian [national] firms which have come here -  things may change in the future, but we’re used to competition.”

Michael Lishman of Cochrane Lishman is in agreement: “There isn’t any expansion of the supply [of lawyers] – just more people moving around, and different names on doors.”

Growth

In keeping with the experience of firms across Australia, Perth lawyers found that 2009 was not disaster that they had feared.  “Things were uncertain 12 months ago so we decided on a cautious approach. We didn’t have any layoffs and that proved to be the right decision – things weren’t as bad as predicted. There wasn’t a dramatic downturn,” says Jackson McDonald CEO John McLean.

Revenue patterns were largely flat for FY2009. Cochrane Lishman and Freehills retained revenues at 2008 levels, while Jackson McDonald and Blackiston Crabb recorded slight growth. A high flyer was Lavan Legal, which has consistently recorded between 12 to 15% growth over the past few years and managed to continue that trend in FY2009. A strong litigation practice helped, but managing partner Greg Gaunt said that the firm’s corporate advisory and energy and resources practices were also busy.

The 2010 financial year has been more benevolent for firms and there is a sense of optimism in the air: “When you talk to business people, there’s a sense of confidence in their outlook -  people are starting to blow the dust off projects,” says John McLean. “The banks also seem to be more confident about their ability to do deals – that said, time will tell whether talk translates into action.”

Largest law firms in WA  – by lawyer headcount
Freehills	158
Minter Ellison	101
Clayton Utz	95
Jackson McDonald	92
Blake Dawson	84
Lavan Legal	76
Mallesons Stephen Jaques	76
Allens Arthur Robinson	56
Norton Rose Australia	51
DLA Phillips Fox	47
Corrs Chambers Westgarth	45
Talbot Olivier	33
SRB Legal	29
Steinepreis Paganin	26
Allion Legal	24
Jarman McKenna	24
Blakiston & Crabb	23
Downings Legal	22
Hudson Henning & Goodman	21
Middletons	21
Tottle Partners	21
Slater & Gordon Limited	20
Gadens Lawyers	18
Maxim Litigation Consultants	17
McKenzie Moncrieff Lawyers	17
Solomon Brothers	17
Hotchkin Hanly	16
McLeods	16
Dwyer Durack	14
Mony De Kerloy Barristers & Solicitors	14
WHL Legal Pty Ltd	14
Balance Legal	13
Irdi Legal	13
Sparke Helmore	13
Marks and Sands	12
McCallum Donovan Sweeney	12
Paterson and Dowding	12
Price Sierakowski	12
Williams & Hughes	12
Butcher Paull & Calder	11
Friedman Lurie Singh & D'Angelo	11
Gibson & Gibson	11
Landgate	11
Murcia Pestell Hillard	11
Norton & Smailes	11
Bowen Buchbinder Vilensky	10
Cochrane Lishman Carson Luscombe	10
Frichot & Frichot	10
Haynes Robinson	10
McDonald Pynt Lawyers	10
Robertson Hayles Lawyers Pty Ltd	10
Taylor Smart	10
Young & Young	10
Source: Raw data supplied by WA Law Society and collated by ALB

Recruitment

Perhaps the best guage of optimism is the number of firms which have increased their headcount or are in the market for new recruits. Jackson McDonald, for example, increased its headcount by about 5% last year in areas such as commercial litigation, construction, infrastructure, workplace relations and energy and resources.

Other firms which have been quiet in the recruitment stakes are beginning to stir once again. Johnson Winter & Slattery’s Perth office at present has five partners and just three lawyers, which suggests that the firm has some serious recruiting to do. However, JWS traditionally prefers a 1:1 ratio and while the firm is in the market for two more lawyers, the search has not resulted in any offers just yet.  “We’ve interviewed, but we’re really picky – we want the best. That said, we probably haven’t looked hard enough – we should really get our skates on and try a bit  harder,” says partner Michael Dulaney. He believes the JWS ratio is an important part of the firm’s offering: “Clients love it – they get more partner time and when they get a bill, there’s only two names on it – not a laundry list of people they’ve never heard of.”

The Perth employment market for lawyers has, of course, been a perennial source of vexation for firms. While some easing of the market would have been expected given the economic conditions, it is by no means clear that this has occurred.

“We are still finding it difficult. We thought we would see more hands up from the east coast,” says John McLean. “We were also hearing of carnage in London and thought [returning lawyers] would consider a few years in WA, but we haven’t seen any deluge – that puzzles me. Perth’s still a bit isolated and there is a view that it’s an expensive place to live – maybe that’s a deterrent. We’re still looking for six to seven lawyers but the phones haven’t been running off the hook.”

Greg Gaunt is another to describe the market as “tight”, although he says this depends on what particular skills are being recruited. But Michael Lishman has a completely different perspective: “It’s been a great market for us. I receive about one good CV unsolicited a week. These are mostly lawyers around the SA level who feel trapped in a large firm or lawyers coming home from overseas,” he says. 

An interesting trend is that nearly all the local firms interviewed by ALB said that they had recruited lawyers from national firms. Allion Legal, for example, recently recruited six lawyers from national firms. Principal Phil Lucas thinks that top tier burnout may be a factor in the trend: “Traditionally it’s harder to get people to come to a smaller firm – the younger lawyers have accepted the line that they must go to a big firm to get quality work,” he says. “The  big firms espouse what a great lifestyle they can offer, but the reality is different. We can match expectations [as to work quality], but at the end of the day all our lawyers go home at six or 6.30. That’s a big competitive advantage over the nationals.” Lucas says that to maintain this advantage, smaller firms need to resist the temptation to gravitate to smaller end work, which is easier to win but less attractive to top lawyers.

Dissent within the Perth offices of top tier firms has been suggested as another explanation for lawyers leaving and there are stories of national firms servicing major WA work with east coast partners either because the expertise is too thin on the ground in Perth or because Sydney and Melbourne partners with not enough work to do are elbowing their west coast counterparts aside. However, the majority of local firm managing partners who had recruited top tier lawyers were of the view that these lawyers had moved for unique personal reasons and said that there was no evidence of any widespread disenchantment within the Perth offices of national firms.

Largest legal teams in WA – by lawyer headcount
Legal Aid of Western Australia	146
Office of the Director of Public Prosecutions (State)	116
Office of the State Solicitor	112
Aboriginal Legal Service of Western Australia (Inc)	38
Australian Securities & Investments Commission	38
Office of the Director of Public Prosecutions (Cth)	27
Department of Commerce	25
Woodside Energy	23
Office of the Australian Government Solicitor	21
Wesfarmers	20
Yamatji Marlpa Aboriginal Corporation	19
Department of Health WA	17
Rio Tinto	16
Parliamentary Counsel's Office	15
Department for Child Protection	14
Department for Planning & Infrastructure	13
Australian Taxation Office	11
Landgate	11
Public Trustee	11
University of Western Australia	11
Department for Communities	10
Kimberley Land Council	10
WorkCover WA	10
Source: Raw data supplied by WA Law Society and collated by ALB

Market trends

A pair of familiar brands disappeared from the market last year when Michael Whyte & Co and Pullinger Readhead Lucas merged in July to form Allion Legal. Echoing the sentiments of many east coast firms which have gone down the merger route, Allion Legal principal Phil Lucas says that the merger was intended to give the firm the size and depth to pursue higher level work while providing a pricing advantage. Lucas estimates that an Allion Legal principal would typically bill at about 70% of the rate applicable at a national firm. He said that the firm was moving away from smaller end IPO work as this work was less challenging for sophisticated lawyers and promoted a “sausage factory” mentality. The Allion legal merger comes six months after Middletons’ entry into the Perth market via a three way merger with Salter Power and Franklyn Legal – although three of the Franklyn Legal lawyers, Robert Franklyn, Christian Owen and Russell Philip have since moved on to Corrs. 

“People in Sydney and Melbourne are seeing things going on in WA – there’s less prospect for growth on the eastern seaboard so they’re starting to look to Perth – think Middletons, JWS,” observes Michael Lishman. Still, he sees the possibility of commercial conflicts as a significant potential obstacle to top tier expansion in Perth.

One of the more interesting additions to the Perth market of late has been secondment-only firm Balance Legal, which has grown from 3 to 20 lawyers over the past 18 months. The firm has been so successful that it has brought forward plans to open a second office in Melbourne and is also eyeing the Brisbane and Sydney markets. It is possible that the Balance Legal model is of particular value to the contractor-driven mining industry, where secondment is particularly prevalent. Junior mining firms which are too small to hire full time counsel are also likely to be particularly attracted to the secondment model.

Resources and mining

According to Jason Ricketts, the WA legal services market has three key strengths: resources, resources and resources. Oil and gas projects in particular have been a mainstay: despite the downturn, companies such as Woodside forged on ahead with ambitious projects such as the A$12bn Pluto LNG project and the Browse LNG development, estimated to be worth in the realm of A$30bn.

While the resources sector did slow somewhat in 2009, John McLean describes this as more of a “pause than a screeching halt”. Last September’s announcement of the A$43bn Gorgon natural gas joint venture between Chevron Australia, ExxonMobil and Shell was seen by many firms and businesses alike as the turning point which saw confidence return to the market.

“There are a lot of bigger projects, but it is still a challenging market for the small to medium size companies - but confidence is gradually starting to return,” observes Michael Lishman. 

Some lawyers have expressed doubt over the capacity of junior miners to raise funds. While there was a flurry of IPOs late last year in the sub A$20m category, the IPO environment has since deteriorated. Firms are expecting less equity capital markets activity and more M&A, with the iron ore sector in particular tipped for consolidation.

There are divergent views on how junior and mid-size miners are faring.Michael Blakiston of Blackiston & Crabb, which has a strong client base in the SME space, says that he is very confident about the ability of junior miners to get access to funding, provided they can demonstrate a strong business proposition. He says that while conditions are still a little tight, they are an improvement on last year. Blakiston & Crabb has already completed two IPOs this year and while Blackiston concedes that conditions are still unpredictable, he says that there is no reason why an appropriately timed IPO cannot be successful. 

Johnson Winter & Slattery is another firm to have several capital raisings in the pipeline, which include an A$35m two part raising by Arafura Resources.“The market is much more buoyant – exploration is happening and people are looking at doing things,” says Michael Dulaney.

Property

Figures from the Property Council of Australia’s Office Market Report indicate that
Perth CBD vacancies increased slightly from 8% in July 2009 to 8.2% in the six months to January 2010. However, this was the result of an increase in supply and the Council said that positive demand had returned to the Perth CBD and West Perth office markets for the first time since July 2008. Several ambitious new projects have been mooted, including the Northbridge Link which involves sinking and building over a railway, and a redevelopment of the Swan river foreshore.

All this has meant that property practices are looking beyond the usual back end-heavy workflow. “Property work has been busy at both the front end and back end,” says Jackson McDonald  CEO John McLean. “There are a number of new office blocks moving from the drawing board into the construction phase and vacant space being picked up for future development. Funding is available if you have the right project and there’s some certainty around future income streams. However, it’s more difficult to get funding for apartment blocks – we haven’t seen many brand new apartment blocks.”

Freehills’ Jason Ricketts says that work at this stage is more likely to relate to leasing and secondary sales. However, he foreshadows a new wave of work as new projects get underway – provided funding is forthcoming. “In the medium term, I am confident that they will happen – but there’s an element of ‘wait and see’ in terms of whether the funding is available,” he notes.

Allion Legal’s Phil Lucas says that national firms appear to have retreated somewhat from property work, creating opportunities for smaller firms to take their place. While the market has been challenging, he notes that urban renewal project such as those underway at Subiaco, Armadale and East Perth are generating work, particularly for those firms advising government instrumentalities.