Law firms will tell you they are ‘cautiously optimistic’ about the market in 2014, despite acceptance that Australia’s mining boom has peaked. But what is the mood really like in three key battlegrounds? Leanne Mezrani reports.

The mining construction boom is over – a statement that would be more climactic if the market wasn’t already expecting it.

Deloitte Access Economics recently published its quarterly Business Outlook on the state of the Australian economy. It points to a slowdown in resource-related investment spending in 2014, with definite projects in the final months of 2013 posting the biggest drop since the depths of the GFC.

The value of planned projects fell by a considerable $31.4 billion or 6.2 per cent down from December 2012.

The report also describes a “baton change” from the construction phase of the mining boom, to the production and export phase – a transition that will jolt the energy & resources sector.

“That’s a bit like having Usain Bolt lead out your relay team, passing off to Homer Simpson for the second leg,” the report’s authors write.

David Perks, a Perth-based energy & resources partner at Gadens, admits that he can see that the transition is well and truly underway. He adds, however, that it won’t be as dramatic as some forecasters have painted it. “Mega projects that are currently under construction will continue to consume construction resources for a few years yet,” he says.

Until then, lawyers will be kept busy by construction litigation, which Perks says will pick up in 2014 as projects near completion.

Another bright spot that is generating a reasonable amount of legal work is the oil & gas industry. Perks describes the sector’s legal prospects as “promising”, having observed continued investment in onshore and offshore exploration and development.

“The big supermajors are still interested in Australia and are still investing in Australia,” he says, referring to Chevron’s investment in Gorgon, one of the world’s largest liquefied natural gas (LNG) projects, and Woodside’s Pluto LNG project.

Deloitte reveals that large LNG projects continue to dominate the investment program, with the total value of oil & gas projects underway in excess of $200 billion.

East versus west

The Brisbane market was buoyed by large-scale projects, including Gladstone LNG, which is now 75 per cent complete, as well as coal seam developments in the Bowen Basin.

The outlook is not as positive in Perth, says Perks, where competition for energy & resources work is intensifying.

“On the supply side, there are plenty of firms around ... all the firms in town have scaled up to support the boom so there’s quite a significant legal resource in Perth.

“As the work contracts slightly, given that firms have so much capacity, it will put pressure on winning work because it will be a very competitive legal market.”

Despite an oversupply of lawyers in Perth, Gadens is looking to boost its stocks in the West. Perks says the firm’s energy & resources practice is “underweight” in a market that still offers a number of revenue streams.

He explains that there will be growth in 2014 in what he describes as “less glamorous” energy & resources work. This includes the legal side of: replenishing supply contracts, purchasing additional acreage for development, or financing renegotiations for gas or power supply.

This ongoing work will sustain Perth’s leading energy & resources practices, says Perks, but not the eastern state lawyers who have “masqueraded” as energy & resources lawyers in the boom times.

“Perth has always been an energy & resources town; but a number of [NSW and Victorian] lawyers pretending to be energy & resources will revert to original skill sets.”

The eastern states will, however, have the most to gain from recent economic developments. Deloitte claims that record-low interest rates and the fall in the value of the dollar will help to strengthen the slower parts of Australia’s two-speed economy.

Victoria has been singled out as having suffered the most from the relentless rise of the Australian dollar over the past few years, made apparent by recent job cuts from Holden’s design and engineering operations in Melbourne.

M&A cashes in

For the M&A market, the lower Australian dollar has resulted in a build up of activity over the last few months, says King & Wood Mallesons’ Sydney managing partner and M&A lawyer Tim Bednall. Relatively low interest rates and economic stability in Asia have also set the scene for M&A growth in 2014, he adds.

Like Perks, Bednall anticipates continued work from the resources sector, “though not as much as we had seen”. He is also expecting a growing volume of deals in agribusiness; private equity, with a range of exits of private equity investments; and government, including infrastructure and privatisation transactions.

“It’s a very broad based increase in activity across the M&A market,” he says.

Another source of firm revenue will be equity capital markets (ECM) transactions, which boomed in 2013.

ECM deals in Southeast Asia climbed 54 per cent to $22.5 billion in the first half of 2013, while Europe almost doubled its volume of ECM deals last year.

Perks says the boom will continue into 2014, but at a slower pace.

To meet the needs of increasingly confident M&A clients, KWM will be recruiting lawyers in 2014; however, Bednall would not comment on whether the firm will be seeking out partners or mid-level lawyers.

A recent salary survey by recruiter Robert Walters has found that KWM will not be alone in scouting for M&A talent.

The increase in M&A activity in the second half of last year will drive demand for M&A lawyers in 2014, according to the survey.

IR takes a slice

Industrial relations (IR) lawyers will also benefit from the uplift in M&A activity and other commercial transactions this year, says K&L Gates partner Alice DeBoos.

“While other [practices] pick up, we benefit from the flow-on effects of that increase in work,” she explains, with M&A often producing a considerable amount of work for IR lawyers, such as consultation with employees and their unions, renegotiation of employee entitlements and contractual matters triggered by a change in control or ownership.

While profitable, M&A deals will not be the main source of work for IR practices in 2014, DeBoos continues. Employee claims will represent the bulk of new work, with unfair dismissals, adverse actions and sexual discrimination lawsuits “showing no signs of slowing down”, she adds.

DeBoos also flags the federal government’s Fair Work reforms and the Royal Commission into union governance as profitable but limited sources of legal work for IR lawyers.

The Royal Commission, for example, will involve a select group of employers and, therefore, is relevant to only a handful of firms.

“There is certainly work for firms like ours, but in general the bulk of legal work will be the union’s legal work,” says DeBoos.

She adds that planned changes to Fair Work laws will also direct some work to law firms, but the main recipients will be practices involved in the construction industry.

Most industries will, however, be impacted by the recently-introduced bullying laws, which DeBoos says will see a growing number of employee claims in the second half of 2014. The laws allow a worker who “reasonably believes” they have been bullied in the workplace to apply to the Fair Work Commission and seek orders against the perpetrator and their employer.

The first bullying decision to be released from the Fair Work Commission was issued on 12 February.

It is still early days, she admits, with the bullying laws only coming into effect on 1 January. Even so, she predicts firms will add IR lawyers in coming months, with K&L Gates’ workplace relations group set to hire mid-level to senior lawyers across its national offices in 2014.

Recruiting lawyers seems to be the common thread across all practice groups, driven by their ‘cautious optimism’ that 2014 will bring a steady stream of legal work.  Time will tell whether the slowdown in the resources sector will turn their optimism into pessimism or whether their hopes for growth over the coming 12 months will be realised.