Global law firms have been continually washing up on Australia’s shores recently. Justin Whealing reports that we have only seen the beginning.

The merger announcement between Freehills and Herbert Smith in late June was a watershed moment for the Australian legal profession.

When that merger becomes official on 1 October, it will mean that the majority of Australia’s six top-tier firms will be operating under a new name.

And the changes will have all happened in the space of seven months.

The Herbert Smith Freehills merger follows hot on the heels of the launch of King & Wood Mallesons in March and Blake Dawson effectively being taken over by Ashurst and trading under that name from the same month. Just a few months prior to the Freehills announcement we had the Allens Linklaters alliance that commenced on 1 May.

That leaves Minter Ellison and Clayton Utz as the only two remaining top-tier firms that retain a semblance of independence. 

Of course, all this merger activity was precipitated by the arrival of a host of global firms over the previous two years, including Norton Rose, Allen & Overy, Clifford Chance, DLA Piper and Squire Sanders.

Surely the comparatively small Australian market has now reached saturation point with regard to future global entrants?

“I think that is an interesting take on it, but I don’t think there is such a thing as a saturation point,” says John Chisholm, formerly the chief executive of Middletons but more recently a consultant whose brain is regularly picked by the large global and national firms. “It is not like we have 5000 or 10,000 new lawyers coming in. It is the same lawyers; they are just changing their clothes.”

While that is undoubtedly true, these same lawyers and firms have changed names because they feel a change of legal clothes is required in order to hold onto their clients and grow their practices.

There is also a growing feeling within the profession that the sudden adoption of a new label by a previously standalone Australian firm smacks of panic.

“There are a lot of law firms talking about other law firms at the moment,” said Corrs Chambers Westgarth managing partner John Denton when talking to Lawyers Weekly earlier this month.  “Clients aren’t interested ... and they’re asking: does anyone care about us?”

Corrs has taken a stoically independent stance as more and more of its rivals have shacked up with larger partners. However, how much longer the firm can retain such a stance remains a lingering question.

Early days

Despite the rush of recent merger activity, there is a feeling from any well-regarded new global arrival that there is still work to be had.

“They wouldn’t bother coming if they didn’t think they could get it,” says consultant and lawyer Ted Dwyer, who runs his own consultancy business. Like Chisholm, he is a regular visitor to the executive boardrooms of large national and global law firms.

He believes that Australia is still in the early stages of global legal development and that by the middle of the next decade Australia, like many other legal markets, will be dominated by a handful of global mega-firms.

“I am one of those people that think there will only be six or seven major [global] firms in the next 15 years,” he says. 

Dwyer adds that the great unknown in the Australian market at the moment is the intentions or otherwise of the large American firms to start offices in Australia.

In addition to Baker & McKenzie, which has been in Australia since the 1960s, and Jones Day, which expanded its local practice in Sydney in 2006, Squire Sanders in Perth is the only other American firm practising in Australia in a meaningful way.

The massive American firm Sullivan & Cromwell has only nine lawyers, all below the partnership level, in Sydney and Melbourne. Its American rival, Skadden, Arps, Slate, Meagher & Flom has only got six lawyers in its Sydney office, confining its practice to the American aspects of cross-border transactions.

Chisholm says that while the expansionist English firms have been much more “innovative” about expansion into new markets such as Australia compared to their US counterparts, domestic pressures will force US and UK firms to expand in order to remain on a global growth path.

“I have just come back from the States and we are better off than the UK and US,” says Chisholm, who describes the US legal market as being stagnant, and also adds that what was previously an introverted view from law firms in that market is starting to become more broad.

“With many of those firms they are tied to a growth strategy and they are asking themselves, ‘well if I can’t grow in my existing markets, where will I grow?’ 

“You look at where the growth is, and I would like to think Australia is one of those markets.”

The Asian century

Chisholm and Dwyer agree that interest from global law firms in Australia has been off the back of the rise in the economic clout of the Asia-Pacific region in general.

“There is the premium work being driven by the region and internationally,” says Dwyer. “The latest valuation for the Asian market for legal services is over $70 billion, and there are hundreds and hundreds of top firms competing for it.”

Dwyer says that as business has become more global, law firms have had to follow the money to remain relevant to their client base.

“The way the international scene is working, you can’t avoid Asia,” he says. “Asia is an unstoppable machine at the moment. There will be dips, to be sure, but in the long-term you have to be in it and those firms coming here will assume they will do well.”

The growth of China and the Australian resources boom have been the two major factors that have brought in the global law firms.

It is for that reason that Allen & Overy, Clifford Chance and Squire Sanders all have offices in Perth, eschewing traditional Australian legal hubs such as Melbourne.

Chisholm believes that with many markets in the Asia-Pacific still growing at a much faster rate than the established economies in Europe and North America, the rate of global law firm arrivals will not be slowing down anytime soon.

“To be a global law firm you need presence in the Asia-Pacific rim,” he says. “If you look at it, and look at where the new markets are, it is in Asia, and India to a degree.”

With China’s demand for our resources fuelling one boom, energy and resources practices in Australia, both global and national, are hoping that the only other country in the world with a population in excess of one billion people will also need Australian resources to fuel its growth.

If it does, we can expect to see more new legal names from faraway lands opening offices in Perth in the not-too-distant future.