Litigation is increasingly encroaching on transactional work as a major driver of Chinese law firm growth, research by The Lawyer has found.
The analysis comes from this year’s edition of the China Elite report, released this week.
Of the 21 firms in the top 30 that provided a revenue breakdown by contentious and non-contentious practices, 12 had more than 70 per cent of their revenue generated by non-contentious practices.
Three firms’ non-contentious practices contributed between 51 and 70 per cent of total annual turnover. They are national firms JT&N and Zhong Lun W&D, plus Hangzhou-based ZhejiangT&C.
The remainder generated half or more of their revenues from dispute resolution. Among them are national firms DeHeng, Kangda, Longan and Beijing DHH, as well as Chengdu’s Tahota and Shenzen’s Guanghe.
In terms of non-contentious practices, banking and finance, capital markets, corporate and M&A, regulatory and antitrust are each of these firms’ largest revenue-generating practices.
Elite firms such as Han Kun, Haiwen & Partners and Llinks are almost only focusing on transactional work, the research shows.
In 2015 this group of firms reported a strong increase in revenue from debt and equity capital markets, public M&A deals, private equity investments and capital markets.
According to the China Securities Regulatory Commission (CSRC), it received 336 applications of major M&A and restructurings by A-share listed companies last year. Of these, 314 were given the green light while 22 were blocked.These large-scale transactions provide a healthy source of income for the corporate teams at China’s biggest firms.
Grandall, Grandway, KWM, Zhong Lun and TianYuan were the top legal advisers in M&A and restructuring transactions of China’s listed companies by deal volume.
The new third board
China’s new third board, an over-the-counter equity board established in 2014 to help start-ups and small companies raise funds, is also commonly mentioned as a growth area for large national firms and leading regional players such as Dentons, DeHeng, Zhong Yin, AllBright, Zhong Lun, Grandall,Yingke and Guangdong Huashang.
In 2015 some 3,594 companies listed their shares on the board, more than double the number in 2014. Together, these companies raised hundreds of billions of yuan in proceedings. In the first half of 2016 the number of newly listed companies on the board reached 2,565.
However, this type of listing is considered a high-volume, commoditised product by some of the country’s top-tier firms.
Litigation in China
While transactional work is a major part of the leading firms’ practice, litigation has emerged as a strong driver for revenue growth in many firms over the past two years. Firms focusing on high-end litigation and arbitration also tend to perform better in revenue per lawyer (RPL) and revenue per partner (RPP) league tables.
Take this year’s top firm by RPL, Tiantong & Partners. The 18-lawyer firm focuses solely on complex and large-ticket domestic litigation cases, and turned over RMB80m last year. On average each of its lawyers generated RMB4.4m, while its partners generated RMB11.4m each on average.
Apart from its highly specialised litigation techniques and skills, the firm’s strong performance comes as a result of the soaring number of litigation cases in 2015.
According to statistics from the Supreme People’s Court, the number of cases handled by all courts in China jumped up by 21 per cent, to 16.7 million from 13.8 million the previous year. It is the biggest increase in the past decade due to a major reform of case filing regulations.
The total value claimed in all of the claims registered in 2015 reached a new record of RMB4trn, representing a 54.5 per cent hike on the RMB2.9trn claimed in 2014 – the steepest increase in recent decades.
Another litigation-focused firm, King & Capital, also enjoyed a stellar performance last year. It achieved 47.7 per cent revenue growth and a 54.8 per cent increase in RPL.
Litigation has been the traditional bedrock of the firm’s practice and contributed 48.8 per cent of its firmwide revenue in 2015.
Kangda, another national firm with a large litigation practice, is also among the 10 fastest-growing firms for RPL, with a 29.4 per cent year-on-year increase. Last year its litigation practice generated roughly 60 per cent of the firm’s revenue.
However, only 40 per cent of its lawyers are in litigation, meaning the litigation departmental RPL is higher than its non-contentious average.
In addition to acting on commercial litigation last year Kangda and King & Capital both represented government officials and corporates in criminal defence cases, which have also increased in volume in recent years.
The Lawyer’s China Elite 2016 report, released on Monday (26 September), identifies the top performing Chinese firms by various key metrics such as revenue, RPL, revenue growth and RPL growth last year. It also provides a comprehensive peer group benchmark, and contains three years of financial and technological data and in-depth analysis on Chinese law firms’ strategies from some of the country’s most eminent lawyers.
The China Elite 2016 report can be purchased by contacting Richard Edwards on 0207 970 4667 or Richard.firstname.lastname@example.org.