Kiwi lawyers are pinning their hopes on everything from sport to oil to kickstart New Zealand’s economy and bring corporate activity back to the country. Leanne Mezrani reports.

Hosting an international sporting event has a way of not only lifting public spirit, but also reviving a troubled economy. Why else would countries battle to host a hugely expensive Olympic Games that can run into the billions of dollars? The UK government probably thinks the £9.3 billion price tag for London 2012 was a good deal considering the event has been credited with dragging the country’s economy out of a double-dip recession.

Last year, in the lead up to the Rugby World Cup in New Zealand, Kiwi lawyers crossed their fingers for an Olympics-style win. Many hoped the series would not only result in the first All Blacks victory since 1987, but also lead to economic recovery that would extend to the legal market.

They got one of their wishes. 

On 23 October 2011, New Zealand narrowly defeated France to take the Rugby World Cup in Auckland. The win did wonders for the morale of a country that hadn’t yet recovered from the most devastating earthquake in its recent history. But, unlike the Olympics in the UK, it made little difference to the economy, says Andrew Poole, managing partner of Chapman Tripp, New Zealand’s largest firm by partner numbers.

The largest sporting event ever hosted in New Zealand turned out to be an expensive distraction, he explains. “It was a big, long business holiday ... key players [in the legal market] and our key clients were watching rugby and business just stopped.”

Sport, it turned out, could not save New Zealand’s beleaguered economy, which is still in decline, according to the nation’s treasury. Recent figures reveal that economic growth slowed in the second half of the year, with business and consumer confidence also weakening.

The state of the economy has, unsurprisingly, caused the legal market to shrink, says Poole, and the outlook doesn’t look promising for law firms, with insolvency work generated by the GFC already drying up.

“We’re in a lull period where we’re at the backend of the GFC, but we haven’t seen the anticipated pick up in corporate activity,” he adds.

Another frustration for law firms is the growing number of senior counsel who, under pressure to reduce external legal spend, are taking legal work from private practice and bringing it in-house. 

In-house is also claiming quality lawyers, says Poole, who has seen a steady flow of firm lawyers move in-house for reasons that range from competitive salaries to the perception that working for a company offers better work-life balance. The growth of in-house legal teams is highlighted by the Corporate Lawyers Association of New Zealand’s membership numbers, which represent 20 per cent of the profession. This compares to just six per cent of Australian lawyers being members of the Australian Corporate Lawyers Association.

Like Poole, economists are also painting a bleak picture of the New Zealand economy, claiming a recovery will be long and protracted. The New Zealand Institute for Economic Research predicts economic growth will average 2.6 per cent over the next three years, with the rebuilding of the earthquake-stricken Canterbury region singled out as a key driver of corporate activity.

Poole says this forecast is reflected in Chapman Tripp’s construction practice in Christchurch, which he describes as one of the firm’s “bright spots”. The firm’s energy & resources practice is another.

It is probably optimistic for New Zealand to hope for a resources boom of the scale seen in Australia. Even so, Poole sees great potential in this sector for law firms. He explains that the government’s decision to define another five on-shore and three offshore blocks for oil & gas exploration in 2013 is a sign that the sector is set for growth. The sea off the west coast of New Zealand’s Northland region is the latest block to get the go ahead for exploration, a move the government claims could pour billions of dollars a year into the economy.

Existing oil & gas operations in Taranaki, for example, contribute NZ$2 billion to New Zealand’s GDP, according to New Zealand’s Energy & Resources Minister.

Chapman Tripp is advising Bathurst Resources on another project that could also drive growth in the energy & resources sector. The Escarpment Mine Project is a proposed open-cast coalmine planned for the west coast of New Zealand, which Bathurst claims could inject about NZ$1 billion into the New Zealand economy and local communities over six years.

“Energy & resources, along with infrastructure, is undoubtedly where we’re going to see economic activity and growth that should flow to law firms,” says Poole.

No world order

But even if this sector strikes oil, it won’t attract the global firms in the way they’ve flocked to Australia’s resource rich states.

Mark Pistilli, the Sydney managing partner at Clifford Chance, confirms that global firms are unlikely to set up shop in New Zealand, regardless of whether there is a resources boom. “The market is just too small on a global scale,” he explains, adding that the firm is more likely to enlist local players if a sector offers opportunities too attractive to pass up.

The small size of New Zealand’s legal market has also entered discussions over whether the country has too many firms and is, consequently, over-lawyered. Since the GFC, some forecasters have predicted consolidation of what has been described as a saturated market. Five years ago, Poole himself speculated that domestic firms would merge to remain competitive, but there hasn’t been a successful tie-up in New Zealand for years.

In fact, very little has changed in the way of firm structures since the financial crisis, with old brands like Russell McVeagh, Chapman Tripp and Bell Gully still ruling the legal market. But Poole stands behind his prediction that the industry will experience a shake up, pointing to mid-tier firms as likely candidates for domestic tie-ups. 

“The mid tier is doing it tough and, if it’s not consolidation, we may just see a shrinking of that market,” he says.

Middle ground

But Janice Fredric, chief executive of Duncan Cotterill, rejects the suggestion that mid-tier firms are struggling.

Duncan Cotterill is at the top of the mid-tier food chain and is one of the only New Zealand firms with offices in both New Zealand and Australia. Fredric says the firm followed its clients, who were doing increasing amounts of work in Australia.

“We wanted to be able to service them and understand what it was like doing business in Australia ... it was an enterprising way to be aligned with your clients and learn about the market at the same time,” she explains.

Fredric paints a sunnier picture of the mid-tier market, claiming Duncan Cotterill has experienced around 10 per cent growth over the past year. It had nothing to do with the Rugby World Cup, she is quick to point out, but, rather, companies tightening their belts in lean economic times and seeking cheaper alternatives to the top-tier firms. “Clients are increasingly demanding better value,” she adds. 

Like Chapman Tripp, Duncan Cotterill’s litigation practice has been the busiest, resolving disputes that arise when economies go south. The mid tier’s employment team in Christchurch is also enjoying a healthy workflow thanks to rebuild activity.

Fredric believes New Zealand’s economic recovery is imminent, highlighted by the growing numbers of lawyers returning to New Zealand. “The alumni are returning,” she says. 

But many won’t return; those who were recruited by global firms during the downturn and are now settled in cushy positions within those firms. Pistilli admits Clifford Chance has recruited a number of lawyers from New Zealand in recent years; the country seen as a “good pool of talent to draw from”.

Quality lawyers are the New Zealand legal industry’s best selling point, he continues. Pistilli credits a strong education system and the “world view” of widely-travelled New Zealanders for the country’s high-calibre lawyers. Travelling overseas also beefs up lawyers’ little black book of contacts and, Pistilli indicates, some Kiwi lawyers, particularly those in the top tier, have formed enviable relationships with businesses in China and other parts of Asia.

Poole agrees that these lawyers are becoming key players in the Asia market. He also rates New Zealand’s neutrality as a selling point of firms in the country, particularly to China. “We’re not seen as being as US-aligned as Australia,” he says. 

New Zealand’s diplomatic relations with China date back 40 years and it was the first developed country to secure a free trade agreement with the communist country. With so much talk of the Asian century, this decades-long association may pay dividends for Kiwi law firms.

For now, lawyers are putting their money on the energy & resources and infrastructure sectors as the likely drivers of New Zealand’s recovery — not the FIFA U-20 Football World Cup, which will be hosted by the Kiwis in 2015.