MDPs: why not?

John Elliot argues that, with the right safeguards in place, the Nova case should not impede the introduction of MDPs if the profession and their clients choose that business structure.

The NOVA case appears at first blush to have torpedoed multi disciplinary partnerships. This is not so and I argue that MDPs can and should be permitted to exist in Scotland.

The European Court of Justice held that, in the Netherlands, the prohibition by the Dutch Bar on lawyers joining a MDP is anti-competitive. However, the Court said that the ban was reasonable because it was necessary for the proper practice of law in the Netherlands.

The Court referred particularly to the “advisory” function of the legal profession and the “supervisory” function of accountants when, for example, auditing.

I believe that the Court was absolutely right in saying that a ban on MDPs is anti-competitive and equally wrong in deciding that that lawyer cannot properly function in an MDP.

The Office of Fair Trading in their 2001 Report “Competition in Professions” remarked: “We have generally concluded that Rules that prevent the establishment of MDPs restrict competition... These restrictions may inhibit new entry and prevent the exploitation of possible economies of scale and scope... The opportunity to provide combinations of high-street professional services under one roof should unlock potential cost efficiences and enhance customer choice and convenience...”

Professor Alan Paterson was interviewed by the Journal (April 2002) in connection with the NOVA case. He charged that there was little evidence of demand for such services; that the maintenance of lawyers’ core values is essential; that any attempt to apply different standards of conduct within one practice “is wholly impractical”; that professional standards would fall; and that Enron shows how the different duties may conflict.

Professor Paterson, as he has done before, makes a powerful case. But I do not think that it should be assumed that those who advocate MDPs are unmindful of or unconcerned about the core values of the profession. The challenge for them is to devise an MDP regime which is practical and at the same time safeguards the legal profession’s core values.

The core values that we all maintain as lawyers include client privilege, independence and freedom from conflict of interest. No lawyer worth his or her salt will shift from a strict adherence to these concepts. They are the substance of the professional standards and integrity to which Paul Hally referred in “Maintaining the value of trust” (Journal April 2002).

To deal with the point that there is little demand. Of course, until a service (or for that matter a product) is actually available it is difficult to assess whether there will be a demand. However, the Institute of Chartered Accountants of Scotland Magazine carried a straw pole of “The (sic) leading law firms” on key issues. In answer to the assertion “multi disciplinary partnerships would benefit the legal profession in the long run”, 39% agreed  and 59% disagreed. Although a majority resisted the concept, four in ten see it as a viable option.

In their responses, the firms said that the clients would decide. And, of course, that is right. It is simply a further option open to the public. No one will be forced to instruct an MDP.  The extent to which MDPs flourish or not will be determined by the market and if one is a free marketeer one should not have a problem with that. Traditional firms will continue to have a significant role in the market place and many lawyers will choose not to work in an MDP environment.

The crux of the matter is whether a business structure can be developed which will provide the intended benefits for client and professionals alike whilst maintaining the core values. Alan Paterson does not think that it can: “In terms of the appropriate standards for MDPs it is unclear where these common standards for all MDP professionals/staff are to come from.” Past President Martin McAllister said in April’s Journal: “The (Law) Society remains opposed to MDPs until its concerns about client confidentiality and conflict of interest are addressed.”

I invite Professor Paterson and the Council of the Society to enter into the debate and I offer this model for discussion.

Structure

An MDP is a practice which includes lawyers as partners or employees and those lawyers provide legal services.

Control

Lawyers who are members or employees of the MDP have full authority and responsibility for the management of the legal practice and the provision of legal services by the MDP.

Standards

The MDP provides legal services in conformity with the general requirements of the law and established professional standards in relation to areas such as client privilege and conflict of interest.

Other Practice Members

The MDP must conduct its legal practice in a way that ensures that the ethical duties of the lawyers are not affected by other members of the MDP.

Branding

Clients of the MDP must understand when they are purchasing the services of lawyers and therefore the protections that they are entitled to. The qualifications of the persons offering the services must be clear. This could even be done by requiring some label such as “Legal Division”.

Client Safeguards

The Law Society Accounts Rules will apply to all client monies in connection with legal services provided. There must be the requisite professional indemnity insurance for the services and the necessary contributions to the Guarantee Fund based on the normal criteria.

Under this model, it is clear that lawyers supervise or undertake the provision of legal services. To an extent, therefore, legal services are demarked from the other services provided by the MDP.

I have referred to pressures which may be forthcoming from the OFT. Legal professions in other countries are choosing to manage the process of change rather than resist it. Australia, particularly New South Wales, has passed legislation which will allow MDPs in substantially the form above. There is pressure on the New Zealand government to do the same thing. The Law Society of England and Wales has plans to introduce limited forms of MDP. It is reported that these plans had reached an impasse because of the need for primary legislation. Law Society President David MacIntosh has speculated that this was “probably because the Government wants ‘full-blooded MDPs’”.

Of course, this movement is not universal. The American Bar Association has twice studied proposals to allow MDPs, but decided not to support them. The CCBE is opposed to MDPs, citing “relevantly different professional duties and correspondingly different rules of conduct.”

Two further questions have to be addressed:
1.  Should an MDP be controlled by lawyers? I do not think that this is necessary, provided:

(a)  no lawyer may enter into an MDP, with a view to offering legal services, other than in a form and manner which fully complies with his professional obligations as stated above.

(b)  the non-lawyer members are under a legal and binding requirement to avoid acting in a manner which impacts negatively on that obligation or which prejudices the interests of a client of the legal practice.

The Courts should be entitled to intervene if these obligations are not met.

2.  Does Enron give the lie to the MDP arrangement? I think not. The implications of Enron for auditing are huge, but we should not be too arrogant. The Clayton Utz case in Australia, where lawyers destroyed documents in pursuit of their clients’ interest, is a reminder that we can all be subject to enormous pressures. I strongly believe that lawyers cannot practice in the same organisation as auditors. The conflicts (between the “advisory” and the “supervisory” functions) are too great. Indeed, it is quite possible that accountants will find that auditing services have to be separated from the remaining business, if for different reasons.

It is easy to see this as an academic debate about principles. But it is more important than that. The provision of legal services within an MDP is the choice of right for a lawyer and the choice of service for the client. It expands the range of services available to the client from one practice. It enables the lawyer to work in a business structure suitable for their needs and for their career. The Law Society of Scotland should not take the anti-competitive stance of the Dutch Bar.

John Elliot is chairman of Lindsays WS and a Past President of The Law Society of Scotland.