Trust disputes can offer advisers a lucrative caseload and longer-term institutional and corporate relationships. Legal Business looks at the key players in a competitive market.
Wealthy business owners tend to have colourful lifestyles, families and ways of protecting their wealth, and these ingredients can often come together to form an explosive cocktail. Take Stanley Ho, the ageing Macau-based billionaire, who has been at the centre of a recent family feud over who would inherit his gambling empire. Having had four wives and 16 children, it was perhaps inevitable that family tensions would trigger incendiary litigation.
Wealth has of course long been a source of family rivalry and extreme dissonance and not necessarily on the death of the family head. One prominent trust litigation specialist at a leading City law firm recalls one client simply wanting to see ‘her father in prison before he died’.
Charles Lloyd, head of the trust and probate litigation group at Macfarlanes, says that trust cases frequently involve an undercurrent of sinister motives: ‘I have been involved in many fascinating situations involving the most colourful characters and incredible stories of deceit and mischief.’
Jonathan Speck, Jersey managing partner at Mourant Ozannes, admits to relishing the drama: ‘Dallas and Dynasty can’t hold a candle to some of the situations that we get involved in. All human life is laid bare for the advisers to see.’
And while many legal observers believe that high-profile corporate litigation is the star attraction for leading law firms, there is an increasing recognition that trust disputes can be even more intellectually and financially rewarding, as Clifford Chance (CC) litigation and dispute resolution partner Jeremy Kosky says: ‘These family trust cases are full of human interest, a father suing a son, nine siblings all suing each other. Our team derives tremendous personal satisfaction acting for clients with so much personal and emotional investment in the outcome.’
Co-publishing features
Beddoe applications – still fit for purpose?
– Eason Rajah QC, Ten Old Square
Litigation finance for trustees
– Nick Rowles-Davies, Burford Capital
Trust disputes tend to be multi-faceted with a complex web of assets, business locations and multiple beneficiaries. Coupled with the fact that the underlying trusts are normally located in offshore jurisdictions such as the Channel Islands or the Caribbean, these cases often require genuine international expertise and management.
Emma Jordan, disputes partner at Wragge Lawrence Graham & Co, says that trust cases frequently involve ‘myriad interests and a wide class of beneficiaries’. Jordan is a qualified English barrister and Jersey advocate, having practised in the offshore centre for eight years before returning to London.
Jeremy Gordon, head of the disputes team at Farrer & Co, believes that trusts disputes demand a more ‘nuanced approach’ from advisers because family relationships have a tendency to ‘splinter and fracture’ in these situations.
Neither do these cases necessarily depend on the economic environment. Anthony Poulton, head of the trusts disputes group at Baker & McKenzie, points out that trusts cases are not typically defined by the same issues as commercial disputes: ‘Trusts litigation is not ordinarily driven by normal financial factors such as the state of the economy. These kinds of disputes are more typically driven by family discord, by death, divorce and inter-family power struggles.’
With the Woolf reforms leading to the gradual reduction in truly high-value commercial litigation over the last 15 years in London, these cases are especially alluring to the major City and offshore players, particularly with the growth of the super-rich demographic in recent years.
Follow the money
A study by Boston Consulting Group revealed in June that the number of millionaire households globally grew to 16.3 million in 2013 from 13.7 million in 2012. And while much of the growth is coming from blossoming economies in Asia, there are obvious wealth centres such as London, Switzerland and Monaco where the wealthy classes continue to expand. The Sunday Times Super-Rich List recently revealed that London has the highest concentration of billionaires of any city in the world and as such, London continues to be central for trusts disputes work.
Mark Keenan, a specialist in trust and succession disputes at Mishcon de Reya, explains that the recent influx of eastern European and Russian clients into London has brought a significant increase in instructions: ‘We are finding that international work is really flowing into London and there has been a significant flow in the last four to five years’ – no doubt a contributory factor in Mishcons’ 88% growth in revenues between 2008 and 2013.
The accumulation of considerable private wealth that took hold in the 1980s through to the present day means that many ‘wealth creators’ are dying and their estates are passing down to the next generation. Relationships among the beneficiaries frequently start to fray. Duncan Elson, head of litigation and dispute resolution at Charles Russell, believes that beneficiaries are much more ‘gung ho’ in an era where there is a greater emphasis on rights and entitlement. With this, the performance of trustees has come under greater scrutiny, especially as newly appointed trustees have a duty to check how well the trust was administered previously.
‘Trustees are becoming much more savvy when taking over the trust structure,’ says James Gleeson, a partner at Jersey law firm Dickinson Gleeson, who is currently advising on a case in which the new trustee is alleging poor investment performance by the previous trustee. ‘When a new service provider takes over, it is incumbent on them to consider how the trust has been managed in the past,’ says David Wilson, a partner at Jersey firm Baker & Partners.
Such instances are growing in step with increasing numbers of wealthy individuals and family-owned businesses, notably in emerging and developing economies. Boston Consulting’s report states that private wealth in Asia, excluding Japan, rose by 31% to $37trn in 2013. China now ranks second to the US in terms of private wealth at $22trn and this is expected to increase by more than 80% to $40trn by 2018.
‘Who thought ten to 15 years ago that the Chinese would be setting up thousands of BVI trust structures or Latin American clients or wealthy African clients would be setting up structures?’ comments Graeme Kleiner, the head of contentious trusts and estates at Speechly Bircham.
Denis Brock, a partner in the Hong Kong office of King & Wood Mallesons, says that a high proportion of ‘corporate’ disputes in Hong Kong are driven by wealth and family tensions. Back at the turn of the millennium, when he ran CC’s Asia disputes practice, he was engaged in the long-running probate dispute over the estate of Teddy Wang, founder of the Chinachem Group, who was kidnapped in 1990 and finally declared dead in 1999. The case involved a dispute over the validity of three different wills. Litigation still rumbles on today over the estate of Wang’s wife, Nina, who died in 2007 with an estimated net worth of $4.2bn.
With such wealth at stake it is unsurprising that trust disputes can be complex and lengthy. ‘There are absolutely monster cases out there at the moment,’ says Kleiner, who took a role in the Alhamrani breach of trust litigation in Jersey that ran from 2003 to 2009, when it settled. It involved 100 separate hearings and 103 days in court, involving so many parties and such a weight of documentation that the court had to be moved to a hotel for part of the trial.
It related to Saudi Arabia’s Sheikh Ali M Alhamrani, who died in 1976 and left substantial assets to his seven sons and two daughters. The claimants, beneficiaries of several substantial Jersey trusts that appeared to have sustained considerable losses, brought proceedings alleging breach of trust and fiduciary duty. Sheikh Mohamed Ali M Alhamrani and four of his brothers instructed Bedell Cristin.
One defendant, JPMorgan (Jersey) Trust Co, was represented by Mourant Ozannes led by Speck and CC headed by Kosky, alongside barristers from Serle Court. Carey Olsen advised another trustee, Russa Management; while Crill Canavan advised the first defendant, Sheikh Abdullah Alhamrani. Sinels Advocates acted for Trustcorp (Jersey), which was appointed trustee of one of the trusts following JPMorgan’s retirement.
Cases of this significance underline the value of these disputes to law firms and emphasise that disputes involving trusts are frequently wide-ranging and intricate. Poulton explains: ‘Trust cases tend to be high-value, multi-party affairs. When the trusts are set up for the benefit of a family, a trustee must take into account both the people who are living and those that may come into being in due course. Consequently you can have a large number of parties that need separate representation, some of whom “lawyer up” to push their own agenda.’
At the heart of these disputes are offshore jurisdictions. Andrew Hine, the head of the private client group at Taylor Wessing, says that most of the big trust cases are now heard offshore: ‘The litigation principally arises in the jurisdictions where the trusts are located and most of the world’s largest fortunes are held through offshore trust structures.’
Dawn Goodman, the founder of the contentious trust and succession group at Withers, which bolstered its ranks with the May hire of Taylor Wessing’s head of contentious trusts and estates, Steven Kempster, says the trusts litigation arena is now being driven by offshore centres: ‘We are used to seeing English cases influencing offshore decisions – and recently new trust jurisdictions such as Singapore – but we are now seeing offshore decisions increasingly influencing judicial thinking in England.’
But while London firms still offer highly experienced and specialised practitioners as well as a typically deeper bench of resources than their offshore counterparts, there is a growing recognition that firms in Jersey, Cayman and the like are increasingly taking the lead on the bigger cases. Poulton says: ‘Ten or 15 years ago you would get the key trust advice from London or New York, but now it is much more balanced with the offshore lawyers doing as much of the specialist advice as the onshore lawyers. It is more of a team approach than it used to be.’ Poulton says that he spends a high proportion of his time in offshore centres as that is where most of the key cases are being heard.
London-based trust specialists are occasionally drawn offshore to ply their trade. 5 Stone Buildings barristers Shân Warnock-Smith QC and Andrew De La Rosa established International Chancery and Trusts (ICT) Chambers in the Cayman Islands in 2011; others have moved offshore because of the attraction of bigger and juicier cases. Gleeson spent four years at Slaughter and May before being enticed by the allure of becoming an advocate of the Royal Court of Jersey.
Late to the party
The recognition that private wealth practices – and by extension contentious trusts teams – now form a lucrative part of some firms’ businesses flies in the face of the strategic decisions made by a series of international law firms some two decades ago when they elected to retreat from the private client sector.
Others chose another tack and persevered with their emphasis on the private wealth sector, eventually reaping the benefits. ‘Macfarlanes took the decision to preserve its private client department when many of the other City firms were dropping theirs,’ Lloyd explains. ‘That was the right decision. Those with entrepreneurial money want a firm that can lead corporate transactions as well as understand trust structures and tax arrangements and handle disputes that arise between family members. We are unique as a City firm that understands how to do large corporate transactions but also has the private client capacity to deal with these kind of disputes.’
Berwin Leighton Paisner private client partner Rupert Ticehurst says that his billings increased by 57% in the last financial year due to the growth in trust disputes and Simon Davies, head of Ogier’s litigation practice in Jersey, says that trusts disputes accounted for about a third of his work in 2011, but this had grown to some 80% in the first quarter of 2014.
It is this sort of phenomenon that is drawing the attention of the major international firms. US firm McDermott Will & Emery established a private client department in London in 2009, growing in the City in the last two years with two new partners, two new associates and one internal promotion. It is not the only international firm to identify the trusts disputes area as a rewarding one.
Gordon remarks: ‘It has been a big growth area and the big City firms and American firms are realising that this is an area that is worth looking at.’ Gordon is acting for the appellants in the FHR European Ventures dispute, which was due to be heard in the UK Supreme Court in June.
CC’s Kosky, who acted for Heini Thyssen in the high-profile Thyssen-Bornemisza litigation that ran between 1997 and 2002, says that representing wealthy individuals, family-business owners and institutional trustees can often bring the firm significant cases, but can also lead to longer-term corporate relationships. ‘The Thyssen litigation was a big one-off case for a one-off client, but with the potential to help us develop profile and experience in this area of work,’ he says. When the case was over, Kosky sat down and discussed the importance of these cases with fellow partner Jeremy Sandelson, who now heads the firm’s global litigation and dispute resolution practice.
‘We realised that these big one-off cases were becoming something of a series and our firm’s experience was unique among our Magic Circle peer firms,’ he recalls. ‘We only take on cases when we feel that we can add value, but we certainly saw that this was an area that we could develop. We expected trust disputes to grow in the coming years and so we explained our case experience to clients and in time this led to work both from our institutional clients and high-net-worth individuals.’
At the very least, trust disputes offer firms a remunerative caseload but it is clear that firms cannot just simply join the bandwagon, unless they can buy the talent in. And while all disputes partners often encounter the ridiculous, trust disputes carry peculiar idiosyncrasies of their own, some of which are too close for comfort. Mishcons’ Keenan recalls one particular case where he had two beneficiaries fighting over who would inherit the family’s game of Kerplunk: ‘It makes me quite relieved that I come from a relatively poor family background,’ he says. ‘Often I see at first hand how money corrupts and drives families apart.’ LB
chris.crowe@legalease.co.uk
Trusts and Estates co-publishing features:
Beddoe applications – still fit for purpose? – Eason Rajah QC, Ten Old Square
Litigation finance for trustees – Nick Rowles-Davies, Burford Capital