15 February 2010 | By James Swift
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With the laws governing Switzerland’s various cantons set to be made less distinct, James Swift looks at the possibilities for local, national and global firms
Switzerland is a disparate country. The federal republic has three official languages - German, French and Italian, although Romanish is also spoken by a small minority - despite having a population of fewer than eight million, and is divided into 26 states, or cantons.
Each canton is a semi-sovereign state. Under the federal Constitution of 1848 each canton is responsible for its tax, civil, commercial and criminal laws and develops its own codes and regulations.
The 1874 Constitution gave the central government the power to unify civil, commercial and criminal laws, but not the procedures governing the courts.
Neither are the procedural differences in each canton trivial - consequently, Swiss lawyers’ competencies are often limited to a single canton.
Local law for local people
“There’s a real difference in civil procedure law [in Switzerland], so even if you’re a fantastic lawyer in Zurich, if you went to Basel then you’d be totally clueless,” says Manuel Liatowitsch, a partner in Schellenberg Wittmer’s dispute resolution department.
The intricacies of dealing with regions that are culturally and procedurally discrete has made the Swiss legal landscape expensive and difficult to traverse, particularly for foreign clients.
For this reason, and a few others, international firms have not really had a look-in in Switzerland. And the concept of a truly nationwide Swiss firm has never really taken off either.
“The market’s tough because it’s fragmented,” says Edmond Tavernier, name partner at Tavernier Tschanz. “Firms look in different directions - north, east, south, west; they don’t speak the same language and don’t have the same focuses, so international firms don’t establish themselves here. The notion of international firms doesn’t really make sense here either, except from a marketing perspective.”
Not that everyone is complaining. Small firms and sole practitioners in the smaller regions can thrive in environments where they are protected by the niche nature of their procedural knowledge. Large firms, typically situated in the more prominent cantons such as Geneva, Zug, Lugano and Zurich, pose little threat to smaller practices in other cantons. They lack the local nous to compete for clients in cantons other than their own and thus the desire to install themselves into positions where they can compete is lacking.
But all this might be about to change. Judicial reforms that began in 1996 will come to a head in January 2011, when criminal and civil procedures are unified under a federal model, making the possibility of nationwide Swiss firms very real.
“This is a major legal development that will impact the market in the coming years,” says Alexander Troller, a partner at law firm Lalive in Zurich. “The procedural laws have always been cantonian, which creates a nightmare for foreigners because there’s 26 different systems in a country that’s not that big. But now the barriers have been removed, with the consequence that the market will become more liquid and larger firms will inhabit areas previously reserved for smaller firms.”
Indeed, the unification has the potential to change the face of Switzerland’s legal market.
“I think the large law firms will gradually spread their activities to other cantons,” states Bernhard Lötscher, a partner at Zurich-based CMS von Erlach Henrici. “While those smaller cantons currently represent a sort of a protected market, this will no longer be the case, as the unification of the civil procedure rules will lead to a situation where large firms won’t have to incur additional costs learning about the particularities of those smaller markets.
“And it may cause more pressure to merge law firms; consolidation in the market is quite possible. Also, it will become cheaper for clients to litigate matters, since they won’t have to retain a team of local counsel if they have litigation in more than one place.”
Ostensibly the reforms look to be bad news for small firms in small cantons and an invitation for legal dynasties, such those that pervade the UK, to begin. To some extent this has already started, with Lalive set to open an office in Zurich next month. But some partners believe there are still opportunities for the smaller players.
“The more talented firms in smaller places can venture into bigger towns too. It will be easier for competent lawyers to advise clients,” says Troller.
Others believe that, while a federal system is an improvement, its effects will be minimal, not least because the largest barrier to a single-market mentality remains - Language. So can the smaller practices can rest easy?
“The [procedural] laws are much of a muchness in the different cantons anyway, and if you have rights of advocacy in one canton you can practise in another,” says the managing partner at Hogan & Hartson’s Geneva office Charles Adams. “Smaller firms and local firms in Switzerland will find a way of surviving and prospering. Switzerland remains a very fragmented market in terms of its legal industry - there’s no one firm that dominates, or is even present, in more than two or three cantons. That’s why the hundreds of firms and practitioners across Switzerland are going to carry on happily, regardless of reforms.”
And the consensus is that there is little threat from international firms looking to exploit a more accessible market. Nevertheless, the global players will find litigation in Switzerland easier, as will litigants generally, so clients are the clearest beneficiaries of the reforms.
“I don’t think it will trigger a trend of magic circle firms opening up shop here because the size of the market will not change,” says Troller. “It will make it easier to explain litigations to clients and easier for international firms to understand cases.”