We attach below the documents rererred to in our front page feature regarding ABS Urgent Action.
1. ABS - SUMMARY OF ISSUES
The Legal Services Bill currently before parliament proposes to make radical changes to the provision of legal services in Scotland mainly by authorising (a) multi disciplinary practices so that solicitors could become partners with accountants, surveyors etc and (b) the ownership of legal practices by non-lawyers and even by investment interests. The following are some of the issues which have arisen
1. Where did these proposals come from? It has been suggested that, because similar changes have already taken place in England that it follows that they must take place in Scotland although many others would argue that the Scottish legal system has always been recognised as distinct and separate to that of England. There is also some concern as to how the AGM of the Law Society of Scotland came to pass a resolution in favour of ABS. At the AGM in 2008, there were less than 200 votes, in total, cast by persons present at the AGM but there were some 800 proxy votes in place in favour of the motion and it is understood that the vast majority of these proxy votes came from a very small number of firms and there is a feeling that the decision may not have been representative of the profession as a whole.
2. Conflict of interests. There is an apprehension that, once a legal practice comes to be owned by non solicitors, the lawyers practising in that firm shall face a conflict between the interests of their clients and the interests of the owners of the business. In particular, where the firm is owned by a registered company, there may be a conflict between the profit motive of the company and the best interests of the clients of the company.
3. Confidentiality. While every practising solicitor has been trained in the requirements of professional confidentiality, it is not clear that the non solicitor, owner of a law practice shall either be bound by the same requirements, notwithstanding that they shall have physical control of the clients’ information, or even be capable of understanding the requirements of professional confidentiality. Public trust in the legal profession is hard won and is substantially based upon the public understanding that their information in the hands of the legal profession is subject to confidentiality and it is difficult to accept that the public could repose similar trust in non qualified owners of law practices.
4. Legal professional privilege. Again, practising solicitors are entitled to certain privileges but only on behalf of their clients and it is difficult to envisage how non legally qualified owners of legal practices could be entitled to similar privilege. At the same time, without that privilege, it is impossible for clients to receive the legal representation to which they are entitled in terms of both general constitutional law and ECHR.
5. De-regulation and the loss of the Scottish banking sector. Many members observe a parallel between the proposed de-regulation of legal services and the previous de-regulation of the financial services sector and, when the 2008 AGM of the Law Society accepted the principle of such de-regulation, this was prior to the collapse of financial institutions and the complete loss of the Scottish banking sector which took place towards the end of 2008 and into 2009. Many members feel that similar de-regulation should not take place in the legal services sector.
6. European law and competition. While, for many years, the legal profession has been forced to provide services on a more competitive basis due to the requirements of European law, it has more recently been recognised in European law that there may be a conflict between the maintenance of high professional standards and the provision of professional services in a freely competitive market and that, in such a conflict, the public interest in high professional standards should prevail.
7. Comparison with the medical profession. When interest emerged in the external ownership of legal practices, a similar interest in the commercial exploitation of GP services also emerged, quite logically. However, the Public Health etc (Scotland) Bill was hastily amended effectively making it impossible for commercial companies to be involved in operating doctors’ practices in Scotland. Instead, health boards will only be able to enter into contracts with individual GPs or with partnerships of health professionals including at least one qualified doctor. The question arises as to whether the provision of access to justice is more closely to be equated with the provision of public health or with the marketing of consumer products. Clearly, the policy of the Legal Services Bill points in the direction of the latter.
2 FORM OF PROXY
FOR USE AT LAW SOCIETY OF SCOTLAND SGM – 2010
I, (Full name) ………………………………………………………………………
of (Name of firm or other organisation) …………………………………………
in (address of practice) …………………………………………………………..
………………………………………………………………………………………
Being a member of the Law Society of Scotland hereby appoint Michael Scanlan of Glasgow, President of the Scottish Law Agents Society whom failing, Craig Bennet of Dunfermline, Vice President of the Scottish Law Agents Society whom failing, Michael Sheridan of Glasgow, Secretary of the Scottish Law Agents Society, all solicitors and members of the Law Society of Scotland on my behalf as my proxy at the Special General Meeting of the Law Society of Scotland to be held on………………………………. further to the requisition therefor signed by said Michael Scanlan and others at Glasgow on 22nd December, 2009 and on subsequent dates and, on a poll, to vote on my behalf as my said proxy shall see fit and I authorise my said proxy to enter above the date of said Special General Meeting.
Signature ………………………………………………..
Member of Scottish Law Agents Society YES…… NO……
Dated this ……………………… day of ………………………. 2010
NB PLEASE COMPLETE CLEARLY AND LEGIBLY AND RETURN ONLY THE ORIGINAL TO
THE SECRETARY , SCOTTISH LAW AGENTS SOCIETY 116 BUCHANAN STREET GLASGOW G1 2LW/
DX GW 266 GLASGOW/
LP 5 GLASGOW 7
AND DO NOT SEND BY FAX OR EMAIL
3. RESPONSE ON BEHALF OF SLAS TO JUSTICE COMMITTEE AT SCOTTISH PARLIAMENT
The Scottish Law Agents Society is the largest voluntary national
organisation of solicitors in Scotland representing all practitioners
irrespective of their area of practice. We would welcome the opportunity to
supplement these comments with oral evidence.
The need for high professional standards
The provision of legal services is a classic example of information
asymmetry. Consumers instruct lawyers because they do not have the
necessary knowledge and experience to conduct their own legal affairs.
That knowledge and expertise resides with qualified lawyers who have
trained for years before being licensed to practise. Consumers rely on their
lawyers and their services – they are ‘credence goods’.
Typically the qualification process will involve a four year honours degree, a
one year postgraduate Diploma in Legal Practice and a two year traineeship
before being admitted to practise and a further three years before they may
practise as an independent principal. This qualification process is not
intended to restrict access to the profession but exists because of
regulations put in place by the Law Society of Scotland to ensure high
standards in order to safeguard the public in terms of its statutory duties
under section 1 of the Solicitors (Scotland) Act 1980. Solicitors are required
to comply with the requirements of primary legislation and Rules,
Guidelines and Practice Statements issued by the Law Society of Scotland
which presently extend to over 560 pages. They are obliged to maintain
compulsory professional indemnity insurance through the Law Society’s
Master Policy and to provide an unlimited guarantee against the dishonesty
of their fellow professionals through the Scottish Solicitors Guarantee
Scheme. They are subject to the alternative dispute resolution mechanisms
of the Scottish Legal Complaints Commission [SLCC] and subject to the
disciplinary sanctions, of the Law Society including fines, suspension and
striking off which are independently assessed and enforced by the Scottish
Solicitors Discipline Tribunal which includes significant lay participation.
Information Asymmetries in the provision of Legal Services and the long
term consequences
Consumers of legal services may be aware where they are not getting
service because of a failure to communicate, for example. That is subject to
specific rules in the Scottish Solicitors Standards of Conduct 2008 and
Scottish Solicitors Standards of Service 2008 and may be the subject of a
finding of inadequate professional service by the SLCC. However information
asymmetry is such that consumers are often not in a position to make an
informed assessment of the quality of the services they have received. For
example in the course of a conveyancing transaction a failure to discover a
title condition which impedes the use of a property may only come to light
years later. The failure to accurately provide for the testator’s wishes in a
will might only come to light after the death of the testator. In relation to a
divorce action a failure to properly consider pensions provision again may
only come to light years later. This is because of the complex and long term
nature of the consequences of legal advice and transactional work.
That there are so few claims against solicitors and the low and declining
numbers of complaints in relation to inadequate professional service offers
testimony to the high standards to which Scottish solicitors, in general,
operate. Where the provision of legal services is opened up to non-solicitor
providers the problems of information asymmetry will exist for the reasons
set out above. We refer to this further below in relation to our discussion of
‘execution only’ legal services. If the standards of education and training
including the developing of ethical standards of putting the interests of
clients above those of the practitioners are not written into any scheme
which comes into operation as result of the Bill then there is a significant
risk that there will be detriment to consumers. That is likely to become
apparent over a number of years and in the meantime more consumers are
likely to be adversely affected.
Claims Management companies
In England, following the withdrawal of legal aid from personal injuries
actions, and the opening up of contingency fees, there was a growth of
claims companies. The practices of those companies were often not in the
interests of consumers and led to third parties facing many claims which
were spurious or completely fictitious. Third parties including many local
authorities were obliged to investigate these complaints at considerable
expense. There is presently evidence of consumer detriment occurring as a
result of the activities of claims management companies soliciting claims in
relation to bank charges which are allegedly unfair to consumers and
according potentially recoverable. Consumers are being invited to pay fees
up front and then receive no service whatever. The clear evidence of
consumer detriment led to the Compensation Act 2006 and the regulation of
such companies by the Ministry of Justice. We are not convinced by the
statements in the accompanying policy memorandum that there is no need
to regulate claims companies in Scotland simply because there are not a
significant number operating in Scotland at present. In recent years a
number of claims companies have come and gone in Scotland dealing with
mis-sold endowment claims and now bank charges. Personal Injuries claims
management companies regularly advertise for claims on UK-wide
television.
We note that in relation to England and Wales, for reasons which are very
similar to those we set out above, the Hunt Committee recommended that
claims management companies which are already regulated in England are
brought fully under the regulation of the Legal Services Commission
[recommendation 48]. See
http://www.legalregulationreview.com/files/Legal%20Regulation%20Report
%20FINAL.pdf
Will writers
Evidence is building of consumer detriment through the growth of
completely unregulated will writing services. Some of these services are
using commercial practices which are outlawed by the Unfair Commercial
Practices Directive such as ‘bait and switch’. An advertised fee is often £30
but the customer is then told that their circumstances are more complex
and a fee of £400 is charged when the value of the work is less. Advice is
given on English law rather than Scots succession rights. In some cases
extravagant claims are made in relation to saving Inheritance Tax and/or
liability for care home fees without it being explained that the scheme
proposed is, at best, doubtful and may be wholly unnecessary. Examples are
situations where complex trusts are being sold suitable for IHT saving where
the total estate falls well short of the IHT threshold. In other cases, there is
evidence of will writers undertaking conveyancing business, usually
completely ineffectively, which is a reserved matter where this is necessary
to give effect to their scheme. Such will writers are not required to have
professional indemnity insurance, have no alternative dispute resolution
mechanism in relation to inadequate service or negligence, no protection
against fraud and no professional body which has disciplinary powers nor any
scheme for safeguarding stored wills where the will writer ceases trading for
whatever reason. One recent example in the press relates to an English Will
writer who misappropriated the estate leaving the beneficiaries with no
compensation.
See:
http://www.thisisgloucestershire.co.uk/gloucestershireheadlines/Financialadvisor-
scammed-163-800k-wills/article-1418414-detail/article.html
This is not a case of self interest by lawyers. The links below show these
concerns being articulated by Which? and CABx share our concerns see:
http://www.which.co.uk/news/2008/02/steer-clear-of-will-writing-scams-
132136
http://www.citizensadvice.org.uk/index/pressoffice/press_index/press_200
80208.htm
We also draw attention to the Report of the Hunt Committee in England and
Wales on implementation of the Legal Services Act 2007. This recommends
that will writers be fully regulated for essentially the same reason as we
have stated above- [recommendation 47]. The report is obtainable at
http://www.legalregulationreview.com/files/Legal%20Regulation%20Report
%20FINAL.pdf
Continuing powers of attorney
This area of law and practice has grown since the passage of the Adults with
Incapacity (Scotland) Act 2000. The nature of the business has many
similarities with the preparation of wills and trusts and managing the estate
of an incapax is analogous to trust and executry work. Many will writers are
now offering these services as well. The client grouping here is more
vulnerable than the makers of wills alone. The absence of any inspection
regime and the safeguards offered by a clients account and the Guarantee
fund are absent. The ability to restrict or dispense with caution in this area
makes the risks even greater. This area should also be fall within the
regulated perimeter and we set out more detail in this connection at :
http://www.slas.co.uk/news_detail.php?newsID=653&slas=ec60713470aec63
e803b090012921fb2
Confirmation Services
We note the terms of the Bill in relation to Confirmation Services. At
present the only reserved matter is in relation to the presentation of the
inventory to court for confirmation and any petitions for appointment of
executor. The acts of investigation, ingathering and realisation of estate are
not reserved. We note that the Law Reform (Miscellaneaous Provisions)
(Scotland) Act 1990 permitted the creation of a new breed of licensed
conveyancing practitioners and executry practitioners or executry
practitioners alone. That profession did not thrive and those few
practitioners as qualified are now regulated by the Law Society of Scotland.
We note that the former regulator, the Scottish Conveyancing and Executry
Services Board, required an undergraduate law degree for the conveyancing
practitioner and a two year full time undergraduate Diploma in Law as a
requirement for those qualifying as executry practitioners alone. The Bill
s75(2)(a) provides that a regulator of confirmation agents must describe the
training requirements to be met by a prospective confirmation agent. We
accept that the Bill is enabling rather than prescriptive of rules but there is
no mention here of the educational requirements nor continuing
professional development, only training. There is nothing about the length
or nature of that training. The Bill, at the very least, must specify that prior
education is required, the exact requirements of which might be left to the
regulatory scheme. SCESB existed as regulator and operated wholly in the
public interest. It reached its decision on qualifications on sound grounds. It
is necessary in winding up an estate to understand the rules for validity of a
will, the rules applying on intestacy, the interpretation of wills, questions of
the legal concept of domicile private international law and generally all
aspects of the law of succession and its interaction with family law,
property law and taxation. Things can be more complex where the deceased
owned a business. We consider that the SCESB requirement was perhaps on
the low side and we would encourage the amendment of the Bill to make
adequate provision for the education and continuing professional
development of licensed Confirmation Agents.
We note that the Bill as presently drafted refers to the regulatory scheme
approved by a regulator to require a confirmation agent to have sufficient
professional indemnity insurance [s75(2)(c)]. One of the central feature of
the solicitor regime which applies generally is the requirement to maintain a
client account and ensure that the sums in the client account are sufficient
to meet all clients claims in full. Solicitors are required to certify their
compliance submitting returns every six months and are subject to
inspection approximately every two years to ensure compliance. In the
event of insolvency of the practitioner the client account is a separate fund
held in trust for the clients. This is underpinned, in the case of Scottish
Solicitors by the Guarantee Fund, an unlimited guarantee against
misappropriation underwritten by all solicitors. The Bill is silent on such
requirements and, if a regulator is empowered only by the Bill to regulate in
terms of the scheme contained in the Bill, then providing protections similar
to those enjoyed by clients of solicitors would be ultra vires. In any event,
the regulator would only be acting intra vires in relation to the reserved
acts of obtaining confirmation itself and not in relation to presently
unregulated areas of ingathering and distribution where the opportunity for
misfeasance may occur. We note that SCESB required separate client
accounts for each matter but did not offer a protection equivalent to the
Guarantee Fund.
We observe that banks have for many years offered a complete package of
services in winding up estates which are generally much more expensive
than using solicitors alone. In our view there is already competition in this
area and the need for a further new breed of professionals is at best
doubtful.
It needs little imagination to figure situations in the future, with licensed
Confirmation Agents, where this can lead to consumer detriment. We note
that in England, the Hunt Committee Report, mentioned above,
recommends in relation to England and Wales that the whole probate
services area not just the equivalent of obtaining confirmation be brought
within the regulated perimeter [recommendation 47.
http://www.legalregulationreview.com/files/Legal%20Regulation%20Report
%20FINAL.pdf
‘Execution only’ legal services
We are very concerned about the growth of ‘execution only’ legal services
that is a legal service where a technical operation is performed but where
no advice is given. This is true, for example, of Which? Legal Services – their
terms and conditions in relation to Wills provide inter alia :“The Service
does not provide legal advice”. “The Service uses software for the assembly
and drafting of a Will based on the answers you have given in your Will
Interview Questionnaire. Your Will will therefore be generated
automatically to reflect the answers you have given. You alone are
responsible in ensuring that the answers and information you provide are
correct and accurate, and warrant this to be the case.” [emphasis added]
The full terms and conditions offered are available at
http://www.whichlegalservice.co.uk/our-services/make-a-will/terms--
conditions
The price charged for a will where they provide no advisory service is £89.
This is around the figure which the majority of our members would charge
for a will that is individually professionally written to meet the client’s
exact requirements and where advice is offered. Which? advertise no
internal complaints procedure nor specify one in their terms and
conditions. There is no external regulator to complain to about their
conduct or service. They make no statement about professional indemnity
insurance, standards etc. At least they do state in the terms and conditions
that they only offer wills which are good under English law. This may be
contrasted with the terms of engagement which Scottish Solicitors are
obliged to provide.
A consumer may well be attracted by Which? or similar providers and, given
the nature of credence goods, such as legal services, be unable to make an
informed choice as to the absence of advice and liability dealing with a
consumer organisation compared with the full service offered by a Scottish
solicitor for the same price which is subject to the full range features which
are standard features of consumer facing professional services such as
indemnity insurance and alternative dispute resolution procedures available
to a consumer without charge.
The growth of ‘execution only’ services is an almost inevitable consequence
of the proposals contained in the Bill and one where consumers are likely to
suffer detriment because of the nature of those services. This can be
described as market failure.
The regulated perimeter
The Bill offers what is likely to be a once in a generation opportunity, to get
the regulatory framework right and that opportunity is being squandered by
the failure to regulate businesses which can cause and are presently causing
consumer detriment which in many cases will not become apparent for
years. The Bill defines legal services in s3 :
“the provision of legal advice or assistance in connection with—
(i) any contract, deed, writ, will or other legal document,
(ii) the application of the law, or
(iii) any form of resolution of legal disputes, or
15 (b) the provision of legal representation in connection with—
(i) the application of the law, or
(ii) any form of resolution of legal disputes.”
It, however, does not extend the reserved areas which are set out in s32 of
the Solicitors (Scotland) Act 1980. It is provided in s32(1) that it is a criminal
offence for an unqualified person to draw or prepare
“(a) any writ relating to heritable or moveable estate or
(b) any writ relating to any action or proceedings in any court or
(c) any papers on which to found or oppose an application for a grant of
confirmation in favour of executors”.
Writ is defined to exclude wills and other testamentary writings, missives or
mandates, letters or powers of attorney, or stock transfer forms.
In other words will writers, banks and other financial institutions can
prepare and charge for wills. Claims companies can operate without any
regulatory regime applying whatsoever. The Financial Services and Markets
Act 2000, in contrast to this Bill starts from a general proposition, providing
a general prohibition on engaging in the provision of financial services or
advice concerning financial services with the exception of those who are
authorised or exempt. Those which are regulated are then set out by
statutory instrument, the Regulated Activties Order, which can and has
been varied from time to time. It is a criminal offence under the Financial
Services and Markets Act to undertake such work unless the person
undertaking it is authorised or exempt from authorisation. The layout and
style of that Act provided the inspiration for the Legal Services Act in
England. Such an approach could be adopted in the Bill. It would be a
comparatively easy change to make to the Bill to permit the Scottish
Ministers by subordinate legislation to extend the current regulatory
perimeter to other areas of legal services such as those outlined above. This
might also be used to modernise the old-fashioned and out of date
references in the 1980 Act –e.g. ‘writ’ seems out of place in a world of ecommerce.
We there would welcome (a) restatement of areas of legal services which
are reserved to qualified practitioners and (b) a refining of those areas to
include (i)the preparation of wills and testamentary trusts and (ii) the
activities of claims negotiation and management.
The introduction of ABSs
We have conducted a survey of our members and they are overwhelmingly
(over 85%) opposed to the introduction of external ownership of legal firms.
This and other similar concerns are addressed in the SPICe briefing paper of
5th Nov at page 10.
We find the justification for the introduction of ABS as set out in the policy
memorandum confusing and contradictory. Para 37 sets out what we believe
to be correct, that there has been a polarisation of legal firms with a large
number of small ‘high street’ firms which provide a range of legal services,
largely within the reserved areas to individual consumers and a small
number of very large commercial firms which provide services to business
and the public bodies ‘the great majority of which is not subject to legal
reservation to Scottish Solicitors’[ para 40]. It is then suggested that
Scottish Solicitors will be increasingly unable to compete with English Legal
firms who have access to external capital and the ability to offer combined
services with other professionals and that Scottish legal firms would either
re-register as English legal firms or be bought out by English firms [para
40].
Since the advent of incorporated practices and LLPs firms have been able to
offer security by way of floating charges over their moveable assets
including receivables and goodwill. – i.e. loan capital. So called external
capital is in reality external ownership. As the ‘great majority’ of
commercial firms’ practise is outwith the reserved areas there have been no
barriers to practising as non-solicitor legal advisers with external
shareholders or external ownership. There have been two high profile
failures where major legal firms engaged in multi-disciplinary practices with
international accounting firms. Both ended in dissolution.
That directors of finance, HR and IT cannot be partners in legal firms at
present is true. With a little ingenuity, such persons can introduce loan
capital secured by floating charge and be remunerated in such a way as they
receive a bonus which would represent a share of profits without
contravening any existing restrictions. Internally an incorporated practice or
LLP can organise its affairs so that such persons can take an active and
equal part in the management of the entity.
The policy memorandum fails completely to address the prospect that with
external ownership it more likely that Scottish firms will re-register in
England or be taken over by English legal firms should the Bill be enacted.
The policy memorandum identifies that there are aspects of the current
legal services market where there is limited competition: clients can have
difficulty in accessing services, including in the areas of family law and
debt, welfare and housing law [para 41]. The evidence base for this was
carried out before the recession and it now appears that many newly
qualified solicitors have been made redundant and what was true two years
ago is no longer true. It may be that as a result of very specialised training
some lawyers are not in a position to practise in such areas - but they can
undertake additional training.
New non-lawyer providers are unlikely to move into areas where there may
be demand if these areas are not profitable. These are not areas in which
the commercial firms by and large practice. One of the consequences of the
Bill will be that third party providers seek to provide services from which
they can make generate profits. This is likely to be in the case in relation to
conveyancing and private client business such as the making of wills and
executries. That would impact on the profitability of high street legal firms.
Over time that will reduce the availability of such services on the high
street. Access to justice is unlikely to be a significant factor with third party
providers and high street firms striving to compete the may withdraw from
unprofitable areas of practice or be themselves forced out of business
leaving legal services less obtainable than at present. We regard this as a
real danger over the medium term.
There may be other ways in which SLAB might wish to fund the provision of
legal services in relation to housing and welfare matters with a greater role
for the not-for-profit sector. This however does not require the scale of
changes or complexity of the Bill. And if this is the intention behind the Bill
then we do not consider the response proportionate.
The European Commission in its 2004 Report suggests that the introduction
of ABSs and removal of current regulations will help protect services in rural
areas.
“For example, these regulations might inhibit lawyers and accountants
from providing integrated legal and accountancy advice for tax issues or
prevent the development of one-stop shops for professional services in
rural areas.”[para 60].
For a solicitor who is a sole general practitioner offering services in a rural
community there will be little cross over with the practice of an accountant
in the same community who will not deal with family law, crime,
conveyancing or wills and succession. The complexity of the arrangements
provided for in the Bill, which themselves will require to be fleshed out by
considerable further rules which require to be complied with should the two
practice within an ABS structure in addition to those a solicitor has currently
to adhere to. The Commission’s comments show no appreciation of the
administrative burden and it is accordingly hard to imagine small legal firms
being remotely interested in taking advantage of the proposed reforms.
They are likely to be forced into trying to protect their existing business
from new entrants in the shape of ABS providers.
The independence of the legal profession.
We are very concerned at the direct involvement of the Scottish Ministers in
the processes required by the Bill. The Scottish Ministers do so directly
whereas in the Legal Services Act 2007 there is the establishment of a Legal
Services Board in England which provides regulation at arms length from
Government. The policy memorandum para 51 deals with this in these
terms :
“The Scottish Ministers will fulfil the regulatory role fulfilled by the LSB in
England and Wales. This maintains oversight of bodies seeking to regulate
ABS. However, the Scottish approach achieves this aim without the
complication and expense of establishing a nondepartmental public body.
The Scottish Government believes this is more proportionate to the Scottish
legal market. It also reflects the Scottish Government’s aims in terms of
simplification of the public.
While ‘proportionate’ is one of the terms which appears in the Report of the
Better Regulation Task Force it has become a word which is devoid of any
meaning and there is no context stated and no evidence of what the debate
might be in relation to the Scottish Legal Market. It is very disappointing,
considering the statement in s1(a) of the Bill that one of the regulatory
objectives is supporting the constitutional principle of the rule of law. It is
not clear how the direct role of the Scottish Ministers meets this objective.
The UN High Commission on Human Rights Declaration on the Role of
Lawyers in Society [1990] states :
“Governments shall ensure that lawyers ( a ) are able to perform all of
their professional functions without intimidation, hindrance, harassment or
improper interference; … and ( c ) shall not suffer, or be threatened with,
prosecution or administrative, economic or other sanctions for any action
taken in accordance with recognized professional duties, standards and
ethics”. [para 16] and
“Lawyers shall be entitled to form and join self-governing professional
associations to represent their interests, promote their continuing
education and training and protect their professional integrity. The
executive body of the professional associations shall be elected by its
members and shall exercise its functions without external interference.”
[para 24].
The Council of Europe Recommendation R(2000)/21 provides :
Decisions concerning the authorisation to practise as a lawyer or to accede
to this profession should be taken by an independent body. [art 2].
Further in Principle V 2 the Council of Europe recommend :
“Bar associations or other professional lawyers’ associations should be self
governing independent of the authorities or the public.”
The European Parliament Resolution 23 March 2006 Point E opposed ABSs
states :
“…the duties of legal professionals to maintain independence, to avoid
conflicts of interest and to respect client confidentiality are particularly
endangered when they are authorised to exercise their profession in an
organisation which allows non-legal professionals to exercise or share
control over the affairs of the organisation by means of capital investment
or otherwise, or in the case of multidisciplinary partnerships with
professionals who are not bound by equivalent professional obligations.”
The European Parliament was also supportive of the rule of law as being a
fundamental characteristic of the legal profession.
These are high level views which command respect and the dismissal of any
such arguments as not proportionate illustrate a fundamental failure to
appreciate the consitutional significance of an independent and free legal
profession which cannot be guaranteed where the Scottish Ministers directly
authorise regulators. We are strongly of the view that there must be an
intermediary body such as a Legal Services Board to satisfy the requirements
of these international and European statements. Section 4 of the Bill is
simply not enough.
The supposed imperative for ABSs at European level.
The policy memorandum refers to the European Commission’s Report on
Competition in the Professions [2004] as being the genesis of reform in this
area. We quote from the Commission’s Report:
“In the Commission’s view business structure regulations appear to be least
justifiable in cases where they restrict the scope for collaboration between
members of the same profession. Collaboration between members of the
same profession would appear less likely to reduce the profession’s
independence or ethical standards.” [para 63]
And :
“Business structure regulations appear to be more justifiable in markets
where there is a strong need to protect practitioners independence or
personal liability.” [Para 64]
Even the Commission acknowledges therefore there are some professions
where independence and ethical standards may outweigh the benefits to
consumers. In our submission lawyers are such a profession and there the
case for ABSs has not been made out. We find it difficult to understand why
the Scottish Ministers have reached the view standing the terms of para 63
that it is unnecessary to seek to impose changes on advocates. We find this
particular at odd with the lengthy and arcane procedures which are required
to admit a solicitor advocate who already has rights of audience to the
Faculty when an advocate seeking to move in the opposite direction can do
so seamlessly. This point has simply not been addressed.
This distinction is borne out in the jurisprudence of the European Court of
Justice [ECJ]. The decisions in Apothekerkammer des Saarlandes v
Deutscher Apothekerverband eV ECJ 19/05/09 and Commission v Italy of
the same date both reach the conclusion that there may grounds of public
policy which override the interests of competition law. While these cases
deal with public health as the overriding factor, in our view, the rule of law
has an even stronger claim to override competition law requirements.
The Services Directive 2006/123/EC provides for the free movement of
service providers [art 16] but [in art 17] provides a derogation for lawyers as
defined by the Lawyers Directive 1977/249/EC again recognising the special
position of legal services. The Qualification Directive 2005/36EC also makes
provision for free movement of services [art 5] and again exempts regulated
professions such as lawyers [art 7] and places the duties on the professional
bodies to make reasonable adjustments. In relation to establishment
provision is made for compensation measures, either a period of adaptation
or an aptitude test [art 14] for professionals such as lawyers. The provision
of legal services is therefore not treated, as yet, by the European
Commission or the ECJ as commoditised in a way which can be dealt with as
other services. We say more about free movement rights below.
Professional privilege
The Bill deals with professional privilege in s60. This is wholly inadequate.
There are two aspects to legal professional privileges (a) the litigation
privilege and (b) the advice privilege. The former needs no explanation but
the latter clearly does. Any advice given by a lawyer to a client that is made
in the course of his professional practice whether, it relates to any present
litigation, an anticipated litigation, or any transaction or organisation of
affairs is privileged. See for example the House of Lords case Three Rivers
DC v Bank of England [No6] [2004] and Balabel v Air India [1988]. It is also
important to bear in mind that it is confidential and is therefore immune
from seizure even before any proceedings are commenced. See for example
Andre v France ECtHR [2008] - a useful illustration before the European
Court of Human Rights – the papers in the hands of a lawyer were privileged
and ought not to have been seized by the tax authorities in seeking to build
a case against a client. As drafted the Bill [s60 (2)] only applies the
privilege in the course of proceedings – not at an earlier stage of
anticipated proceedings and not in relation to advice in relation to
transactions. This would therefore not be compliant with the European
Convention on Human Rights and would not correspond to the current
scope of legal professional privilege.
The view of the ECJ expressed in the AMS and AKZO Nobel cases is that
lawyers employed by third parties do not possess legal professional
privilege. The Bill would therefore provide professional privilege in
proceedings to non-lawyers, assuming that the intention in relation to the
proposed wording of a ‘solicitor acting for a client’ is intended to refer to a
solicitor in private practice and yet the very lawyers employed by the nonlawyer
ABSs would not be entitled to professional privilege. The result is the
Bill is inconsistent.
Free movement rights
As Walter Semple has convincingly argued there is a real danger that the
passage of the Bill into law would hamper those Scottish solicitors who wish
to practise abroad. The Establishment of Lawyers Directive 98/5/EC permits
the competent authority in host member states to refuse to recognise
lawyers employed by non-lawyer firms [article 11.5]. Such lawyers are
almost certainly going to be from those very commercial firms which are
likely to seek external ownership. This is surely an unintended consequence
of the Bill.
For a fuller discussion of Walter Semple’s argument see:
http://www.slas.co.uk/news_detail.php?newsID=691&slas=ec60713470aec63
e803b090012921fb2
Conclusions
While the Justice Secretary is on record as promising Scottish solutions to
Scottish issues in relation to legal services, the Bill is no more than a poor
reflection of the English Legal Services Act 2007.
The Bill as introduced does not offer a principled approach to the regulation
of legal services. It pays no attention to the interests of consumers which is
the only reason which justifies regulation in the first place. There is no
consideration of the present perimeters of regulated legal services, nor is
there provision to prevent actual or potential consumer detriment in
adjacent areas.
The incompatibility of certain proposals in the Bill with European
Community Law and Human Rights law has not been satisfactorily resolved.
The Commission’s competition policy does recognise that other factors may
override that the provisions of articles 81 and 82 of the Treaty of Rome. The
rule of law and the administration of justice are such reasons and the
European Court of Justice has recognised exceptions in the greater public
interest. There has been, as far as we are aware, any demand from real
consumers for the proposed changes. We simply observe that the
supercomplaint which was in some ways the catalyst for this Bill was made
by a body with a vested interest, as it is a provider of legal services.
While the Bill may offer some competitive advantage for a small number of
legal firms it offers nothing but an uncertainty for the vast majority of legal
practices operating in high street practice
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