» Introduction
» How to Respond
» Executive Summary
» Chapter Summaries
» Chapter 1: Conveyancing
» Chapter 2: Probate
» Chapter 3: Multi-Disciplinary Practices
and Employed Solicitors
» Chapter 4: Legal Professional Privilege
» Chapter 5: The Queen's Counsel System
» Annex A: Solicitors' Practice Rules
» Bibliography » Questionnaire
» Annex B: Consultation Co-ordinator
This paper sets out for consultation matters falling to the Government arising from the OFT report Competition in Professions. The paper examines implementation of legislation on conveyancing and probate, the multi-disciplinary environment for solicitors, legal professional privilege, and the QC system. The consultation is aimed at both professionals and members of the public in England and Wales. This consultation is being conducted in line with the Code of Practice on Written Consultation issued by the Cabinet Office. It falls within the scope of the Code. The Code criteria set out in Annex B have been followed.
One of the aims of this paper is to collect evidence to enable us to undertake a Rural Proofing and Regulatory Impact Assessment, which will be prepared when proposals are developed.
Copies of the consultation paper are being sent to:
The main professional bodies
of accountants, architects, surveyors and others in England and Wales
the Chartered Institute of Patent Agents, Council for Licensed Conveyancers, General Council of the Bar, Institute of Legal Executives, Law Society
professional bodies in Scotland and Northern Ireland
Main representative groups such as:
associations of county councils, local government and others
Confederation of British Industry
Consumers' Association
Disability Alliance
High Street banks and building societies
National Association of Citizens Advice Bureaux
Trades Union Congress, and others
Government Departments, Public Bodies and others
Cabinet Office
Commission for Racial Equality
DTI
Devolved Administrations
HM Treasury
Home Office
Legal Services Ombudsman
Office of the Deputy Prime Minister
Office of Fair Trading, and others
This list is an indication of the recipients of the consultation paper: a full list is available on request from Mrs Susan Samuel (see below).
Please send your response by 22 November 2002 to:
We should appreciate receiving responses to this consultation if possible by e-mail, in MS Word.
Representative groups are asked to give a summary of the people and organisations they represent when they respond.
The Department may wish to publish responses to this consultation document in due course. Please ensure your response is marked clearly if you wish your response or name to be kept confidential. Confidential responses will be included in any statistical summary of numbers of comments received and views expressed.
Further copies of this consultation paper can be obtained from Mrs Susan Samuel at the above address or by phoning 020-7210 1454.
About this consultation
The Office of Fair Trading (OFT) published in March 2001 a report by the Director General of Fair Trading entitled Competition in Professions . That report is accompanied by a detailed report from the OFT consultants, Law and Economics Consulting Group (LECG).
It is to be noted that restrictions on competition may be justified if, for example, they are in the public interest. The OFT report highlighted some of the potential anti-competitive restrictions found in the legal professions but it did not examine justifications of restrictions (e.g. countervailing consumer benefits).
The Government is committed to ensure that the professions are properly subject to competition. In most cases, open and competitive markets are the best way to ensure that consumers get the best possible service. On all the issues raised in this consultation, the Government's position is that the market should be opened up to competition unless there are strong reasons why that should not be the case, such as evidence that real consumer detriment might result from such a change. A number of questions in the document seek information about the likely level of demand from other potential providers of legal services. This information will be useful in gauging the speed with which change in the market might take place, but evidence of low demand would not in itself be sufficient reason to justify a decision not to open up the market. The Lord Chancellor's Department is considering what further steps might be needed in respect of the market for legal services to ensure that competition issues are fully addressed.
This paper sets out for consultation matters falling to the Lord Chancellor's Department arising from the OFT report. The paper is divided into five chapters and examines (1) implementation of legislation on conveyancing and (2) probate, (3) the multi-disciplinary environment for solicitors, (4) legal professional privilege, and (5) the QC system.
Chapter 1: CONVEYANCING: the use of existing statutory powers to open up the conveyancing market to new providers
This chapter looks at how conveyancing services are provided now; explains how implementation of the existing legislation would work (including what would need to be done to implement it); and asks what the likely 'take up' by new providers and benefits to the consumer might be if sections 34 to 52 of the Courts and Legal Services Act 1990 were implemented.
If the Government were to proceed with the implementation of the existing legislation, as the Director General of Fair Trading recommends, it will clearly be important to ensure that the consumers' interests are properly safeguarded.
Chapter 2: PROBATE: the use of existing statutory powers to open up the market for probate services to new providers
The overall aim of the chapter on probate is to look at how probate services are provided now; to explain how implementation of the existing legislation would work (including what would need to be done to implement it); and to try to gauge the likely 'take up' by new providers and benefits to the consumer. Given that sections 54 and 55 of the Courts and Legal Services Act 1990 have quite different applications, the part of this chapter which explains how the new arrangements would work is in two parts.
It should also be noted that as part of its Courts and Tribunals Modernisation Programme, the Court Service is conducting a separate consultation on the recommendations that followed a review of Probate Services concluded in 2001. The main purpose of that consultation is to set out the recommendations, and seek views on, how the Probate Service can become a more modern, customer focussed organisation. This includes developing a new generation of services, and new channels of access to services and functions, by effective use of technology and, where appropriate, through re-organisation of the service itself. Copies of that document can be obtained in the autumn from Alison Welbourne, Stakeholder Branch, Court Service, 6th Floor, Southside, 105, Victoria Street, London SW1E 6QT, tel. 020-7210 1858, or e-mail: alison.welbourne@courtservice.gsi.gov.uk
Chapter 3: MULTI-DISCIPLINARY PRACTICES AND EMPLOYED SOLICITORS: the provision of legal services by solicitors and by employed solicitors
The issue regarding MDPs and employed solicitors that falls to the Lord Chancellor's Department is limited to restrictions in legislation that inhibit solicitors from developing new business models. The Lord Chancellor's Department is concerned here with sounding out the appetite for, and the effects of, possible change in the legislation, in regard to the provision by solicitors in England and Wales of legal services, with particular reference to new business models, and the appetite for, and effects of, extension of the provision of legal services by employed solicitors. This consultation does not seek to put forward particular new business models nor the means of their regulation.
This chapter seeks views on whether the Law Society powers to regulate solicitors and solicitor partnerships should be broadened, to enable them to regulate non-solicitor partners and any business entity through which solicitors provide services, irrespective of its structure or ownership. It would be for the Law Society to bring forward detailed proposals that would satisfy the Master of the Rolls or the Lord Chancellor that they safeguard the public interest in maintaining a competent, independent and honest profession.
Chapter 4: LEGAL PROFESSIONAL PRIVILEGE
This chapter seeks to explore how the concept of LPP might be developed. We look at the options to restrict, maintain or extend LPP.
Chapter 5: QUEEN'S COUNSEL SYSTEM
This chapter seeks evidence to enable us to address the OFT's concerns.
REVIEW OF THE REGULATORY FRAMEWORK
This paper is concerned with a number of separate and in some instances limited issues, such as implementing existing statutory provisions to extend the market in conveyancing and probate services. The Government is aware, however, that the legal services market is changing in nature and that some of the matters discussed below (for example, removing the barriers to legal services being provided through new business structures) would add to and accelerate that change. In addition, the current regulatory framework, involving a wide range of regulators with overlapping powers and responsibilities, is complex and in some respects is not delivering what the public has a right to expect, for example, a quick, effective and comprehensive scheme for compensating those who suffer from bad or negligent service. The Government has therefore decided to undertake a review of the regulatory framework for legal services, the first step in which will be to settle the detailed parameters of the exercise and the machinery for completing it.
RURAL PROOFING
The Government is committed to ensuring that all its policies take account of specific rural circumstances and needs (Rural White Paper Our Countryside: The Future a Fair Deal for Rural England, Cm 4909, published November 2000). It has made rural proofing a part of the formal policy making process from April 2001 onwards. It is therefore important to establish to what extent the concerns raised about any impact which the schemes may have, impact on smaller practices and, if so, whether this creates any disproportionate impact for access to legal services for those in rural communities. Your answers to some of the questions in this paper will help us to assess
whether the policy is likely to have a different impact in rural areas from that elsewhere, because of the particular characteristics of rural areas; and
where necessary, what policy adjustments or compensations might have to be made to reflect rural needs and circumstances (bearing in mind the likely costs).
REGULATORY IMPACT ASSESSMENT
Cabinet Office would usually expect a regulatory impact assessment to be carried out when a Government Department consults on policy matters. This paper seeks to gauge the appetite for change and the scope of the potential effects of possible changes, before the policy is developed and put forward. Therefore it has been agreed that questions appropriate to developing such an assessment are asked here. In taking matters forward and developing policy after the consultation, the information from responses to the consultation will be used to inform any regulatory impact assessment that would be needed.
IN CONCLUSION
The next step for the Government after this consultation will be to settle policy on the issues raised. In doing so, it will wish to gauge the impact on the market in legal services and the impact on consumers. Professional bodies and others will be well placed to provide data, evidence and information on the market. We would encourage them to do so, in order to help the Government gauge the regulatory impact of the changes discussed below on the sector and on access to justice, particularly in rural areas or on vulnerable groups in society.
We seek the views of all those interested to enable us better to understand the market for legal services. These will serve as a platform for a look at reform in the future. We are grateful for the time you take in reading this paper and for your responses to the questions posed.
Chapter 1: Conveyancing: the use of existing statutory powers to open up the conveyancing market to new providers
Chapter 2: Probate: the use of existing statutory powers to open up the market for probate services to new providers
Chapter 3: the provision of legal services by solicitors in multi-disciplinary practices and by employed solicitors
Chapter 4: Legal professional privilege: the extension of legal professional privilege to non-lawyers providing legal advice
Chapter 5: the Queen's Counsel system
OFT recommendations
In their report, the OFT's consultants (LECG) noted that Section 22 of the Solicitors Act 1974 reserves conveyancing work to solicitors and, since the Administration of Justice Act 1985, to licensed conveyancers (1). But the report comments that licensed conveyancers account for only a small percentage of the market with solicitors doing about 95% of all conveyancing.
LECG noted that the Courts and Legal Services Act 1990 provided for further competition to be introduced by means of an exemption from Section 22 of the Solicitors Act to allow, subject to appropriate regulation, other potential providers of conveyancing services (e.g. banks and building societies) to be designated as 'authorised practitioners' to undertake conveyancing work. In his report, the Director General of Fair Trading states:
Under a separate recommendation in his report, the Director General of Fair Trading also proposes that employed solicitors should be permitted to provide services to third parties. Any decision by the Law Society to relax its restriction on this could provide a further means of opening up the market for conveyancing services. [See also Chapter 3.]
The Government's position
At one time in Britain, there were no restrictions against anyone from practising as a conveyancer. However, at the start of the nineteenth century, the Government passed legislation granting conveyancing practices exclusively to members of the legal profession. This was reaffirmed in the Solicitors Act of 1974, which provided that only solicitors, together with a few excepted categories (barristers, duly certified public notaries and in 1985 licensed conveyancers), could provide certain conveyancing services for a fee.
The Courts and Legal Services Act 1990 promoted a liberalising approach to the provision of legal services. The Act introduced the general objective of
The Government favours opening up the conveyancing market further and in principle is willing to incur the cost of establishing an independent regulator, if that represents good use of public funds. This could be achieved by implementing fully sections 34-52 of the Courts and Legal Services Act 1990. If the Government were to proceed with the implementation of the existing legislation, as the Director General of Fair Trading recommends, it would clearly be important to ensure that consumers' interests are properly safeguarded.
A previous attempt to open up the market in the early 1990s proved unsuccessful. The Authorised Conveyancing Practitioners Board was originally set up in April 1991 to operate the 'authorised practitioner' scheme provided for by the Courts and Legal Services Act. But in March 1992, the Lord Chancellor of the day announced that he had decided to postpone the implementation of the authorised practitioner scheme because of a lack of demand from potential providers. He said:
How conveyancing services are provided now
Legal Services providers operate in a dynamic market, particularly given the impetus of new technology and the Internet. In terms of conveyancing, HM Land Registry already provides many services to conveyancers on-line and there is an intention to build that up progressively over the next few years in preparation for the introduction of a full-scale scheme of electronic conveyancing. The latter will reshape the ways in which the Land Registry works with conveyancers. It will introduce new elements of regulation into conveyancing, since conveyancers will have to be authorised to have access to the systems required for electronic conveyancing and will have to comply with the terms of the agreements and rules under which access is permitted (3). This could ignite the interest of potential new providers of conveyancing services. The introduction of the seller's pack could also ignite the interest of potential new providers of conveyancing services. Under current proposals, sellers would be required to put together most of the documents and information required by prospective buyers in a pack before marketing their property. Legislation will not specify who provides the seller's pack, just that one is available. This may encourage new entrants, such as lenders, to enter the conveyancing market, and also encourage local conveyancers to develop working arrangements with local surveyors and estate agents in order to provide sellers' packs. A Law Society report published in 1999 (4) indicates that solicitors account for around 95% of the market share in the provision of conveyancing services. For residential conveyancing, 28% of all solicitors in private practice (15,553) conducted residential conveyancing, and derived an estimated gross fee income of £771 million (or about 10% of their total gross fee income). In firms with fewer than five partners, residential conveyancing was conducted by around one half of solicitors and accounted for 23% of total gross fee income.
The same report indicates that some 30% of all solicitors in private practice (16,906) conducted commercial property work, which accounted for an estimated total fee income of £1,187 million, or about 15% of their gross fee income. This rose to 73% of gross fees earned for the 5% of firms with over 11 partners.
There were 762 licensed conveyancers in April 2002, of which some 269 had full licences (5), allowing them to practise on their own, in a partnership or in a recognised body. The rest were employed, many (around 70) by Countrywide Property Lawyers, the country's largest integrated estate agency and conveyancing services group, with the remainder working for much smaller firms of solicitors or licensed conveyancers.
There is evidence of an increasingly specialist approach in some firms, which have developed what some refer to as 'conveyancing factories' (6) providing users with all day access seven days a week for a fixed fee. These providers often organise work to enable a small number of solicitors or licensed conveyancers to supervise quite substantial numbers of non-legally qualified staff dealing with limited aspects of large numbers of transactions. Further specialist approaches may be encouraged by the introduction of a compulsory seller's pack, whereby specialist 'seller's pack providers' may become a common feature of the market. We may also see the development of a 'guaranteed seller's pack' which is backed up by insurance and may potentially affect the provision of conveyancing services.
How the arrangements might work
Under the provisions a range of practitioners would be possible, including banks and building societies. It would be for the Lord Chancellor to re-establish the Authorised Conveyancing Practitioners Board under the provisions already set out at Sections 34-52 of the Courts and Legal Services Act 1990. This would require the appointment of a Chairman and between four and eight other members. The Board would then need to prepare its operating procedures and rules, including arrangements for the authorisation of practitioners, for the approval of the Lord Chancellor as necessary. The Act provides for these to include:
arrangements for the authorisation of practitioners
regulations about the competence and conduct etc of authorised practitioners
arrangements for ensuring no conflict of interest arises
the setting up of a Conveyancing Appeals Tribunal to hear appeals from any person aggrieved by certain decisions of the Board
a Conveyancing Ombudsman Scheme
compensation arrangements
investigation, enforcement and intervention powers.
The Board would also be required to set up a Conveyancing Ombudsman Scheme for the investigation of complaints against authorised practitioners. And the Lord Chancellor would be responsible for making any orders he sees fit with regard to the competence, conduct etc of authorised practitioners. He would also be responsible for setting up a Conveyancing Appeals Tribunal to hear appeals from any person aggrieved by any decision of the Board.
Points of interest to consumers and providers
1. There are some 18 million separate ownerships of freehold and leasehold land recorded on the land register in England and Wales. There are about three million dealings with those ownerships each year, about one million of which represent residential sales (7). And this does not include transactions involving unregistered land (perhaps some 20% of all titles) for which precise figures are not available. Solicitors currently account for around 95% of the market share in the provision of conveyancing services (8), with licensed conveyancers accounting for the rest, except for some 1% which are DIY. The 'authorised practitioner' arrangements could provide an opportunity for new providers to enter the market provided that, in relation to electronic conveyancing, they could satisfy the requirements of the rules and agreements governing access to the Land Registry electronic conveyancing network. The 'authorised practitioner' arrangements will, therefore, have to be developed with an eye to the development of electronic conveyancing. But if successful, they could have the effect of providing consumers with greater choice and could bring new ideas and innovative practices and boost price competition, even if new providers were initially slow to enter the market.
Once operating, the authorised practitioner scheme should be self-financing. But during the passage of the Courts and Legal Services Act, the cost of running the Authorised Conveyancing Practitioners Board was estimated to be around £900,000 in a full year (9) (likely to be about £1.3 million annually today). The initial cost of setting up the Board is likely to fall to Government. While the Government would hope that as much as possible of this cost might be recouped once the Board was operating successfully (e.g. by means of a levy on fees charged by the Conveyancing Board to authorised practitioners), there are nevertheless likely to be some implications for public expenditure and other government resources, although the potential benefits for consumers of increased competition could outweigh any such costs. It would be helpful to have some indication of the likely level of demand from potential providers of expanded services and that overall the expansion would benefit the public and consumers.
Any decision by the Law Society to relax its restriction on employed solicitors providing services to third parties [see also chapter 3] might affect 'take up' of the 'authorised conveyancer' scheme by institutions given that it may prove possible to achieve a similar result simply by employing in-house conveyancing solicitors or licensed conveyancers to manage their conveyancing transactions.
| Question 1 - What is the likely level of demand from other potential providers (e.g. banks and building societies) to be able to offer conveyancing services under the arrangements provided for in sections 34-52 of the Courts and Legal Services Act? Would this demand be affected if the Law Society were to allow employed solicitors to provide services (including conveyancing services) to the public? Is the introduction of e-conveyancing likely to affect the demand? |
Buying a property remains, for many people, the most important financial transaction of their lives, involving large sums of money, and very often involving commitment of a substantial proportion of future income for long periods in respect of mortgage payments.
The authorisation of large institutions could lead to further innovative ways of handling the conveyancing process and accelerate the trend towards the development of more efficient working practices. For the consumer this might help to speed up the handling of conveyancing transactions. And it might result in lower costs. However, because of their complexity, some transactions will inevitably require more specialist attention and it is important that, where necessary, the right degree of expertise is brought to bear, as well as that all cases are properly supervised. This issue is highlighted by a recent article in the Law Society Gazette (10) which reported that residential conveyancing triggered more professional negligence claims against solicitors than any other sectors last year. The article reports that figures from Zurich Professional - the second biggest underwriter for solicitors' indemnity - showed that 32% of all claims notified against its clients came from conveyancing.
The Act already provides for: arrangements for the authorisation of practitioners, regulations about the competence and conduct of authorised practitioners, for ensuring there is no conflict of interest, the setting up of a conveyancing appeals tribunal to hear appeals from any person aggrieved by certain decisions of the Board, a conveyancing ombudsman scheme, compensation arrangements and investigation, enforcement and intervention powers. But during the passage of the Courts and Legal Services Act, concerns were raised that the benefit to the consumer of solicitors being generally precluded from acting for both buyers and sellers in any conveyancing transaction (thereby avoiding conflicts of interest) would not be available under the authorised practitioner scheme. In particular, there was concern about 'authorised conveyancers' acting in a number of different capacities (e.g. as agent for the vendor to sell a property, as the vendor's solicitor, as the purchaser's mortgagee, as the provider of insurance products to the purchaser, and as solicitor for the purchaser).
Section 40 of the Courts and Legal Services Act 1990 provides for the Lord Chancellor to make regulations about the competence and conduct of authorised practitioners to ensure that the consumers' interest is properly protected. It provides that:
This appears to provide an arrangement for ensuring that consumers' interests could be safeguarded. Indeed, when responding to concerns about the competence and conduct of authorised practitioners, the then Lord Chancellor said: "….I take that [section 40] very broadly to mean that that does not confine the regulations in any way but requires that they secure that the interests of clients are satisfactorily protected…"(11) As noted in paragraph 8, the Land Registry's proposals for electronic conveyancing will bring new regulatory requirements and mechanisms to protect the effective running of electronic conveyancing.
| Question 2 - Are these safeguards sufficient to protect the consumers' interests? Will they be sufficiently flexible to avoid excessive regulation when separate rules for electronic conveyancing have been introduced? |
If the 'authorised practitioners' scheme were to be implemented, it should lead to increased competition in the market for conveyancing services. This could affect the availability of legal services for some consumers, since any loss of income from conveyancing work may have implications for the provision of (i) privately funded legal services (ii) publicly funded legal services and (iii) pro bono legal services. And in relation to all of these there could be geographical implications in terms of the location of solicitors' firms.
We know from a Law Society report (12) that for solicitors' firms with fewer than five partners, residential conveyancing was conducted by around one half of solicitors and accounted for 23% of total gross fee income. During the passage of the Courts and Legal Services Act concerns were expressed about the impact of this change on smaller practices:
"…I am a Member of Parliament representing a rural area. Handing over a large quantity of conveyancing work to others will mean that many small firms of solicitors will have to close or amalgamate, with the consequent reduction in legal services in rural communities." (14)
While it is entirely possible that existing or new providers may find innovative ways of delivering services to all customers, the Government is nevertheless committed to ensuring that all its policies take account of specific rural circumstances and needs (15) and it has made rural proofing a part of the formal policy making process from April 2001 onwards. It is therefore important to establish to what extent the introduction of the authorised practitioner scheme may have an impact on these smaller practices, and if so, whether this creates any disproportionate impact for access to legal services for those in rural communities.
| Question 3 - If the Government were to introduce the authorised
conveyancer scheme, would there be any likely impact on solicitors'
firms, particularly the smaller practices? And if so, is any impact
likely to have implications for the location of firms, particularly
in relation to the availability of access to legal services for those
in rural communities? Is there likely to be any innovation in service
delivery to rural communities as a result of these changes? Question 4 - What do you perceive may be the benefits that could flow from widening provision of conveyancing services through implementation of this legislation? Are there disadvantages? |
OFT recommendations
In their report, the OFT's consultants (LECG) stated that
LECG noted that section 54 of the Courts and Legal Services Act 1990 provided for the right to undertake (for profit) probate work to be extended to other potential competitors such as banks, building societies and insurance companies, but that this section had not been brought into force. LECG's view was that competition in the market for provision of probate services was restricted and that failure fully to implement Section 54 of the Courts and Legal Services Act 1990 may have been a contributory factor.
In his report, the Director General of Fair Trading went further and suggested that consideration should be given to the implementation of both Sections 54 and 55 (16). He said:
Under a separate recommendation in his report, the Director General of Fair Trading also proposes that employed solicitors should be permitted to provide services to third parties. Any decision by the Law Society to relax its restriction on this could provide a further means of opening up the market for probate services. [See also Chapter 3.]
The Government's position
The Courts and Legal Services Act 1990 promoted a liberalising approach to the provision of legal services. The Act introduced the general objective of
Sections 54 and 55 of the Courts and Legal Services Act 1990 would amend section 23 of the Solicitors Act 1974 by opening up the classes of institutions or persons who could undertake this (paid) work. Section 54 of the Courts and Legal Services Act 1990 was intended to provide that institutions such as banks, building societies and insurance companies should be allowed to provide probate services. And Section 55 of the Act would also enable the Lord Chancellor, subject to an approval procedure set out at Schedule 9 to the Act, to add to the list of approved bodies whose members should be regarded as qualified to provide probate services (e.g. licensed conveyancers, legal executives or other body approved under Schedule 9 to the 1990 Act).
How probate services are provided now
The term "probate" comes from the Latin word probatio, meaning "to prove". Its roots in England can be traced back to the early religious courts where matters had to be proven before an ecclesiastical judge. It was not until the mid nineteenth century that the probate jurisdiction of the ecclesiastical courts was abolished with the setting up of a new Court of Probate.
A grant of probate of a will is a court order, recognising the validity of a deceased person's will and is official evidence of the authority of an executor to administer the estate. In cases where there is no will and therefore no named executor, letters of administration may be granted to a person as official authority to deal with the estate. Either the executor of the will or the administrator then has the legal authority to deal with the deceased's estate including the collection of assets, payment of debts and distribution of the remainder to those who are to inherit.
Probate can involve large sums of money and clearly there is a need to protect the estate of a deceased person. Under section 23 of the Solicitors Act 1974, it is an offence for anyone other than a solicitor, a barrister or a duly certified notary public to take instructions for reward or to draft or prepare for reward the papers on which the grant of probate or letters of administration depend.
There are slightly over 260,000 applications for the grant of probate each year. Some 78,000 of these are personal applications; the remaining 183,000 (70%) come from solicitors (17). A Law Society report ('The Changing Legal Market Place' published in September 1999) indicated that around 14,000 solicitors in private practice (25%) conducted will and probate work and that this activity accounted for around 12% of gross fee income in 2-4 partner firms, 9% in 5-10 partner firms and 8% in sole practitioner firms. The total gross fee income for all firms from wills and probate work was estimated to be £554 million.
How the arrangements might work
Section 54 Courts and Legal Services Act 1990
Section 54 of the Courts and Legal Services Act 1990 was directed towards institutions such as banks, building societies and insurance companies. It sought to provide that these institutions should be able to prepare for reward, and to lodge, papers for a grant of probate or letters of administration, provided that the body is a member of, or otherwise subject to, a scheme which:
has been established (whether or not exclusively) for the purpose of dealing with complaints about the provision of probate services; and
complies with such requirements as may be prescribed by regulations made by the Lord Chancellor with respect to matters relating to such complaints.
During the passage of the Courts and Legal Services Act concerns were expressed, particularly in the House of Lords, that there could be a lack of specific regulation of these bodies and that control should be exercised by a regulatory authority with specific responsibilities for regulating the provision of probate services. It was suggested that the Authorised Conveyancing Practitioners Board provided for in sections 34-52 of the Courts and Legal Services Act [see Chapter 1] might perform that task:
In replying, the then Lord Chancellor rejected the proposition and said:
Amendments were made to the provisions of section 54 of the Courts and Legal Services Act by means of an amendments order under the Financial Services and Markets Act 2000 (FSMA). This altered the reference to banks, building societies and insurance companies to persons with permission under Part IV of FSMA to accept deposits or effect or carry out contracts of insurance, and European firms which are able to carry on the same activities in the UK by reason of the passport under the relevant EC directives. The category of persons with “Part IV permission” to accept deposits captures both authorised banks and building societies - and will also include credit unions once these are required to be authorised by the Financial Services Authority from July 2002. Any body designated by virtue of Section 54 of the Courts and Legal Services Act (as amended by the amendments order under the FSMA), would be subject to the condition that they are a member of, or otherwise subject to, a scheme which:
has been established (whether or not exclusively) for the purpose of dealing with complaints about the provision of probate services; and
complies with such requirements as may be prescribed by regulations made by the Lord Chancellor with respect to matters relating to such complaints.
Regulation under the FSMA
While the bodies which would become authorised to provide probate services under the provisions of Section 54 would be regulated by the Financial Services Authority with respect to the regulated activities (within the meaning of FSMA) which they carry on, those activities would not include all aspects of the provision of probate services. It is also likely that the scope of regulated activities under FSMA could not be extended to include the provision of probate services given the extent to which schedule 2 to the FSMA limits the activities which may be “regulated”. These are: dealing in investments, arranging deals in investments, deposit taking, safekeeping and administration of assets, managing investments, investment advice, establishing collective investment schemes and using computer-based systems for giving investment instructions. While some probate services, which involve arrangements etc. in relation to 'investments' as that term is defined for the purposes of FSMA, might arguably fall within the scope of potential regulation, it is doubtful that all of the kinds of activity which would constitute probate services would do so.
The Financial Services Authority has very broad rule-making powers under FSMA, which extend to allowing them to make rules (applicable to authorised persons) with respect to the carrying out by authorised persons of activities which are not regulated activities but this is only provided that such rules appear to the FSA to be necessary or expedient for the purposes of protecting consumers. However, 'consumers' are defined as persons who use, have used, or may use any services provided by authorised persons in carrying on 'regulated activities'. It is therefore doubtful, whether the Financial Services Authority's rule-making powers could be used to make rules about the provision of probate services by authorised persons. If banks etc. were to provide probate services, it is doubtful that they could even be said to be providing them as part of their carrying on of regulated activities. This can only be said of services which are ancillary to a regulated activity, such as the provision of cheque books, service tills etc by banks. Probate services would have no connection with, for instance, their deposit-taking activities. In granting authorisation, the Financial Services Authority have to consider a person's fitness and properness to carry on the regulated activities that he or it is seeking to carry on. That consideration cannot extend specifically to that person's suitability to provide probate services, since (as discussed above), that is not a regulated activity. The Financial Services Authority cannot, therefore, 1. impose requirements on or prohibit a person's permission to carry on regulated activities simply because he is not a fit and proper person to offer probate services. It would be possible, of course, to take the view that if a person has been considered suitable by the Financial Services Authority to carry on banking business, for example, he is also a fit person to provide probate services. But that assertion is not free from doubt itself. The FSMA makes provision to establish an ombudsman scheme (the Financial Ombudsman Scheme) to deal with complaints made against authorised persons. However, the jurisdiction of the ombudsman is limited (i) to disputes arising from the carrying on of regulated activities, or (ii) if the rules of the scheme cover such activities, to complaints arising from the carrying on by authorised persons of activities which could be specified as regulated activities under FSMA. As indicated earlier, it is doubtful that probate services fall into that category.
| Question 5 - If section 54 of the Courts and Legal Services
Act were implemented it is unlikely that banks, building societies
or insurance companies would be (or could be) regulated in the provision
of probate services by the Financial Services Authority. If this is
the case, the only regulatory control over these bodies would be the
condition that they are a member of, or otherwise subject to, a scheme
which: a) has been established (whether or not exclusively) for the purpose of dealing with complaints about the provision of probate services; and b) complies with such requirements as may be prescribed by regulations made by the Lord Chancellor with respect to matters relating to such complaints. Does this provide sufficient protection for consumers? |
Section 55 Courts and Legal Services Act 1990
Section 55 of the Act was directed essentially towards professional bodies or other organisations. This sought to provide for the Lord Chancellor, subject to an approval procedure set out at Schedule 9 to the Act, to designate 'approved bodies' whose members should be regarded as qualified to provide probate services for reward (e.g. licensed conveyancers, legal executives or other body approved under Schedule 9 to the 1990 Act), and who would, by virtue of that designation not be subject to the restriction on the provision of probate services at section 23(1) of the Solicitors Act 1974.
The approval procedure at Schedule 9 to the Act provides for the Lord Chancellor to take advice about applications to become an 'approved body' from the Legal Services Consultative Panel and the President of the Family Division of the High Court. There is a procedure at Schedule 4 to the Courts and Legal Services Act 1990 which provides a similar approval procedure under which the Lord Chancellor may authorise bodies to grant rights of audience and/or rights to conduct litigation to their members. But in the Schedule 4 procedure the Lord Chancellor is additionally required to take advice from the Director General of Fair Trading and the designated judges (the Vice Chancellor, the Master of the Rolls and the Lord Chief Justice) when deciding whether to add to the list of 'authorised bodies'. It also provides a power for the Lord Chancellor to alter rules of any 'authorised body' by order where he regards they unduly restrict the exercise of the approved activity. This procedure clearly differs from Schedule 9 which does not provide for the Lord Chancellor to consult the Director General of Fair Trading or the other designated judges nor for the Lord Chancellor to alter any approved rules.
| Question 6 - Is the procedure set out at Schedule 9 to the Courts and Legal Services Act 1990, under which the Lord Chancellor may add to the list of 'approved bodies' whose members should be regarded as qualified to provide probate services for reward, sufficient to ensure there is adequate protection for consumers? |
Any approval by the Lord Chancellor given under Schedule 9 to the Courts and Legal Services Act would be by Order, which would be made only where he was satisfied that the applicant had in force suitable arrangements for training and for ensuring that any person carrying out probate work under the terms of his approval complied with the requirements of section 55(2)(a) to (e) of the Courts and Legal Services Act 1990 which require:
The Schedule 9 procedure under which the Lord Chancellor can add to the list of 'approved bodies' also provides for approvals to be revoked. Again this is to be by Order and may only be made if:
These requirements provide broadly for the setting of standards in respect of the training, competence, probity, insurance and complaints handling arrangements that should be required of those members of approved bodies who are to provide probate services under the exemption provided for in Section 55 of the Act. The vast majority of probate work currently “reserved” by Section 23(1) of the Solicitors Act 1974 is undertaken by solicitors (260,000 applications for the grant of representation each year. Some 78,000 of these are personal applications; the remaining 183,000 (70%) come from solicitors (20). The requirements of Section 55 of the Act are applied to varying degrees to solicitors by virtue of Law Society professional rules of conduct. But solicitors are subject to additional rules e.g. the duties to: act in the best interests of the client, avoid conflicts of interest, and comply with strict rules on the handling of clients' money. The Law Society has statutory intervention and enforcement powers in order to ensure that its rules are properly applied. The Master of the Rolls approves rules of practice of solicitors and the Lord Chancellor approves rules concerning the grant or exercise of rights of audience and rights to conduct litigation. Solicitors are also officers of the Supreme Court (21) and have a direct responsibility to the court for the proper administration of justice. The Supreme Court is ultimately responsible for ensuring that they maintain a high standard of conduct. Additionally, the Access to Justice Act 1999 introduced the following statutory obligation which is applicable to solicitors:
There is therefore a wider range of issues provided for in the regulation of solicitors than is provided for in respect of any new providers approved under the provisions of Section 55 of the Act. The additional cost of the tighter regulation of solicitors may be passed on to consumers in the form of higher prices.
| Question 7 - The broad range of regulated activities by solicitors requires high levels of regulation. This may lead to higher costs which are passed on to consumers in the form of higher prices for services provided. The lower regulatory burden applied to new providers of probate services, approved under Section 55 of the Act, may lead to lower prices to the consumer, but do they provide sufficient protection for consumers? |
The likely demand from new providers
The Law Society has responded positively to the Director General of Fair Trading's recommendation that employed solicitors should be permitted to provide services to the clients of their employers. In his progress statement of April 2002, the Director General of Fair Trading stated:
Any decision by the Law Society to relax its restriction on employed solicitors providing services to third parties might affect 'take up' of the provisions at either section 54 or 55 of the Act. [See chapter 3 on MDPs and employed lawyers.]
| Question 8 - What is the likely level of demand from other potential providers to be able to offer probate services provided for by either section 54 or section 55 of the Courts and Legal Services Act and how would this demand be affected if the Law Society were to allow employed solicitors to provide services (including probate services) to the public? |
Legal services if Section 54 and/or Section 55 of the Act were implemented
The authorisation of new providers under the provisions of sections 54 and/or 55 of the Courts and Legal Services Act could have implications for the availability of other legal services for some consumers, since any loss of income from probate services may have implications for the provision of (i) privately funded legal services (ii) publicly funded legal services and (iii) pro bono legal services. And in relation to all of these there could be geographical implications in terms of the location of solicitors firms.
We know from a Law Society report (23) that probate work accounted for around 12% of gross fee income in 2-4 partner firms, 9% in 5-10 partner firms and 8% in sole practitioner firms. During the passage of the Courts and Legal Services Act concerns were expressed about the impact of the loss of traditional work on smaller practices. However, there could be countervailing benefits in terms of the provision of quicker and cheaper probate services. It is important to establish any impact on these smaller practices and, if so, whether that has any disproportionate effect in respect of access to legal services for those in rural communities.
| Question 9 - If the Government were to implement the measures provided for in Sections 54 and 55 of the Act, would there be any likely impact on solicitors' firms, particularly the smaller practices? And if so, is any impact likely to have implications for the location of firms, particularly in relation to the availability of access to legal services for those in rural communities? What innovations in service delivery might be made by providers to continue to satisfy customer demand, especially in rural areas? |
OFT recommendations
In the report “Competition in Professions”, published in March 2001, the Office of Fair Trading (OFT) challenged the restrictions on the creation of multi-disciplinary practices (MDPs) contained in the Solicitors Practice Rules 4 and 7 (set out at Annex A), which it considers anti-competitive. Practice Rule 4 prevents solicitors from full participation in MDPs regulated by other professional bodies; Rule 7 prohibits solicitors sharing fees with non-solicitor professionals. Additionally, the report challenged the restriction contained in Practice Rule 4 on solicitors employed by non-solicitors acting for third parties. The aim of the review was to identify restrictions but to leave for further consideration whether any consumer benefits justified the restrictions.
The OFT report "…. generally concluded that rules that prevent the establishment of MDPs restrict competition. For example they inhibit the formation of fully integrated practices bringing together accountants and lawyers; integrated property services practices that might involve surveyors; estate agents and solicitors; and financial services practices that might involve financial advisers in partnership with accountants and solicitors."
Such a restriction on the method of supply of a service is classified as an indirect entry restriction. OFT commented on how both the efficiency of and entry to the profession could be affected by the way supply is organised:
The OFT consultants (LEGC) said that "restrictions on business structure may help to preserve independence and prevent conflicts of interest. However, such restrictions may also constrain new entry to the profession and hinder innovation in service provision."
In its response to the 2001 OFT report, the Law Society explained that it wished in principle to enable solicitors to provide legal services to the public through any entity, provided that the necessary consumer protections could be maintained. Further, following the recent judgment of the European Court of Justice in Wouters, (ECJ, Case-309/99, published 19 February 2002), a case on competition and the legal profession which indicated that a ban on MDPs must be shown to be proportionate and achieve justifiable policy goals, the Law Society said, "We support the principle of MDPs as part of our commitment to improve access to legal services and choice for consumers."
However, the Law Society Council originally rejected a proposal to remove the ban on sharing fees with non-solicitor professionals (Practice Rule 7). It is, we understand, the intention of the Law Society to ask for Council's reconsideration of this in early course.
The Council adopted a recommendation to amend Practice Rule 4, allowing solicitors employed by non-solicitors to provide services for third parties, subject to the implementation of measures necessary for consumer protection.
The OFT felt, in its year on progress statement, that while only some of the restrictions it had highlighted had been removed, amended or justified "the most effective way to achieve the aims in the report is to encourage the Law Society to proceed with its programme of reform and to review progress regularly to ensure that the Law Society is proceeding in a timely and appropriate manner. So long as self-deregulation is proceeding effectively, public action is not immediately necessary."
The Government's position
The Government is keen to remove restrictive practices that are not in the public interest. The Government starts from two propositions. First, the professions should be fully subject to competition law and unjustified restrictions on competition should be removed. Second, when considering competition in the legal professions, the need to keep clearly in view the public interest in maintaining an independent, honest and diverse profession and ensuring the protection of consumers, while encouraging healthy competition to promote new, better and affordable services and wider consumer choice.
Government is concerned with the administration of justice. In the Courts and Legal Services Act 1990, the statutory objective on the provision of legal services is:
Government is concerned to ensure that clients have ready access to independent legal advice. It is for the legal professions to decide how they organise to best meet the needs of their clients, taking into account the legislation (including on access to justice and on competition). Competition offers the client the best opportunity to make a choice in the services he needs, according to what represents best value to him. The ability to be able to provide services through the widest range of delivery structures is believed to favour competition, drive down costs and prices, open up access and choice, and provide better value for money. However, to make a choice, the client needs information about the different kinds of practitioner and the services they offer, and confidence that they are subject to adequate standards of competence and conduct.
A Government Green Paper, published in 1989, suggested that the choices available to users of legal services should not be limited, except by reason of strong public interest and restrictions on competition between solicitors should be no greater than necessary adequately to safeguard the interests of their clients. The White Paper which followed indicated that Government wished to remove the statutory prohibition on solicitors forming multi-disciplinary partnerships. Consequently, Section 66 of the Courts and Legal Services Act 1990 did so by repealing Section 39 of the Solicitors Act 1974. Section 39 in effect prevented solicitors entering into partnership with persons who are not solicitors. During the Parliamentary passage of the Bill, Lord Mackay LC confirmed in the House of Lords (5 February 1990) that the new provisions remove the statutory restriction that prevented solicitors from entering into partnership with any other practitioner. The purpose was to leave such matters for regulation by the professional body. The OFT report acknowledged that some progress had been made already towards permitting the formation of MDPs.
In reporting to OFT, the Law Society indicated its belief that changes to primary legislation might be necessary to enable the Law Society to regulate non-solicitor partners of MDPs. The Law Society also believes that primary legislation is likely to be needed to enable it to put the necessary consumer protections in place, should restrictions on employed solicitors providing services for third parties be removed. The Lord Chancellor had informed DGFT of his intention to consult on moves towards MDPs and allowing others (employed solicitors) to provide services to the public. He has indicated his openness to proposals for change, subject to appropriate regulatory arrangements being devised to protect the public and consumer interests, and evidence of real commercial interest. The fact that legislation which falls within the LCD domain may inhibit the development of such regulatory arrangements is the springboard for this chapter.
Current position
The 1979 Royal Commission on Legal Services said:
The Law Society is the governing body for solicitors. The Law Society Council has 105 seats and includes 5 lay members. The Solicitors Act 1974 confers many of its powers and it may determine rules regarding standards of education and training for entry into the profession, issuing practising certificates and the regulation of practice. When their required training is completed, solicitors are "admitted" and their names are registered by being placed on the Roll. All solicitors are subject to the Law Society's regulation and discipline. The Law Society notes that in carrying out its regulatory function, it is under a common law duty, established in case law (Swain v Law Society [1983] 1 AC 598), to act "in the public interest" rather than that of its members.
Solicitors are officers of the court (Section 50, Solicitors' Act, 1974) and have a direct responsibility to the court for the proper administration of justice. The Supreme Court is ultimately responsible for ensuring that they maintain a high standard of conduct. The Master of the Rolls approves the rules of practice and conduct of the solicitors' branch of the profession and the Lord Chancellor approves rules concerning the grant or exercise of rights to conduct litigation and rights of audience.
Work reserved by law to solicitors and other qualified practitioners comprises broadly litigation, advocacy, conveyancing and probate. 'Unreserved' legal work includes giving legal advice and preparing wills. Solicitors' firms also provide services ancillary to their main work, including financial and consulting services, and investment business. Currently, other professionals and non-professionals may work alongside solicitors, but not as partners or directors, providing ancillary services. Their activities are regulated under the care and control provisions of the Solicitors Practice Rules (practice rule 13).
| Question 10 - How much use do you make of any facility in present day legal services to obtain different services from the same source and what are the services involved? |
The Law Society regulates the way solicitors are allowed to practice and the way in which they may organise their businesses. That regulation reflects the profession's concern to maintain the independence and the role of the solicitor as an officer of the court, and to avoid conflicts of interest. The solicitors' practice rule 1 sets out its basic principles.
Clients of solicitors are protected against wrong doing by solicitors through the rules imposed by the Law Society. Briefly, there is customer protection in place against financial loss to the customer (e.g. through a solicitor's dishonesty or failure to account); obligatory indemnity insurance is held by solicitors against professional negligence; compensation is available for inadequate professional service, and there are sanctions against professional misconduct. Solicitors' firms are obliged to operate an in-house complaints handling procedure. Matters to be resolved may progress from there to the Law Society and possibly to the High Court and the Solicitors Disciplinary Tribunal. Ultimate sanctions include the power to close down a solicitor's practice and to strike his name off the Roll, thus preventing him from practising.
The kinds of business in which practising solicitors may operate are defined both by legislation and by regulation. Solicitors may either work in private practice or be employed by non-solicitors. The Law Society annual statistical report for 2000 shows the following breakdown:
Number of solicitors working in private practice in 2000 -
| Size of firm | No. of solicitors | % of solicitors | By size of firm |
|---|---|---|---|
| 1 partner | 5417 | 8.5 | 9% |
| 2-4 partners | 14432 | 22.7 | 22% |
| 5-10 partners | 11149 | 17.5 | 18% |
| 11-25 partners | 9457 | 14.9 | 15% |
| 26-80 partners | 11086 | 17.4 | 17% |
| 80 + partners | 12014 | 18.9 | 19% |
| Total | 63555 | 100% | 100% |
Source: Solicitors Indemnity Fund - Solicitors Profession Overview Factsheets
Solicitors in employment numbered 16324, 19.7% of holders of practising certificates.
Source: Law Society Annual Statistical Reports
Solicitors in private practice may be principals or assistant solicitors, working as sole practitioners, in partnerships or in incorporated practices. Within the partnership model practice rule 7 requires that all partners must be solicitors. All solicitors in such firms are governed by a set of rules and codes of conduct, drawn up by the Law Society, that regulate their conduct. Solicitors' firms are organised to handle its clients' files, records and money, employing solicitors, legal executives and other staff. The firm itself, as an entity distinct from those within it, is also regulated by the Law Society.
Solicitors may work in incorporated practices (bodies corporate or "companies") with limited or unlimited liability, providing legal services. The legislation (Section 9 of the Administration of Justice Act 1985) requires that all directors and shareholders of these incorporated practices must be solicitors. They must manage and control the practice. An incorporated practice must be recognised by the Law Society under s9 AJA to gain exemption from S24(1) of the Solicitors Act 1974 which would otherwise make it a criminal offence for it to act as a solicitor. As with partnerships, the Law Society regulates incorporated practices and the solicitors in them.
Practising solicitors also work in industry, trade, commerce, national and local government, community legal advice services, and are known as 'employed solicitors'. Generally, employed solicitors may act for one client only, namely their employer. There are some exceptions, where the employed solicitor may give advice to the employer's customers, for example, in law centres, trade unions, and solicitors employed by legal expense insurers where the value of the case is over the no cost limit.
The Law Society rules governing the scope of what employed solicitors may do as providers of legal services differ from those governing private practice. However, they are subject to the same duties (as those in private practice) to their client and to the court. The employed solicitor is expected to maintain the same standards of independence, integrity and acting in the best interests of his client, notwithstanding his employed status, as are expected of solicitors in private practice.
Impediments to change
The impediments to change may be to the formation of the new business structures themselves or to the regulation of them and their participants. The Law Society considers it important that the equivalent consumer protection is available in the new business structures as is available now to clients who have transactions with solicitors. It wishes to maintain high standards of integrity, confidentiality and independence.
The Government has made it clear that whilst developments removing restrictions are to be welcomed, they must be seen to be able to operate successfully in the public interest. Appropriate regulation is therefore key to the successful development of these new style businesses.
The impediments may be found either in the rules of the Law Society or in legislation. The rules are primarily for the Law Society. In order to liberalise its restrictions on solicitors, the Law Society would need to:
Government must consider the issues concerning the restrictions in the legislation.
Partnerships
Although Section 66 CLSA 1990 allows for the formation of MDPs it permits the Law Society, if it wishes, to make rules which prevent them.
Although legislation does not prohibit MDPs, nothing in section 66(2) (or any other legislation) specifically authorises the Society to regulate non-solicitor partners.
Companies
Incorporation was not allowed until Section 9 Administration of Justice Act 1985 gave the Law Society power to make rules permitting incorporated practices which are under the management and control of solicitors or solicitors and one or more registered foreign lawyers. The rules have allowed the incorporated form of practice since January 1992.
Effectively, this means that only solicitors may be directors/shareholders of incorporated practices. Non-legally qualified persons may participate in the business but may not become directors or shareholders. In order to offer new models of incorporated practice, Section 9 would need amendment.
Employed solicitors
Changes in the practice rule to permit solicitors employed by non-solicitors to act for third parties would, it is anticipated, include consumer protection for those clients. It is envisaged that primary legislation may be needed to enable suitable safeguards to be provided through regulation.
| Question 11 - In new business models, should the Law Society
be empowered to regulate non-solicitor partners, directors and shareholder/owners,
and non-hundred per cent solicitor controlled businesses? Question 12 - Do you object or agree in principle to the Law Society being enabled to regulate new style business structures and their participants whether or not they are solicitors? Question 13 - What, if any, safeguards should be fundamental to any development of new methods of supply of legal services? Question 14 - What are the essential safeguards that should not be compromised, if different levels of consumer protection were applied in different models of business offering legal services? Question 15 - Should multi-disciplinary practices be bound by the same practice rules as present day firms? Question 16 - Do you believe that the present set-up of firms and employed solicitors discourages or prevents entry into the profession of any groups of people? If so, which and why? Question 17 - Is it important to you that different transactions with a solicitor should be covered by the same levels of consumer protection? |
Proposals for change
The removal of restriction would enable alternative business models to be developed.
| Question 18 - Would you welcome the development of new methods
of supply of legal services? Question 19 - If you are a solicitor, would you wish to provide services through the new models? Question 20 - Do you think that the new structures could offer a type of service, or a mix of services, not at present available and for which there is a significant demand? |
Through the 1990s, the Law Society reviewed and consulted on the MDP issue. After their last consultation paper on MDPs in 1998, a working party was formed to take forward a review of MDPs "to ensure that restrictions on the business vehicle/organisation through which solicitors practise, are the minimum necessary in the public interest and do not stand in the way of solicitors' business development planning".
This working party has been and continues working up the provisions needed to introduce different business models that will include non-solicitor partners or directors and shareholders. Those persons might be from other professions or might be professionally unqualified.
The main features of a profession, with particular regard to the legal profession, were set out in the Royal Commission on Legal Services Report of 1979, paragraph 3.18,
The report by the DGFT (“Restrictions On The Kind Of Organisation Through Which Members Of Professions May Offer Their Services”) in August 1986 identified four main and widely agreed characteristics of professions:
the application of a specialist skill in offering a specialist service;
the skill has been acquired by intellectual and practical training in a well-defined area of study
the service involves direct, personal and fiduciary relations with the client
practitioners are organised in bodies with machinery for testing standards of competence and conduct.
| Question 21 - In considering the developments of new models, should such developments be limited to the inclusion of other professionals or widened to include non-professionals? If you believe that restriction to professionals only is important, your reasons for your view would be appreciated |
Private Practice
For illustration it is helpful to set out a model that the Law Society mentioned to the OFT, which could be applied to either unincorporated or incorporated practice. This is the "Legal Practice Plus" model. It would create a limited form of MDP that would supply all the range of services normally provided by solicitors in practice, and would be open to non-solicitor partners or directors. Solicitors would remain in majority control, although a partnership with one solicitor and one non-solicitor partner ("NSP") would be allowed. The business would do nothing a solicitor's firm could not do, but, it is envisaged, would be able to use the specialist skills of non-solicitor partners or employees to offer those services more effectively. The Law Society has indicated that the services could include: legal advice; litigation; advocacy; wills, administration and probate; conveyancing; property selling; business, financial and consulting services; investment business.
However, an accountant NSP could not audit statutory accounts. These are not services of a kind normally provided by solicitors practising as such. Furthermore, the duty of an auditor to breach client confidentiality in cases of suspected fraud is incompatible with the work of a solicitor, who must not breach confidentiality unless he or she is being used as an agent for fraud.
| Question 22 - If the legislation were amended to allow non-solicitor
partners, directors and shareholders, should a percentage of solicitor
partners, directors and owners be specified? Should there be a majority
of solicitors in control in such businesses? Do you want to suggest
a percentage? Is this something that should be for the professional
rules or should it be framed in legislation? Would specific proportions
be necessary to ensure the appropriate level of solicitor practitioner
independence and freedom from external pressure? Question 23 - For clarity for consumers, should a practice using the term 'solicitor' in its name have a majority of solicitor partners/directors/shareholders? Question 24 - It has been suggested that the quality of the non-legal personnel which firms of solicitors can attract, and thus the effectiveness of the competition they can offer in the markets for non-legal services, is constrained by the fact that they cannot currently offer such staff career prospects leading to principal appointments. Do you agree? What, if any, has your own experience been of this? Question 25 - If you are a non-solicitor, do you have an interest in entering into MDPs with solicitors, if that were permitted? Do you believe interest exists among other organisations in your field of operation, in entering into MDPs with solicitors? |
Employed solicitors
For employed solicitors, the changes will occur mainly in commercial business. At present, an employed solicitor may only give legal services to the employer, and not to that employer's clients. There are already exceptions. Solicitors in some bodies serving members, such as trade unions, or in law centres, may provide legal services to the members or customers. It is envisaged that employed solicitors might provide legal services for the customers of any business where he is employed. The Law Society does not believe that there is any need to distinguish between reserved and unreserved work in this context. Non-solicitor organisations may provide unreserved services to the public (e.g. giving legal advice and preparing wills).
| Question 26 - Should employed solicitors be allowed to undertake
reserved work, unreserved work, or both, for third parties? Question 27 - Will trainee solicitors be interested to join such enterprises? Are there any perceived benefits over private practice for entrants to the profession? Question 28 - Would new style business models encourage more diverse entry into the profession (for example, in class, race, sex)? Question 29 - What features would you like to see in such models to encourage entry? |
Advantages/Disadvantages of the new models
In discussion about the development of alternative business models, including MDPs, the same advantages and disadvantages are generally highlighted. Many were discussed in the Lord Chancellor's Advisory Committee on Legal Education and Conduct Report of July 1999 on Multi-Disciplinary Practice.
| Question 30 - Do you consider that the quality or cost of the services which clients obtain would be improved if multi-disciplinary practices involving both solicitors and non-solicitors were permitted? |
Perceived Advantages
Frees up potential for greater choice for customers. By allowing for increased specialisation and the development of innovative types of practice which could provide better, more integrated ways to meet customer needs including one-stop-shops;
Potential for lower prices for customers. Through innovation, economies of scope, better use of resources, reduced costs of co-ordination and duplication between firms including accommodation and overheads;
Potential for increased quality of services. By attracting investment of outside capital and attracting and retaining good non-solicitors/other professionals into the market by offering the status of partnerships and directorships allowing them to participate. One-stop-shops may also make it easier for customers to have complaints addressed.
Perceived Risks
Possible reduction in choice. If most profitable commercial practices gravitate to MDPs this could drive out other local firms from that market, thereby reducing competition and provision; or if commercial pressures were to lead firms to 'bundle' different services this could discourage customers from shopping around for the individual components they require;
Potential loss of, or perception of a loss of, professional independence and a threat to professional standards. Reforms might risk solicitor's ability to give 'fearless advice' to client where in business with non-solicitors due to absence of privilege over information divulged to non-lawyers. A perception of loss of professional standing could inhibit solicitors ability to compete in the market and especially on the international stage;
| Question 31 - Will present standards of integrity, confidentiality and independence change if employed and other solicitors are allowed to offer their services through the new business models? |
Potential for conflicts of interest. If the number of independent firms providing each individual service is seriously reduced, customers may find it more difficult to engage with service providers who do not have a conflict of interest.
| Question 32 - Are there benefits or disadvantages in new
models of business for (a) privately funded legal services (b) publicly
funded legal services (c) pro bono legal services? What are they? Question 33 - How important are the perceived benefits to you? Are they outweighed by the risks? Question 34 - If you already operate in a legal practice providing ancillary services, what benefits or disadvantages might new model MDPs offer you? |
Market Effects