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The WA Report: The Great Unknown

The WA Report: The Great Unknown

Clients such as Rio Tinto, BHP and FMG are hitting hard times, but despite ominous economic rumblings, local legal players remain cautiously optimistic.Western Australia has a landscape of…

Clients such as Rio Tinto, BHP and FMG are hitting hard times, but despite ominous economic rumblings, local legal players remain cautiously optimistic.

Western Australia has a landscape of physical extremes mirrored by economic contradictions. The state boasts some of the nation's finest wine country, kilometres of uninhabited dessert, and even a Northern tropical paradise. Its main economic drivers; mining, energy and construction, are dramatic in both their physical scale and power to propel or stall the national economy.

Perth is ranked 4th on The Economist's 2008 list of the world's most liveable cities. Meanwhile in the interior, fly-in fly-out mining contractors live in portable "donga" housing. Perth-based lawyers also face accommodation hurdles, a low vacancy rate and sky-high rental costs (late last year rents for A-grade commercial space reached up to $1000 per square metre).

The corporate sector in WA has traditionally suffered from the perception of remoteness and inaccessibility. This cultural cringe has been eroded by discount airfares and an aggressive tourism industry, and, in recent years, WA born-and-bred lawyers have returned to their home towns in droves.

HIGH TIMES THEY ARE A CHANGIN'

WA traders, bankers and lawyers are glued to commodity price listings that indicate that the Australian mining industry is on shaky ground. Rio Tinto redundancies and BHP's mothballing of Ravensthorpe nickel mine has further spooked business leaders. Mallesons Stephen Jaques managing partner Stuart Fuller says diversification is the key to surviving turbulent times, and predicts that some niche firms will struggle.

"I think it will be an incredibly competitive year, there is no doubt about it," he says.

"If you have a diversified business, then the Perth market still has plenty of opportunities. Those in a niche area where they lack that diversity of practice, [the question is] will their client base keep generating enough work in that area to allow them to survive."

As China threatens to follow the United States into recession, the world, as WA's mining lawyers know it, is about to end. Those remaining optimists are waiting to see whether China will place resources orders after Chinese New Year.

"China's a mystery and the key to the whole thing," says WA Law Society President Dudley Stow.

"The mining industry is almost a tale of two cities, and it's a series of contradictions," explains JWS mining & energy partner Rick Malone, "to give you an example, if you are in the nickel business, for the want of a better expression, you're buggered; nickel has gone from $US51,000 ($77,800) to $US11,000".

Malone is confident that JWS will fare well despite the downturn because of its involvement in long-term projects such as the $5 billion City Pacific mining project south of Karratha, as well as on several smaller mining projects in 2009.

Others aren't so fortunate. Peter Thomas, principal of Smyth & Thomas lawyers, says instructions have literally dried up overnight.

"In the mining sector my exposure is ... it's stopped. I'm in resources, capital raising and stock exchange advice and I've literally never seen anything like it, I just couldn't believe the speed at which instructions stopped."

Aside from the ever reliable spectre of insolvency, the silver lining for many practices is an increase in contract disputes. Chris Stokes of Chris Stokes & Associates says his firm has experienced an upswing its specialised field of dispute and contract conflict work.

"The work flow in the last two months has increased," Stokes says, "I believe it's a combination of companies owing money doing whatever they can to delay payment."

Lavan Legal deputy managing partner Dean Hely estimates that as much as half of the firm's work is litigation-based. "What we're seeing, as a firm, is that we've got a very heavy weighting towards litigation and also insolvency and reconstruction, and we are seeing a lot more activity in those areas".

While M&A activity appears to have virtually frozen, both Hely and Middletons managing partner Nick Nicholas expect their firms to benefit from M&A activities at the mid end of the market.

"We still believe that there will be considerable M&A activity, but it will just be in a different space now. So previously, where you might have had large-scale M&A transactions, you will now see some of the more junior-to-mid companies consolidating," Nicholas says.

RECRUITMENT

The talent tide has begun to turn in WA. Janine Davis, manager at Hughes-Castell's Perth office, says there has been a significant increase in candidates, including in-house lawyers looking to return to private practice. She recommends that firms, particularly small-to-medium firms, think seriously about picking up some talented lawyers.

"Certainly if you've got a healthy bottom line, look at your succession planning - pick them up now, don't wait for six months because those resources won't be around."

In a worrying trend for recruiters, the few firms activity recruiting are going online. Irdi Lawyers has advertised its positions on jobs website Seek.com. But at least they're hiring. Irdi lawyers' founding partner, Gus Irdi, said that his firm will be making the most of the opening up of the talent pool to recruit future rainmakers (see case study right).

JWS has gone from two to eight lawyers in the last 12 months, and Perth partner Mick Dulaney has been given the go-ahead from national managing partner Peter Slattery to carry on with expansion plans, with as many as 20 extra bodies to join the JWS Perth office within two to three years.

"I guess - like everyone - we're looking for really good people and if we find the right people we'll hire them," Dulaney says.

THE 'P' FACTOR

There's a word that's comes up time and time again when talking to Perth lawyers - "people". Mallesons managing partner Fuller says that personality makes all the difference to attracting clients in the Perth market.

"I think Perth is unique in that sense because there's some very high profile local identifies, local partners who have incredibly strong reputations and who have set those businesses up, particularly some that have come out of the bigger firms."

"I think law has always been a people business," agrees Dulaney, offering several examples of senior top-tier lawyers who have moved firms or started up their own, including fellow Freehills alumni Ken Jagger.

"I've seen a lot of work go to these smaller, new firms. Jagger started Balance Legal last year, and I know he's been pretty busy with the clients he's attracted," Delaney says.

"I think people get work here in Perth on their reputation, client contacts and their profile."

The human side of the profession is very much on the mind of WA Law Society President Stow going into the new year.

"The society runs a mentoring service for young lawyers, which will be particularly important for the young lawyers who have never been through a recession before. If a very young lawyer gets terminated, it can be pretty devastating," he says.

"In the end every business is a people business, and I think it's essential that we keep our intellectual capital," he says.

- Laura MacIntyre

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The WA Report: The Great Unknown
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