25 April 2011 | By Joanne Harris
Efforts to shake off its image as a haven for financial secrecy and a drive to federalise the laws of its 26 distinct cantons make Switzerland an attractive place for lawyers, says Joanne Harris
New Year’s Day in Switzerland this year was a particularly unifying festival. For the first time in the republic’s history the procedural code of all 26 cantons has been brought together into a whole.
The enactment of the Swiss Code of Civil Procedure (SCCP) followed years of work in which the country’s government tried to bring together laws that had developed over many decades.
lthough each canton is still able to organise its own courts, the mechanisms for handling disputes are now governed by a federal code.
Lawyers in Switzerland see the SCCP as a useful development rather than a game-changer, but it is significant.
“Under the old rules, in certain cantons the home lawyers had an advantage,” says Pestalozzi managing partner Robert Furter. “Our litigators believe this will go away because the rules are now uniform.”
Didier Sangorgio, managing partner at Walder Wyss, says the new rules will make it easier to represent clients in litigation across Switzerland. However, he adds that they will not necessarily mean firms automatically start picking up clients in cantons where they do not have a presence.
Alexander Troller, a partner at Geneva firm Lalive, says the transitional period between the old and new codes is still ongoing.
“Right now we’re still ironing out old cases that are being litigated under the old code,” says Troller. “Courts and lawyers alike are adapting to the new code. It will certainly facilitate the spread of work among law firms nationwide. The big firms will have a chance to litigate in the smaller cantons, but good lawyers in the small cantons will appear in court in the bigger ones.”
As in other countries, dispute resolution work generally is on the rise in Switzerland. Much of it is connected to regulation involving the financial services industry.
Heinz Schörer, managing partner at Homburger, says around 45 per cent of the firm’s revenue comes from litigation and arbitration. He reports that cases connected to regulatory investigations “have increased dramatically”.
Many of these investigations are initiated by government authorities, says Schörer. He explains that Homburger is often brought in by a company to advise on regulation before its involvement is later approved by the government.
“There’s increased banking litigation due to non-performing markets and things like that, which creates a more litigious environment,” adds Bär & Karrer Geneva managing partner Cédric Chapuis. In particular he points to litigation relating to the Bernard L Madoff Investment Securities fraud, in which a number of Swiss investment funds lost money.
Furter says this rise in litigation shows that the Swiss market is changing and has a greater appetite to take on risk.
“The system we have is that you bear cost risk if you litigate and that makes you more cautious,” he explains.
A number of firms report that the amount of litigation has been sufficient to require them to increase the size of their dispute resolution and arbitration teams.
But Swiss work is not only contentious. Although M&A work is still slow, lawyers are optimistic that 2011 will be better than 2010.
“If it comes to the really large deals where listed companies are targets, generally we had a bad year,” says Vischer corporate partner Jürg Luginbühl. He thinks this year should see a few larger deals, although IPOs remain thin on the ground. Much of the work is likely to involve Swiss companies looking for overseas targets due to the strength of the Swiss franc.
“With the Swiss franc being strong it’s not an ideal environment for inbound M&A,” agrees Lenz & Staehelin finance partner Marcel Tranchet. He reports a significant amount of due diligence work, but less progressing to completed transactions.
Sectors that are busier include telecoms and energy, although these are global trends rather than Switzerland-specific.
Covers and shake-ups
Other trends that have provided Swiss lawyers with plenty of work recently are outsourcing and redomiciliation.
The former has mainly involved banks and other financial services institutions trying to outsource their IT services. Manuel Bianchi della Porta, managing partner at niche firm BCCC Avocats, which specialises in technology-related matters, says this is gathering pace.
“What we see in the banking sector is a chance to outsource a lot of services to external service providers,” he says. “In the Swiss market there are more and more UK or European firms interested in bidding for typically Swiss outsourcing projects. It’s a competitive market, with outside players competing with Swiss lawyers in outsourcing and banking in particular.”
He says outsourcing deals can lead on to litigation.
“It’s a delicate matter for a bank to outsource its IT services,” he adds. “Not all these service providers deliver the level of services you can expect.”
Sangorgio at Walder Wyss has also noted the outsourcing trend, although he points to insurance companies outsourcing to onshore and near-shore jurisdictions.
Redomiciliation, meanwhile, is a broader theme across a number of sectors. The one that has grabbed the headlines in the UK is the hedge fund industry, which according to some reports is moving hundreds of managers and analysts to the shores of Lake Geneva.
The reality, say lawyers in Switzerland, is quite different. Weber does not think hedge funds will move long-term to the country. “Switzerland is by far the country with the largest concentration of company headquarters worldwide,” he adds.
Bär & Karrer Zurich managing partner Eric Stupp believes redomiciliation is a “more silent movement”.
“The people who do it generally don’t talk about it,” he says.
Stupp points to companies such as UK pharmaceuticals business Shire, which has recently redomiciled to Switzerland.
The appeal of Switzerland has been increased, believe lawyers, by the country’s new focus on regulation in an effort to rid itself of a reputation for secrecy. The country’s lawyers are adamant that Switzerland should be seen as a truly onshore jurisdiction.
“If you look at regulation in Switzerland, our money-laundering laws are much tougher than those in the US for example,” notes Weber. “The model of a private bank soliciting funds from abroad into Switzerland has changed quite a lot.”
“We feel that Switzerland is trying to change its policy on banking secrecy,” says Vincent Jeanneret, managing partner at Schellenberg Wittmer. “That will affect many firms that had important deals with private clients. Either they’ll be able to adapt or they’ll see an exodus of clients.”
Furter says there could well be a shift of private banking work from its traditional Geneva base to Zurich.
“There’s a lot of wealth coming out of East European countries and China now, and they’re not as concentrated on Geneva as the Middle East was,” he says.
Furter adds that private clients are increasingly seeking advice on corporate structures. He thinks the trend is positive. “It isn’t bad as long as it stays in Switzerland,” Furter points out.
Troller says the Swiss government, while signing more tax information exchange agreements (TIEAs) with other countries, tried to hold out to protect individuals holding assets in Switzerland.
As detailed in last year’s Switzerland Special Report (The Lawyer, 15 April 2010), Swiss bank UBS found itself embroiled in a dispute after refusing to disclose the names of US clients suspected of tax evasion. The dispute ended in a compromise, but the Swiss government made sure that when it signed TIEAs with other countries it would be difficult for foreign governments to get information about clients of Swiss banks.
“Switzerland was adamant in insisting that the requesting state should identify the taxpayer and indicate his name and address and the bank where assets were being held to prevent fishing expeditions,” explains Troller.
But the Organisation for Economic Cooperation and Development condemned the stance. Earlier this year the Swiss government eased the rules, allowing foreign governments to get details of clients with details such as account numbers.
“Of course, this is creating some debate in Switzerland,” notes Troller.
Most lawyers, however, think the move towards less secrecy will be good for the Swiss economy, helping it attract more international businesses to the jurisdiction and ridding Switzerland of its ’tax haven’ label.
“Life for lawyers,” notes Thomas Lustenberger, a partner at Meyerlustenberger, “is pretty good in Switzerland.”
Switzerland is beginning to distinguish itself, with involvement in some of the world’s most complex finance transactions. One that made the headlines earlier this year was Credit Suisse’s issuance of $8bn (£4.98bn) worth of contingent convertible bonds, otherwise known as CoCos.
The concept of CoCos has been around for a few years, but Credit Suisse was one of the first banks to issue the bonds. The bonds are issued as debt, but will convert into equity if the bank runs into problems, thus creating an automatic income stream in situations when banks are in difficulty.
The deal was led from Switzerland by Homburger, which has advised Credit Suisse for many years. The firm brought in Carey Olsen, Cleary Gottlieb Steen & Hamilton and Linklaters to advise on various aspects of law.
The issuance was split into two tranches, with the larger being a private placement with Middle East investors Qatar Holding and Olayan. Niederer Kraft & Frey advised Qatar Holding on Swiss law alongside Allen & Overy for English law advice. Partner Philippe Weber explains that the firm had previously advised Qatar Holding on a UBS and Credit Suisse capitalisation transaction in 2008, which led to a direct instruction for the CoCo deal.
“There’ll be more CoCo deals,” Weber predicts. He also thinks that Swiss law will become more prominent as a result of the country’s financial stability and increased focus on regulation. “Banks don’t want these instruments to be used by a Jersey or Guernsey vehicle, or UK law, because that wouldn’t give them the comfort that in a critical situation they’d be enforceable,” he adds. “There’s a great likelihood that Swiss law will become more important and prominent again.”
However, Weber is more sceptical about the prospect of foreign issuers coming to the Swiss capital markets.