SLAS briefing paper to MSPs

A principled stance

SLAS policy is that only those ABS models which promote the principle of independence of solicitors should be permitted by the law of Scotland.

At the Special General Meeting of the Law Society of Scotland on 21 April 2010:

• 1,817 solicitors voted against the principle of ABS and only
• 1,290 solicitors voted in favour of ABS.
• 527 votes majority against ABS

A motion by Richard Masters ("the Masters amendment") allowing for not more than 49% external ownership was put to the SGM and was specifically rejected by the same majority of 527. Nevertheless, the Masters amendment has recently been adopted as LSS Council policy despite its clear rejection.

At the same time, the vote against ABS has not been adopted as LSS Council policy despite having been backed by a winning margin of almost 20%.

A counter proposal put by SLAS President Craig Bennet to the LSS immediately after the AGM has also been rejected by the LSS. Effectively the proposal is along the lines of what is now known as the “Dailly amendment”, of permitting other professionals or senior employees to hold a maximum ownership or control of up to 25% of a legal practice. We believe that our members and supporters will back this and that we will force a change of policy in the LSS at the AGM on 27 May.

Why we cannot agree the Law Society Council position

1. There is a clear difference between

1. SLAS position allowing fellow professionals and employees working within the same legal firm to have a minority share of ownership and control, and
2. allowing ownership by external investors whose motives will inevitably focus upon the maximisation of financial return.

Any external investor will wish “control”. As any corporate lawyer will tell you, control is about voting rights and is not just about ownership. The Masters amendment does not give a suitable buffer against external control. Majority ownership does not necessarily avoid majority voting being controlled by a minority external owner.

Why? Under the terms of their financial investment they may contract for a greater voting power than their share of ownership, or for some power to withdraw their finance if voting does not go as they wish it to. Accordingly, allowing any share of ownership to an external investor is fraught with danger to the independence of solicitors.

The LSS have not spelt out those dangers with their preferred Masters amendment. You may wish to ask them for their explanation.

Objective

We wish it to be understood that SLAS and its supporters are engaging in the political process at the Scottish Parliament. We are encouraged that you value the profession’s input as a valuable contribution along with others to the decisions the Parliament will make on ABS.

We urge that investment capital ownership be excluded from Scottish legal practices as it was excluded from Scottish GP medical practices earlier this year and for many of the same reasons.

Although this bill was initiated following a super complaint by Which?, no evidence has been presented that Scottish legal practice is anticompetitive or detrimental to the interests of consumers. Moreover, the main supporters of the new legislation, the large law firms in Scotland, act mainly for non-consumer business clients and no case for consumer advantage has been demonstrated.

Summing up - A Scottish solution for Scots law

We are proud to be Scottish solicitors with a worldwide positive reputation.

We are privileged to be part of a community of lawyers throughout the world who acknowledge and value the importance of professional independence.

We regret that our own Law Society Council are not in agreement but we will strive to retain our independence by dialogue with yourselves as we have done throughout the development of this issue.

We hope you can see that we do so from a principled stance and with a wish to remain part of that worldwide community of lawyers and not tarnished by the charge that we conceded our independence to investment capital interests.

Just because England now has ABS is not a reason to throw away a guiding principle of Scottish law and almost every other jurisdiction. Please have the confidence to ensure a SCOTTISH SOLUTION FOR SCOTS LAW, respecting the principle of independence.

The “Dailly amendment” is a balanced, well argued and proportionate compromise respecting Scots law.

There are also fundamental unresolved issues which we believe are not resolvable except in a way that is against the client interest. These appear below.

Issued by and further information available from

Ian C Ferguson,
Spokesman of Scottish Law Agents Society
B: 0141 552 3422
M: 07891 992331

Background information

SLAS is a voluntary organisation representing around 1,500 legal practitioners the vast majority of whom are members of the Law Society of Scotland (LSS), membership of which is presently compulsory for practising solicitors.

We are an alternative voice of the profession and our function is to represent. We were incorporated in 1884 and so have been part of the legal landscape contributing to the laws of Scotland for many years prior to and indeed after the formation of the Law Society in 1949.

Unresolved issues harming client interest

1) Conflict of interest

• The interest of an investment capital owner is maximisation of financial return
• The professional obligation of a law practice is to provide advice which is in the best interests of the consulting client
• The advice generating the best return though legal need not be the advice which is in fact in the best interests of the client.

2) Confidentiality

• Solicitors are bound by professional confidentiality.
• A non-solicitor owner of a law practice may not be bound by, or even understand, those requirements, but will have physical control of the clients’ information.
• Public trust in the legal profession is hard won and based upon the understanding that information in the hands of solicitors is subject to confidentiality. It is not likely that the public will repose similar trust in non-qualified owners of law practices. Presumably a health warning to clients of ABSs would be needed. It is not proposed.

3) Legal professional privilege

• Practising solicitors are entitled to certain privileges but only on behalf of their clients and to enable those clients to engage in the legal process.
• Non-solicitor owners of legal practices are not entitled to similar privilege, but they would have physical control of documents in respect of which privilege was sought.
• Recent European law indicates that the courts are unlikely to be willing to relax the requirements for legal professional privilege. Another health warning?

4) Deregulation and the loss of the Scottish banking sector

• There is a parallel between the proposed deregulation of legal services and the previous deregulation of the financial services sector.
• The 2008 AGM of the Law Society accepted the principle of deregulation, but it was prior to the collapse of financial institutions and the complete loss of the Scottish banking sector in 2008-09. No studies have been done to indicate whether or not similar consequences might affect the legal services sector.

5) Guarantee Fund and Master Policy

• Clients of Scottish legal services have unparalleled protection by virtue of the funds provided by Scottish solicitors in the form of the Guarantee Fund and the Master Policy, providing compensation for loss by dishonesty and negligence respectively.
• These funds simply cannot survive in their present form if investment lenders become proprietors of legal practices.
• These funds exist on the basis of the risk averse nature of legal practices. Investment lenders are risk orientated.
• Proposals to cap compensation available have already been made to aid the advent of ABS directly counter to the client or consumer interest in these funds.