Why do so few UK law firms have offices in Australia? Grania Langdon-Down examines its competitive market


The recent moves by three City firms to establish a strong presence in Australia has highlighted just how few UK practices have a foothold there.



Unlike the concentration of big Australian firms in London, none of the magic circle or other major firms have chosen to open offices in Australia, preferring, as Clifford Chance’s managing partner David Childs puts it, to maintain ‘successful working relationships with a number of quality firms’.



So what is the Australian market like and what has prompted the recent moves down under?



The link up between DLA Piper Rudnick Gray Cary and Australasian firm Phillips Fox came about because ‘they see life the way we see it’, says DLA Piper’s joint chief executive Nigel Knowles.



Their alliance taps into the rapid integration of Australian and New Zealand business into the world economy. At the same time, Kennedys and Holman Fenwick & Willan have taken the rare step of opening their own offices in Australia – with Holman Fenwick & Willan opening in Melbourne in March, and Kennedys in Sydney in June.



Later this year, Phillips Fox, a full-service firm prominent in the insurance field, with 160 partners and 1,400 staff and offices in Australia, New Zealand and Vietnam, will rebrand as DLA Phillips Fox.



Mr Knowles says: ‘We have been working with Phillips Fox for many years and they share the same view of how the legal market is developing and the same aspirations, visions and values we do. Over the years, we have talked to all the Australian firms about whether there is any purpose behind a strategic alliance. Most haven’t got it but Phillips Fox have.



‘It’s not about replacing one set of referral fee income with another. It is a wholly different game. It is about becoming very relevant to clients now, and to prospective clients, by having a proper solution for Australia and for an Australian firm to have a proper solution for the rest of the world. Australia is playing an increasingly important role in Asia, so the dynamics mean that having Phillips Fox as a group member makes a lot of sense for both of us.’



For Ric Martin, the London-based chief executive of Kennedys, Australia was the missing piece of the jigsaw after it established offices in Hong Kong and Auckland in 2000. When an opportunity arose to create a Sydney office with a team of four equity partners from the insurance and litigation team of leading Australian firm Minter Ellison, they moved swiftly, adding a partner and senior associate who had both worked in Kennedys’ London office to ensure ‘consistency of brand’.



Mr Martin says the insurance market is ‘fragmenting’, which made Kennedys – primarily a dispute resolution practice with a number of global insurers as clients – an attractive option. ‘Insurance litigators are caught between a rock and a hard place,’ he explains. Their commercial partners trying to push up the profits and rates (currently about A$350 an hour (about £160)) and their clients are saying, ‘if you do that, we’ll take the work elsewhere’.



Of the big UK firms, he says: ‘I am not surprised the magic circle hasn’t opened offices in Australia. Going to Sydney has two problems – it is not a huge market and it is well covered by local firms, which have the advantage of being local.



‘However, in terms of structure, it is very simple to open an office in Australia – though going from a standing start to an office of 20 people as we did is fairly daunting. You can run an incorporated practice, which has many advantages if you are starting from scratch. You also don’t have the problem some jurisdictions have about sharing profits.’



Partner Mark Doepel, who specialises in insurance and reinsurance, is responsible for marketing Kennedys’ Sydney office. It is essentially a commercial litigation practice with a focus on insurance litigation and most lines of insurance risk, plus strong media and sports practices.



He maintains that many English players see Australia as a somewhat provincial market. ‘But the insurance market is different to the general market, which is why it makes sense for Kennedys to come here before a firm like Clifford Chance, because there is more synergy in terms of client base,’ he says.



‘We also don’t see ourselves as just a pin in the map for the Kennedys people in London. We are an international firm. In Australia, not only would we play up our London connection, especially in the insurance market with the proximity to the Lloyd’s market, but we would also make significant use of our Kennedy connections in Hong Kong.’



After 15 years of significant growth, he says the Australian legal market has been flat for the last two, leading to a number of rationalisations. ‘At the same time, the market has become more sophisticated. We are starting to see the emergence of our own magic circle of four dominant firms – Mallesons Stephen Jacques, Allens Arthur Robinson, Freehills and Clayton Utz.



‘Other firms which thought they fell into that category have missed the boat and are going through a period of soul searching, while those that positioned themselves in the second tier have been incredibly successful and are becoming just as profitable by way of partner takings as the first-tier firms because they don’t have the same significant overheads and can offer greatly reduced rates.’



Another issue is conflict of interest, he says. The larger the firm gets – and Australia is relatively rare globally in having a cadre of genuinely large practices – the more conflicts become a problem, though that creates opportunities for others.



Gavin Vallely heads the Melbourne office of Holman Fenwick & Willan, which brought together two prominent trade and transport practices from the local offices of Middletons and Blake Dawson & Waldron. With four partners and six lawyers, its core areas are shipping and transport, trade and energy, insurance and reinsurance.



‘We see ourselves as an international firm and we are proud of, and don’t downplay, our English heritage,’ he says. ‘We are also very much industry focused – we are not trying to be all things to all people.’



One big international firm which competes successfully on the domestic market is Baker & McKenzie, which opened its first office in 1964 in Sydney, followed by a Melbourne office in 1982. With 86 partners, Baker & McKenzie Australia has grown to be one of the largest firms in the country.



Australian managing partner Mark Chapple is not surprised that none of the magic circle firms has its own presence there. ‘A foreign firm, seeking to enter the Australian market as a full-service law firm attracting both major domestic and multi-national clients, would encounter a sophisticated and highly competitive market for legal services.



‘The potential new entrant would also have to contend with long-established relationships and billing rates which are typically much lower than those charged in, say, London, New York, Tokyo and Hong Kong, for similar work. In addition, many of these, and certainly all of the major, Australian law firms would already maintain alliances or relationships of varying degrees of formality and exclusivity with either major international firms or groups of law firms, such as Lex Mundi, which might be put at risk were the foreign firm to compete directly with those Australian firms in their own domestic market.’



The Australian market is ahead of England and Wales on legal services reform – multi-disciplinary partnerships are allowed in New South Wales, while Queensland and Victoria may relax their rules. Mr Doepel says: ‘Some firms take advantage of the rule to make members of the management team, such as accountants, partners. However, offering multi-disciplinary services is still a long way off.’



There has also been substantial progress towards unifying the Australian profession, allowing lawyers to cross state boundaries more easily and smooth the path of foreign lawyers looking to work there too.



There is similar pressure to move towards a more federal system in terms of rules of procedure. Mr Doepel says the problems are illustrated by tort reform – ‘every state has its own legislative programme to deal with it and, frustratingly, none of them are identical, though it is becoming more homogenised’.



For Mr Knowles, the move into Australia is ‘a bit like Scotland, in the sense that no English firm wanted to do anything there for a long time, and then we did and made a great success of it. We are confident we will do the same in Australia’.



Grania Langdon-Down is a freelance journalist