A whole new world
Richard Wilson QC describes the how private client practitioners are evolving to meet the needs of their increasingly sophisticated and international clients
Mention of private client law often conjures up images of lawyers in old-fashioned offices drawing up wills and advising on arid technical points of trust and tax law. Ask the average person on the street about a trust and they are likely to mention Downton Abbey and the difficulties for the Crawley family in barring the entail of their estate.
However, in 2020, the work of many private client practitioners could not be further from the perceptions that many have about it. There have been a number of significant changes over the past twenty or so years, which mean that private client practice is a dynamic area, providing a far more varied and stimulating range of work than may have been the case historically.
Perhaps one of the greatest changes for the private client practitioners, particularly those in London, has been the widening of the range of clients for whom they now act. Historically, private client work involved domestic tax and succession planning for UK-based clients, often the owners of landed estates.
London private client lawyers have always had a role in advising international clients, particularly from the Middle East, but the extraordinary levels of economic growth seen in countries like China, India, Russia, and some South American countries means that private client lawyers now have a client base with a greater geographical spread than ever before.
A changing practice
Whereas historically, much of the wealth planning and structuring carried out by private client lawyers was aimed at avoiding tax, that is less of a motivation than before. That’s not to say tax is not an important factor.
While clients are not, in general, seeking to structure their affairs to avoid tax in the aggressive way that was common in, say, the 1970s, tax neutrality is usually important – ensuring that structuring for other reasons does not result in additional tax exposure.
Clients frequently wish to structure their affairs in a way that helps them to ensure their affairs remain confidential: not for any nefarious reason, but because in some parts of the world, wider knowledge of such wealth brings with it a heightened risk of kidnap.
Clients are increasingly keen to create vehicles which strike a balance between providing for their families and funding good causes. In that latter context, further change is encountered with the younger generations of wealthy families, who having known a life of considerable financial comfort are enthusiastic to share the benefits of it through philanthropy. Perhaps one of the most common motivations for wealth planning in this day and age is ensuring an orderly succession to a family business.
The handing over of ownership or control of valuable businesses is often a flashpoint and even if it is impossible to eliminate entirely the risk of family members falling out, good planning and structuring can ensure that the transition of wealth and control to the next generation is as smooth as possible.
This is a particular concern in Asia, where much of the economic growth has been driven through entrepreneurial activity, with individuals amassing consider- able self-generated fortunes invested in the businesses that they have built up. The scale of that wealth in many cases is vast, which represents another change in the private client world.
While private client practitioners have always been used to dealing with high-net- worth individuals (HNWIs); ultra-high-net- worth individuals (UHNWIs) are increasingly becoming the norm, with far more complicated business and personal affairs than might previously have been encountered.
That complexity is reflected in the work that practitioners are now carrying out on a regular basis. Planning for wealthy international clients will rarely involve the establishment of a straightforward trust in a single jurisdiction. Frequently, planning will involve one or more trust, but at the top of a fairly complicated corporate structure, with a trading business at the lowest level of it.
The trustee may be an established corporate trustee, but increasingly wealthy families are looking to establish their own private trust companies (PTCs) to act as trustee to retain the desired degree of control within the family.
In turn, to avoid competition for control of the PTC, the shares may well be held on the trusts of a non-charitable purpose trust, such as those available in the Cayman Islands or the British Virgin Islands (BVI).
Moreover, a structure will often involve elements from different jurisdictions: for example, a Cayman trust holding shares in a BVI holding company with shares in a Chinese trading entity is far from uncommon.
In that fairly typical example, none of the structures and entities has any obvious connection with the UK, and one might ask what relevance they have to the UK private client market. The answer is that London finds itself at the centre of the international private client market. Even where neither the clients nor the structures they are establishing have any obvious connection with England, advice will be sought from lawyers in London.
That this is the case is testament to the levels of expertise available in London and the perceived need for continuity of advice across a number of jurisdictions.
An English private client adviser will frequently find themselves fulfilling the role of trusted adviser, called upon not to give substantive advice on English law, but to co-ordinate the overall wealth planning strategy across a number of jurisdictions and deal with lawyers and wealth advisers as the main point of contact for the client.
While most of the international financial centres (IFCs) have introduced significant reforms to their trust and company law regimes (usually to make them more friendly environments for the holding of private wealth) at the root of them all lie (English) common law principles.
Thus, English private client lawyers will find themselves having to become familiar with a greater variety of different trust and company rules and be able to assess the merits and disadvantages of the regimes in various competing financial centres.
All of these changes have meant that private client practice has, in large part, ceased to be the rather staid and predictable field that it might previously have been. Nowadays, a London private client is as likely to have to get on a plane to visit clients in Beijing or Bahrain, as to travel by train to Birmingham.
Practitioners have also had to adjust to dealing with a greatly extended working day starting early with calls and emails from clients in Asia, and ending later by dealing with service providers in the Caribbean IFCs. London’s time zone means that it is able to operate as a bridge between clients and service providers, a great benefit that seems destined to continue.
One area of private client practice that has expanded significantly is that of contentious litigation. Historically, private client practitioners (both solicitors and barristers) would tend to find themselves in court dealing with non-contentious matters arising in trust administration, such as statutory variations of trusts, questions of construction and applications for directions.
While that aspect of practice remains fairly buoyant (and like advisory practice, has acquired an increasingly international dimension) many more private wealth disputes are finding their way into court.
Identifying the reasons for this increase in contentious work is not an easy task. I would suggest that among them are: an increasingly litigious society generally, in which disputes are pursued more vigorously; an increase in the scale of wealth at stake which provides a greater justification for pursuing costly (often multi-jurisdictional) litigation; and intergenerational change (either through death or inter vivos transfers), which creates discord in a situation where a complicated structure provides an obvious forum for those grievances to be fought over. There are, no doubt, many more that could be added to the list.
As with the planning described above, private client litigation is much more inter- national: many of the most significant trust cases are currently before the courts of the IFCs such as Bermuda, Cayman and the Bahamas. Bermuda alone is dealing with cases involving claims worth billions of dollars.
Because of the increased complexity of the structures involved, the issues arising in such claims are also highly complicated, frequently involving trusts, companies, partnerships, allegations of breach of fiduciary duty or, in the most extreme case, fraud.
As a result, the Chancery Bar is extremely busy litigating private client claims around the world. Despite changes to restrict the rules governing the admission of foreign lawyers in various jurisdictions, most – if not all – of the highest profile cases will involve London-based counsel, demonstrating the international recognition of the value of the expertise of the Chancery Bar.
There is a growing realisation in the market of the need for Chancery expertise in a wider range of cases. In many cases that might have been described as commercial in nature, clients are looking to the Chancery Bar to bring expertise in relation to trusts, breach of fiduciary duty and asset tracing to bear.
Often these issues, which are the bread and butter of trust lawyers, are crucial to the client achieving the successful recovery of assets from a wrongdoer in a commercial context and Chancery barristers are being called upon in cases that would traditionally have been the preserve of commercial colleagues, blurring the historic distinctions between commercial and Chancery work.
This has had an impact on private client litigation, in that whereas in the past it may have been seen as a more genteel form of dispute, hostile claims in this context are now precisely that: full-blown contentious claims. They include all of the usual disputes over pleadings, disclosure and other aspects of case management, and the making of interim applications for freezing or proprietary injunctions on a regular basis, thus combining the cut and thrust of commercial litigation with highly technical subject matter.
So, what of the future? In a world where uncertainty has become the norm, clients will continue to encounter new and different challenges and will look to their advisers to provide solutions for them. Private client advisers will need to be creative and respond positively to come up with those solutions. IFCs are likely to continue legislating to bring further innovations in order to make them- selves more attractive places for HNWIs and UHNWIs to hold their wealth, which will create opportunities for more advanced structuring to meet clients’ needs.
In this year when Britain finally leaves the EU, this article would not be complete without at least some consideration of the possible impact of Brexit. Given that the scope of the bulk of international private client practice currently extends beyond Europe, it seems unlikely that Brexit will have any significant impact on the work of London private client practitioners. It may be that for clients with interests in the EU, jurisdictions such as Malta and Cyprus will increase in popularity (as may Switzerland) but on the whole, it is likely to be business as usual.
Perhaps the most interesting question is whether a post-Brexit UK will seek to set itself up as an IFC – often referred to in the media as ‘the Singapore of Europe’. Much will depend on the agreement as to the future relationship between the UK and the EU. Numerous EU leaders have expressed their understandable reluctance to allow the UK to establish itself as a low-tax financial centre on its Northern edge, but in the event of a deal not being agreed, the attraction for the UK might be said to be obvious, giving HNWIs and UHNWIs a further to use London for the management of their financial affairs.
Establishing such a regime would be fairly straightforward for the UK: introducing international trust and companies regimes like those found in many IFCs, together with re- form to the existing tax regime for non-doms which encourages wealthy foreigners to come to the UK, but not to bring (and therefore spend) their money here.
Whatever may happen in either the short or medium term, the London private client market is in rude health and looks likely to stay that way.
Richard Wilson QC is a barrister at Serle Court serlecourt.co.uk