Competition and the solicitor

by James A McLean

Competition law aspects of the review of regulation of the legal profession, and how current professional rules might co-exist with new categories of legal adviser

The Journal, March 2004, page 21

---

[In a series of articles in the Journal, Douglas Mill, Chief Executive of the Law Society of Scotland has invited comment on the implications for Scotland of the Clementi review of the legal profession in England and Wales. JAMES A McLEAN offers one view in reponse.]

There are perfectly statable arguments, one public interest, the other legal, in favour of the present prohibition on multi-disciplinary practices (MDPs) and the rendering by solicitors of legal services to a person who is neither their employer (and sole client) nor a client of a law firm of which they are employees or partners.

The public interest argument in favour of the rule is:

• that the duties owed by solicitors, as solicitors, to their firm’s clients and as employees of or partners in a law firm cannot conflict because the partners in the law firm (or, if the law firm is incorporated as a company, its shareholders and directors) are all bound, as far as the conduct of any law office situated in Scotland is concerned, by the same body of professional rules and subject to the same disciplinary procedures;
• ? that when solicitors are employed by their sole client the duties which they owe as employees and as solicitors are owed to one and the same person; so there is no potential conflict of interest; but
• ? if solicitors whose employers or partners are not regulated by the Society render legal services to third parties, the expectations of the employers or partners will not be conditioned by a requirement to obey the same body of professional rules as bind the solicitors.

The legal argument, highly condensed, is this:

Under EC competition law the rules applying to a legal practitioner are either:

1. an agreement (or concerted practice) between “undertakings” (being the businesses of legal practitioners); or
2. a law imposed by an EC member state (and therefore an imposition upon, not a voluntary anti-competitive act by, the legal practitioners).

The general rules applying to solicitors in Scotland do not become binding until they have been approved by the Lord President (and in the case of any rule banning MDPs also by the Scottish Ministers, having taken account of views expressed by the Office of Fair Trading). The position in England is similar, with the Master of the Rolls having a function equivalent to that of the Lord President here. So the rules may well fall into the category of being a law rather than an agreement.

In any case professional rules must be judged according to whether or not they exist to uphold a legitimate public interest, interfering with competition only to the extent objectively justifiable and proportionate to enable them to do so. The separate question of whether the rules should be regarded as interfering with the right of qualified lawyers to earn a living anywhere in the EC must also be considered in the context of public interest. This public interest is in the effective regulation of lawyers and particularly in the avoidance of any conflict of interest that might put in doubt their ability to act in the best interests of their clients. It is entirely possible for rules prohibiting MDPs and the rendering of services to third party clients of a non-lawyer employer to be justified on public interest grounds. The national authorities are allowed a margin of appreciation (scope for exercising their own judgment in good faith) in balancing the legal principles involved. So it is by no means evident that the Law Society of Scotland’s rule against MDPs and advice to third party clients of a non-lawyer employer does contravene EC law, irrespective of whether it is truly an agreement between undertakings or an imposed law.

The UK Competition Act 1998 embodies the same concept of “agreements and concerted practices between undertakings” as EC law and contains an express provision requiring its concepts to be interpreted in line with EC authority. It is not established that the rule of the Law Society of Scotland is disproportionate having regard to the public interest in question nor even (because of the law-making approval role of the Lord President and the Scottish Ministers) that it is an agreement or concerted practice between undertakings at all. Nor is the Competition Act 1998 the final source of law. Although (non-EC) competition law in general is a reserved area, outside the competence of the Scottish Parliament and Executive, the Scotland Act contains an express exception to that reservation in relation to the regulation of the legal profession in Scotland. So there is no reason why any application of the UK Competition Act 1998 to solicitors in Scotland should not be set aside by the Scottish Parliament. Nor is there any reason why the Solicitors (Scotland) Act should not be amended by the Scottish Parliament to eliminate the consultative role of the OFT in relation to solicitors in Scotland.

Supermarkets and labels

Given, therefore, that Scotland is unconstrained by EC or UK law in deciding whether or not to allow the Law Society of Scotland to continue its ban on the rendering of services to third party clients of a non-lawyer, what policy ought to be adopted? The question is usually formulated by asking whether or not the services of a solicitor should be available to the public not just through a law firm but also through an MDP or some other business not owned and controlled by lawyers, such as a supermarket chain. This approach confuses two distinct questions:

• should solicitors be allowed to render legal services through an MDP or to third party clients of another business not owned and controlled by lawyers; and
• should those legal services whose provision is presently restricted to solicitors become available to the public from providers who are not solicitors?

By disentangling the questions we can open up a different approach. If those legal services presently reserved to solicitors were in future to be rendered through an MDP or to third party clients of another business not owned and controlled by lawyers, such as a supermarket chain:

• is the Law Society of Scotland an appropriate body to be the regulator of those rendering the service; and
• should those rendering the service be entitled to call themselves “solicitors” or should they find another label (such as “authorised legal adviser”)?

Public recognition, consumer choice

In Scotland the word “solicitor” has a settled meaning. It means a person admitted to practise law under the regulation of the Law Society of Scotland. The rule against rendering legal services to clients of a business that is not wholly owned and controlled by persons subject to regulation by the Law Society of Scotland has been a characteristic of the regulation of a “solicitor” since before the foundation of the Law Society of Scotland. If policymakers are eventually persuaded that it is in the public interest that legal services should be available from (say) a supermarket chain wishing to render them, then that policy judgment can be implemented without altering the restrictions that are accepted by anyone wishing to practise law as a “solicitor”.

The Law Society of Scotland does not, it is submitted, have the capacity or the resources to establish and enforce the kind of office and regime that would be needed effectively to regulate in the public interest the provision of legal services to the public through MDPs or other non-solicitor businesses particularly given the complexity of addressing the foreseeable conflict of interest issues. Nor, unlike its counterpart in England and Wales, does it appear to believe otherwise. So, if not the Law Society of Scotland, then who?

A new regulator, modelled on the Financial Services Authority, could be established on a Scottish or (preferably) UK-wide basis to regulate the provision of legal services. The Law Society of Scotland could become a “recognised professional body”, retain its rule and continue to regulate its members. The claim that consumer choice was restricted by the rule would simply disappear. On the other hand there is no reason why non-solicitor businesses should inherit the collective goodwill already established by the profession of solicitor regulated by the Law Society of Scotland. This is the goodwill which is represented by the collective brand “solicitor”.

The consumer could choose to obtain legal services from a non-solicitor provider, regulated by the new regulator. But the collective brand of “solicitor” would continue to mean what the public believes it does mean, a legal practitioner admitted by the Law Society of Scotland to practise law under a particular set of rules enforced by it. A legal practitioner unwilling to accept the constraints accompanying entitlement to practise as a “solicitor” would not be prevented from rendering legal services to the public at all. He could practise under the regulation of the legal services regulator. But he would not be allowed to make the misleading claim that he was a “solicitor”.

Playing field still level

As for the new legal services regulator, its establishment should be funded by levies upon those practising under its regulation. It should receive no public funding, as this would amount to an unfair subsidy to those practising under its regulation in competition with solicitors regulated by the Law Society of Scotland. It is not for the state to make the commercial assessment that there is in fact a pent-up public demand for non-solicitor legal services, still less to back such a judgment with taxpayers’ money. The reason for preferring a UK-wide to a Scotland-only regulator is that the devolved competence of the Scottish Parliament relates to the legal professions of solicitors and advocates but not to non-solicitor providers. So even a Scotland-only regulator of non-solicitor providers would fall under the Westminster Parliament.

Some may object that if solicitors truly believe that the present restraints are justified in the public interest then that justification would apply no less to any legal practitioner called by whatever name. The problem with that line of reasoning is that it enables the rule to be stigmatised as existing for the self-interest of the profession rather than in the public interest. “Solicitors would say that – wouldn’t they?” The existence of this stigmatisation, whatever our views about it, is a fact. We have to deal with it. The policy advocated in this letter would end that debate. It would allow the Law Society of Scotland to focus on what the public is entitled to expect from “solicitors”, particularly in relation to accounts rules, conflicts of interest and the Solicitors’ Guarantee Fund, without becoming answerable for other legal service providers operating in a parallel but different regulatory environment. The difference in regulatory regimes would be a factor which the consumer of legal services could take into account in choosing a legal services provider. The strictness of the regulatory regime of the Law Society of Scotland would become a feature of the collective promotion of the solicitor profession to the public, in competition with whatever other forms of provision of legal services might emerge.

The first task of the non-solicitor regulator would be to draw up and put out for consultation draft conflict of interest rules and enforcement procedures for them. The purpose of these would be to ensure that the “authorised legal adviser” would have to observe the following priority of duties:

1. to any court before which the authorised legal adviser might appear;
2. to the company’s client; and
3. to the company that employed the authorised legal adviser.

Once everyone was satisfied that the rules would work, everything else could be put in place.  

James A McLean, Partner, Burness

Current Issue Features Braving the storm How different types of legal firm are coping with the current economic downturn, and how they see their future Civil justice: where next? An abridged version of the keynote address delivered to the conference on civil justice held in Edinburgh on 20 June Title Conditions Act: new registration procedures New procedures are in place for deeds intended to create new real burdens, to assist solicitors in complying with the requirement for dual registration Young lawyers reborn Interview with Scottish Young Lawyers Association President Maryam Labaki on SYLA's ambitions as it relaunches Shining some more light... Second part of overview of this year's Finance Act looks at the provisions on savings, pensions, residence/domicile and business taxes, among others Power to the tribunal? An advocate's and a solicitor's views of how the Scottish Government's proposed reforms to arbitration law might work in practice Piece by piece A progress report from England & Wales on the setting up of the complex regulatory machinery under the Legal Services Act 2007 The poor in our midst Interview with Scottish Solicitors' Benevolent Fund convener Craig Bennet, who aims to raise awareness of the Fund so it can provide more help to those in need Current Issue Articles Shifting sands President's message: with economic issues dominating the profession's thoughts, the Society is taking steps to provide advice and support to those in need A rank bad rule Opinion by two advocates that the Faculty's response to the OFT does its members a disservice by defending the cab rank rule and by resisting the use of ABS The Society's future role in complaints handling A reminder, in the light of reactions to the first levy issued on behalf of the new Complaints Commission, of when and how the Society's responsibilities are changing Appreciation: Lord Johnston Report of the tribute paid in court by the Lord President Professional Practice Committee New guidelines on acting as a company director; and document control and file tracking Facing the lean years Some advice on how to pull through a recession and be ready for the next upturn, as word goes round of legal firms looking at staff cuts and other measures (part 1 of 2) It's a web 2.0 world The interactive nature of web 2.0 technology presents business opportunities, while posing new risks for those with inadequate precautions as to employee internet use Questions, questions In reviewing their risk profiles and risk controls, all firms might benefit from conducting a self-assessment by addressing questions put by some insurers elsewhere Bare necessities Latest criminal cases, including offensive weapons; Moorov rule; withdrawal of representation; evidence of a deceased; contempt of court by solicitor Coming on the blind side A technical-sounding consultation, currently open for comments, covers some significant aspects of dispute resolution in employment Relocation, relocation A recent decision explores the matters to consider when one parent wants to relocate abroad along with their child Worse than the disease? Has the UK quietly outlawed "alternative" medicine through the Consumer Protection from Unfair Trading Regulations? Sleeping bounty The Scottish Community Foundation has a scheme to breathe new life into dormant charitable trusts Scottish Solicitors' Discipline Tribunal Reports relating to Eileen Agnes Coogans; Zosia Marion Elizabeth Fraser; Annaline Webster; Ian Samuel Gerard Donnelly; Mark David Sheppard Website reviews Reviews of sites of organisations concerned with domain name disputes Book reviews Review of Child and Family Law (Sutherland) Industry standard A survey south of the border suggests that in-house work in commerce and industry doesn't always match expectations - but most in-house lawyers expect to stay Meet the committee Profile of In-house Lawyers Group committee member Sara Scott What's in a motto? A sample of In-house Lawyers Group members' notarial mottoes, collected by ILG secretary Tricia Sim Leasing by example "Green leases" appear to be some way off yet for the UK, but a Canadian model now published shows how they might work Good call? Reply to article questioning the Donald Trump planning application call-in argues that the decision is both competent and consistent with proper operation of the system Home reports - the practice questions Open letter over reservations as to the Society's proposed guidelines on the operation of home reports, in so far as they deal with conflict of interest