October 05, 2011

Summary of the Testimony of Andrew Scott - Center for Professional Responsibility

Summary of the Testimony of Andrew Scott

Before the Multidisciplinary Practice Commission

Andrew Scott, president of the Law Institute of Victoria in Melbourne, Australia spoke next. The Law Institute of Victoria is the second most influential state law society in Australia. The Law Council of Australia, the umbrella body, whose constitution encompasses the six state and two territory law societies, as well as the independent bars of the four states that have independent bars, will resolve its position on MDPs at its December 5 th meeting. That model currently allows partnering with anyone as long as the public interest is served by the rules that regulate the MDP. He foresees the Law Institute of Victoria suggesting that lawyers will only be able to partner with others who have their own professional conduct rules or with those who by legislative mandate must modify their business behavior. He explained that in Victoria there is a Legal Ombudsman’s Office, which (as set forth in the Legal Practice Act of 1996) has the task of investigating any anti-competitive facets of the legal profession’s operation. The Legal Ombudsman’s primary duty, however, is to review complaints that are submitted to the Law Institute. Since the Legal Practice Act of 1996, membership in the Law Institute has become voluntary, a change from a one-hundred-forty-year-old practice; membership of private practitioners today is about 93%. He mentioned that the term ‘MDP’ had been used during the Commission’s hearing to describe different bodies - a law firm networked with an accounting firm with a shared client base or an accounting firm with lawyers in-house. For his purposes he defined an MDP as a law firm in partnership with other professions that shares profits and, to some degree or another, control. The Legal Ombudsman is supportive of MDPs. The Ombudsman proposed the following MDP model: 1) individual members of the MDP would be regulated by their own professional rules, 2) only allowed in corporate form, 3) disclosure mandated up-front and in the billing regarding type of professional service provider and time spent by each, and 4) partners could include investors. It is thought that the corporate form is important so that the entity can be regulated to the lawyers’ standard more easily, with privilege preserved (possibly ‘more sacredly enshrined’ into legislation).

In Victoria compulsory malpractice and professional indemnity insurance is available from a single dedicated insurer to ensure that every risk is covered, that no law firm will have to cease practice because a particular insurer declines to offer coverage. The accountants say that it must be opened up to the general commercial insurance market if they are to be part of providing compulsory insurance. Remedy for professional indemnity and malpractice currently lies against the practitioner him/herself and not against the MDP. Also, as the law currently stands, misappropriation of trust money by an MDP would not be covered by the Compensation Fund. If there were dishonesty, clients would lose their money and only have a right of remedy against the individual practitioner. According to some of the big firms in Melbourne, capital raising is a reason to allow MDPs. Mr. Scott commented that a shared client base, shared training programs and shared costs only need affiliation and not a multidisciplinary practice.

In response to Professor Daly’s query, Mr. Scott explained that, since the 1994 legislation in New South Wales, which allows for joint ownership and profit sharing with nonlawyers but requires that lawyers own 51% of an MDP, approximately 10 multidisciplinary practices have been established. In Victoria two accounting firms are operating MDPs - Andersen Legal with about 20 lawyers and KPMG Legal, both of which function much as the Paris operation described by Mr. Nicolay with no overt splitting of income. He suggested that it would be a good idea to pose the question "who gets what from a lawyer’s independence?" He is sure that lawyer independence means different things to different consumers. No changes to the ethics standards of the Law Society of New South Wales were made in conjunction with the change to allow MDPs. Each profession’s standards still apply to its members. This model has lost favor.

Mr. Traynor observed that it’s increasingly difficult to determine what is legal and what is not legal in terms of advice. As the distinctions between legal and nonlegal advice become material in determining privilege - advice privilege as well as litigation (work product) privilege - the pace of evolution of the concept of privilege may need to be picked up, observed Mr. Scott. He said that there is a greater level of protection given to legal privilege as distinct from confidential information. Commenting on the allowance of partnering of professionals as long as each profession has a regulatory scheme governing it, Mr. Rosner questioned the impact on imputation (as understood by lawyers) within the law firm of the more lax regulatory scheme of accountants and consultants. Mr. Scott noted that legislation or the MDP agreement should dictate that it is a breach of that agreement for any partner to require any other partner to act in a way that would breach his or her own professional body’s rules. However, it would be a disincentive for a nonlawyer to join a MDP if a nonlawyer were held to the standard of a lawyer as it would be difficult for the nonlawyer in a lawyer MDP to compete with her nonlawyer peers. He maintained that lawyers in an accounting MDP would have to tow the same line as the independent lawyer. In response to the Chair’s question regarding an up-front estimate of fees in both the counseling and litigation context, Mr. Scott mentioned that different levels of disclosure might apply in different situations depending on the level of sophistication of the client.