The final roll of the dice

Alternative business structures for the legal profession are “inevitable” as a result of the parliamentary vote on the Legal Services (Scotland) Bill, but the Law Society of Scotland no longer supports the full “Tesco law” model.

The Society’s position was adopted by Council at its April meeting and will be put to the AGM later this month, as the Society attempts to find a compromise acceptable to the majority of the profession over the bill.

The policy now adopted is that majority ownership of law firms should remain with solicitors, alone or in business with other regulated professionals – essentially approving multi-disciplinary partnerships with some element of external capital. It reflects the compromise amendment put to the adjourned Special General Meeting in April by Richard Masters, the managing partner of McGrigors.

Although supported by those present (for a summary of the debate see www.journalonline.co.uk/referendum), the amendment was rejected on a poll as members of the Scottish Law Agents Society cast the proxy votes granted in their favour ahead of the initial meeting on 25 March.

Speaking after the Council meeting on 30 April, Law Society President Ian Smart said: “The vote to reject a compromise at this month’s SGM was based on proxies granted before any compromise had been proposed. Council believed that the profession should be given the opportunity to express an informed view on whether this compromise policy was acceptable.”

On the table

Compromise has been in the air since the SGM vote. Numerous discussions have taken place behind the scenes, though it remains unclear what level of ABS will command majority support. The possibility has even been canvassed of a multi-option referendum, proposing a range of possible maximum percentages of non-solicitor ownership, and also of categories of persons to be permitted into the equity. This could have led to a complex ballot paper containing up to 12 questions, and with Council bound by the Society’s constitution to state its position on the SGM vote and put a proposal to the AGM, members decided that it should take a lead.

Alternative proposals could yet be put to the meeting. One commonly discussed model would permit a maximum of 25% of the equity (and voting rights) in a legal practice being held by non-lawyers working within the practice – the “co-ownership” model as circulated to party justice spokesmen at Holyrood by Govan Law Centre, ahead of the stage 1 debate.

The GLC model represents a significant shift by a body hitherto resolutely opposed to ABS, but is a considerably more limited scheme than the Masters amendment. In the briefing paper containing its proposals, GLC restated its arguments that the bill as drafted is incompatible with the independence of the Scottish legal profession, and principal solicitor Mike Dailly maintains that partial external ownership raises “the same regulatory and ethical problems as with 100% external ownership”.

Masters, however, said his proposal was “designed to enshrine the independence of those in private practice” by preventing majority external investment – and therefore also the possibility of a bank or supermarket-owned legal services business. As was evident at the continued SGM, pro-ABS firms clearly regard it as falling short of providing the level playing field with their English competitors that they set out to achieve, but it is an outcome they would be happy to accept for the greater good of preserving the unity of the Scottish profession – which, they insisted, they have no desire to leave except as a last resort.

Initial reaction to Council’s decision from SLAS was positive. “The Scottish Law Agents Society welcome the announcement of the Law Society of Scotland change of policy from a pro-ABS policy to support for majority ownership of legal firms remaining with solicitors or solicitors with other regulated professionals”, said interim President Craig Bennet.

He added: “This is a significant shift in policy and we do not think that would have been achieved without the successful campaign of SLAS and its supporters at the SGM. The council of SLAS will meet shortly to discuss its reaction to the announcement and is likely to seek views of its members on this positive development.”

Looking for a way forward

Compromise was also the tone of the stage 1 debate in the Parliament. But there is little doubt that ABS in some form will be enacted, as MSPs approved the principles of the bill by 92 votes to two (the two Green members). They did so however with varying degrees of emphasis, as some members took the minister, Fergus Ewing, to task over an upbeat opening speech which they felt downplayed the difficulties the issue has caused.

While MSPs from all parties accepted the need for reform in response to the Office of Fair Trading, which first called on the Scottish Government to consider how the current restrictions on entry to the legal services market might be lifted, the opposition parties questioned whether the current proposals were the correct way forward (see panel). Labour’s Richard Baker and Bill Butler both insisted that “extensive debate” was still needed at stage 2. And Conservative Bill Aitken, convener of the Justice Committee, summed up thus:

“The Parliament’s mood is to legislate, but we wish to do so to ensure that the Scottish legal profession emerges strengthened rather than weakened.”

It is not being partisan to say that there was a noticeable level of support for the role the Society has played, combined with criticism of the tone that the debate within the profession has taken at times. Members are looking for the profession to engage in constructive discussions, while paying proper regard to the concerns that have been expressed. Adopting a softer tone in response to the debate, Mr Ewing said “it would be preferable if we could secure broad support in the profession for our proposals”, adding: “That is what I aspire to, but I will not predict at this stage whether it is achievable.”

The Society, says Ian Smart, “remains committed to ensuring that the proposed legislation is effective, workable and in the interests of the profession and the public. To achieve that, we will remain in discussions with all interested parties and continue to welcome feedback from solicitors”.

By the time you read this, further proposals or amendments may have been tabled for the AGM, and the meeting may yet end up with a number of options to choose from. But whatever happens then, our MSPs will have the final say.

Flavour of the debate

Some quotes from the Holyrood stage 1 debate on the Legal Services (Scotland) Bill on 28 April:

• “There are sincere differences and divisions in the profession, which is understandable. However, at times, the tone has been unfortunate. I feel particularly sorry for Ian Smart, the President of the Law Society, a man with whom I have seldom been politically compatible but who has suffered some criticisms that have been decidedly unfortunate.” (Bill Aitken, Con; convener, Justice Committee)

• “I have a lot of sympathy with my former professional colleagues, both those who resist the tide of change and others who want and recognise the need for change. The Law Society has tried hard and manfully to reconcile those positions.” (David McLetchie, Con)

• “Ways must be found to modify the proposals, particularly in so far as they affect that part of the profession with no significant international or cross-border practice.... wider arrangements for funding, ownership and partnership with other professions will affect everyone.” (Robert Brown, Lib Dem)

• “On behalf of the Liberal Democrats I am prepared to offer support for the general principles of the Legal Services (Scotland) Bill at stage 1, but only on the basis that a fundamental rethink is required.... At this stage, we make no commitment to support the bill at stage 3. A satisfactory resolution... will require statesmanship and flexibility on all sides.” (Robert Brown)

• “The bill is controversial in some people’s eyes and much work remains to be done on it. However, we must face the world as it is and not as some people would like it to be.” (Stewart Maxwell, SNP)

• “[The] division within the legal profession places elected members in a very awkward position, to say the least. It is clear that there needs to be a commitment to positive dialogue both within the legal profession and between practitioners and politicians to ensure that a workable compromise can be agreed.” (Bill Butler, Lab)

• “I thought that Stewart Maxwell was a little dismissive of the concerns about people who might end up owning law firms. There is a greater danger than some people think in that regard, which needs to be examined further.” (David McLetchie)

• “The proposal made by Mike Dailly of Govan Law Centre for a co-ownership model with a 75-25% split is one way forward. Mr Dailly has been critical of ABS structures, and his proposal gives us the opportunity to build consensus.” (James Kelly, Lab)

• “Like all members who have spoken, I think that it would be preferable if we could secure broad support in the profession for our proposals. That is what I aspire to, but I will not predict at this stage whether it is achievable” (Fergus Ewing, for the Scottish Government)