Clear and present danger

The papers and the profession have been full of chat about MDPs, MNPs, regulation, deregulation, Clementi, Monti and competition. Some of the reporting has confused the borders between jurisdictions and some has made it clear, but the issues are certainly raising debate and rightly so as they could lead to real change in our profession and our work.

The Society is alert to these developments, engaging in conversations, meetings and debates. Many in the profession have asked me questions about these issues which I have outlined in this article, along with some answers about what the Society is doing and some of my views on the issues faced by solicitors in Scotland.

What is DECAF?

Life is full of acronyms these days – DECAF stands for the Department of Constitutional Affairs, now headed by Lord Falconer. This is the successor Department to the Lord Chancellor’s Department in England and Wales. DECAF issued a Consultation Response in July 2003 on competition and regulation in the legal services market, which in turn followed a report “In The Public Interest”. This is the latest stage in a process which is gaining momentum and is designed to look at a range of issues including conveyancing, and probate in the English market place, legal professional privilege and the status of Queen’s Counsel.

More relevant from the Scottish perspective, and of deeper constitutional concern south of the border, is their examination of the regulatory framework for legal services in England and Wales, multi-disciplinary practices and whether employed solicitors should be entitled to give advice direct to the public.

Why is this relevant to Scottish solicitors?

Superficially it is not. The report concerns England and Wales only. David Clementi, who has been commissioned by the Government to lead the Review Group, has acknowledged that fact. There is no doubt however that changes in England and Wales leading to the creation of a super regulator or allowing what is being called “Tesco Law” are likely to have knock-on impacts in Scotland. As legal practice becomes increasingly globalised, any changes in a jurisdiction as considerable as England and Wales, are very likely to impact in Northern Ireland, Scotland and even Ireland. In addition, the Scottish Executive Justice Department has acknowledged that there is considerable “read-across” in these proposals. So in fact it is of direct relevance to all Scottish solicitors.

Who is David Clementi?

David Clementi has a background in banking and insurance. He had a leading role at Kleinwort Benson in the UK privatisation programme for a number of years, including advising HM Government on privatisation of British Telecom in 1984, the first global equity issue and privatisation in 1991 of the electricity industry. After moving to the Bank of England as Deputy Governor for a period of five years from September 1997, he joined the Monetary Policy Committee and was heavily involved in the Bank’s work to help the City prepare for the single currency. In 2002 he was appointed chairman of Prudential plc. An Oxford graduate, a chartered accountant and an MBA graduate from Harvard Business School, he is a member of the Appointments Committee of the Press Complaints Commission and an Honorary Fellow of Lincoln College, Oxford.

Should a lawyer have been appointed?

The Government wished to appoint someone independent and objective as far as the legal profession is concerned. Having met David Clementi in early November with the President, Joe Platt, and the Vice-President, Duncan Murray, I believe that he has a very good grasp of the legal issues involved and has shown an open-minded and methodical approach. Although there is clear Government direction and pressure I am confident that Mr Clementi and his review team (which includes Sheila Spicer and Sanjeev Ghosh, two senior people from the Lord Chancellor’s Department and Treasury), will do justice to their brief. I can assure members that the differences in the Scottish marketplace and our concerns about Scottish solutions to English issues were made very clear.

What is the wider background?

For some period of time we have had a different view from our English counterparts on the subject of multi-disciplinary practice. It is the Law Society of Scotland’s established policy that multi-disciplinary practice is inconsistent with our core values of confidentiality and independence. This policy has been affirmed at AGMs over the last few years. There was a period when we seemed to be swimming against a very strong international tide. Since the Enron fiasco, the Nova judgment and other related developments, it would appear that MDPs have gone off the boil a bit but questions remain to be answered on the future of practice development and professional practice. Regulation is the key. In our response to the Law Society of England and Wales’s proposals, we asked how MDPs could be regulated in the public interest but we were never shown a model.

Since then the debate has broadened further but has to be seen in the context of developments in a global – GATT, European (Mario Monti) and UK (Office of Fair Trading) perspective. We are in an era where legal services are being traded as a commodity much in the same way as bananas and fish quotas.

The crux of the DECAF/Clementi process is a constitutional one, which focuses in on whether the issues centre around competition law (in which case Westminster rules) or whether or not the legal system and justice are different (in which case Holyrood has control).

What are the real issues?

The essential questions are such as “What makes us a profession?” “What is a lawyer?” “Will the legal status of solicitor remain in five or 10 years?” “What future is there for the legal profession in Scotland as a self-determining body of practitioners?” “What will the impact be of allowing non-solicitor proprietors to employ solicitors to give advice direct to the public in Scotland?” “Are there access to justice issues?” “Are there rural accessibility issues?” “How ‘regulatable’ is the non-solicitor proprietor?”

Particularly in this era where the profession is concerned about money laundering and the proceeds of crime, it is difficult to conceive of a proper regulatory model which would ensure that today’s professional and regulatory standards which operate in the interests of both the profession and the public can remain.

What is Tesco Law?

Ironically it seems that Tesco are not the main movers behind this pressure on the Law Society of England and Wales. The RAC are very involved, as are the big English firms, which are keen to go beyond solicitor proprietorship. Indeed, we are told that at least one of the Magic Circle firms would look to immediately float on the Stock Exchange. To understand this, Scottish solicitors have to appreciate one or two English issues which are not entirely replicated in Scotland.

Such as?

The size and power of their large firms – the City of London has firms employing thousands of lawyers. I am told that one particular firm pays approximately £4 million per year to Chancery Lane for regulation and that some of these firms have fee income in excess of £1 billion per year. Collectively, and bearing in mind the worldwide nature of many of the big English firms, they bring in substantial foreign earnings for the UK economy. This makes them fully global players – to an extent that not even American firms can match. They are to be congratulated and encouraged in this, and indeed one of the problems which the Law Society of England and Wales has, is trying to regulate everything from the sole practitioner to the 4,000 lawyer firm in the City. All firms understandably have their business interests at heart. The interests of large firms can be light years away from the interests of the high street firm in, say, Forfar. They are in a position where they can press the Government for change in the paradigm of solicitor proprietorship.

There is distance between the average high street practice in England and Wales and Chancery Lane which is not replicated in Scotland. Scotland is a smaller jurisdiction and benefits from a closeness with high street practice and a confidence in its future which is not found down south. Much of the policy of the Law Society of England and Wales is predicated on what I see as a pessimistic view of the future of private practice outwith the cities which I do not share.

It is for those reasons that the Law Society of England and Wales is positively promoting the development of a move towards non-solicitor proprietorship of legal firms. The Law Society of Scotland believes that this would conflict with our main core value of independence and has been constant in its demands to be shown the regulatory model which would protect the public – and the profession – in the event of problems in these firms.

What about regulation?

The scale, nature and extent of the problems down south need to be put into perspective. In comparing the Law Society of Scotland with the Law Society of England and Wales you are not comparing like with like. LSEW have approximately 110,000 members, almost 1,000 staff and a turnover in the region of £80 million compared to Scotland with approximately 10,000 members, 123 staff and a turnover in the region of £4 million. LSEW’s record in handling complaints over the last 10 years has been a matter of concern, not only to their own members, but also to the Government and the media. Although LSEW have made recent attempts to improve, including an investment of £21 million in client relations, they have deep-seated regulatory issues which, again, I do not think we share.

I think the Scottish record on regulation over the last 10 years or so has been exemplary. Nothwithstanding very considerable pressures which we have these days, which are a product of a consumer society, we have much to be proud of – not just with complaints handling but in relation to claims and Guarantee Fund matters and we are constantly working to gain real improvements in what we do.

My views are shared by many with a direct interest in regulation. This is not just my opinion. The Society was under the Scottish Parliament microscope a year or so ago. The Justice 1 Committee conducted an inquiry into the regulation of the legal profession in Scotland, and whilst there were many suggestions coming out of that review many of which we have already taken forward, they were satisfied that the model still operates in the best interests of the public and the profession. In addition to this, the Council of the Law Society of Scotland Act is already making a difference now that Council has delegated some decision-making powers to committees. This gives us an increasing velocity in our ability to deal with complaints – which I think has been the missing part of the jigsaw.

The various differences lead me to believe that the LSEW is in a different ball-park to the Law Society of Scotland in terms of resisting what is likely to be a move towards an FSA-type regulator of legal services down south. The difficulty for the LSS, its members and its clients is that the FSA is a UK-wide model and it may well be that the Clementi review seeks to impose that on the Scottish profession. Even if it does not go that far there may be an attempt to “sub-contract” regulation of the profession in Scotland to the LSS – something which I would personally oppose.

<>What about other affected parties?

We have already spoken in some detail to the Law Society of Northern Ireland and the Law Society of Ireland in relation to the DECAF/Clementi review. They share our concerns. It is always said that if London sneezes on Monday, Belfast catches a cold on Tuesday, Edinburgh on Wednesday and Dublin on Friday. Our Irish colleagues, north and south, share our views in relation to the fundamental importance of core values and our confidence in private practice’s ability to deal with the present and the future. In addition to this we have spoken to many of the main figures in the Scottish legal system such as the Lord President, the Advocate General, the Justice Minister and the Faculty. It is important that there is clear understanding in the Scottish legal system of the considerable knock-on implications of what is happening in England and Wales.

Most importantly this is a matter for all solicitors in Scotland. This is not something esoteric. The Society will lead the way but the profession must pull together on this one. Having seen Mr Clementi and established our credentials we will continue to tell people what we are doing and to listen to the profession’s views at faculties, which I regard as one of the most important parts of my work for the profession. A Society team will be visiting Aberdeen, Dumfries, Dundee, Stranraer, East Fife, Kirkcaldy and Glasgow in February/March. Council will be debating DECAF issues at every meeting between now and our AGM and I expect that we will be developing a number of policy options to be debated in Edinburgh in May.

In the meantime, it would help the Society in its work to have any comments from the profession. Some may see Tesco Law and deregulation of the profession as a benefit and others may not. What is certain is that the debate which we are entering on all the different issues I have outlined is likely to change the face of the solicitors’ profession and it is fundamental that the best interests of the public and the profession are put to the forefront of any change.

How will you be kept informed?

I hope this will be the first of a series of articles in the Journal, which will cover a deeper analysis of the Tesco Law issues and examine other regulatory models. I will also report on any policy issues debated at Council and the AGM and developments as they unfold.