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SPLENDID ISOLATION The global economic crisis and a strong currency are challenging Switzerland’s M&A deal flow. LB looks at how Switzerland’s transactions market is standing up to the pressure and talks to the lawyers involved in recent headline deals JULIAN MATTEUCCI

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s an exporting country, Switzerland is not immune to the general crisis and slow down of growth in the rest of Europe. Add to this a tough financing environment, and it is no surprise that the country’s transactional lawyers are reporting a dwindling deal flow. A key issue for international M&A deals in Switzerland is the strong Swiss franc. In 2011, because prices kept increasing for dollar or euro-based buyers, some inbound acquisitions of Swiss businesses by foreign acquirers failed after following due diligence. However, it’s not just a robust currency that is affecting Switzerland’s M&A transactions. ‘Because the Swiss economy has resisted the global meltdown fairly well

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in comparative terms,’ says André Gruber, one of the Geneva-based founding partners at Swiss legal practice DGE, ‘Swiss assets are also comparatively expensive.’ Consequently, Switzerland’s M&A advisers are being punished both by a decrease in transaction numbers and by an expensive Swiss franc that renders their services less pricecompetitive (see box, ‘Taking a cut’, page 94). Nonetheless, M&A activity in Switzerland is proving resilient when compared with other major economies. ‘We’re clearly not living through boom times but, despite the downturn, I have been surprised by the high level of interest by foreign investors in Swiss businesses,’ says Vincent Jeanneret, the Geneva-based managing partner of Schellenberg Wittmer. u

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A number of high-value international deals involving Swiss companies have taken place, such as Johnson & Johnson’s ongoing $21.3bn acquisition of Swiss medical devices company Synthes, Swiss-based international commodities trader Glencore International’s $10bn IPO (see ‘Riding High’, LB218, page 60) in 2011, and the purchase of mobile phone operator Orange Switzerland by private equity investment group Apax Partners for approximately €1.6bn. With increased regulation piling the pressure on Switzerland’s banks, many anticipate a wave of banking sector consolidation and mergers work for the country’s M&A counsel. Furthermore, the upside of the strong currency is that it encourages some Swiss companies to take advantage of buying opportunities outside of Switzerland (see box, ‘Over the mountain’, page 92), which in turn leads to instructions for Swiss law firms.

AGAINST THE TIDE With high levels of wealth, as well as political and overall economic stability, Switzerland still holds a unique position within Europe. Largely because of a budget surplus and the comparably low costs of the banking system’s bailout, Michael Walther, a partner at GHR Rechtsanwälte, believes that Switzerland has been affected by the financial crisis to a lesser extent than most of the other European countries. It has even significantly reduced its public debt over the past eight to ten years. Financial investors in Switzerland may be quiet right now, but strategic investors are active; and even if pure public Swiss M&A is not in the best of health, private M&A – especially Swiss transactions with international components – has remained fairly buoyant.

‘I have been surprised by the high level of interest by foreign investors in Swiss businesses.’ Vincent Jeanneret, Schellenberg Wittmer Zürich-based Philippe Weber, an M&A partner at Niederer Kraft & Frey (NKF), believes that the number and size of deals show that 2011 was, in fact, a very good year. ‘Despite the crisis, there were several high-profile, complex and time-consuming deals. If you’ve been on those transactions then you had an outstanding year,’ he says. Examples include Johnson & Johnson’s acquisition of Synthes, its largest purchase to date. Leading Johnson & Johnson on Swiss law were Christoph Ramstein and Christoph Lang, Zürich-based partners at Pestalozzi. ‘It’s great to act for the acquirer, as the client gets bigger and you get to keep the client,’ says Zürich-based Michael Kramer, chair of Pestalozzi, and head of the litigation and arbitration group. Homburger advised Synthes on Swiss law, with Zürich-based partner Daniel Daeniker leading the team. Cravath, Swaine & Moore advised Johnson & Johnson on US law; Sullivan

& Cromwell provided further counsel on US corporate law; and Shearman & Sterling assisted Synthes with US law. Expected to close in the first half of 2012, the deal is waiting on EU regulatory clearance. Bär & Karrer has also enjoyed a slice of the major transactions. Zürich partners Rolf Watter and Thomas Rohde, together with Simpson Thacher & Bartlett’s London office, represented Apax Partners on the purchase, by investment funds advised by Apax, of Orange Switzerland from France Telecom. This transaction also requires the approval of the relevant competition and regulatory authorities. The deal happened at a time when people thought that the acquisition financing markets were closed to new business, yet the buyer was able to secure financing, and the transaction turned out to be the largest LBO in Switzerland in 2011. NKF advised France Telecom and u Orange, its team led by Philippe Weber on

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u the M&A and acquisition finance side and

Zürich partner András Gurovits on the TMT, regulatory and M&A aspects. With global law firms like Simpson Thacher appearing on Swiss deals, it’s crucial for the domestic market’s M&A teams to have cross-border expertise, both to pick up those Swiss transactions with an international flavour and to know how to deal with international lawyers. ‘If you don’t have a strong enough Swiss presence you won’t get those deals and it’s important to be on them,’ says Weber. Another highlight for Pestalozzi occurred in May 2011 when Glencore International – a longstanding Pestalozzi client – launched its huge joint London and Hong Kong flotation, marking London’s largest-ever listing. Peter Pestalozzi, the firm’s counsel, and former Glencore board member, represented Glencore on Swiss law, specifically the operational side of the deal and the pre-IPO restructuring. ‘With a transaction of this magnitude, any legal practice would have loved to have been on board,’ says Pestalozzi’s Kramer. Homburger’s Daeniker and partner Frank Gerhard led as Swiss legal counsel to the syndicate of banks acting as underwriters. Offshore law firm Mourant Ozannes was sole adviser to Glencore on the Jersey legal aspects of the flotation – the holding company was Jerseyincorporated – and Linklaters acted as Glencore’s main UK and Hong Kong counsel. Another Swiss company was involved in the closing of one particularly controversial deal last year. After buying a 25% stake in eye care company Alcon in 2009 (see ‘On the Rise’, LB212, page 97), Basel-based Swiss drugmaker Novartis exercised its option to buy an additional 52% from Nestlé for $28.1bn and declared an interest

‘It’s great to act for the acquirer, as the client gets bigger and you get to keep the client.’ Michael Kramer, Pestalozzi

in the remaining 23%, owned by minority shareholders, who claimed the offer was too low. Eventually, in December 2010, Alcon’s board of directors approved a merger with Novartis, which agreed to pay $12.9bn for the remaining Alcon shares. The deal finally closed in April 2011. Bär & Karrer’s Watter represented Novartis, Homburger’s Daeniker advised Nestlé, and Pestalozzi’s corporate/M&A head, Jakob Hoehn, acted for the independent board of directors. ‘The advice we gave, alongside Sullivan & Cromwell, ensured that they received independent advice and that they achieved a fair deal this time around,’ explains Kramer. Because it was not certain that the merger would go ahead, Pestalozzi’s M&A team worked closely with the firm’s litigation group during the negotiations, with a view to preparing a litigation strategy – co-ordinated by Kramer – and a $50m litigation trust fund was set up in case the shareholders did not get a favourable deal. ‘They were prepared to go to war,’ says Kramer. Fortunately, the deal was secured on favourable terms; but the approach was innovative and Kramer doubts the deal would have happened without these other tools and a willingness to litigate. Other cross-border deals involving the acquisition of Swiss companies include Japan’s largest pharmaceutical company Takeda buying Swiss drug company Nycomed for €9.6bn, considered one of the most significant deals to occur in the life sciences sector in 2011. International law offices picked up the transaction’s plum roles, with CMS Cameron McKenna’s London-based partner Sandra Rafferty leading longstanding client Takeda and Freshfields Bruckhaus Deringer acting for Nycomed. However, because the target was u

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OVER THE MOUNTAIN The flip side to Switzerland’s strong currency is that Swiss multinational corporations, such as healthcare company Roche, cement manufacturer Holcim, travel retailer Dufry and travel industry conglomerate gategroup, have become more active in their foreign acquisitions. ‘The strong Swiss franc has had a favourable effect on Swiss investors looking for acquisition opportunities abroad,’ says Homburger’s Zürich-based partner Daniel Daeniker. ‘In the US, pricing levels are in reality now 20-30% cheaper and as Swiss companies increasingly reach outside of Switzerland for different service providers, their future growth will lie in emerging markets such as Latin America and Asia.’ In Asia, Homburger has advised Holcim in its investments in the Indian cement market, most notably its acquisitions of stakes in Ambuja Cements, which took place between 2006 and December 2011, and its purchases of ACC between 2005 and

u Swiss-based, Patrick Sommer, a Zürich-

based partner at CMS von Erlach Henrici, and his team were also involved, their role entailing the co-ordination and advice regarding the transaction’s Swiss aspects. Vischer is another firm to have advised Japanese companies in significant deals. Zürich-based Benedict Christ led the team advising Toshiba on its $2.3bn, July 2011 acquisition of energy technology company Landis+Gyr, alongside international counsel

2010. Acquisitions by such clients mean more corporate and finance work at their Swiss headquarters. ‘This is good news for us,’ says Daeniker. Many would like more Swiss businesses to take advantage of the strong currency and make strategic acquisitions abroad. ‘Swiss corporations do have the cash to make such acquisitions but because nobody knows what tomorrow will bring or when prices will hit rock bottom who knows when the rally will happen?’ says Pestalozzi’s Zürich-based partner Michael Kramer. Swiss clients going overseas does not necessarily translate into their legal advisers opening up foreign outposts. However, in 1988, Geneva legal practice Python & Peter became one of the first Swiss law firms to enter the Asian market when it opened an office in Tokyo under the auspices of partner Charles Ochsner. It assists both Swiss companies operating in Japan and Swiss companies starting business in the Japanese market.

Morrison Foerster. Landis+Gyr was jointly represented by Skadden, Arps, Slate, Meagher & Flom; Bär & Karrer partners Thomas Reutter and Christoph Neeracher; and NKF’s Weber. Asia has also been a source of work for Lalive. Alexander Troller, a Geneva-based partner, has seen increasing numbers of Chinese buyers looking to make acquisitions in Switzerland, particularly in the energy and luxury goods sectors. And notwithstanding a decline in volume, the mid-market has also

enjoyed significant mandates. Swiss law firm Python & Peter was active in several acquisitions, including a $50m-plus energy industry deal and a $30m-plus transaction in the automation technology sector. Purely domestic M&A shouldn’t be written off either. Led by partner Markus Vischer, Walder Wyss advised one of Switzerland’s largest media companies, Tamedia, on the sale of the assets of two of the country’s largest private media enterprises, TeleZüri and TeleBärn, to Swiss-based media and publishing services company AZ Medien. Because not many TV companies have been sold in Switzerland, the transaction raised novel regulatory issues regarding the transfer of TV licences and the distribution of TV signals. Schärer partner Jörg Walther represented AZ Medien.

REGULATORY PRESSURES Further merger work in 2012 is likely to come from Switzerland’s banking sector. Alongside the ongoing discussion over banking secrecy in Switzerland, a ‘too big to fail’ (TBTF) debate has ignited over Switzerland’s largest banks. The Financial Stability Board, whose secretariat is in Basel, has published recommendations on ‘systemically important financial institutions’, namely those banks which are TBTF. Add this to the global crisis and the importance of Switzerland’s financial services industry, and the Swiss Financial Market Supervisory Authority (FINMA) has become more authoritative. FINMA has decided to implement Basel III – the global regulatory standard on bank capital adequacy, stress testing and market liquidity risk – quickly. Together with the Swiss legislator, it has decided that banks should increase their capital levels to make them more viable u

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TAKING A CUT Despite headline deals, there is no getting around the impact of the strong currency on the cost of legal services in Switzerland. Mathis Berger, a partner at Nater Dallafior, says that the strong Swiss franc has meant that the firm has become more expensive for foreign clients. Nater did not increase price levels in 2011 and clients expect the firm to be even more flexible on billings. Because of the current exchange rates, it is even more important to offer non-Swiss clients cost-efficient transaction teams with multidisciplinary capabilities. Catrina Luchsinger Gähwiler, Zürich-based managing partner at Froriep Renggli, says: ‘Focusing on quality as well as being able to retain valuable employees and hire new, dedicated talent, remains a must for internationally oriented law firms such as ours.’

u during difficult times. The new rules are

likely to enter into force in January 2013. Despite the TBTF debate and the well-documented problems at Switzerland’s two largest banks, UBS and Credit Suisse, with regard to tax fraud and rogue traders, it is more likely that small banks will lose their licence because of the cost of extra capital and regulation, and fail. UBS and Credit Suisse, by contrast, have already improved their capital position and given high priority to compliance. Although it has not yet happened on a big scale, consolidation among smaller industry players is expected. With the capital requirement rules and the erosion of margins making the world of private wealth management much tougher, the paradigm has shifted and there are likely to be repercussions for Switzerland’s banks. ‘It’s extremely difficult for the smaller, private banks to comply with all the extra regulation such as that imposed by FINMA,’ says CMS von Erlach’s Sommer. With the pressure heaped on both Swiss banks and their clients in recent years, many expect to see some smaller banks bought up, merging or disposing of their client portfolios. Nicolas Piérard, Geneva-based partner at Borel & Barbey, tells LB that his firm has become more involved in the sale of various banks and asset managers. Because of the reduction in the banking industry’s margins, Piérard expects this field of mergers work to significantly increase in 2012.

Some expected the strong currency to have a worse impact on Switzerland’s legal services community. Daniel Daeniker, a Zürich-based partner at Homburger, concedes that Swiss law firms are slightly less price-competitive than before, but believes that they more than make up for that with efficiency. ‘The final bill is often much less than you would receive from an Anglo-Saxon practice,’ he says. Nicolas Piérard, partner at Geneva firm Borel & Barbey, says that so far his firm has not seen any impact on fees. And although German clients find Poledna Boss Kurer rather expensive right now, according to partner Walter Boss, the firm has not lowered fees. ‘You get what you pay for and we offer a premium service,’ he says. ‘You cannot be all things to all people.’

Borel & Barbey has already been involved in the sale of various banks and asset managers. In February 2011, partner Michel Barbey represented Johnson Financial Group, as seller, in the disposal of Banque Franck, Galland & Cie to Banque Piguet & Cie. Zürich-based Werner Schubiger, a partner at Kellerhals Attorneys at Law, advised Banque Piguet & Cie. Bär & Karrer has also advised on consolidation-related transactions. Led by Watter, the firm advised both banks in the merger of Bank CA St Gallen and swissregiobank in late 2011, the merged entity changing its name to acrevis Bank. The cost of increased regulation has also led to divestitures by major European banks of their Swiss wealth management subsidiaries – such as the 2011 sale of ABN AMRO (Switzerland) to Swiss private bank Union Bancaire Privée (UBP). Freshfields Bruckhaus Deringer’s Amsterdam team advised ABN AMRO and Swiss firm Lenz & Staehelin acted as local counsel. Representing UBP was Baker & McKenzie in Geneva. And in October 2011, Barbey again led the representation of Johnson Financial Group in its sale of Franck Galland U.S. Advisors – organised under Swiss law and registered as an investment adviser with the US Securities and Exchange Commission (SEC) – to Roycan Trust, a subsidiary of Royal Bank of Canada Group. FBT Attorneys-at-Law’s managing partner, Christophe Wilhelm, advised Roycan Trust. Not all Swiss bank sector M&A is linked to the fear of regulation. In November 2011, Safra

‘Focusing on quality remains a must for internationally oriented law firms such as ours.’ Catrina Luchsinger Gähwiler, Froriep Renggli Group and Rabobank Group entered into a share purchase agreement under which Safra would acquire a majority shareholding in Bank Sarasin for €843m from Dutch Rabobank, the transaction subject to approval by the Swiss and foreign authorities. Although an example of consolidation, some argue that Bank Sarasin was not sold because of the cost of regulation or capital requirement worries, but because its parent bank, Rabobank, made a strategic decision to dispose of it. Led by Daeniker, Homburger represented Sarasin on Swiss law. CMS von Erlach partner Hans Wille led the advice to Rabobank. Even Switzerland’s oldest private bank, St Gallen-based Wegelin Bank has reacted, not because of regulation but in response to a dispute with US authorities over three of its staff being charged with conspiring to hide over $1.2bn in client assets from US tax officials. At the end of January 2012, Wegelin sold its non-US business to Raiffeisen Switzerland’s Notenstein Privatbank, considering this to be the only way to protect staff and client assets. Peter Nobel and Christoph Peter, partners at Zürich firm Nobel & Hug, advised Wegelin, u and Raiffeisen was represented by Froriep

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u Renggli’s Zürich M&A head Beat Barthold.

‘This transaction was a challenge to the team with respect both to the narrow timeline set for closing and the political and regulatory situation under which the transaction was concluded,’ says Barthold. Consolidation within the banking sector may also affect relations that law firms have enjoyed with their traditional clients, especially if some banks cease to exist. Additionally, as the costs of capital and regulation force small banks to reconsider their business case, the increased complexity and fast pace of new legislation in the banking sector may require lawyers to become even more specialised. Firms with large teams of banking law experts and a steady workflow may benefit from the consolidation, while smaller practices, which previously advised the smaller banks, could suffer from this development.

NEW GROUND Increased regulation because of the Basel III framework and the expectation that banks raise their capital levels is also generating capital markets work. In November 2011, NKF acted as Swiss counsel to EFG International, a Zürichheadquartered private banking group, in an exchange offer to convert regulatory capital, subject to a ten-year phase-out, into Basel IIIcompliant regulatory capital. In the exchange offer, EFG invited holders of the €400m EFG fiduciary certificates listed on the Luxembourg Stock Exchange to exchange them into new Tier 2 notes issued by its subsidiary EFG International (Guernsey). The new Tier 2 notes will include a so-called ‘point of non-viability’ (PONV) write-down feature. This feature is a contractual provision where investors waive their rights under the Tier 2 notes upon the PONV, ie if FINMA decides that a write-down of the Tier 2 Notes is necessary to maintain the viability of the bank; or if there is a decision to make an injection of public sector capital without which the bank would become non-viable. This was the first deal of this kind in Europe from a non-TBTF bank. Weber led for EFG as sole Swiss counsel and co-ordinated EFG’s foreign advisers. ‘What the transaction shows is that Switzerland is once again at the forefront of ground-breaking developments and can set precedents for much larger jurisdictions,’ says Weber. Walder Wyss has also advised on significant capital markets deals. In December 2011, its corporate and commercial head, Urs Gnos, led the advice to the Cantonal Bank of Glarus in

‘The Swiss economy has resisted the global meltdown fairly well in comparative terms.’ André Gruber, DGE strengthening its lower tier 2 regulatory capital by raising around €33m through the issue of ten-year subordinated, convertible loans to eight other Cantonal banks. The increased focus on regulation is also likely affect Swiss-based fund managers. With the UK planning to introduce legislation to prohibit asset managers from accepting commission when promoting financial products, Switzerland will probably follow suit. ‘This will make the industry more transparent but asset managers operating in Switzerland, who currently earn approximately half of their income through commission, will have to adapt to the new environment and devise other ways to be remunerated,’ says Geneva-based Dominique Christin, a partner at BCCC. For example, they may start charging fees. Currently, Swiss-based fund managers are considered qualified professionals when investments for their clients are based on a management mandate. Consequently, they can buy foreign funds not registered for distribution in Switzerland. This will no longer be the case under the proposed modification of the Collective Investment Schemes Act (CISA), not even in cases where the manager has launched their own fund

abroad for the purpose of managing client assets more efficiently. ‘Such restrictive regulation is unnecessary and does not result in additional protection,’ says Christin. ‘Fund managers will continue to come to Switzerland, but it is difficult to advise in the current environment, as it is now uncertain how the law will be modified and how Switzerland will respond to the Alternative Investment Fund Managers (AIFM) Directive.’ Approved by the EU parliament in November 2010, the AIFM was created to produce a comprehensive and effective regulatory and supervisory framework for alternative investment fund managers within the EU (see ‘Worlds Colliding, LB211, page 68). On the bright side, the increased focus on regulation is likely to translate into additional work streams for Switzerland’s lawyers, either in setting up new funds or in providing advice to fund managers on their reduced margins and adapting to the new environment.

ETERNAL OPTIMISM Switzerland’s deal flow does not look like it’s about to dry up, but some transactions lawyers expect the flow of M&A work to be sluggish in 2012. ‘It means we have to be even more costefficient, but we are prepared for this,’ says Vischer’s Christ. ‘Because Swiss law firms are smaller than Anglo-Saxon counterparts we can be more versatile and switch our M&A lawyers to day-to-day corporate matters.’ If M&A mandates do dry up, Switzerland’s full-service law firms are likely to be compensated by other practice areas. Schellenberg Wittmer’s Jeanneret expects the firm to further develop its biotech, pharma and life sciences law expertise, while litigation and arbitration work is booming for most Swiss dispute resolution teams (see ‘Fighting fit’, page 98). Several firms have beefed up their tax departments to deal with the extra tax compliance and investigations work. Bär & Karrer recruited three tax specialists in late 2010. Poledna Boss Kurer (PBK) welcomed counsel Hans-Peter Hochreutener from the Federal Tax Administration in January 2011, where he was the legal head for ten years; and Python & Peter welcomed professor Robert Danon as counsel from the University of Neuchâtel in January 2012. It is clear that the Swiss legal market isn’t short on optimism. Says NKF’s Weber: ‘People are already predicting that 2012 will be a gloomy year for M&A but they said that at the start of 2011 too!’ LB julian.matteucci@legalease.co.uk

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FIGHTING FIT Switzerland’s dispute resolution market is in rude health. LB talks to the key players about recent headline cases and what the implementation of new arbitration rules in 2012 will mean JULIAN MATTEUCCI

T

he volume of Swiss M&A and capital markets may have flattened out in Switzerland but the global downturn has produced a raft of investor claims against banks and investor management disputes. ‘In tough economic times, people are much more prepared to take their case to court and less willing to settle,’ says Patrick Sommer, partner at CMS von Erlach Henrici (CMS). Consequently, Switzerland has become a major battlefield for asset recovery and enforcement of foreign judgments. According to Charles Adams, head of Akin Gump Strauss Hauer & Feld’s Geneva office: ‘The international markets are very litigious right now, but the focus has shifted to

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financing transactions that went wrong and hedge funds going belly-up.’ This has been especially pronounced in Switzerland because of the importance of its finance industry. Not only is Switzerland’s litigation market in robust form as a result of the continued global downturn and other significant international events, but following a revamp of the country’s civil procedure code (see box, ‘National unity’, page 100) Swiss litigators are looking forward to the day when conducting cases in any of the country’s 26 cantons will be a uniform experience. Furthermore, new rules have come in that can only benefit Switzerland’s already excellent reputation as an arbitration venue.

TOUGH TIMES As in other jurisdictions, investor claims against banks that failed to carry out proper due diligence are keeping Swiss litigators especially busy. Nater Dallafior is one firm that has picked up some of the work. ‘We are independent and can act both for the banks and for banking customers,’ says Zürich-based partner, Mathis Berger. Pestalozzi partner Christophe Emonet is leading a team advising Bank Cantonale de Genève in a major case against Ernst & Young (E&Y) over alleged violations of its duties while auditing the financial statements of the bank between 1990 and 2000. Submissions are still being prepared and the value in dispute is confidential for now, but it is expected to be a u significant claim. Benoît Chappuis leads

Illustration/Photograph ARTIST’S Photograph NAME SHUTTERSTOCK

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NATIONAL UNITY Designed to bring Switzerland’s legal system in line with international practice, the new Unified Civil Procedure Code (see ‘On the rise’, LB212, page 12) came into force at the start of 2011. Previously, each canton had its own rules, meaning there were 26 different civil procedure codes. The code was a significant milestone for Switzerland and had been a long time coming. One year on, and Walder Wyss dispute resolution partner Dieter Hofmann believes that the Code has proven its value; while according to Domitille Baizeau, a partner at Lalive, things are easier with the same set of rules applying across the country. Although some benefits are being felt, it’s still early days. Mathis Berger, a partner at Nater Dallafior, believes that the courts remain unsure about how to apply the code. Uncertainty is, therefore, present in the market as to its practical use. ‘There’s still a tendency for each canton’s court to apply the old customs and habits to the new code,’ says Schellenberg Wittmer’s managing partner Vincent Jeanneret. Swiss litigators are also careful about how they approach the code. ‘This is natural,’ says Bär & Karrer’s Zürich-based litigation head, Matthew Reiter. ‘A year is not a very long time.’ What the conduct of dispute resolution in Switzerland needs to achieve real uniformity is a few leading decisions from the Swiss Federal Supreme Court. The courts of first and second instance have issued a few judgments, but until a body

u Swiss firm Lenz & Staehelin in its advice

to E&Y. The financial fallout means that Swiss litigators are also enjoying a surge in regulatory investigations and white-collar crime. ‘At any one time, these practice areas can keep ten to 20 of our professionals busy in an area that was virtually non-existent ten years ago,’ says Zürich-based Daniel Daeniker, a partner at Homburger. One headline corruption case recently closed. In November 2011, Switzerland’s prosecutor fined Alstom Network Schweiz – a subsidiary of French engineering company Alstom – approximately €2m, and ordered it to pay compensation of €29.5m for negligence in failing to prevent the

of Supreme Court case law is built up, it is difficult to make a comparative study with a view to achieving a truly uniform procedure. ‘It’s an ongoing process and this will take a few years yet,’ says Reiter. Meanwhile Daniele Favalli, a Zürich-based partner at Vischer, expects some Federal Court decisions on procedural issues in 2012. The unified set of rules was also intended to increase competition among Swiss law firms by enabling dispute resolution practices to spread their litigation capabilities out of the cities in which they are based. Pestalozzi was already litigating in all of the cantons, but many Zürich law firms have not seen the code translate into increased work. ‘If we have a case in a city other than Zürich, we would still refer it to a local law firm there,’ says Patrick Sommer, a Zürich-based partner at CMS von Erlach Henrici. Many Zürich practitioners would be reluctant to litigate in certain cantons because of local customs, such as the difference in language, the look and feel of writs, the court management of the proceedings, and because they would not necessarily be made to feel welcome. Thomas Legler, a Geneva-based partner at Python & Peter, believes that the Zürich litigators are correct, and that the same is true for Geneva practitioners moving in the other direction. In Legler’s opinion, the most significant barrier is language. ‘One may overcome local customs and similar issues but you will never feel comfortable pleading in a language that you do not control perfectly,’ he says.

bribery of foreign officials in Latvia, Tunisia and Malaysia. The case marks a landmark decision on the criminal liability of corporations. LHA Avocats’ partner Maurice Harari in Geneva, and Bern-based partner Jürg Wernli of Luginbühl Wernli + Partner, represented Alstom. International pressure on the Swiss banking sector over its secrecy rules has also resulted in increased numbers of tax-related legal battles. ‘The proliferation of double taxation agreements and the Withholding Tax Act envisaged by the Swiss government have left foreign clients in need of close legal guidance,’ says Domitille Baizeau, a Geneva-based partner at Lalive. Such guidance is particularly important when dealing with the US. At Prager Dreifuss,

‘The value of so many witnesses, dozens of lawyers, and arbitrators to the local economy is immense.’ Charles Adams, Akin Gump

co-litigation and arbitration head Urs Feller tells LB that its litigation department has been very active in such matters since the start of 2012. Led by Feller, the litigation team acts for several clients on the US Internal Revenue Service’s requests for administrative assistance concerning accounts held with Credit Suisse and its subsidiaries. Poledna Boss Kurer partner Walter Boss confirms his firm’s representation, alongside US advisers, of large numbers of US clients who are being urged to disclose information to the IRS. Switzerland’s role as a battlefield for asset recovery and enforcement of foreign judgments was further prompted by international events that have nothing to do with the global economic

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crisis. Baizeau says that this was particularly evident following the Arab Spring, with many claims arising over the confiscation and release of assets belonging to certain nationals from North Africa and the Middle East. Again led by Feller, Prager Dreifuss represented an Arab state in the recovery of illicit gains obtained by its former head of state, his family members and close friends. The Arab Spring has also generated contentious mandates – particularly regarding the release of frozen assets – for André Gruber and Didier de Montmollin, two of the founding partners at Swiss legal practice DGE, who have been instructed by several prominent individuals from North Africa and the Middle East, who hold financial interests in Switzerland. At Vischer, Zürich-based partner Daniele Favalli is seeing new types of litigants arriving from other parts of the world, including CEE, Russia, India and China, as well as

more insurance-related matters ending up in litigation, with the practice often called into other jurisdictions as coverage counsel. The overall increase in disputes also means that Swiss dispute resolution departments are especially active in state court litigation right now. Walder Wyss’ litigation and arbitration partner Dieter Hofmann tells LB that his firm is handling several complex cases involving interim relief against parties from different courts. One matter involves an international shareholder dispute over a biopharmaceutical company where new procedural techniques under the new Swiss Civil Procedure Code proved successful.

FORUM FOR EXCELLENCE Switzerland is globally renowned for the quality of its international arbitration offering. The combined presence of the World Trade Organisation (WTO) and the World Intellectual

Property Organisation (WIPO) in Geneva; international football body FIFA in Zürich; and the Union of European Football Associations (UEFA) in Nyon, provide a constant source of work to the country’s domestic and international law firms. ‘Switzerland is indeed doing well as a setting for international arbitration,’ says Thomas Legler, a Geneva-based partner at Python & Peter. Consequently, several Swiss law firms continue to invest heavily in the practice area. The investments have paid off. With nine dedicated arbitration partners, Geneva-based Lalive now has the largest arbitration portfolio it has ever had. It is currently acting in over 100 arbitrations, either as counsel or arbitrator, with an aggregate value of over $16bn. In 2011 Python & Peter handled around 25 cases as counsel, with the total value in dispute around $4.6bn. US legal practices in Switzerland are also u active in Swiss-related international

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u arbitration. At Akin Gump, Adams reports

his practice as having its best year in a decade in terms of volume and interest of cases, while fellow partner Michael Stepek has similarly continued to see workflow increase exponentially. Recently, the firm was instructed to act for Adams’ longstanding client, Alstom Power. The general contractor found itself embroiled in an International Chamber of Commerce (ICC) arbitration in Lausanne with sub-contractor Endel – an affiliate of French multinational energy company GDF Suez – over $120m in claims and counterclaims related to a New Caledonia coal-fired power station. Elliott & Kearney’s Paris-based Derek Elliott led for Endel. The Alstom case serves to show the importance of international arbitration to Switzerland as a cottage industry. Any one arbitration contributes greatly to the overall spend into the Swiss economy, when taking into consideration legal fees, arbitrator

costs, institutional administrative fees, court reporters, air fares, logistical support, accommodation, and restaurants. ‘Look at the Alstom case,’ says Adams, which took up three weeks of hearing time just on the case’s merits alone at the Lausanne Palace Hotel last summer. ‘The value of so many witnesses, dozens of lawyers, and arbitrators to the local economy is immense,’ he says. ‘That whole arbitration must have cost around €8m.’ In recent times, the industries feeding arbitration in Switzerland have broadened out. ‘It used to be the case that construction disputes represented around 50% of international arbitration cases in Switzerland,’ says Adams. The global crisis has meant that over the last five years there have been fewer construction projects to argue over; and with less M&A around to provoke M&A-related arbitration many firms are increasingly handling disputes over fi nancing transactions

that have gone sour, hedge fund claims, and IP-related arbitrations. Pestalozzi acts for clients in arbitration from several industries, including financial services, pharmaceuticals, and construction. And with the commodities business generating disputes over delays and the quality of materials, the firm often finds itself enforcing, through arbitration, the contractual rights of longstanding client Glencore International, the Switzerland-based international commodities trader. The energy sector has also generated several high-profile arbitrations for law firms. Lalive has acted on several multibillion-dollar gas pricing disputes, led by founding partner Michael Schneider and partner Veijo Heiskanen, as well as investment treaty disputes worth hundreds of millions of dollars, and a $700m construction arbitration in the Gulf. Akin Gump’s Stepek led a team representing a power-generation equipment manufacturer in a dispute with a

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Japanese licensee over royalties arising from the use of licensed technology in the operation of power plants in Japan. With UEFA headquartered in western Switzerland, sports-related arbitration is frequently heard before Lausanne’s Court of Arbitration for Sport (CAS). In December 2011, UEFA was successfully assisted by Bär & Karrer’s Geneva litigation and arbitration head Saverio Lembo and Ivan Cherpillod, a partner at Lausanne firm BMP Associés, in a CAS arbitration. The CAS upheld a decision by football’s European ruling body UEFA to refuse FC Sion re-entry to the Europa League after the Swiss club breached player recruitment rules. Arbitration proceedings had been initiated by UEFA, the dispute between the parties arising after FC Sion was sanctioned with forfeit defeats for having fielded non-eligible players in the playoff games of the UEFA Europa League’s 2011/12 season. It is those forfeit decisions that were

‘Regulatory investigations can keep professionals busy in an area that was non-existent ten years ago.’ Daniel Daeniker, Homburger upheld by CAS. Lembo tells LB that the UEFA case is significant because it could set a precedent relationship between CAS and the state courts.

PLAYING AWAY Swiss-related international arbitration does not always remain within the country’s

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and insisted on Swiss law, but the other party was Chinese and demanded a seat in Asia by way of compromise – Switzerland’s local economy loses out, but its legal market still gains. Swiss arbitration counsel may represent both sides, and there may be one or more Swiss arbitrators on the tribunal. It would therefore be a mistake to limit the local benefits of international arbitration to Swiss-cited or Swiss law disputes, given that international arbitration counsel are not limited geographically to the place of arbitration. At Akin Gump, a substantial portion of Stepek’s practice is representing Russian clients. For example, he has acted for Renova Holdings in a series of English law, Stockholm-based arbitrations with BP, its joint venture partner in TNK-BP, Russia’s third-biggest oil company. Arbitration in Switzerland received a further boost in 2012 via the introduction of updated rules. A revised version of the UNCITRAL-based

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Swiss Rules of International Arbitration was adopted by the Swiss Chambers of Commerce (SCC) in January 2012 and is expected to be in force in June. ‘The original 2004 rules had some teething problems and the new rules are intended to smooth those out,’ says Vischer’s Favalli. In light of recent revisions to both the UNCITRAL and ICC Arbitration Rules in 2010 and 2012 respectively, Froriep Renggli’s arbitration partner, Jean Marguerat, believes that the timing could not have been better. Most observers agree that the new rules make international arbitration in Switzerland even more user-friendly. ‘Without doubt, these welcome amendments will further boost the role of Switzerland as a leading seat for arbitration,’ says Walder Wyss’ litigation and arbitration partner, Philipp Habegger. The changes introduced include a duty, for both arbitrators and parties, to conduct the

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arbitration in an expeditious and cost-effective manner, having regard to the complexity and value of the dispute. ‘That duty, as an ongoing task throughout the proceedings, will encourage the arbitral tribunal to become familiar with the facts and the legal issues from the outset of the case,’ says Python’s Legler. Such an obligation could influence the arbitral tribunal when making decisions as to costs, taking into account the extent to which each party has conducted the arbitration quickly and efficiently. Additionally, the new rules compel parties to use case management conferences, which are intended to ensure that the whole process is conducted more efficiently. In practice, such conferences are already frequent. Now they will be mandatory. Emergency arbitrator proceedings are now formally in place. Also brought in by the ICC in January 2012, these allow the parties to obtain urgent interim relief before the arbitral tribunal

is set up. Up until now, the parties had to resort to state courts to obtain interim relief.

BUILDING ON SUCCESS Akin Gump’s Adams says that although the new rules have excited hyper-technical analysts, they are not a game-changer. Because it takes, on average, around five years for the filing of an international arbitration from the time that the international arbitration clause is put into a contract, the tweaking of the rules have not yet had any practical impact. In any event, the old rules are already very popular among users. ‘They offer more flexibility, less interference and administration of proceedings by the arbitral institution than most other institutional arbitration rules,’ says Habegger. Nonetheless, the new rules help arbitration practice in Switzerland keep up with developments in civil law litigation and civil law trends around the world. ‘They are likely

to make Switzerland even more attractive as an arbitration venue,’ says Vincent Jeanneret, the Geneva-based managing partner at Swiss law firm Schellenberg Wittmer. Some expect the new rules’ adoption to be accompanied by a marketing push on the part of the SCC, with an increase, in due course, in the number of cases utilising the Swiss rules and a larger number of Swiss-seated arbitrations. ‘Switzerland is the country with the largest pool of ICC arbitrators and, with Geneva and Zürich combined, it is the second most common seat for ICC arbitrations after Paris,’ says Lalive’s Baizeau. ‘There is no reason why this should stop.’ Vischer’s Favalli confirms this general mood of optimism among Swiss disputes lawyers. ‘The Swiss dispute resolution market is booming and we see no sign of this changing,’ he says. LB julian.matteucci@legalease.co.uk

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CLIMB EVERY MOUNTAIN A number of UK law firms have launched outposts in Switzerland to enhance their private client practices. LB talks to the new entrants about what drove their decision and the response from the local legal market JULIAN MATTEUCCI

U

K law firm Speechly Bircham opened a Zürich office in June 2011, marking the firm’s first venture overseas. Private client partner Mark Summers was relocated to Switzerland to head the new operation alongside two associates, with fellow partner William Hancock joining him at the start of 2012. Speechly’s Zürich offering is further bolstered by international private client head Charles Gothard, who spends one week each month in the city, and financial services partners Jonathan Bayliss and Kate Troup, who are both in Zürich for two or three days each month. Farrer & Co, another UK law fi rm, also chose to open a Zürich branch in June 2011. Private client partner Nick Dunnell and tax u head Robert Field are spearheading the

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u initiative, which involves regular visits to the fi rm’s serviced office. These arrivals are further proof that private client work remains vital for lawyers in Switzerland, buoyed by the continuing flow of well-qualified and well-paid foreigners to the country to work for corporations. Although Geneva is traditionally seen as the Swiss centre for private client work – Charles Russell has been in Geneva since 2006 – Speechly and Farrer establishing themselves on Switzerland’s German-speaking side is evidence of Zürich’s growing profi le for private client and wealth management matters.

GROUND PRESENCE Speechly had already been working extensively in Switzerland for several years, both on the private client side for wealthy international families and on wealth management matters for Swiss banks and bankers. This was

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stepped up heavily about five years ago. ‘We got to the point where we needed to show our commitment to the market,’ says Summers. When Speechly got the green light from its private banking and other contacts in Zürich that its presence would be very much welcome – and that it would be more likely to win significant work – the firm jumped. But the decision was not taken lightly. Finding lawyers with the right experience and seniority who want to relocate to Switzerland can be difficult. ‘We’re financially a conservatively managed fi rm, so we thought very hard about this before making the leap,’ says Summers. ‘It’s a big cost, and it needed a partner to relocate on a permanent basis in order to make it work.’ Furthermore, the expense of both premises and people have been made worse by the exchange rate, according to Henry Fea,

head of Charles Russell’s Geneva office, with costs increasing by around 70% over the last four years. Speechly was not interested in flying partners in and out to a temporary office. Summers believes that it would have sent the wrong message to the market, based on what bankers and others on the ground told the fi rm. Fea also believes greatly in the importance of a local presence, particularly because tax work currently makes up a significant part of the fi rm’s practice in Geneva. ‘Clients instruct us because we are in Switzerland, we can attend meetings with them and their bankers here at short notice,’ he says. The timing of Speechly’s launch in Zürich coincided not only with the opening of its Luxembourg office in the same month, but also with the announcement of the UK/ Swiss tax agreement (see box, ‘Carrot and stick’, page 112), which has fed the

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fi rm with regular instructions from UK citizens opting to disclose their Swiss accounts to the UK tax authorities. Because the agreement smoked out so many tax evaders, disclosure is the number one issue for several Swiss private bankers with UK clients right now. Disclosure work was not the reason Speechly’s office opened, but the timing was helpful. Summers has seen a significant increase in disclosure request work from Swiss private bankers with UK clients. He believes such work is likely to tail off towards the middle of 2013, but the firm is making efforts to retain several of those clients. Because many of them are often used to dealing with their personal tax matters clandestinely, Speechly can help them understand that they can save tax and pass wealth safely down the generations through appropriate structures without evading tax.

‘Zürich has begun to catch up with Geneva’s dominance of the wealth management sector.’ Michael Walther, GHR Rechtsanwälte Inroads into bank secrecy are also presenting new opportunities for trust management services companies such as Investec Trust Switzerland, whose business model is built on the administration of tax-compliant wealth. It is speaking to an increasing number of families and their advisers about creating structures to hold wealth in a compliant way, while retaining high levels of financial privacy. Genevabased managing director Paul Douglas says:

‘Historically, we would not have pursued discussions with a non-compliant settlor or beneficiary, whereas we could consider doing so now provided that the individual adheres to the agreement.’ What initially drove Farrer’s decision to focus on Zürich was the strength of the fi rm’s existing client relationships and the need to service them, while strengthening ties with local lawyers, banks and trust companies. ‘We perceive Zürich as the u

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u main centre for business and fi nance in Switzerland and it is also becoming more prominent in the private client arena,’ says Dunnell. ‘We considered that this played to one of our strengths, namely the breadth of the Farrer offering.’ But Farrer is not solely focused on Zürich. Dunnell sees significant opportunities in Geneva and partners spend time in both centres. The fi rm took the deliberate decision not to open a permanent office in Switzerland but, instead, to have a serviced office from which it can work when in Zürich. Since opening, it has advised across areas that reflect the breadth of the London practice, including private client, notably property structuring, international succession planning and the Liechtenstein Disclosure Facility (LDF), trust disputes and investment funds. International fi rms launching in Zürich are not necessarily opening their first and only

Swiss outpost. Withers has been in Geneva since 2005, but in April 2011 it opened a Zürich office with lawyers providing US, UK, Russian and cross-border international tax and trust services. With Withers’ Russian and CIS clients placing more importance on structuring their personal wealth and making their corporate structures compliant internationally, Zürichbased partner Judith Ingham says that the arrival of Russian specialist Olga Boltenko in the summer of 2011 from Withers’ London office to Zürich means business is booming. Some believe that the new entrants’ decision to choose Zürich over Geneva is testament not only to Zürich retaining its position as an important fi nancial hub, but also shows that Zürich has been able to attract new wealth management providers. This is because today’s high-net-worth individuals require full banking services, believes Michael Walther, a partner at GHR Rechtsanwälte, which

includes a combination of asset management, investment banking and wealth management. ‘Zürich has begun to catch up with Geneva’s dominance of the wealth management sector,’ he says. That said, Withers’ Geneva office is also growing. Jeff Morse joined Geneva in early February 2012 from Las Vegas fi rm Solomon Dwiggins & Freer, and the London office has beefed up the fi rm’s wider Swiss team with tax investigations expert Maurice Martin joining from Irwin Mitchell in December 2011. ‘Having Maurice based in London, but very much part of our Switzerland-focused team, will be extremely useful to clients in the UK that are coming forward voluntarily to the UK tax authorities,’ says Ingham.

STILL DOMINANT Geneva has also attracted new entrants. Holman Fenwick Willan (HFW)’s Geneva

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office opened in October 2010, enhancing the capability of HFW’s trade and energy group to serve the needs of trading clients based in Geneva and elsewhere in Switzerland. The office is led by Jeremy Davies, who joined from Davies Johnson & Co – which had been in Geneva since January 2006 – together with associate Sarah Hunt and a trainee. London partners Chris Swart, Rory Gogarty, Brian Perrott and Damian Honey rotate through the office as they each have clients and significant amounts of Geneva work. Explaining his decision to move his original Plymouth practice to Geneva, Davies says: ‘Geneva is the largest oil and commodities trading centre in the world; the largest grain and cotton market in the world; and the second largest for sugar after London. Friends and clients had been urging me to move my practice here for years, as no

other international fi rm was practising trade and energy law in Geneva.’ It was good timing when, nearly five years later, Davies was looking to sell his business and HFW was determined to establish a Geneva presence. Having integrated his practice with HFW’s, Davies appreciates being able to tap into the London office for expertise in areas such as soft commodities, where London is a better source for expertise. This has enabled the fi rm to expand the influence of the office hugely. To date, HFW’s Geneva office has actively advised on piracy and sanctions issues, but opening during a global recession means it has also been busy with trading price fluctuations and the freight market downturn. ‘We’re essentially a litigation practice and litigators always do well from downturns,’ says Davies. The Geneva team has also enlarged

its offering, with former Akin Gump Strauss Hauer & Feld international arbitration lawyer Matthew Parish recruited in late 2011 as a partner. ‘Matthew is a perfect fit as he also has a background in international trade law,’ says Davies. Although Davies has met his initial expectations for the office, there is still work to be done. The Geneva branch is looking to expand further, on both the commodities side and international arbitration, and Davies believes that the Geneva office could still do better in harnessing the skills and experience of the London office in marketing Geneva.

OLD GUARD The international law fi rms already present in Switzerland are pleased to have company. ‘The more competition, the more likely we shall all improve our service levels u

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CARROT AND STICK

‘Domestic legal practices welcoming new entrants can only mean good news for Swiss law firms as it further exposes the country globally.’ Alexander Troller, Lalive

u and quality of advice,’ says Withers’ Ingham. Commenting on Farrer’s arrival, Ingham does not think that the firm has yet affected the local legal services environment, but believes that it takes time. ‘We worked with Swiss contacts on the basis of regular visits for years before opening our offices here,’ she says. As for Speechly’s Zürich office, Ingham says that it houses experienced practitioners and that, of the UK firms in Zürich, its skill sets most closely match Withers’ Zürich expertise on the UK side, despite Speechly’s team being small and without Withers’ US and Russian expertise. In response, Summers says that although Speechly’s

The UK government plans to recoup millions of pounds of unpaid tax from UK residents with Swiss bank accounts. To encourage those who have until now been outside the UK tax net, the government needs to offer a genuinely attractive carrot, believes Henry Fea, Charles Russell’s Geneva head. The Liechtenstein Disclosure Facility (LDF), introduced in 2009, was such a carrot. The LDF offers favourable terms to taxpayers with an offshore tax problem, or offshore disclosure to make. But in August 2011, the UK-Switzerland withholding tax agreement was announced. Geneva-based Paul Douglas, managing director of trust management services company, Investec Trust, believes that the agreement is a welcome addition to UK/Switzerland relations in that it enables affected individuals to maintain financial privacy while complying with their home state tax obligations. From 2013, Swiss banks will be obliged to impose withholding taxes on past and future interest payments, as well as on capital payments to anonymous UK clients. UK resident clients will also have to make a one-off tax payment to HM Revenue & Customs to address their previous non-compliance. UK-resident clients can also opt to disclose their Swiss accounts to the UK tax authorities, therefore paying

Zürich office does not have US-qualified lawyers, both the Zürich and London offices carry out a great deal of cross-border work involving the US, on behalf of US family offices and wealthy individuals. According to Dunnell, the local market has been very positive about Farrer’s increased presence in Zürich. Farrer does not see itself as competing with the local fi rms, as it practises English law and UK tax services rather than Swiss law. The local Bar also welcomed HFW’s Geneva office, as it presents no direct challenge. Most traders tend to elect English law in their agreements and that is what HFW advises on. ‘However, in time it may become necessary to invest in Swiss law expertise,’ says Davies.

back taxes but avoiding the withholding levy. Instead of waiting to see if a better deal is around the corner, many UK clients are relieved to have the Swiss/UK agreement to compare with the LDF. The question now is whether UK residents will wait for the agreement to become law or move their assets into Liechtenstein under the LDF. The Swiss/UK agreement’s publication confirmed that in many cases the LDF would be a cheaper option. The LDF only requires payment to HMRC of the taxes due from 1999/2000 onwards and penalties are limited to 10% of unpaid taxes. ‘Most clients will prefer the LDF option because they can regularise their affairs immediately,’ says Zürich-based Judith Ingham, a partner at Withers. Furthermore, the new agreement is not yet law. ‘Whether the EU will allow it in its present form is another matter,’ says Douglas. The EU Commission has declared itself against it, but the UK government appears intent upon pushing ahead with it anyway. It may form part of the UK’s 2012 Finance Bill. Nonetheless, it will still be at least another year before taxpayers can practically put their affairs in order and achieve favourable settlements. Meanwhile, they may find themselves targeted by the UK tax office.

The domestic legal practices confirm their welcoming of the new entrants. ‘It can only mean good news for Swiss law firms as it further exposes the country globally,’ says Geneva-based Alexander Troller, a partner at Lalive. Meanwhile BCCC partner Dominique Christin, tells LB that his firm will happily collaborate with the UK practices when it needs UK law assistance. Once the tax regularisation work is largely over in the next few years, the challenge for private client fi rms will be to fi ll that gap with remunerative work in other areas. For the moment, as far as the UK legal practices are concerned, Switzerland’s private client market is buoyant. ‘There seems to be work for all good law fi rms,’ says Dunnell. LB julian.matteucci@legalease.co.uk

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Legal Business March 2012 November 2010 Legal Business 3 The global economic crisis and a strong currency are challenging Switzerland’s M&am...

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