A House divided?

We can’t go to Government and say there is a consensus. It might be that it will have to be for the Parliament to decide where they go.”

Ian Smart, whose term as President of the Law Society of Scotland ended on the day of the Annual General Meeting, was explaining the AGM outcome to the press. Solicitors had just voted against reaffirming the Scottish Law Agents Society motion, passed at the Special General Meeting the previous month, declaring that ownership of legal practices should be reserved to practising solicitors, but passed two contradictory motions as to what alternative business structures to allow.

All the votes were by narrow margins, following a single debate embracing all three motions and, particularly, the principle of external ownership – the most contentious matter.

First up was the Council’s motion supporting external investment, provided solicitors or other regulated professionals continued to hold a minimum 51% stake in the practice. That was passed by 1,486 votes to 1,465. The closeness of the result was emphasised by there being a majority of eight against the motion out of the 2,866 proxy votes cast, but those present supporting it by 59-26.

Next was the motion by Mike Dailly of Govan Law Centre to permit non-solicitor ownership only to a maximum of 25% by individuals working within the practice in question. That achieved a higher margin of 1,550 to 1,404, largely due to support from the proxy votes held by Turcan Connell, also cast in favour of the first motion, added to those held by SLAS, who supported motions 2 and 3.

As Douglas Connell observed, while denying tongue in cheek that his firm had any plans to merge or go into coalition with Govan Law Centre, he had been arguing for minority non-solicitor ownership for years, though not external ownership. He would stick to that but would not vote against the Society.

Finally, the no-ABS motion from SLAS was lost by 1,503 to 1,440 – a result which avoided the Society being technically bound by two conflicting policies. (The Dailly motion, having only been before a single general meeting and not having been adopted by Council, does not have binding status, but must be put to the next general meeting in September unless withdrawn before then.)

Message to Government

On one view the outcome is still a “right guddle”, as Al Gordon, from the floor, suggested might happen as voting began. But as Ian Smart said to the press, the profession was split up the middle on the question of external ownership. The result could easily have gone the other way, and the message to Government would reflect that.

The Society’s position in the light of the votes was debated in the Council meeting after the AGM. Mike Dailly, newly elected as a Glasgow member, appealed to Council to adopt his motion as having the “moral authority” of the highest number of votes. He was also sympathetic to a suggestion from Ian Smart, by now an ordinary member again, that the Society should formally decide not to adopt any particular policy – the more important question being what it was prepared to regulate.

Council voted to ratify its previously adopted policy. “However, we will make it known to the Scottish Government that there is still a strong body of opinion with the profession which favours the 25% model, and a further constituency which continues to oppose ABS,” incoming President Jamie Millar said after the meeting.

“We are now in the situation where there has been a vote in favour of compromise which is pro-ABS, but with a strong view that the ownership, control and management of law firms must remain with solicitors.

“The legal services market is highly competitive and it’s important that our members can start to plan ahead as we come out of the recession. I think today has given us an opportunity to move forwards and continue to make representations to the Government and MSPs to ensure that any new legislation on legal services provision is going to provide all the safeguards that clients need, as well as the opportunities that many of the profession want to take.”

SLAS campaign continues

Should the Government doubt the differences of opinion, SLAS is likely to correct it. Welcoming the “decisive successful result” of Mike Dailly’s motion, President Craig Bennet said: “That was our preferred motion and it was backed by our members. Our proxy votes (about 1,300) were cast for the Dailly motion and were essential to its success.”

He added: “Our own motion 3 had to be the same as at the SGM to make it binding on the Society. However, while motion 2 may not be binding (as it has been voted for only once), it cannot be ignored. It would be ignored at peril. Wise judgment is required of the Law Society of Scotland to reconcile two conflicting motions. We hope some policy change will emerge.

“Whatever position the Society adopts, we will continue to lobby MSPs... It is the politicians who will decide on ABS and our voice will be heard and they seem receptive to what we are saying.”

What compromise?

Like others who spoke at the AGM, Bennet offered an undertaking “strictly given” that if the SLAS motion was lost, they would “work with the Law Society and the Government to bring about the best result for the profession, high street and other”, recognising there required to be unity amid disagreement. But having backed the Dailly motion, SLAS believes its stance has been vindicated.

Yet the two sides of the debate are divided even over what represents a compromise. ABS supporters believe they made significant concessions in abandoning the “Tesco law” model of full external ownership – a move they believe restricts their options compared with their competitors in England & Wales. Their opponents insist that ownership of much less than 49% could result in control, and hold out against any proportion of outsider capital.

At the same time, the SLAS/Dailly wing held out the 25% internal ownership option as a true compromise. But Rod Mackenzie of Harper Macleod argued that if it were adopted, then for practical purposes there would be no ABS at all. If investing non-solicitors had to be natural persons within the firm, who would have the necessary capital? It would also preclude MDPs, as the requirement to be providing services “in support of, incidental to or complimentary to the provision of legal services” would not cover work by other professionals. And in the Council debate it was pointed out that the 25% limit would exclude all one and two-partner firms – a category covering a large number of Scottish practices.

Focus on regulation

So debate will continue over the principle of external investment. But as Ian Smart also pointed out, that is only one of two issues for the Society to consider. The other is what forms of ABS the Society should seek to regulate, assuming the Parliament votes to permit them. On that front, the Society has 81% backing from the second question in the first referendum that it should be involved in such regulation, and has always declared its intention only to seek to regulate businesses that are predominantly legal practices.

To quote Jamie Millar again: “The key in all this is the Society’s regulatory capabilities. We should have faith in the Society as a regulator. Our standards are kept high because we are regulated by an able and experienced regulatory team. With the Society regulating ABSs, the regime, including a fitness to own test, will be more stringent than any test we currently have so that standards, ethics and core values are protected.”

One matter that does appear to be agreed is that the Society’s constitution and standing orders have been shown to be inadequate to cope with such a contentious issue as ABS. Work on an overhaul was in hand for at least 18 months before the Legal Services Bill was published, but could not be finalised until after the bill is passed (not likely before the autumn).

It would clearly be an advantage to the Society not to be faced with contradictory policies adopted in general meeting. It might be wondered what would have been the outcome in terms of last month’s votes. However the message to ministers at the end of it all would probably not have been much different: the solicitors’ profession is divided and Government is requested to take account of the different views as it asks the Parliament to approve a way forward.

From the AGM debate

Jamie Millar

“The role of Council is to lead and unite the profession. We have taken account of the past votes, the roadshows, and the Office of Fair Trading…. The 25% option would not satisfy the aspirations of the pro-ABS supporters or the Government and Parliament.”

Walter Semple

“People have referred to us [anti-ABS supporters] as dinosaurs. I’ve thought about that and I’m quite comfortable with it. The dinosaurs became extinct as a result of a mass global extinction, not an exercise of judgment. The proponents of ABS are in danger of leading to a mass extinction of the profession.”

Michael Sheridan, SLAS

“We need have no doubt that ABS supporters would support external capital having control of legal practices.”

Gilbert Anderson

“The Scottish Parliament still has serious reservations about the Bill. We mustn’t just pay lip service to independence.”

Christine McLintock, McGrigors

“Independence is about attitude, and the client relationship. If it meant funding, we are all supported by the banks.”

Alan Campbell, Dundas & Wilson

“There is more structural independence in a body licensed under the Legal Services Bill than in any legal practice now.”

Professor Alan Paterson

“I had hoped we would be nearer to a compromise by now. But I don’t blame anyone…. I hope that whoever wins will work for compromise. I’m not sure that any motion here represents compromise.”

Stephen Gold

“Are we afraid of advice from a branch of Boots or a consultant in a private hospital? It is sanctimonious tosh to propose that we work on a higher moral plane than those who are not solicitors.”

Mike Dailly

“As solicitors we are more than just the sum of our business parts. Under the Council motion you could just buy a law firm. The system is robust at present because you can’t do that. My motion is a genuine compromise and would retain what we are proud of as Scottish solicitors.”

Jamie Millar

“The bill doesn’t deregulate but extends regulation…. Independence is being independent of those who provide finance.”

Passed: motion 1

“The Council of the Law Society of Scotland in general meeting call upon the Scottish Parliament to set out and maintain the position in the statutes and regulations of the Scottish Parliament and, in particular, to amend the terms of the Legal Services (Scotland) Bill presently before Parliament to the effect that the majority ownership of any business authorised to carry out work which is reserved to persons qualified to practise as solicitors in terms of the Solicitors (Scotland) Act 1980 should (except in relation to any business not vested in persons so qualified, but which provides legal services as authorised by current law) be vested in persons so qualified or persons so qualified together with other persons who are regulated professional owner managers of that business”.

Passed: motion 2

“The members of the Law Society of Scotland in general meeting call upon the Scottish Parliament to amend the terms of the Legal Services (Scotland) Bill, presently before Parliament, to the effect that at least 75% ownership and control of any entity authorised to carry out work which is reserved to persons qualified to practise as solicitors in terms of the Solicitors (Scotland) Act 1980 should (except in relation to any entity not vested in persons so qualified but which provides legal services as authorised by current law) be vested in solicitors who hold valid practising certificates free of conditions (as construed by reference to section 15(1) of the 1980 Act); and that any ownership and control of any such entity not vested in solicitors who hold such practising certificates should be vested in other natural persons, each of whom provides services which are in support of, incidental to, or complementary to the provision of legal services by the entity.”

Defeated: motion 3

“The members of the Law Society of Scotland in general meeting find that:

• it is essential in the public interest in the retention of an independent legal profession that the ownership of any business authorised to carry out work which is reserved to persons qualified to practise as solicitors in terms of the Solicitors (Scotland) Act 1980 should (except in relation to any business not vested in persons so qualified, but which provides legal services as authorised by current law) be vested in persons so qualified; and

• call upon the Scottish Parliament to set out and maintain that position in the statutes and regulations of the Scottish Parliament and, in particular, to amend the terms of the Legal Services (Scotland) Bill, presently before Parliament to that effect”.