Roberton and the case for change

During 2001 to 2003 I was the chair of the sub-group of the Housing Improvement Task Force that recommended the reform of the house buying and selling process in Scotland with the introduction of the home report system. These recommendations were adopted by Scottish Government in the face of considerable opposition from the Law Society of Scotland and the profession.

As the author of the reform proposals, I recall the sense of frustration that the debate had been (at least in my view) very one-sided, with little opportunity to openly explore new ideas and consider the proposals from the perspective of the profession and the consumer. Whatever the rights and wrongs of the reform proposals, the profession and the Society’s case to maintain the status quo of the house transaction process would, I believe, have had much more collective stakeholder credibility if detailed, open and informed debate amongst the profession had determined the concluded opinion that the reform proposals were ill founded and contrary to the interests of the consumer.

The Roberton Review proposals for reform of legal services regulation in Scotland are radical. They have at their heart systemic change, founded on the need for the introduction of an independent legal services regulator. The very day of the publication of the review, proposals that had been over a year in the making, the Society declared its opposition to that core recommendation. Starting from this position of resistance, views continue to be persistently negative. While I do not doubt the veracity of views against reform and the understandable basis for “no change”, there is however a good and robust case for reform. The purpose of this article is to try and stimulate informed debate as to why, or why not, we as a profession should be resistant to the prospect of an independent regulator of legal services in Scotland. To this end I have approached the issue of independent regulation from a different perspective to the arguments already voiced.

I was a member of the Roberton Review advisory group, and my views supporting the review’s conclusions have already been published in this Journal (November 2018, 15).

I believe that the review proposals, including the most controversial one regarding the creation of a new independent regulator, were well argued, carefully considered and correct in the conclusions reached. However, these proposals, at least to date, do not appear to have resonated with the legal profession in Scotland.

Scots law: part of our identity

For those most critical of the review’s proposals, the Competition & Markets Authority’s response to the review will make depressing and alarming reading. As I will set out, the CMA deals head-on with the voiced criticisms of the review and supports with cogent reasoning the main outcomes, including the pressing need for a robust independent legal services regulator.

However there is a further key consideration which needs to be addressed, namely the continued erosion of Scots law in our jurisdiction and why aspects of the review are not just well grounded on best regulatory principles, but are necessary to facilitate and support the preservation of Scots law in a modern, evolving Scottish society.

It has long been recognised that Scots law is a critical part of our Scottish culture and heritage. “The Treaty of Union 1707 between Scotland and England and the respective implementing legislation in each Kingdom contained provisions which today we might describe as ‘opt-outs’. These opt-outs from the incorporating Union preserved aspects of the Scottish legal system which, along with the Presbyterian religion and the system of education, helped to ensure that Scottish identity was supported by some of the most powerful aspects of the state” (Michael P Clancy, “Scots Law and Scottish Identity: A Legendary Tale”, (2018) 27 Scottish Affairs (University of Edinburgh), 73).

For those of us taught by scholars of the Roman law tradition at the Scottish university law schools, the doctrines of Scottish Institutional writers and their strongly held views on Scots law were drilled into us. Scottish legal principles are the basis on which current generations of experienced Scottish solicitor practitioners approach, dissect and thereby solve legal problems.

For many of us, the evolution of our legal system in Scotland is reflective of and grounded in a sense of national identity. “For in a very literal, even physical sense law and jurisdiction do indeed define what Scotland is” (Hector MacQueen, “Regiam Majestatem, Scots Law, and National Identity”, The Scottish Historical Review, vol 74, no 197, part 1 (April 1995), 1-25). He adds: “It is also a commonplace view that law, along with the Kirk and education, is one of the pillars of the survival of Scotland’s identity in the modern world.”

Scots law possesses a uniqueness in its fabric, has been much admired across the world and has survived seismic historical events since the 1707 settlement. Our Scots law demonstrates a distinctiveness, recognised by the Act of Union, which reserved and protected Scots law and our judicial system. Scottish academics have expressed clear support for Scots law being a concrete bedrock to Scottish identity. Indeed it has been argued that Scots law reflects the essence of the spirit of the Scottish people (Andreas Rahmatian, “Friedrich Carl von Savigny’s Berus and Volksgeistkehre” 28 J Legal Hist 1 (2007), 27).

If the argument is accepted that Scots law is important in continuing to shape our national identity, culture and spirit, is it not incumbent on us to try to nurture and protect it?

Global firms and choice of law

Much comment from practising Scottish solicitors in this Journal reflects a growing concern of the law of choice in our jurisdiction moving from Scots law to English law. Why has there been this increasing influence of English law on day-to-day matters in our jurisdiction?

An important part of this increasing influence is that since the financial crisis of 2008-10, there has been a dramatic increase in the number of English-headquartered law firms trading in Scotland. These firms include:

Over the same period, many well branded, Scottish-domiciled law firms have either been absorbed into these English-headquartered firms or otherwise disappeared.

These firms include:

Where the circumstances of the transaction or matter allow, it is of course natural that an important factor in deciding the choice of law to be adopted will be the expressed choice of the legal firm advising the client. If the predominance of the practice of the advising firm is dealing in matters of English law, it is understandable that it would rest on its precedents, styles and knowledge data, thereby avoiding the need for a transactional or matter understanding of Scots law. If the declared law of choice is the law of England, any disputes that follow in the future will rest on that choice.

The usage of Scots law as the governing law when choice exists has significantly declined. An important (but not the only) reason is the significant number of English-headquartered firms, now operating in Scotland, who would naturally gravitate to English law as the governing law for a transaction or matter. This important change is a consequence of emerging legal services providers from other jurisdictions, and the significant decline in the number of major Scottish  law firms with headquarters in Scotland. An important and critical cause of Scots law decline is rooted in the disappearance of so many Scottish-headquartered law firms, and those of us remaining are hamstrung by a regulatory system which, at present, is not fit for purpose.

Out-of-date model

To compete effectively, Scottish-headquartered firms need the capacity to innovate and be regulated in the same way as their competition by a regulator who acts independently of all of them.

“We are standing a bit lost between two worlds: the past with traditional practice and values; and the new high-tech world, with lots of new possibilities” (Orsolya Görgényi, “‘Wake up’: how young lawyers see the future”, Journal, February 2017, 17). The review has been built on the evidence of best practice in other jurisdictions, and accounts for the future (arguably unmet) needs of an expanding client base. Its proposed flexible regulatory framework can reflect changes in the market over time and encourages innovation.

Neil Stevenson, chief executive of the Scottish Legal Complaints Commission, in responding to the review, described it as “a logical starting point” in transitioning to a “modern, agile and independent legal regulation fit for 21st century Scotland”.

The CMA’s response to the review is very clear and direct in relation to innovation as a key driver in our legal services regulatory system. It calls for the immediate implementation of a regulatory scheme for ABSs in Scotland. It states at para 65:

“As noted in [our] response to the Call for Evidence of the Review, the introduction of the ABS regime in England & Wales has represented an attempt to lower regulatory barriers to entry and stimulate competition and innovation. It was recognised that such innovation could be achieved by enabling ABSs to access external capital and to achieve efficiencies by exploiting economies of scale, develop brands and offer greater convenience for consumers seeking a one-stop shop. Furthermore, the ABS structure could allow practices to retain high-performing non-solicitor employees or attract outside talent by rewarding them with a direct stake in the firm. Finally, the involvement of non-lawyers in management could facilitate the entry of more ‘business-oriented’ firms with a longer-term perspective. Since the introduction of the regime in England & Wales [under the Legal Services Act 2007], almost 1,300 ABSs have been established.”

Although stability is an important feature of any law firm, it can morph into stagnation (Will Peakin, “Shepherd & Wedderburn: sights set on the future”, Future Scot, 29 March 2018). Law firms in England are now choosing to move away from the traditional partnership model in order to grow. The chief executive of Knights, David Beech, stated: “The partnership model is out of date and not fit for purpose”, and moving away from this “slow and risk averse” model has allowed his firm to grow by 28% (Law Society Gazette, June 2014). Innovation has become a tool that has been used to ensure growth, profitability and client satisfaction.

For the remaining law firms of size still headquartered in Scotland, adjustments must be made to put them on a level playing field of opportunity with other law firms trading in Scotland and headquartered in England or elsewhere. Now, with profits in the legal sector reportedly falling and with firms being advised to ensure they have systems in place to maximise their efficiency (“Law firms’ profits fall by 26% in a decade, claims report”, Insider.co.uk, 25 July 2019), the CMA’s suggestion of a regulatory regime for ABSs should be immediately introduced. Why there has been such delay since the Scottish legal profession voted on the matter in 2010 is a continuing mystery.

The review proposed that those who deliver legal services in Scotland, wherever they are headquartered, should be subject to the same regulation, which should be independent from these legal service providers. We should all be operating on a level playing field, with the regulator being independent of all the participants.

It simply cannot be the Law Society of Scotland, which is also representative of but one of those providers – “solicitors”.

Why independence?

The CMA’s response to the review sets out clearly the rationale for full independence of the regulator of legal services in Scotland, at para 11: “An independent legal profession is important for securing public interest considerations such as supporting the rule of law, protecting the legal rights of individuals and ensuring access to justice so that individuals can participate equally in society. While it is important that representative bodies are able to provide input to regulatory decision-making, a lack of full independence may compromise the ability of regulation to meet these objectives. There is an inherent conflict of interest in effectively regulating a profession in the public interest, while also representing and lobbying for the profession’s interests. In our view it is crucial that this conflict of interest is properly addressed by a regulatory framework that ensures independence of the regulator from the providers that it regulates (as has been implemented in England & Wales following the Legal Services Act 2007).”

The CMA acknowledges that the profession’s independence from Government is also a key consideration, and helpfully refers to the experience in England & Wales where all the evidence suggests that such a necessary outcome can be achieved in a framework where regulators are separate from the providers they regulate. In response to the Law Society of Scotland’s declared concerns on this matter, the CMA reflects on similar concerns expressed in England & Wales prior to the Legal Services Act 2007. Interestingly, the CMA’s response to that, at para 14, is: “To our knowledge, the types of concerns raised by the Law Society of Scotland above have not been a problem in England & Wales. While we have not reviewed the regulatory model in Scotland in detail, we are not aware at this point of substantial differences from the regulatory model in England & Wales that would imply independence of the regulator from the providers that it regulates was not warranted.”

I do not share the Society’s view that the Scottish legal profession has prospered since 2009. The test of success cannot only be the number of individuals who hold Scottish practising certificates. Surely the test of success must also include a barometer of the health of our indigenous Scottish profession/law firms?

Indeed the Solicitors (Scotland) Act 1980, s 1(2)(a) provides that the object of the Law Society of Scotland is, first, to promote the interest of the solicitors’ profession in Scotland. The argument that somehow the seismic downward change in the prosperity of headquartered Scottish law firms is simply down to global forces or clients demanding global reach from their Scottish lawyers doesn’t bear serious scrutiny. The Society should cease to be our regulator and prosecutor for conduct matters and be a representative body promoting our services.

The second objective of our Society (s 1(2)(b)) is the promotion of the interest of the public in relation to our profession. The YouGov poll (July 2019) carried out on behalf of the SLCC found that 61% of respondents believed that it was unacceptable for a single body to represent and regulate lawyers, with a further 28% stating it was very unacceptable! SLCC chief executive Neil Stevenson commented on the findings: “What we found was perhaps not surprising – public views preferred the types of model most other regulated sectors have moved to over the last quarter of a century” (SLCC news release, 11 September 2019).

Creating opportunity

I agree with the conclusion of the review that to regulate all legal services providers in Scotland, which involves “solicitors” and “non-solicitors”, the regulator needs to be (and to be seen to be) independent of all providers. If the regulation of legal services is not of all providers in our jurisdiction (and technology will drive and change the method of delivery and the nature of those that deliver legal services), it follows that the decline of our indigenous legal profession will inevitably continue. Why?

Because to compete fairly with all providers of legal services in Scotland, we need all to be on a level playing field of regulation, and the regulator must demonstrate independence from those it regulates. Otherwise we remain hamstrung and disadvantaged in the competition for long term sustainability.

It does not mean that the Law Society of Scotland is not an exemplary regulator, but rather that the world of legal services has changed, will continue to change and we must adapt our regulatory regime to cope.

A key driver for me in reaching these conclusions for significant reform is the opportunity that should exist for the successor generations who wish to practise Scots law in Scotland. I agree with the review that as a jurisdiction we are not yet beyond the point of no return (although we are close), and Scottish law can still be a valuable tool in our personal and commercial cultures in Scotland going forward.

Others support this view of opportunity. Clancy’s article, quoted above, concludes: “In a post-Brexit world the development of new trading and contractual relationships beyond the EU... might provide the Scottish legal system with the opportunity to offer innovative solutions, especially in the fields of arbitration or internet-based dispute resolution services. Constitutional change in the future could also engage people in Scotland in the law-making process, and employing technology in innovative ways could test public opinion before and during the law-making process. In these ways the concepts of law and identity may work co-operatively to create a Scottish legal system and Scots law which becomes an example for other systems to emulate.”

If our Law Society succeeds in persuading the Scottish Government that the regulatory status quo should continue, we run a very significant risk that Scots law will continue to decline for the reasons I have outlined. If you believe that my gloomy prognosis is correct, it falls to us all to shout for reform and protect Scots law from further decline. The future for Scots law could be bright, but it will need us to adopt and welcome change to our regulatory system in line with the conclusions of the review.