Braving the storm

With an annual turnover of £1.2 billion, the legal profession undoubtedly plays a key role in boosting Scotland’s economy. In recent weeks, however, its continuing success has been called into question, with evidence that the “credit crunch” and the resulting slowdown in the residential property market are biting hard.

Long-established firms have begun laying off staff: the Scottish Paralegal Association reports more than 50 redundancies in June alone, mostly in high street firms with a heavy reliance on conveyancing. While support staff have borne the brunt, solicitors are not immune from losing their jobs – Blackadders, for example, is shedding lawyers among 60 planned redundancies, and has cancelled plans to take on eight trainees this summer.

Christine Lambie, President of the SPA, says that the situation is completely unprecedented. “I have never known people getting paid off in legal firms before and I have worked in them for over 40 years”, she says. “Certainly I am surprised by how many are losing their jobs, and corporate seems to be getting hit as well as conveyancing.”

While the significance of job losses at a relatively small number of firms should not be overstated, there is also some evidence of a wider malaise and a lack of confidence within the profession. A survey by PKF recently found that Scottish firms now have the “gloomiest outlook” since the recession of the early 1990s, and are considering recruitment freezes, redundancies, tighter credit controls and specialisation of services in order to ride out the storm.

New enquiries

With the controversial home reports legislation still scheduled for introduction on 1 December, and alternative business structures also firmly on the cards for the following years, the Law Society of Scotland is also concerned about the future, and is now “actively monitoring” the situation.

“Legal firms, like many other businesses in Scotland, are feeling the effects of the current economic climate”, says Henry Robson, the Society’s deputy chief executive. “While at present relatively few solicitors have informed us of being made redundant, we have had reports of support staff from firms across the country having lost their jobs, which is a real concern.

“The Professional Practice Department is giving help and advice to solicitors who may yet be faced with losing their job, or equally to solicitor employers who have never before been in the position of having to make people redundant.”

The Society’s Education and Training Department is also offering support to those concerned about finding traineeships. “We have been contacted by people who have been told they won’t be able to take up their traineeships this year, or whose training contract has been cut short, and by firms who are having to consider making that decision”, says director Liz Campbell. “We would encourage anyone in this position to contact the Education and Training Department for advice.”

Property impact

However, the outlook for firms is not all gloomy, provided that their business is not dependent on the vagaries of the residential property market. Robson adds that the slowdown in Scotland appears to be “less severe” than south of the border.

“Firms are looking ahead, reviewing the services they provide and exploring where they may be able to diversify,” he says. “Some firms are still reporting new appointments and expansion in certain areas.”

But he adds: “There has been a very definite slowdown in the property market, with prices slowing, or falling in some areas of the country, as well as properties taking longer to sell. It has also had an impact on the numbers of mergers and acquisitions taking place, and the commercial property sector.

“The Law Society of Scotland is just one of many organisations to be affected by the uncertainty of the property market and we have decided to delay plans to relocate.”

Approaches to government

Of wider concern is the potential impact that the slowdown may have for access to justice. As the Journal reported in July, the Society has already taken the highly unusual step of writing to the Chancellor, Alistair Darling, to warn of the serious impact that the downturn in the housing market may have for future access to legal services in Scotland.

“Information coming to us points to a significant reduction in business in the housing market such that in some areas there is virtually no activity at all,” wrote Richard Henderson, the Society’s President. “Inevitably this will lead to redundancies and indeed there is already some evidence of this happening throughout the profession.”

Mr Henderson added that the withdrawal of 100% mortgages by lenders had been a particular problem in Scotland, and urged the Chancellor to explore options to help first-time buyers enter the property market. The Society has also met with Kenny MacAskill, Cabinet Secretary for Justice, to make strong representations about the potentially detrimental effects of the plans to introduce home reports legislation in December.

The Society says it will remain in close contact with solicitors on the ground, and also plans to offer more support to solicitors, including a conference providing information and advice specifically targeted at high street firms.

Litigation – but no legal aid

One high street firm predicts that future viability may depend on how reliant firms are on conveyancing and whether they continue to do legal aid work. Archie Millar, senior partner at Drever & Heddle, which has offices in Kirkwall and Thurso, predicts that high street firms may have to make some tough decisions if they are to survive in the longer term.

He adds that his firm has become more efficient since it recently stopped doing legal aid work. “We had a partner leave us who was interested in doing legal aid, and so we just stopped,” he says. “It’s changed the whole office and it’s much, much better not doing it. It’s helped us enormously.”

With the economic downturn and home reports likely to hit conveyancing, the firm is now focusing on litigation as a growth area, seeking out work that would previously have been passed on to agents in the central belt. A new partner, Eric Baijal, is specialising in running Court of Session cases from the firm’s Thurso office.

The initiative has been so successful that Millar says they plan to hire at least one more litigator and in the longer term may consider opening an office in Edinburgh.

“We have employed a specialist litigator and we are setting out to offer a very high quality litigation service,” says Millar. “We think that litigation is the future.”

Delivering in property

Not all firms are unduly worried about the future of conveyancing, however. Dianne Paterson, a partner with Russel + Aitken in Edinburgh, predicts that firms who adopt new technology and innovative solutions to deliver property services will be able to cope with the challenges.

“The entrance of new providers into the residential property markets, together with regulatory change, has already altered the delivery of property services from its traditional practice into a highly automated process,” she says.

“However, Scottish solicitors, being by custom ‘men of business’, have been more than able to embrace such change, allowing us to compete in this challenging marketplace and continue to deliver a service which is responsive to our clients’ needs.

“Scottish solicitors have always been well placed to offer the ‘one-stop shop’ solution, delivering estate agency, legal, financial and property services to clients in the most cost-effective and efficient way. This will not change.

“Solicitors are already investing heavily in the latest technology and working practices to build on their current offering, to deliver an even higher level of integrated services to clients, through online and automated systems.”

She adds that the Edinburgh Solicitors Property Centre’s “MoveMachine” already allows firms to interact more efficiently with clients and business partners. “MoveMachine provides a range of services to solicitors, such as home reports, property marketing, and e-conveyancing solutions. This allows solicitors not only to take advantage of the changing property market, but also to compete successfully with the national brands and new providers in the property marketplace.”

Hope for summary justice

The Society is also concerned about the impact of the recent summary justice reforms on high street firms. Oliver Adair of Adair & Bryden in Larkhall, and convener of the Society’s Legal Aid Solicitors Committee, says criminal lawyers have repeatedly expressed their concerns about the changes.

But he concedes that it is too early to say whether the reforms will actually result in a drop in income, and says he remains “optimistic” about the future, stressing that the current administration appears to be committed to investing in legal aid, subject to its limited resources.

“I am quite an optimistic person and I do get the feeling that the Scottish Government is committed to the legal aid system,” he says. “If we work with them and review the summary justice programme, I believe they will do their bit.”

International appeal

While the UK economy teeters on the brink of recession, those firms with an eye on international markets may be better placed to weather the economic storm.

Malcolm McPherson, senior partner with HBJ Gateley Wareing, says demand from international clients for Scottish expertise “remains strong”. He adds: “It was the demand for advice from our shipping and construction clients that enabled us to open offices in Dubai late last year. Our six-strong office works closely with our shipping practice in the UK, allowing us to serve clients globally from our offices in London, Edinburgh, Glasgow and now Dubai.

“By seeking opportunities abroad we can enhance our offering to our UK clients and help develop the pool of talent within the firm through an exchange of personnel, ideas and best practice. The Dubai office is the firm’s first international base and represents our determination to explore and exploit commercial opportunities that can help grow and protect the firm during the economic downturn.”

Fraser McMillan, head of Pinsent Masons’ Scottish offices, says the firm has not experienced any significant impact as a result of the credit crunch, and attributes this to the firm’s broad skill base, across a range of different sectors and jurisdictions.

He adds: “We are seeing significant continuing growth in sectors such as major infrastructure projects and energy, and also major growth outside of the UK in our Chinese offices and in Dubai. Whilst the anticipated uncertainty makes it difficult to predict exactly how any forthcoming recession will impact on a firm’s business, we are confident that this diversity in our business puts us in good stead to resist the worst of the downturn, and indeed to take advantage of any opportunities it creates.”

Investment opportunity?

Firms may also be able to use the downturn as a period for reflection on the way ahead. Linda Urquhart, chief executive of Morton Fraser, says that the downturn, while challenging, presents opportunities for firms to strengthen client relationships and focus on future improvements.

“In areas where work is quieter it is essential that we use our time to maintain and develop relationships with our clients, keeping close to them and finding out how we can support them with any particular challenges they’re facing.

“There is also the opportunity to spend time on the investment areas which often get pushed down the agenda at busier times. We all have ideas for improving the way we provide our services – this is an ideal opportunity to get those improvements in place.”

Acknowledging that staff face an unsettling time, she comments: “We also need to make sure that we spend time communicating with them on the wider market, the firm’s current position and our thinking for the future.

“We will all need to be flexible and be willing to use our skills where they are needed in the short to medium term, but one factor which won’t change for us is that we will continue to look for great people and great teams who can join us to contribute to the success of the firm in the future.”

Meeting needs

Alan Campbell, managing partner, Dundas and Wilson, which recently reported a 23% increase in turnover, anticipates his firm’s own growth will slow down. “We are still budgeting to grow, not at the level we have grown – but we didn’t budget to grow at that level anyway,” he says.

But Campbell adds that there will still be business out there, even if it means a change of focus. “Whereas in a boom cycle there are a lot of people wanting to do deals, in a downturn there are people who need to do deals,” he says. “The transactions will not disappear, but will change in nature.

“If you have got a good business, then there are opportunities.”

Jennifer Veitch is a freelance journalist with a special interest in the law and legal affairs.

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Society stays its hand

The turbulence in the property market has affected the Law Society of Scotland’s plans to move to new, modern premises.

The Society announced last month that it is to remain at its Drumsheugh Gardens headquarters, which have been on the market, for the immediate future.

Ian Smart, the Vice President, said: “The recent downturn in the property market means we haven’t secured the kind of deal which would make it prudent to move at the moment.

“We do still believe a move to new premises in Edinburgh is essential for the future development of the Society, and while we are continuing to look at new offices and will continue to talk to potential buyers, we are not now planning to move before the end of the year.”