Trust and estates litigation – The great leap forward

With Asia overtaking Europe as the second-most wealthy region in the world, the pressure is on global private client practices to follow the money. Legal Business assesses the front runners.

Whenever money changes hands, disputes follow. Between now and 2025, predictions are that 90% of the world’s private wealth will have new owners. An awful lot of money is on the move and, in large part, that cash is set to transfer down the family line of ultra-high-net-worth individuals (UHNWI) – those with more than $30m in assets – typically from patriarchs to their offspring. Along with all this wealth will come the inevitable trust disputes.

This is particularly true of Asia and the Far East where the 2015 Boston Consulting Group’s annual global wealth report, launched in June, showed for the first time that the Asia-Pacific region (excluding Japan) has overtaken Europe to become the world’s second-wealthiest region, with $47trn in private wealth. Although North America remains the wealthiest region, the report predicts that Asia will become the world’s wealthiest next year, with projected total wealth of $57trn, rising to $79trn in 2019.

The figures also show that the highest density of billionaire households is to be found in Hong Kong, with 15.3 per 100,000 inhabitants, followed by Singapore with 14.3.

Simone Nadelhofer, a partner in the Zürich office of Swiss firm Lalive, says that with the emergence of Asia as a leading economic region, ‘there is naturally a larger number of ultra-high-net-worth individuals seeking sophisticated advice and adequate vehicles to optimise and protect their private, often family, wealth’.

With such vast sums of money at play, it is therefore hardly surprising that the international private client legal elite is looking to take advantage. The continued ascendency of Asia once again raises the perennial question of whether private client firms need a presence on the ground to service wealthy clients in their home markets. Will a significant number of trusts and estates disputes involving Asia continue to play out in London, or will a Hong Kong or Singapore presence be essential?

And for one marquee private client player, it is clear there is client demand for a wider international presence. In the last year, Withers – arguably the strongest brand in London’s private client community – has launched practices in Australia, California, Singapore and Tokyo.

Withers entered the Australian private client market at the end of 2014 with the launch of a strategic alliance in Melbourne and Sydney, offering tax and corporate advice to high-net-worth individuals (HNWIs) with boutique corporate firm SBL Shmith and tax practice Balazs Lazanas & Welch.

The Australian deal followed the firm’s expansion of its US practice, Withers Bergman, with the launch of a San Francisco base. As well as providing its traditional private client advice, the firm is also targeting the entrepreneurial Silicon Valley demographic through an integrated technology, estate planning and real estate practice.

Last month, the firm further expanded its California offering by hiring nine partners and 17 fee-earners, the majority from McKenna Long & Aldridge ahead of its merger with Dentons, and opening offices in Rancho Santa Fe (four partners), San Diego and Los Angeles (two partners each).

While the US expansion has been opportunistic, Withers’ Asia growth is a striking statement of intent. In June it opened an office in Tokyo with the creation of a Japanese tax practice, which will operate as Withers Japan, Zeirishi Houjin. The firm also picked up Eric Roose from Morrison & Foerster, who will head Withers’ international corporate tax practice in Asia from Singapore.

In February, the firm expanded on its original 2012 Singapore venture, entering a formal law alliance with local firm KhattarWong – the largest Singapore law firm yet to enter into such an agreement.

KhattarWong is by far the larger of the two firms in Asia. It has 27 partners in total, split across offices in Singapore, Vietnam and Shanghai. Withers has five partners in Hong Kong and another six in Singapore.

As for standout individuals, Jay Krause heads Withers’ wealth planning group in Asia and manages the firm’s Singapore office. He has been heavily involved in advising individuals on the US Internal Revenue Service’s voluntary disclosure programmes, and both individuals and institutions on the implications of the US Foreign Account Tax Compliance Act legislation. Meanwhile, Marcus Dearle is based in Hong Kong and is Withers’ office managing director for Asia. He represented Florence Tsang in the 2011 landmark Hong Kong divorce case in which Tsang secured the largest-ever reported divorce award of HK$1.22bn. He also represented HSBC International Trustee in the 2013 Hong Kong Court of Appeal ‘big money’ international divorce and trust case, PLTO fka PLTO v KLK aka KLKK & anor.

Withers managing director Margaret Robertson says that the Singapore alliance has helped the firm to offer a much broader service to international clients. ‘It will assist us in targeting the enormous potential of the growing markets in south-east Asia,’ she says.

Withers is not alone in wanting to pursue work from the international super-rich. Other firms have been steadily ramping up their offering, be that from London or from alternative jurisdictions.

In April, Herbert Smith Freehills promoted Richard Norridge to partner to head up the firm’s Asia private wealth team in Hong Kong and added Joanna Caen as a senior associate in the same office.

Norridge has recently advised the executor of a $1bn Hong Kong estate on its administration in a number of offshore jurisdictions, including Jersey, Mauritius, BVI and Turks and Caicos. He says the firm has expanded in the region to tap into the growing amount of work generated by the ‘intergenerational transfer of wealth’ that is happening.

‘Many patriarchs who made their money after the war are passing away and leaving behind not-very-well-planned estates with no will or wills that are not very clear.

‘We are talking about people with very complex families. Before 1971 in Hong Kong it was legally permissible to have more than one wife, so it was not uncommon for some people to have multiple wives and children. We know of cases where there was one family in Hong Kong and one in mainland China, who were unknown to one another.’

Penelope Reed QC of 5 Stone Buildings frequently represents HNWIs from Asia. For example, in Hong Kong, Reed has recently been advising on an employee trust transferred offshore to the BVI, with issues as to the ownership of the underlying assets and the nature of the trusts, as well as a dispute between members of a high-profile Hong Kong family concerning the administration of a multimillion-pound estate, including assets transferred to companies in the BVI and other offshore jurisdictions.

She notes that the change in the economic situation in China has given rise to a wealthy class, who favour setting up trusts in offshore jurisdictions, where advice is frequently sought from English lawyers.

‘There also seems to be a burgeoning trusts industry in Singapore, which feeds some work through. The main involvement of English counsel in trusts work is in an advisory capacity rather than conducting litigation,’ she adds.

Singapore has certainly replaced Hong Kong as the main Asia market for private client work. It is described as the ‘Switzerland of Asia’ in terms of its general appeal as a wealth management centre and as a natural hub to service clients throughout an entire geographical area. It has also been an important route to accessing Indian clients, particularly non-resident Indians, exploiting Singapore’s convenient location as an axis for the so-called ‘Chindia’ market, and for the rest of South-East Asia.

At the beginning of 2015, the Singapore International Commercial Court was launched as a division of the High Court of Singapore to hear high-value, complex, cross-border commercial cases and could well be where the region’s private clients start to move to have their trust disputes judged, as an alternative to London or offshore jurisdictions.

Nonetheless, Hong Kong retains the highest ratios of billionaires in the region and is still the go-to location for significant trust disputes involving Asian families. One of the largest pieces of litigation to date was over the $10bn (£7bn) estate of Nina Wang, a Hong Kong billionaire.

The case centred on Wang’s will, which left the totality of her estate to the Chinachem Charitable Foundation. Following Wang’s death in 2007 and after a lengthy battle, a Hong Kong court finally ruled on the inheritance in 2011 in favour of the charity, which is run by Wang’s siblings, dismissing claims by her former boyfriend Peter Chan, who fought for years to inherit the fortune. Chan was jailed for 15 years for forging a will that appeared to name him as sole beneficiary of the estate.

However, fighting over the estate has continued, with numerous court battles and appeals by the trustees and beneficiaries of her will.

Local Hong Kong firm Wilkinson & Grist instructed Wilberforce Chambers on behalf of the appellant and Ten Old Square was instructed by the Department of Justice in Hong Kong on the final stages of the landmark case, which finally came to a close in May.

Hong Kong’s Court of Final Appeal ruled that the Chinachem Charitable Foundation would hold the estate as a trustee – able to spend it only for a specified purpose – and would not receive any part of it as an absolute gift.

Staying home

Berwin Leighton Paisner (BLP) partner Rupert Ticehurst says that with the volume of private client and trust disputes work coming out of Asia, ‘there is no point sitting in London waiting for work to arrive. Firms with offices in Asia have a distinct advantage in attracting Asian private client work’.

Co-publishing features:
Momentous decisions: seeking the court’s blessing – Hugh Camber, 5 Stone Buildings
Could trustee protection return post-Pitt and Futter? – Steven Kempster & Sarah Aughwane, Withers LLP

BLP runs its Asia private client practice from its Singapore office, with partner Simon Phelps splitting his time between London and Asia. Senior associate Nisha Singh, who leads the firm’s Singapore private client team, is well regarded for her expertise in advising on UK tax and estate planning.

Baker & McKenzie runs its Asia private client practice out of two offices: Hong Kong, where registered lawyer Richard Weisman and partner Steven Sieker specialise in personal tax law; and in Singapore, through joint venture firm Wong & Leow, where there are two private client associate principals, Dawn Quek and Allen Tan. Quek has recently advised on a number of pre- and post-initial public offering trusts for wealthy families with connections in Singapore, Malaysia, Indonesia, Hong Kong, China, India and the US.

‘There was a time when law firms undertaking restructuring work could sometimes ride roughshod over local jurisdictions,’ says Ashley Crossley, chair of Baker & McKenzie’s Europe and Middle East wealth management practice group. ‘Now with co-operation on exchange of information and enforcement, the idea that you can sit in London and ignore the local jurisdiction is over.’

Offshore firms, which are frequently involved in the administration of offshore trusts for UHNWIs, see that unless there are frequently issues specific to a jurisdiction, then international firms pursuing trusts and estates work internationally makes sense. Stephen Baker, senior partner at Jersey-based dispute resolution specialist Baker and Partners, believes that it is ‘extremely sensible’ for the London private client firms to try to expand in Asia and the Middle East.

‘We are seeing some substantial cases arising out of the Far East and we are expecting to see more of that work,’ he says. ‘Most of what we are doing is dealing with old money from more than ten years ago and we are mainly dealing with well-established, wealthy companies and individuals from that neck of the woods.’

Also in Jersey, Dickinson Gleeson partner James Gleeson says that his firm has numerous Asian and Chinese clients, and that for onshore firms, opening up overseas can ‘only be beneficial’.

Ironically, one private client partner at one of the most international law firms, Clifford Chance (CC), is sceptical of the benefits of expanding private client practices to Asia.

‘The risk of taking the Withers-type approach and setting up an office in those jurisdictions is that they might not have the best talent and instead they will alienate other firms in that jurisdiction,’ says CC partner Jeremy Kosky, who leads the firm’s wealth and asset management sector. ‘With our model… we still have the ability to work with the best local counsel in that jurisdiction,’ he adds.

‘The relationships we have with offshore law firms gives us freedom of choice when it comes to involving overseas lawyers,’ agrees Farrer & Co partner Jeremy Gordon. ‘We value this independence, and recognise other benefits this brings in the form of referral work and not having the expense of running international offices.’

Meanwhile, it is clear that many major international private client firms continue to be intent on bulking up their expertise in the City and the UK courts continue to be as busy as ever with high-profile trusts disputes (see box, ‘Turf wars’). In September 2014, Taylor Wessing hired Bircham Dyson Bell (BDB) partner Elaine Dobson and, from Wragge Lawrence Graham & Co, senior associate Antoaneta Proctor as partners in its private wealth group. Meanwhile, in October, the London arm of US firm McDermott Will & Emery – which has one of the strongest London private client practices of any US firm – hired Nicholas Holland from BDB, where he was head of the firm’s contentious trusts and estates practice.

And in January, Boodle Hatfield strengthened its private client and tax team with the appointment of Baker & McKenzie partner Salpy Kouyoumjian, who advises UHNWIs, and families and trustees in Russia, the CIS and the Middle East.

While some firms lack either the international firepower or the inclination to pursue work from HNWIs in the new key global wealth economies, others feel pursuing the strategy of handling all international wealth and related disputes work out of a single office is not necessarily the most efficient approach. But at least a strategy has been decided upon. For those still toying with the idea of developing their international private client practices in Asia the advice is to move quickly. As the wealth in the region burgeons, the opportunity to secure the client base closes. LB