Amber alert

A consultation paper on the future for legal services in Scotland, including new rules to allow solicitors to go into partnership with, or even have their practices owned by, non-lawyers. Does it sound familiar? Are we re-running last year’s debate over the Law Society of Scotland’s own proposals, or have things moved on?

The answer, it seems, depends on who you talk to. True it is that the first questions posed in the Scottish Government paper now under discussion, Wider choice and better protection, again ask whether we should allow solicitors to operate through alternative business structures (ABS), specifically in the form of non-lawyer ownership, external ownership, or multi-disciplinary practices. But with a majority of around 6:1 at the Society’s AGM last May having approved a policy paper which has clearly helped shape the Government’s thinking, it would be naive to suppose that ministers are not at present minded to take matters further in the Legal Profession Bill now promised for June.

Majority control

That said, any expectations that the debate within the profession is now over would appear to be unduly optimistic. Certainly some of the chief protagonists do not appear to have changed their stance.

Douglas Connell of Turcan Connell, for example, an early advocate of shared equity arrangements between lawyers and non-lawyers, welcomes the consultation, recognising the potential advantages to solicitors and others of “having the option of coming together to share overheads, whilst adding value to client services and helping to secure their survival through difficult times”.

Yet he still believes in majority lawyer control. “In terms of external ownership, Turcan Connell’s preferred model has always been a solicitor-controlled structure regulated by the Law Society of Scotland with up to one third or even half of the partners as non-solicitors, but with no externally owned equity or third party ownership. I remain of the view that the best future lies in solicitor-controlled businesses rather than in external ownership of law firms.”

Similarly Gilbert Anderson of Andersons LLP and Dean of the Royal Faculty of Procurators in Glasgow, who supported the amendment that would have limited the scope of the Society’s proposals, stands by the views he expressed.

“ My impression is that the Government’s paper embraces an ‘all things to all people’ approach. My fundamental difficulty is that I do not believe that it is possible to satisfactorily reconcile the concept of total ownership and control of a law firm by non-lawyers with any meaningful concept of preservation of the core values of the legal profession. Sitting proudly at the top of the list of such values is independence… The notion that a ‘committee’ of lawyers in such a model can certify core value compliance is, it seems to me, fallacious.”

Anderson agrees that a model involving minority non-lawyer ownership is sound, provided the nature of the entity as a law firm does not change. But he believes there is still no satisfactory answer to the difficulties caused by conflicting professional codes, particularly as respects legal professional privilege,if we permit full MDPs. “In my view this issue needs to be resolved before the bill is passed.”

Preserving integrity

David Borrowman, managing partner of Caesar & Howie, a firm which has won a number of awards in recent years, seeks new possibilities while expressing suspicions of moves “led by the same unholy alliance of politicians and consumer organisations which has inflicted on Scotland the damaging shambles of the home reports legislation”. In the wake of the banking regulation crisis, he adds, “never has it seemed more important to us to retain the standards of client-focused independence and integrity required of solicitors by our codes of practice, now practice rules. It seems to us that it is quite possible that these standards could be compromised in new business structures – we will just have to wait and see.

“However if it proves possible to find structures which genuinely preserve the traditional solicitors’ ethos we do see possible advantages. We are a growth orientated firm with ambition, and the traditional partnership model is very restricting indeed to growth…

“Our overall view therefore is one of caution but with a willingness to embrace any new structure which might genuinely enhance our ability to do more work for more clients, retaining traditional standards and independence.”

New potential

Supporters of the Society’s policy, on the other hand, welcome the proposals. “At McGrigors we’re broadly supportive of the proposed changes”, says Risk and Knowledge Management Partner Christine McLintock. “In particular, we’re keen to see a level playing field for law firms so that firms can competitively offer their services anywhere on mainland UK, regardless of where they are based. It would also mean that national firms, such as ours, with offices in both England and Scotland do not get tied up in the red tape associated with differing regulatory regimes.

“We also support the potential for alternative business structures: law firms are increasingly innovative in helping their clients structure their business, and there’s no reason why we shouldn’t be able to apply that same innovative thinking to our own businesses.”

Dundas & Wilson’s Alan Campbell points out in addition that the “level playing field” approach does not only apply as between Scots and English law firms, but also between on the one hand solicitors and advocates, and on the other non-solicitor/ advocate providers of “legal services” as broadly defined.

Changed background

One thing that has certainly moved on since this time last year is the economic background to the debate. More than one person has put the question, if we were already able to operate in ABS, would the profession be better placed to withstand the recession? Richard Henderson, the Society’s President, believes this is only one of a number of reasons why the focus of the debate has shifted.

“I don’t think that the interest outside the legal profession in securing access to this market place is going to go away”, he observes. “Whenever we get out of this recession we have to be in the best possible condition to compete both at home and abroad. How people respond when we have ABS will depend on how the world looks in 2012 or so.”

Henderson has the advantage of having represented the Society on the Bill reference group, a mechanism used by government to provide input as it formulates policy and advise on the implications. The process provides an insight into the way government is thinking, while helping ministers “get a better understanding of what is in play... and you would hope that their policy would move forward in such a way that it would reflect some of the ideas you have given to them”. And the direction in which the Scottish Government is travelling is clear enough, from the title of the paper onwards.

Desired qualities

What would it mean for the Society itself? In its submission to the Government, the Society indicated that it saw itself as the natural regulator of ABS. The Government “believes that this may very well prove to be the case, but that it would be inappropriate to grant exclusive powers to the Society without a process of ensuring that it has established the appropriate regulatory framework” (paper, para 5.22).

Henderson recognises that although the paper comes down against a super-regulator like the Legal Services Board in England & Wales, it is no foregone conclusion that the Society will be accepted as the regulator, or one of the regulators, if ABS is the outcome.

Chapter 7 focuses more closely on the Society’s current functions and governing structure, including the “section 1” duty to promote both the interests of the solicitors’ profession and those of the public in relation to the profession, as well as the separate but related matter of the Society’s twin role as professional regulator and representative body.

As para 7.19 notes, “Should the Society be an ABS regulator, the combined roles would be harder to justify as the Society would be regulating people working in ABS who are not solicitors (indeed may be in competition with solicitors), while being required to promote the interests of solicitors.”

The Government recognises that splitting the two roles is not straightforward – such has been the English experience with the Solicitors Regulatory Authority – but while intending that the Society should remain as regulator of individual solicitors, it believes that regulating ABS “will require a move towards a clearer separation of the regulatory function”. And while it does not go the whole distance with the consumer bodies in proposing up to 75% non-lawyer membership of Council, it does lean towards majority non-lawyer representation on all regulatory committees.

Modern framework

Richard Henderson believes the Society should continue to combine the roles, but accepts that the way it is run will have to change. “The marriage of regulatory and representation is part of the essence of the professional structure”, he maintains. “A profession lives or dies by its ability to manage that tension. In England & Wales they have responded to that by a kind of split [creating the SRA], still under the umbrella of Council but I suspect a difficult split to manage. We have said we don’t think that split is necessary, appropriate or even desirable for the Scottish experience, but we recognise we must have robust protocols in place in relation to regulation to ensure the public and the profession have confidence in the regulatory regime. It will have to be quite a developed regime when it comes to ABS.”

He stresses that for nearly two years now the Society has been working on internal reforms, not only to prepare for ABS but because it recognises the need for a more open, transparent and responsive method of governance in relation to its own members. The first fruits were seen at the January Council meeting with the setting up of a nominations committee to replace the traditional “tap on the shoulder” by which the President approached prospective chairs of committees; but the whole question of the size, composition and functions of Council is under active scrutiny.

The Government is watching. As the paper notes, it is supportive of the Society acquiring a modern statutory framework, and expects the current review to result in further proposals for change.

Values in the new world

To those who fear for professional values, in particular independence, under ABS, Henderson responds: “If you look at the presence of an independent legal profession as one of the pillars on which the rule of law is guaranteed, then reducing the independence of the profession is not something that is actually in the interests of any of the other players.” As for external ownership and a potential Enron-type situation, he suggests that what went wrong there “was not the fact of non-lawyer ownership but the absence of a robust regulatory regime”.

In his view as well, it is not practical to devise the framework before deciding whether we allow ABS. “I don’t think the world is built that way; you don’t get the luxury of looking at things in that sequence.” Rather, the two have to evolve in tandem, each taking shape to reflect the other.

Writing in this month’s Opinion column, Alistair Morris flags up that the big shift under ABS will be from regulation of the individual to regulation of the entity. Richard Henderson suggests that the shift is taking place in any event.

“It didn’t start last year: the whole of the Accounts Rules involve some regulation of entities. All of the standards work so far revolves around the proposition that entities deliver services, even entities of one… I don’t think that entity regulation is something to be seen only in the context of the ABS world. It would be unfortunate if people were to see it in that light.”

Perhaps the most important message in Wider choice, if implicit rather than explicit, is that approval as an ABS regulator is likely to depend on the candidate body putting forward its own proposed regime – which would surely put the Society in pole position to fill the role, if it can resolve its internal governance issues. Wider choice itself makes this clear enough. As when shaping the Society’s policy paper last year, solicitors therefore have the chance to claim a major say in the longer term outlook for their profession.

It seems almost certain that ABS is going to come in some shape or form. Against that background, Richard Henderson concludes: “I think that what the Society should be and has been doing is seek to be influential in the development of the agenda in this area. There is a public interest which the profession has to ensure access to justice and take into account the interests of justice, and I think it obliges us to actually look and see whether the model we have got is right for all circumstances, and if not we’ve got to change it.”

Claims management companies: controls needed?

Despite making enquiries of professional and consumer bodies, the Government has not been given any evidence of complaints regarding the activities of claims management companies in Scotland. However it is aware of the malpractices that have occurred in England & Wales and of the risk that doing nothing could leave Scottish consumers open to similar exploitation. It is reluctant to incur the cost of a new regulatory body, but poses as a further option a tendering process to provide a monitoring and compliance unit – the solution adopted south of the border under the Compensation Act 2006.

Wide range of Wider choice

Wider choice and better protection (46 pages plus appendices) contains 38 questions for respondents spread over nine chapters. After setting the scene in chapter 1, it moves on to cover alternative business structures in chapter 2, legal services (including the reserved areas of practice) in chapter 3, principles of regulation (objectives, and core values) in chapter 4, options for a regulatory framework in chapter 5, and protections in the event of external ownership in chapter 6. Chapters 7 and 8 look respectively at the Law Society of Scotland (taking in the Master Policy and Guarantee Fund) and Faculty of Advocates, and finally chapter 9 considers claims management companies.

See www.scotland.gov.uk/Resource/Doc/1097/0076097.pdf. The closing date for responses is 3 April.

Advocates: status recognized

Although the Faculty of Advocates featured in most of the grounds of the super-complaint brought by Which? in May 2007, subsequently adopted by the Office of Fair Trading, the Faculty appears to have persuaded the Government that its current status and practice rules (recently amended to permit greater direct access, and “mixed doubles”), should remain.

Thus advocates will remain as holders of a public office granted by the Court of Session, under the jurisdiction of Faculty as a governing body subject to the oversight of the Lord President, rather than having up to 75% non-advocate membership of its Council as proposed by Consumer Focus Scotland. The Government is also not persuaded that it is necessary to remove the prohibition on advocates entering partnerships or forms of ABS – “provided transfer between the two branches of the profession can be a straightforward proposition which does not involve substantial detriment to the practitioner”. It will continue to work with the Society and Faculty on issues that might facilitate transfer, particularly as respects solicitor advocates.