The Law Society of England and Wales
SOLICITORS, ACCOUNTANTS AND MULTI-DISCIPLINARY PRACTICE THE ENGLISH PERSPECTIVE
1.1 This paper mainly deals with the perspective on solicitors, accountants and multi-disciplinary practice in England and Wales, concentrating on helping the Commission to analyse existing legislative frameworks. This and other issues about the public interest and client protection are dealt with in the consultation paper "MDPs – Why?…. Why Not?" issued by the Law Society in October 1998 . Previous consultations on the same subject were issued in 1987 and 1993. Those consultations demonstrated that the solicitors’ profession was divided on the subject.
1.2 The mid-1980’s saw major deregulation in the English legal profession. Many restrictive practices were stripped out in a political climate strongly in favour of open competition. The solicitors’ profession was divided then – many felt that allowing advertising would mean the end of the profession as such. Similar fears for the future surface in this debate. Fears about lack of competitiveness, and loss of market share in national and global markets balance; fears about the loss of core characteristics of the legal profession, such as independence. But the debate, while global, must also be viewed in the context of each jurisdiction.
1.3 Much of this presentation concentrates on the legal and regulatory position in England and Wales, and the consequences of that framework for the way the legal services market has developed and is developing. Paragraphs 2 to 5 deal with the second topic the Commission wishes to analyse, i.e. looking at existing legislative frameworks within which professional service firms may be providing legal services. As will be seen, the presentation does not deal in detail with the experience of clients who have received legal services from professional service firms, as the Law Society does not have access to that information. The remaining paragraphs deal with the public interest and client protections that may be damaged by multi-disciplinary practice.
2. Monopoly? – What monopoly?
2.1 The Solicitors Act 1974 is the main statute which reserves certain kinds of legal services ("the reserved services") to qualified lawyers . There is no general reservation of legal advice to qualified lawyers in the United Kingdom . The Solicitors Act provides, essentially, that only qualified lawyers can, for reward:
- provide conveyancing services (effect transfer of title in property);
- conduct litigation;
- provide advocacy services;
- take out grants of probate (necessary in administering a will).
"Qualified lawyers" for most purposes includes solicitors and barristers and in relation to conveyancing, notaries and licensed conveyancers.
The Solicitors Act also protects the title "solicitor" in that it is an offence for a person to "act as solicitor" when unqualified. There is no protection of the title "lawyer".
2.2 The 1990 Courts and Legal Services Act opened the door for others to seek the right to provide the reserved services. For example, it provided a framework for financial institutions to provide conveyancing services for reward, by becoming Authorised Conveyancing Practitioners regulated by a Government agency. It also provided a framework for such institutions to provide all probate services. Many of the possibilities provided by the Act have not been taken up or implemented. The framework would, for example, allow the Institute of Chartered Accountants in England and Wales to seek rights for its members to conduct litigation and provide advocacy service in, e.g. tax work.
2.3 Therefore, anyone in England Wales, whether qualified in a profession such as accountancy, or not qualified at all, can set up a business to provide legal advice, prepare wills and other general legal documents. Such businesses can also advise the public on claims which could eventually be dealt with by a court – although they are unable to conduct the litigation (i.e. prepare the documents for court) or provide advocacy services. There are a growing number of legal service businesses set up by unqualified and unregulated persons in areas such as will writing, employment claims, personal injury work, immigration advice etc. For corporate, corporate finance and commercial work, there is an open field for other business advisors and consultants to provide legal services, as very few aspects are reserved to lawyers.
3. The key players – solicitors and barristers
3.1 There are over 70,000 practising solicitors in England and Wales. There are approximately 9,500 barristers in independent practice, with 2,500 working in commerce and industry.
3.2 The traditional distinction between solicitors and barristers is that barristers act only on referral from solicitors. Solicitors have the "hands on" day to day contact with clients and instruct counsel for specialist advice, drafting and advocacy services. Until comparatively recently, solicitors had limited rights of audience in the lower courts only. Therefore, barristers had to be instructed for advocacy in the higher courts and they have also been instructed for most advocacy in the lower courts, for practical reasons (the cost).. The 1990 Courts and Legal Services Act provided a way for solicitors to gain an extra qualification to give them rights of audience in the higher courts. The number of solicitors who have taken up this qualification is disappointingly low. Currently, the Lord Chancellor is consulting on ways to give all solicitors the right to conduct advocacy in the higher courts, while recognising that there may be additional conditions or qualifications attached to the exercise of such rights.
3.3 Another essential difference is mode of practice. While some solicitors choose to practise alone, and not in partnership, barristers are all independent consultants and cannot be in partnership with other barristers, let alone other lawyers or non-lawyers. The Bar see this independence as being key to the barrister’s role as an advocate in the courts. If barristers wish to be employed as in-house lawyers (general counsel in industry) advising their employer, they are not permitted to exercise higher rights of audience as they are not in independent practice. The Bar also recognise a category of non-practising barristers who may be employed, for example, in accountancy or solicitors’ firms and as such, can provide the same legal services as any lay person, and non-advocacy reserved services. There is nothing in the Bar’s rules to prevent such non-practising barristers entering into partnership with accountants or solicitors.
3.4 With the changes which will allow solicitors to exercise higher rights of audience, many of these traditional restrictions in the regulation of barristers are under active consideration. For example, the rule preventing clients from having direct access was amended some years ago to allow direct access by other professionals on behalf of their clients (e.g. accountants). More deregulation is under discussion at present. Such changes could lead to the erosion of some of the traditional differences between the two professions, although some believe that the distinctions should be preserved.
3.5 The solicitors’ profession in England and Wales is regulated by the Law Society of England and Wales under statutory powers given through the Solicitors Act and subsequent legislation. Rules made by the Law Society are essentially a form of delegated legislation, and the various Acts require a variety of concurrences and approvals by senior judges. The Law Societies of Scotland and Northern Ireland have similar powers to regulate solicitors in those jurisdictions. The Law Society sets rules providing for the education, training and qualification of solicitors. Most practising solicitors are required to take out an annual practising certificate and are regulated by practice and other rules dealing with, for example, the keeping of client’s money etc. The rules and regulations are enforced by the Office for the Supervision of Solicitors (OSS) which, although part of the Law Society, has an arm’s length relationship to ensure independence of decision making. The ultimate sanction of preventing a solicitor from practising ("striking off") is not within the powers of the OSS but a separate independent Solicitors’ Disciplinary Tribunal set up under the Solicitors Act. The work of the OSS is additionally overseen by an independent Legal Services Ombudsman.
3.6 The Bar Council regulates barristers in England and Wales. While its position as a regulatory body is recognised in statute, it does not exercise statutory powers when making rules and disciplining barristers. The Bar Council operates its own disciplinary tribunal, although that is also subject to oversight by the Legal Services Ombudsman and High Court judges who also exercise disciplinary powers over barristers. The Bar’s Code of Conduct mainly deals with conduct required of barristers in independent practice, but also has sections dealing with employed barristers and non-practising barristers.
4. Rules restricting multi-disciplinary practice – the current position
4.1 As indicated above, the Bar’s Code of Conduct prevents practising barristers from entering into partnership with another barrister or into any partnership or other form of association with any person who is not a barrister, nor can a practising barrister be employed by any person as a device whereby the barrister directly or indirectly supplies legal services to the public or a sector of the public. The Code restricts the activities of employed barristers and non-practising barristers.
4.2 Solicitors may currently practise:
- in partnerships of solicitors or as sole practitioners – as principals or employees (this accounts for the majority of the profession);
- in an incorporated practice (which is recognised and regulated by the Law Society);
- as an in-house employee of a non-lawyer where (broadly) the employer is the solicitor’s only client;
- in a multi-national practice, e.g.. in a partnership, regulated by the Law Society, with Registered Foreign Lawyers.
4.3 Practice rules prohibit:
- fee sharing with non-lawyers (and lawyers who are not Registered Foreign Lawyers);
- partnerships with non-lawyers (and lawyers, e.g. barristers, who are not Registered Foreign Lawyers);
- sharing ownership in an incorporated practice with non-lawyers.
In addition, Practice Rule 4 provides that a solicitor employed by a non-solicitor generally only has the employer as a client. So, in-house solicitors are generally prevented from providing legal services to, for example, the customers or clients of his or her employer.
4.4 Since the mid-1980’s, deregulation has allowed solicitors to widen the scope of their business activities and work in closer co-operation with non-lawyer businesses. This deregulation stopped short of multi-disciplinary partnership. It is also important to recognise the breadth of scope of business activities undertaken by solicitors. Given increasing concerns about shrinking markets in areas of traditional legal services, the Law Society has actively encouraged solicitors to expand the scope of the services they provide – in some areas to compete with others in, for example, selling property, giving financial and investment advice and alternative dispute resolution. In other areas solicitors have been encouraged to "win back" work which may now be seen as accountant’s work such as tax and pension advice, acting as insolvency practitioners etc. In widening this scope many solicitors’ practices are, in fact, multi-disciplinary in that they employ specialists from other disciplines to help provide a broad range of services to clients. However, these non-solicitors providing services through the solicitor’s practice, cannot become an owner in the business.
4.5 Solicitors can now work with non-lawyers, within the rules, in the following ways:
- in close association with firms of non-lawyers, with a referral arrangement. The Solicitors’ Introduction and Referral Code permits, in some cases, the introducer to market the services of itself and the solicitor’s firm under a package price arrangement. This was intended to allow the development of "one stop shops" without the need for co-ownership;
- solicitors may own an ancillary or separate business with non-lawyers. The separate business is not a solicitor’s practice and may not provide legal services except where such (unreserved) legal services are ancillary to the main service. Rules provide for separation between the business and the solicitor’s practice and require clients to be notified that the traditional client protections do not apply to the services provided by the separate business.
The situations described above relate only to practising solicitors who have a legal practice. If solicitors are not "practising as such", i.e. holding themselves out as practising as a solicitor, they are not subject to Law Society regulation and can then be employed by a non-solicitor business to provide legal, but not reserved, services to the customers or clients of the employer. Similarly, qualified solicitors who are not practising as such can set up and run a multi-disciplinary business with anyone in order to provide unreserved legal services.
5. Accounting firms and legal services in England and Wales
5.1 England has not seen the same development as some European countries, where firms of lawyers associated with global accountancy firms operate under the name of the accountancy firm. In part, this is because there was a practice rule which narrowly restricted the name of a firm of solicitors. The rule has recently been relaxed but still seeks to prevent a firm of solicitors using the name of an accountant’s firm as all or part of its own name. The rules, however, do not prevent a letter heading stating "Garrett & Co, Solicitors – in association with Arthur Andersen, Accountants".
5.2 In the UK, the (then) big six accountancy firms built referral arrangements, usually with a number of firms of solicitors and also built up their in-house capability to provide unreserved legal services. They employ "non practising" barristers and solicitors to provide such legal services to clients, mainly in the fields of tax, insolvency, employment, general corporate work, corporate finance work and pensions. They increasingly provide litigation management and support to firms of solicitors. While solicitors employed by the accountancy firms could not practise as solicitors without being in breach of the Law Society rules, in some cases this was developed into a distinction without a difference, except that the solicitors could not provide reserved services. Publicity material and brochures on legal services provided by accountancy firms would, naturally, come as close as possible to making it clear that their employed lawyers were qualified either as solicitors or barristers.
5.3 In 1988, the Law Society's moves towards deregulation concluded with the adoption of an Introduction and Referral Code which permitted solicitors to have associations and referral arrangements with non-lawyer businesses. Soon after that, Arthur Andersen’s in-house legal team in London set up as an independent partnership of solicitors to enable them to provide a wider range of legal services, as solicitors, to clients of Arthur Andersen, Arthur Andersen itself and others. More recently, others in the big five have followed suit or are contemplating similar arrangements. Coopers and Lybrand was one of the big six who had a significant team of in-house lawyers. When they developed their association with a firm of independent solicitors, they transferred most of their in-house lawyers to the solicitors’ firm. The Law Society's rules require the solicitors not to be in partnership with, nor to share fees with, the accountants. However, the firms can develop close links with legal firms in other jurisdictions even if they operate under the name or umbrella of the global accountancy firm. Solicitors can have referral arrangements with such firms, falling short of partnership, to ensure common service and quality standards on a global basis.
5.4 Most of these developments have been recent. To date, the Law Society is not aware of a situation where a client of a legal firm linked with an accountancy practice has complained to the Law Society. A number of solicitors have expressed concern to the Law Society that such firms must be in breach of the rules relating to fee sharing and partnership. However, much of this is due to press coverage which has commonly referred to the arrangements as "multi-disciplinary partnership" and used words such as "take-over" and "merger". The Law Society's current view is that partners in such linked firms are keen to retain their independence as lawyers and comply with both the spirit and letter of Law Society rules.
5.5 It is not surprising that there have been few client complaints about the firms associated with accountancy practices. These firms are the leading edge. Most of their clients will be sophisticated clients who have chosen a lawyer associated with an accountancy firm for the benefits they believe will flow from that relationship. Neither the accounting firm nor the solicitors’ firm would want to jeopardise their relationship with such clients by not providing a proper service. The clients, as sophisticated purchasers of professional services, are able to distinguish when it would be in their interests to seek "arm’s length" independent legal advice.
5.6 In general, the Law Society has taken the view that these arrangements, although perhaps different in scale are no different in reality to the relationship that a small firm dealing with property may have with an estate agent upon whom it is dependent for the referral of work. Such arrangements exist but the essence of solicitors’ professionalism, i.e. the duty to be independent, impartial and act only in the client’s best interests, supersedes any concern about the position of the introducer.
5.7 While the Law Society has not undertaken extensive research on commercial client’s needs in this respect – particularly relating to the "one-stop shop" – the general evidence seems to be that commercial clients want freedom of choice. Sometimes they will see something close to a "one stop shop" as providing an advantage. In other cases, the opposite would be true. Commercial clients increasingly take a "horses for courses" approach and are aware of the dangers of putting all their eggs in one basket.
5.8 The appendix to this paper is a letter from a solicitor partner in a firm associated with a global accountancy practice. The letter explains the advantages of the relationship, including the advantages of the solicitors’ firm’s independence.
6. Pressures for change
Competition in the legal services market
6.1 As seen above, the "monopoly" of lawyers in England and Wales is very limited, particularly in commercial as opposed to general practice work. There is active competition from accountants and other professions for commercial work and there is also competition for High Street work from non-professional providers of legal services. This means that qualified lawyers are increasingly competing for business with non-lawyers – who play on a different playing field. For example, an accountancy firm can be multi-disciplinary and can attract and keep high calibre specialists in a variety of professions. Solicitors can only employ non-legal specialists and so can lose high calibre staff. Providing the right team for complex commercial work is increasingly important. Even solicitors’ firms find they turn to accountancy firms for their own advice on pensions, profit related pay schemes etc as they cannot find the right blend of specialists in solicitors’ firms. Firms which compete in this market can, therefore, be frustrated as they feel they are "competing with their hands tied behind their backs".
6.2 Client demand is perhaps the most talked about but least proven pressure for change. The Government, particularly the Office of Fair Trading, and consumer bodies assume that the rules amount to an anti-competitive restrictive practice which must be against the consumers’ interest. "One-stop shopping" is seen to bring the benefits of ease of use by consumers, accessibility, economies of scale and extra efficiency. On the other hand, the consumer bodies themselves have, at times, recognised the dangers of abuse inherent in "one stop shops". An OFT report in the early 1990s on new multi-disciplinary practice rules being introduced by the Law Society of Scotland concluded that although the rules were inherently anti-competitive, a strong competitive market existed between firms of solicitors, and some issues such as conflict of interest were valid concerns although not necessarily impossible to overcome. The demand for "one-stop shops" by individual clients seems to be limited to the area of property work where at present, in general, different advice has to be taken on the sale of the property, the legal work involved and the financial aspects. Most demand, therefore, seems to be in the business or commercial world where businesses do require advice from a number of different professions and may believe there will be some saving in time and efficiency in a "one-stop shop".
6.3 There are other specialist areas where there may be client demand for other reasons. For example, in intellectual property or patent work, there is some evidence that clients like to have access to technical experts and lawyers together. Insolvency work is, perhaps, another similar area.
Competition in reserved services
6.4 The Courts and Legal Services Act has provided a framework for new competition in the field of reserved services such as conveyancing, litigation and advocacy. While the opportunities presented by the Act have not been widely taken up, the possible loss of reserved work to others is providing some pressure for change.
6.5 Many law firms feel that their ability to survive and compete in the modern legal services market requires more capital investment than they are able to provide in the traditional ways of funding legal practice. Venture capitalists need to "fee share" in ways not permitted at present.
6.6 Pressure from Government and from the Office of Fair Trading cannot be ignored but is variable. Statements were made by the Labour Party in the run-up to the last election that lawyers’ restrictive practices would be referred to the Monopolies and Mergers Commission. In the event, the new Government has many other priorities. However, it is about to introduce a new Competition Act aimed to reflect more closely European Competition Law. What is not clear is the extent to which either European Competition Law or the new Competition Act will apply to the Law Society's rules, which are a form of delegated legislation. Having said that, the Courts and Legal Services Act 1990 sought to remove what was seen to be the main legal impediment to multi-disciplinary practice by repealing a section of the Solicitors Act. The intention was to leave it a matter for regulation by the professional bodies concerned. Part of the Law Society's intention in continuing to consult on the subject of multi-disciplinary practice is to be in a position to avoid the imposition of what might be an unsatisfactory regime should any part of Government decide to take action.
7. The public interest and consumer protections
7.1 The Law Society consultation paper identifies in some detail the consumer protections afforded to clients of traditional legal practices and points out where these may be endangered by certain forms of multi-disciplinary practice. The consultation paper explores a number of models which either ensure that all the protections are available to clients of a multi-disciplinary practice, or that, where those protections may be limited, the clients are aware of the limitations. That consultation possibly goes beyond the matters under consideration by this Commission who appear, in particular, to be focusing on accountancy dominated professional service firms and the extent to which they may, through a variety of relationships with lawyers, provide legal services to their clients.
7.2 There may be two choices for consideration by the Commission, which stop short of full multi-disciplinary partnership and the regulatory difficulties arising from it, based on what is happening now in England and Wales:
(1) The accountancy dominated professional service firm may employ in-house lawyers – who are not employed as practising solicitors or barristers. As such, there is virtually no regulation of the lawyer by the Law Society or the Bar Council and the client protections are limited to those provided through the accountancy regulatory bodies. However, the firms cannot provide reserved services, in particular, litigation or property transfer services. To the extent that the accountancy firm provides pre-litigation services, then normal lawyer-client privilege will not apply although privilege relating to the protection of expert reports commissioned for the purpose of litigation may exist. It is unlikely that clients instructing an accountancy firm will believe that they have the benefit of the protections they would have if instructing a firm of solicitors.
These non-practising solicitors or barristers are not subject to most of the rules and regulations applied by their regulatory body, but their overall conduct is still subject to disciplinary action and they could have their right to practise in the future taken away if, for example, there is evidence of dishonesty in the way they acted within the professional services firm.
(2) The accountancy firm may provide legal service through an associated legal practice. Normal solicitor-client privilege, duties of confidentiality and rules relating to conflict of interest will apply to the firm as will other client protections such as the protection of client money. The separation of ownership and the requirement for the solicitors in the legal practice to provide independent advice in the best interests of the client, should ensure that the client is not disadvantaged by the relationship.
7.3 If the Commission goes further to look at co-ownership by lawyers and accountants of professional firms, it may become important to distinguish between the client protections afforded by obligations on individual lawyers from the client protections afforded by the business entity through which the lawyers practise. The regulation of employed lawyers in England and Wales could provide helpful lessons. Employed solicitors may only have one client, their employer. However, many employed lawyers work in complex multi-national organisations or, for example, in Local or Central Government where "the employer" does not have a single identity. Employed solicitors are subject to the same general principles of professional conduct as other solicitors. They must be independent and impartial, they must not mislead the court, they must not act where there is a conflict of interest. They owe the client a duty of confidentiality and, in general, the courts recognise that the client’s privilege is protected in largely the same way as with solicitors in private practice, although at times it may be more difficult to draw distinction between when the in-house lawyer is acting as lawyer and when not. The issue of privilege and employed solicitors is, however, subject to some judicial debate in Europe, which is of great concern to UK in-house lawyers.
7.4 While the individual conduct principles apply, some of the other client protections do not need to apply to the same extent. It is comparatively easy for employed lawyers to avoid handling client money and insurance is less of an issue.
7.5 The range of models that may develop, were multi-disciplinary practices permitted is infinite. At one end of the scale an essentially legal firm may have one or two non-lawyer partners. At the other end, an essentially accountancy firm may have one or two lawyer partners. While it may be acceptable for the "legal plus" firm to operate under the same regulatory structure as other legal firms, it is unlikely that the "accountancy plus" firm would accept that.
7.6 It may be important, therefore, to distinguish between the client protections provided by the lawyer, as an individual, and the protections given by the business entity. All clients would then know that the individual lawyer is subject to common standards but could choose the level of other protections afforded by the business entity. In the UK, the fact that the word "solicitor" is protected has led to the thought that the word should only be used in relation to a business entity which provided the full panoply of client protections. This is not, however, a global solution!
7.7 It is not possible in the time allowed to explore the individual client protections in more detail and reference is made to the consultation paper. While the Law Society is enthusiastic about progressing its consultation on multi-disciplinary partnership, the views of its members and others will inform any decisions that will be made on the way forward. It is likely that any decision to change in the future will require Government intervention in the form of some form of legislation.
7.8 One suggestion which has been made in the UK is the possibility of an umbrella regulatory authority overseeing all professional firms, on the model of the new Financial Services Authority (itself modelling on the US equivalent). Such an organisation could lay down minimum standards for the regulation of multi-disciplinary firms. Legislation setting up the organisation could deal with issues such as privilege in a common sense way. Whether that would be welcome by the individual professions who also see a market advantage in retaining a distinct professional image and self regulation, is also a matter for debate.
The views expressed herein have not been approved by the House of Delegates or the Board of Governors of the American Bar Association and, accordingly, should not be construed as representing policy of the American Bar Association.