Domestic post-earthquake reconstruction work and strong trade ties in Asia are putting New Zealand’s lawyers on a good footing to ride out the economic malaise
Unlike all the excitement and the tremendous changes happening across the Tasman Sea, New Zealand’s law firms are going about their businesses calmly and steadily. Although the influx of international firms into the country’s larger neighbour Australia is being watched with great interest, the possibility of the same trend occurring in New Zealand, according to local lawyers, is quite low.
“We’ve witnessed what’s happened in Australia. What happens in New Zealand will be dependent on how everything pans out in Australia and whether growth remains as strong in Asia as predicted,” says Andrew Poole, Auckland-based managing partner at Chapman Tripp. “There’s a less obvious drawcard for international firms to make the move to New Zealand right now. But it’s impossible to say.”
Mark Weenink, the Auckland-based managing partner at Minter Ellison Rudd Watts, shares the same view. “The smaller scale of the New Zealand market means there’s a volume issue, making it harder to drive satisfactory partner fees for global firms, and it makes the market a less attractive proposition,” he explains. “It’s unlikely that the same level of internationalisation will occur here.”
Currently there are six firms in New Zealand with more than 200 lawyers and partners: Bell Gully, Buddle Findlay, Chapman Tripp, Minter Ellison Rudd Watts, Russell McVeagh and Simpson Grierson. The largest firms by lawyer numbers are also among the top-earning firms. According to a New Zealand legal industry report by Thomson Reuters in 2009, five of these firms earned more than NZ$100m (£52.14m) each in 2008.
Ups and downs down under
While the New Zealand economy has displayed resilience and escaped the extent of the downturn experienced by other economies around the world, the legal services market remains deflated, with limited signs of rejuvenation. Many law firms have reported quieter corporate activity due to subdued commercial activity in general.
“The legal market’s been quite slow in the corporate area over the past six months or so and hasn’t quite reached the levels of activity predicted by some after a reasonably strong 2011,” Weenink relates.
However, in several anticyclical areas of practice – notably insolvency, restructuring and litigation – demand has generally been strong.
One of the largest transactions in New Zealand last year was the NZ$4bn demerger of Telecom New Zealand, at the time the nation’s largest listed company by market capitalisation. The restructuring separated the company’s network division Chorus from its retail services division, resulting in two independently listed entities.
Chapman Tripp and Russell McVeagh both advised the telco on different aspects of the complex demerger.
“There’s a considerable amount of caution due to the long-running recession and more recent eurozone crisis,” says Russell McVeagh CEO Gary McDiarmid. “But there are some glimmers of light, with some recent transactions indicating movement, and an appetite for movement, in the market.
“The growth of government-led infrastructure development has been a key story, including ultra-fast broadband throughout the country, and there’s been a growth of public-private partnerships.”
There is also a noticeable increase in regulatory activity, investigations and disaster-related insurance and construction work. Opportunities for law firms centre in the main around the rebuild of Christchurch, which was affected severely by the devastating earthquakes. Several firms, including Chapman Tripp and Minter Ellison Rudd Watts, have seen a lot of insurance-related work off the back of probably the worst natural disaster the country has ever suffered.
It has been estimated that the total cost to insurers for the post-earthquakes Canterbury rebuild will exceed NZ$20bn, which will send a jolt of adrenalin through the economy, particularly for the construction industry.
“Construction and project activity is set to increase significantly in the medium term as the rebuilding of Christchurch commences and the historic underinvestment in infrastructure is addressed. More work will also arise out of the government’s phase 2 of the resource management reforms,” says Poole. “We’re ready for this.”
Chapman Tripp has strengthened its construction team recently with the appointment of new partner Brian Clayton, who previously ran Shearman & Sterling’s Abu Dhabi construction practice.
The oil and gas and minerals sectors are other potential growth areas highlighted by firms, due mainly to the government’s new policy and resource management reforms aimed at encouraging the development of New Zealand’s substantial oil, gas and mineral resource potential.
While Australian firms are positioning themselves to benefit from Asia’s growth, New Zealand firms are also looking north for new opportunities.
“Asia’s definitely a market that’s firmly on people’s radars here. We’ve seen an increase in New Zealand firms’ attention to the Asian market,” says Weenink. “Their focus on developing closer working relationships with the players in the various markets has been seen to be ramped up. An increase in the level of activity in providing legal services to Asia-based organisations here has also been experienced.”
Minter Ellison Rudd Watts’ membership in the Minter Ellison Legal Group provides it access to some of the key markets in Asia, including China, Hong Kong and Mongolia. As a result the firm has been involved on a number of significant New Zealand investments involving Asian investors over the past two years. For example, the firm has advised New Zealand milk processor Synlait on a NZ$82m M&A transaction, through which China’s leading dairy company Bright Dairy & Food acquired 51 per cent of Synlait.
Chapman Tripp, which has a China desk, is also seeing its partners travel more frequently to the region.
“We certainly see opportunity in China and the wider Asian region,” attests Poole. “New Zealand’s increasing trade ties with China will lead to further growth of Chinese investment in New Zealand and expand export opportunities.”
New Zealand and China signed the Free Trade Agreement in April 2008, which became effective on 1 October that year. It is the first such agreement that China has signed with any developed country. Since then bilateral trade and investment between the two countries has grown significantly year-on-year.
A recent highlight of the firm’s work in this area is representing Shanghai Pengxin Group on its overseas investment office (OIO) application to purchase a multi-property North Island farm group known as the Crafar Farms for NZ$210m. Despite community controversy, the application has been approved twice by the OIO, although that approval is subject to further review.
“We regard the Crafar case as an important litmus test for New Zealand,” stresses Poole, emphasising the importance of the final outcome of this case. “There’s a real prospect of significantly more Chinese investment in New Zealand – this decision will show whether we’re open for business or not.”
GDP (2011): NZ$204.5bn
GDP growth (2011): 5.1%
CPI inflation (2011): 1.8%
Population (March 2012): 4.4m
Unemployment rate (March 2012): 6.3%
Total number of lawyers (April 2011): 11,600
Total number of law firms (April 2011): 1,883
Sources: Statistics New Zealand and Reserve Bank of New Zealand
New Zealand’s stereotypical lawyer
Going by the numbers, the ‘typical’ New Zealand lawyer is male, has been in practice for less than nine years, lives in Auckland, is not a partner, is a solicitor in an unincorporated firm with between one and three partners and works in company commercial and/or property law. If the number of women in the legal profession continues to grow at the same rate, the country’s typical lawyer will change gender in 2018.
Source: New Zealand Law Society
Top 10 exports (year-end 29 February 2012)
Milk powder, butter and cheese
Meat and edible offal
Logs, wood and wood articles
Mechanical machinery and equipment
Fish, crustaceans and molluscs
Aluminium and aluminium articles
Electrical machinery and equipment
Sources: Statistics New Zealand and Reserve Bank of New Zealand