As new measures aim to bring Switzerland's cantons more in line with one another, Caroline Hill asks if this is the dawn of a  new era for the country's law firms

The Swiss legal market is so well established and its clients so well served by large and reputable local firms operating within an entirely stable and predictable regime that the country often falls below international firms' radar – but not so of late.

Not only are new legislative changes to the cantonal civil procedure system being touted by some as the most important reforms since the beginning of the 20th century, but as countries such as the UK come to terms with tightening tax measures, local Swiss lawyers are reaping the benefit of a growing hub of international businesses from large bluechips to lucrative hedge fund managers now headquartered in Zurich and Geneva.

And while no-one expects the magic circle to descend en masse to Switzerland, firms including Akin Gump Strauss Hauer & Feld and Holman Fenwick Willan last year notably joined the ranks of the very few foreign law firms in the country, drawing some speculation that others may follow clients or chase opportunities arising from the swelling numbers of companies on the ground.

New code of civil procedure

This January saw a new comprehensive code of civil procedure come into force across Switzerland unifying all 26 cantons which until now have somewhat confusingly each applied their own substantially different laws derived from both French and Germanic traditions. A court order from one canton can now be enforced in another, making the system less onerous and, importantly, less expensive.

While Holman Fenwick's Geneva office will not offer Swiss law capability, office head and international trade partner Jeremy Davies says: "It will make a difference being able to find and arrest assets for security purposes. You will be able to enforce the order in any canton."

It is also anticipated that the reforms may bring about a sea change in the way local litigation is conducted, with lawyers for the first time in a position to act on a cross-cantonal basis for large and valued clients. Baker & McKenzie's Swiss head Martin Anderson says: "It means people in Geneva will be more in a position to handle work in other cantons. This is a big change for all lawyers because the way in which litigation is being done will change as well."

According to Anderson, as businesses also start to think across internal divides they may expect trusted advisers to take a lead role on litigation that currently falls to local counsel in other regions. "When a client has lawyers they trust and is to proceed in a dispute in another canton they will want their regular counsel with support from a local counsel," he says.

This theory raises the prospect of Zurich and Geneva's largest law firms extending their already sizeable reach beyond cantonal barriers for the first time, but not all agree with this vision of the future. Vischer intellectual property partner Rolf Auf der Maur says: "You will certainly be able to litigate across cantonal borders but I think clients will still prefer to litigate in the canton. I think they know it's important to have local counsel who are somehow connected to the courts."

And while the rules have been standardised, lawyers argue that they will still have to be put into practice at a local level within the various cantons, with an expectation among many that this in itself will reduce uniformity.

At Akin Gump, which took over the Geneva office of Hogan Lovells lock, stock and barrel in April last year, office chief and firmwide head of international arbitration Charles Adams says: "There are no game changers, just tweaks to the cantonal regimes; the rules of civil procedure may change but the various cantons remain surprisingly parochial."

But will a unified code help to bring the notoriously independent cantons closer together? Zurich is the country's financial powerhouse while Geneva is one of the commodity trading capitals of the world, and very few law firms have an office in both cantons; will the fact that lawyers may now skip between their courts bring them any closer?

The general consensus is no. Adams says: "Zurich and Geneva have been co-habiting very prosperously within Switzerland's Helvetic confederation, but close they are not. They have different languages, religious traditions and legal structures, and it will take more than the code of civil procedure to unify these two communities."

Davies adds: "There are a lot of big differences between the cantons and a lot of jealously guarded rights and procedures in every walk of life."

Local lawyers instead see the changes as a step in the right direction towards uniting a fragmented system and part of a series of changes, including the forthcoming federal registry of companies and the eagerly anticipated federal patent court, which many hope will make Switzerland a more attractive place to litigate patents.

Relocation of HQs and new data centres

While still only a stream rather than a flood, there remains a flow of companies across a number of sectors that have relocated their headquarters to – or opened data centres in – Zurich and Geneva. 

Certainly the last couple of years have seen Switzerland become home to the headquarters of McDonald's; Kraft (which in December 2010 announced it is to relocate new subsidiary Cadbury to Zurich); Yahoo; Google; and US oil giants Transocean and Weatherford. While there have been perhaps less hedge fund managers entering the market than anticipated, early last year saw BlueCrest Capital Management, the UK's third-largest hedge fund manager with over $15bn (£9.6bn) under management, move around 50 of its top traders to Geneva. It is understood that Akin Gump advised BlueCrest. Meanwhile, Alan Howard, founder of asset managers Brevan Howard, relocated with a number of traders and leading energy traders. Trafigura, Mercuria Energy Group and Vitol are also understood to have grown their Swiss numbers over the past year.

Adams says: "Anyone who is mobile in the UK and in a 50% tax bracket is tempted to explore options offshore and Geneva has long been a platform for all kinds of trading activities. I suspect this is a trend that will follow and there are others waiting in the wings."

Political instability in Ireland is said to be acting as a catalyst; whereas in recent years companies wishing to relocate to a lower tax base have weighed up the pros and cons of both jurisdictions and the likes of Accenture and Warner Chilcott have set up in Dublin, the fear that Ireland's economic woes may lead to an increase in taxes is likely to push potential immigrants towards its mainland European rival.

Elsewhere, a growing trend has seen the likes of HP and IBM set up data centres in Switzerland, drawn by the strong data protection laws, ease of attracting staff and, of course, a favourable tax regime. Google, meanwhile, has set up a research and development centre in Zurich employing around 2,000 people.

Auf der Maur says: "A lot of international corporations prefer to keep and process their data in Switzerland rather than where they fear governments will interfere." The US in particular has very far-reaching rights to access data and communication streams.

While local lawyers are keen to emphasise that low taxes are just part of the package offered by Switzerland, the weight of income tax and corporate tax – of 10% rather than 20% in the UK – cannot be downplayed too much. Furthermore, in another example of how cantons continue to operate as parallel universes, each is able to make its own tax arrangements and potentially open to negotiation.

Davies comments: "If you have sufficient economic muscle you can do your own deal with the cantonal authorities."

Foreign law firms

While the arrival of two new firms in Geneva is, on the one hand, big news in a country where there are only a handful of foreign law firms in total, for large established local firms the newcomers, which practise little or no Swiss law, are not expected to disturb the status quo. What is less certain is whether more firms are likely to follow, and the very fact that the question is being entertained in this market is telling.

What is certain is that both Holman Fenwick and Akin Gump are capitalising on the influx of businesses into the jurisdiction and there is good evidence that the market is far from saturated. Akin Gump, which opened in Geneva on 1 May, has seen a 25% increase in the number of hours billed by its Swiss and international tax practice. Holman Fenwick launched in September last year, taking over the Geneva office of Plymouth-based Davies Johnson and providing English shipping and trade advice. Davies says: "There is so much work and we have lots of new clients. You are more likely to get the work if you are on the ground – people here are traders with urgent problems that require urgent attention and they don't like losing money."

The old argument that the Swiss market is too small to support newcomers is also starting to look on slightly shaky ground. The growing hub of international clients now convening in Geneva means that deals are being done that have no Swiss connection. Akin Gump Geneva tax partner Jonathan Ivinson comments: "I've met lots of people who come to Geneva to do business and if something legal is going on they call me – the work may have nothing to do with Switzerland."

However, one partner at a leading local firm comments: "The new entrants are smaller and focus on specific client relationships rather than being fully-fledged local firms." But, he adds: "If you have a good relationship with a big company you can't exclude the possibility that the law firm will open to avoid losing it to a Swiss firm."

But one factor likely to act against the continued inbound stream of listed companies is a shareholders rights bill that has arisen out of public anger at 'fat cat' bonuses and which, crucially, will impose more stringent regulations on the compensation handed down by any listed company based in Switzerland.

Adams says: "If passed in its most draconian form I expect it will operate as a disincentive to migration into Switzerland of the headquarters of publicly-traded companies."

The plans follow mounting public and shareholder pressure over compensation awarded at Switzerland's two largest banks, Credit Suisse and UBS, but some commentators also suggest that soaring real estate prices resulting from wealthy new residents have done little to appease Swiss nationals' anger.

Deal activity

There has been little upset when it comes to the latest deal tables for Switzerland, and Novartis' $12.9bn (£8.3bn) bid for the remaining 23% in Alcon continues to give advisers Homburger and Allen & Overy (A&O) a place at the top of mergermarket's legal adviser league. In Q3, A&O nearly doubled the number of Swiss deals it advised on from six to 11. Deals included its role advising security solutions company Assa Abloy on the $153m (£98m) acquisition of a stake in Swiss-based door systems group Agta Record from Somfy, advised by Sullivan & Cromwell, in October 2010.

As the Swiss economy continues to thrive by comparison with much of Europe, the legal market is one to watch. Ivinson said: "I think the trend will be that people will get out of the UK and how law firms respond to that trend will be interesting to see."