Small firms could be big losers as conveyancing work dries up and downturn takes its toll

JUST TO THINK it was only last year that lawyers' salaries in Hong Kong saw a lavish 20 per cent increase across the board. The high-billers were reaping juicy bonuses and even trainees were counting a modest wad.

Given the present economic climate, the profession is unlikely to be such a cocky ship by the end of this year. A slowdown which has taken its toll on United States and European firms appears to be seeping into the Hong Kong market.

Baker & McKenzie has decided to lay off 45 people, mainly support staff, from its Hong Kong office, according to the firm and Shearman & Sterling has shed three associates, according to LegalWeek magazine.

International firms have been slimming in Europe and the US, both in the form of redundancies and a freeze on contract and temporary positions.

In Hong Kong, however, it inevitably will be staff at the smaller local firms who are harder hit by an economic slowdown.

According to the Law Society, 30 firms have ceased practice so far this year. At the same time, record numbers of lawyers are joining the duty service scheme to make some extra cash during the tight times.

This has been taken as an indicator of how 'drastic' things are in the SAR market. Duty lawyers at courts are paid a fixed day rate of HK$5,670 and HK$2,830 for a half-day. Sacrilege, indeed.

But it is not quite as Dickensian and certainly not as desperate as it sounds. Take the 30 law firms. Without a concise figure on the number that actually went bankrupt, it is speculative as to whether these ceased operating because of the downturn.

It also is worth pointing out that Hong Kong has hundreds of sole practitioners and small firms with less than five partners. Of the about 600 firms operating in Hong Kong, more than a third are sole practitioners.

Many have been struggling to stay afloat since the 1997 financial crisis. The bread-and-butter work was conveyancing for many of these practices and they felt the brunt of the property slump. If they are still relying on conveyancing work as their main source of income, it would be little surprise for the practice to flop. It also defies reason to stick to an area of law that is in the doldrums.

Yet, as Law Society secretary Patrick Moss explains, many firms are still 'hanging on'. Some have diversified into areas such as litigation and bankruptcy work and the numbers within the profession are 'not fluctuating greatly'.

At the same time, some are clinging to conveyancing work. This flies in the face of logic when there are other niche areas lawyers could be shifting to.

Take advocacy work at the District Court. Jurisdiction levels were raised from HK$120,000 to HK$600,000 in September last year and progress reports submitted to Legco suggest there is no shortage of work.

In the first six months, there was a 37 per cent increase in non-inland revenue civil cases. There was a drastic rise in the number of writs filed - up 200 per cent - during the same period. These included 201 personal injury claims, 870 recovery-of-land cases and 391 mortgage actions. There also is the option of consolidation. A proposal in the pipeline is to create group practices of sole practitioners - lumping them together under one roof. The Chief Justice has approved the suggestion in principle.

Consolidation has been taken up by some firms on another front, by way of an international tie-up. Local firm Kwok & Yih is one of the latest to team-up with a global firm, linking up with Andersen Legal earlier this year.

The return of Norton Rose to the Hong Kong market after a two-year absence and the arrival of other international firms - either through tie-ups or on their own initiative - hardly suggests the SAR is losing its appeal.

A process of shifting priorities is nevertheless under way within the international firms in response to sluggish demand in certain areas.

'We are no longer begging people to come out from London, which we were two years ago,' explains Allen & Overy managing partner Chris Roberts. 'We are not going out shaking the tree in the recruitment market.'

Staff are being redeployed around the region to more lucrative areas. The hot spot, of course, is China. 'China is the obvious growth engine,' Mr Roberts said. Project finance is providing work, deals are being done and infrastructure projects are under way.

In Hong Kong, initial public offering work is virtually non-existent but it may be only a matter of time before a new round of restructuring and insolvency work kicks in. One practitioner described the phenomenon post-financial crisis: 'It absorbed lawyers like blotting paper.'

Yet global firms are still looking for talent in certain areas, with lawyers holding Mandarin skills as a prime example. Legal recruiters continue to look overseas to find candidates to fill some key slots.

The legal landscape may be sluggish as companies cut back, but the signs so far suggest no radical upheaval. For some smaller firms, it may nevertheless be time to take stock.

The prospect of out-of-work lawyers is not a pretty one. And there are just too many lawyer jokes out there to suggest Joe Public would be losing any sleep over it.

Graphic: beg22gbz