The legal industry in Hobart is modest in size, but low hourly rates and overheads could make it an ideal location for outsourcing legal work, ALB reports

When a landing party sent by Abel Tasman to explore a newly discovered land returned in the afternoon of 2 December 1642, they reported to have found 'high but level land covered with vegetation - not cultivated, but growing naturally by the will of God ... abundance of excellent timber and [...] water of good quality,' Tasman wrote in his journal.

More than three and a half centuries later, forest and water, together with the later discovered mineral deposits, are still the primary drivers of the Tasmanian economy.
Therefore, when thinking of Australia's economic growth story, the island is not the first state that comes to mind. Historically, the state has a poor productivity performance; the level of labour productivity, for example, is, at 85.5% of the national average, the lowest in Australia.

But in the last five years, the Tasmanian economy has experienced a modest growth spurt. Figures from the Australian Bureau of Statistics show that the total private gross fixed capital formation, or new investment by enterprises in fixed capital assets in the domestic economy, during 2003-2004 (the most recent figures available) was A$2.6bn. That is no less than A$1bn more than three years earlier.

House prices have increased significantly in the last five years. Although not quite at the levels seen in Sydney, Melbourne or Perth, recent interstate investment has pushed prices to levels comparable with Canberra.

Looking ahead, the local economy is also expected to profit from the construction of the Bell Bay pulp mill by Gunns Limited in northern Tasmania. The project, which was approved in October this year, is valued at A$1.7bn. The company claims, with a level of optimism only seen amongst corporate marketing gurus, that the project will enable each Tasmanian household to spend an additional A$870 per year, although it remains to be seen when that will be.

Broad skills
Although local law firms have profited from the recent increase in economic activity, historically the vast majority of high-end corporate work and governmental work leaves the island and is picked up by the Melbourne or Sydney offices of national firms. It means that the legal industry on the island is relatively modest in size.

Tasmania counts approximately 450 lawyers, of which about 300 are based in Hobart. The legal industry in the capital is dominated by four local firms of approximately equal size: Butler, McIntyre & Butler; Dobson, Mitchell & Allport; Murdoch Clarke and Page Seager Lawyers. They all have their offices in the same city block. Of the national firms, only Hunt & Hunt has an office in this state.

The relatively small legal industry means lawyers have to have a broad skill set, says Tim Bugg, partner with Dobson Mitchell & Allport (DMA) and past president of the Law council of Australia. "It's a reality of legal practice in Tasmania," he says. "A lawyer finds it difficult to specialise in one particular area, because of the size of the population and the workspace. In our commercial section, each of the lawyers would deal with a number of aspects of commercial practice."

DMA is primarily a commercial defendants' litigation practice, but also focuses on commercial litigation and family law. "In litigation, most of our work is for insurers; we do very little by way of plaintiffs' work," says Bugg.

He has been with the firm for 14 years and was managing partner from 1994 until 2003 and then from 2004 until 2006. After that, he took on the role of president at the Law Council of Australia for a period of 15 months, an incredibly hectic time, says Bugg. "I finished as managing partner within a few weeks before I became president of the Law Council. In the time I was president, I had just two complete weekends at home in Hobart. The rest of the time I was travelling either in Australia or overseas."

Invading the mainland
Tasmanian lawyers are highly regarded for their legal skills, not in the least because many have practiced interstate or overseas. Still, the small size of the legal industry means hourly rates in Hobart are considerably lower than those in the Eastern seaboard states. Even in the larger firms in Hobart you would not find many partners charging above A$300 an hour, while in Sydney or Melbourne rates start from A$400 and can go as high as A$800.

The difference in pricing could give these firms a competitive advantage, believes Bugg. "I think Tasmanian firms should look more into exporting legal services interstate, because with their structures and their overheads, they're capable of delivering interstate services at competitive prices." He says it not only brings the obvious opportunities of expanding your client base and growing the business, but also enables firms to retain their young lawyers. "If you can offer a broader range of work experience, you can retain your younger lawyers."

But thus far, most firms in Hobart have not been very keen to explore the opportunities beyond the state borders. "We don't regard it as being an area that we need to pursue," says Colin Adams, partner at Page Seager Lawyers. "We're trying to widen our base here in Tasmania. For example, we recently opened up a new area of practice for our firm, which is workplace relations." Page Seager, which has 11 partners plus 24 fee-earners, finds its clients predominantly amongst insurers. It also has a separate financial planning arm.

Peter Joyce, partner at Butler, McIntyre & Butler, says attracting interstate clients is also made difficult by the lack of time and resources. "Occasionally, clients have said to us that some types of work should actually be shipped down here, like Sydney moves work to India. It could be moved to Tasmania instead. It's obviously an opportunity, but it's getting the manpower and the time to explore it further. We don't have the resources and we have enough work to do."

Butler, McIntyre & Butler counts 12 partners and about 50 staff in total. The firm specialises in commercial litigation, commercial transactions and family law. All of its clients are based in Tasmania, but the firm also acts as agent for a number of large national law firms, including Allens Arthur Robinson and Blake Dawson.

"I see it a little bit differently because of my former position as the president of the Law Council of Australia," says Bugg. "I had to look at the legal market from a national perspective." He believes the inward focus of lawyers is partly the result of the absence of the top tier firms. "Because of that, lawyers generally haven't turned their minds to the opportunities that the legal market now presents. That's not a criticism of them, it's very understandable, but it would be terrific if Tasmanian firms can export legal services."

Limitations to expansion
However, lack of critical mass does form an obstacle in attracting interstate clients. None of the four larger local firms have offices outside Hobart and they indicate that expansion is unlikely in the near future. "We considered opening in Launceston, but the cost wasn't justified," says Peter Joyce. "Both markets - Hobart and Launceston - are probably saturated at the moment."

Colin Adams says that Page Seager used to have multiple offices in Tasmania, but scaled down its operations over time. "We've had branches of the firm at different times on the west coast or suburban Hobart, but now we find we can deal without them in this day and age with modern communication systems."

Apart from the high cost involved, expansion is also made difficult by the crippling effect that parochialism can have on businesses. "For a number of years we had an office in Launceston," says Bugg. "We went there because a number of clients asked us to go there. We were there for about twelve years, but we did notice that there was some resistance from the people of the North to use a southern-based law firm. It was not overwhelmingly noticeable, but it was certainly discernable."

The legal industry on the island has seen relatively few mergers and Bugg does not expect much consolidation in the near future. "It's a small market; if two firms merge, there are immediate conflicts of interest because of the respective client bases." He says DMA has contemplated a merger in the past and will look seriously at it if an opportunity arises, but he indicates that the firm is unlikely to pursue one in the near future. "We have a very broad range of legal services; there's very little we can't do in our current structure."

Beyond state borders
Peter Worrall Lawyers is a boutique firm that specialises in commercial law and estate planning. In contrary to the general consensus, this firm does believe in servicing a niche. "Most lawyers think you can't specialise, but I decided early on that we should do it and we're doing it very successfully," says partner Peter Worrall. "I've been in practice for more than 25 years and it's the only way to go."

The decision to specialise means the firm did have to actively look for clients outside Tasmania. Matthew Pawson, who became an equity partner in the firm in July 2007, is currently involved in a project for a Sydney-based client who is looking to build an A$100m factory in China for the production of pre-fabricated houses. "This client owns various properties all over the country and I do his Tasmanian work. He wasn't happy with the service he was getting from his Sydney lawyers, so we're doing this project for him now," says Pawson.

The firm - which apart from the two partners, consists of six other fee-earners - looks to expand in estate planning. "We've built up a national reputation in estate planning and we do agency work for some of the top 20 firms interstate. We're looking to continue to grow our book," Worrall says.

Although faced with a number a challenges, Tasmanian law firms seem to hold a trump card with their ability to offer competitive prices in a time when hourly rates are increasingly used as a strategic tool in the war over market share. But, in contrary to, for example, South Australian firms, few have risked the plunge into the mainland adventure. However, as competition and the battle for talent is getting fiercer, it might be just a matter of time before these firms will decide to play their hand.

Tasmania's four largest locals
* Butler, McIntyre & Butler: 12 partners and 20 lawyers in total
* Page Seager: 11 partners and 35 lawyers in total
* Dobson Mitchell & Allport: 10 partners and 28 lawyers in total
* Murdoch Clarke: 10 partners and 20 lawyers in total

Mixing with the locals
Hunt & Hunt is the only national law firm that has taken on the challenge to operate in the Tasmanian market. The firm opened in Hobart in January 2000, when it took over Roberts & Partners, a commercial corporate firm led by Ian Roberts, that also had a presence in Sydney. Roberts & Partners focused predominantly on capital raisings, corporate financing and restructuring.

"It was an opportunity," says Peter Forbes-Smith, partner in the Hobart office. "It wasn't that we had to be in Tasmania, but it was consistent with our national footprint." Forbes-Smith came down from Sydney to head the office. "My background is in insurance work and there were all the civil liability changes in NSW, CTP changes and workers compensation. I saw the writing on the wall and thought, here's an opportunity."

As an outsider, Forbes-Smith said he found it hard to break into the local market and the vast majority of his clients are still based in Melbourne and Sydney. "To get into the local insurance market is very difficult, because it's all based on relationships; you've got to have local lawyers." In the last two years, the firm has taken on four senior local lawyers who specialise in areas such as construction, tourism, intellectual property and employment law. It has enabled the firm to build up a new client base based on local work.

The strategy has paid off, believes Forbes-Smith. "We're probably seen more as a local firm now. A few years ago, people were saying Hunt & Hunt wouldn't be around for very long. Now they're saying since they've got local people working there, maybe they're here to stay." The firm boasts three partners, 14 fee-earners in total and might add another lawyer shortly. "We're talking to a sole practitioner, a commercial lawyer, who has quite a reasonable practice."