Oireachtas Joint and Select Committees

Wednesday, 12 February 2014

Select Committee on Justice, Defence and Equality

Legal Services Regulation Bill 2011: Committee Stage (Resumed)

10:10 am

Photo of Alan ShatterAlan Shatter (Dublin South, Fine Gael) | Oireachtas source

Let us speak of what is involved with multidisciplinary practices. I am very disappointed by the contribution from Deputy Mac Lochlainn, although I do not mean that in a personal sense. I believed his party presented itself as being interested in reform not in maintaining structures in the State which we have had for over 100 years or representing the vested interests within the legal profession. His contribution, referencing what is essentially the Bar Council brief, reflects that council's approach of non mutare, or no change. We are living in a world different from the 18th century. This legislation is not about serving the legal profession but the general public by ensuring people have access to legal services and there is a wide range of business structures through which legal services can be provided. We are trying to ensure that practising lawyers have options on how to provide legal services and earn a living, and that regardless of the mechanisms through which legal services are provided, there should be appropriate regulatory provisions in place and independent oversight.
There is nothing about the "one-stop shop" or multidisciplinary practice that is so uniquely complex as to make it impossible to have appropriate regulatory oversight. There is nothing to make it compulsory for any individual legal practitioner, barrister or solicitor to provide services through multidisciplinary practice. The legal system currently allows solicitors to be sole traders or partners; there can be small firms with two or three partners and large firms with 50, 100, 200 or more partners. The large firm argument is that multidisciplinary practices will suck up all the good lawyers but have the five big legal firms sucked up all the good lawyers? There are many good lawyers outside the big five firms practising in a broad range of areas, with some in general practice and others engaged in niche specialties.
Some lawyers like to practise in big firms and others like to practise in small firms. With solicitors, some like to practise as individual sole traders and some like to practise with partners. Barristers are all effectively individual sole traders and they cannot operate in partnership, although some have taken to acquiring premises together in which they have offices and out of which they share expenses. They cannot share fees. Some parts of rural Ireland do not go near the Bar library and to all intents and purposes the people may operate a legal practice but cannot advertise it as such. There is a range of restricted practices.
Many members of the general public who have legal issues need financial or other matters resolved. They may have to visit a lawyer, accountant, a surveyor or engineer, among others. They pay money for the lawyer to write to the accountant, who would write to the surveyor, and there would be individual meetings that incur unnecessary expense. The attraction of a one-stop shop for members of the public, where there is a particular type of legal issue on which people need assistance, is that they can all be met in one room. Perhaps one would not have to pay for multiple consultations or for people who should work together to send letters to each other.
This is about the public interest and understanding that the manner in which our legal system has developed is an historical accident. Our legal system did not develop based on any great plan but rather it reflected the manner in which the legal system developed in colonial times in the United Kingdom and England in particular through the 17th and 18th century. Divisions were created between barristers and solicitors, with formations devised. Ireland was differentiated as in England barristers can have chambers but in Ireland - at least in theory - they do not. In practice, some are operating to all intents and purposes through chambers.

Multi-disciplinary practices are working, for example, in New South Wales.
What we are doing is looking at options. The difficulty is with a conservative profession, the most conservative wing of that profession is the Bar, where everything is seen as a threat and as being malevolent, nothing is seen as being in the public interest. There are a myriad young barristers in the country who cannot get work because they are dependent on the goodwill of their seniors or their relationship to some solicitor or some senior long-standing junior counsel to feed themselves, but who have enormous legal skills. Is there any reason they should not be employees in a solicitor's firm for a number of years and ply their legal skills there, with the option in the future to be single operators in some specialist area? In what way is that contrary to the public interest? It may be disruptive within the realms of the Bar but in what way is it contrary to the public interest? I cannot identify a public interest problem with that. If solicitors and barristers are working together in a practice, or barristers operating truly as partners in the sense that not only do they share the premises and the expenses but, depending on the luck when fees are coming in, may share the profits and their fees, in what way does that create a public interest issue, if appropriate regulatory oversight and the principles prescribed by the legislation, to which members of the legal profession must adhere, are in place, and a failure to adhere to them could result in a disciplinary intervention?
We are trying to provide options. Just as in the context of the Bar and the solicitors profession I have no doubt that following the enactment of this legislation when multi-disciplinary practices are established, for many years a majority of lawyers will continue to operate within the legal business structures that currently exist for lawyers but some will choose to do it differently. Where they do, it will be to the benefit of the public and will generate competition and insights and ensure those who have particular skills can utilise them and the professions can work together. Why is it that we think a one-stop-shop in other areas of life is a very good idea but in this context it is not a good idea?
I wish to deal with some of the specifics. In its 2006 report, the Competition Authority observed that: "The ban on the formation of multi-disciplinary practices prevents the supply of inter-related services together in a way which may generate synergies known as economies of scope. It prevents professional service providers from catering for clients who have a set of inter-related needs, and from integrating their supply with providers of complementary services". It further stated: "The prohibition also limits the ability of clients to benefit from a one-stop-shop that hinders innovations which might otherwise result from the combination of different services, and it would allow for new products or services to be developed to the benefit of clients". The Legal Services Bill 2011 addresses that issue. In the UK, legal services are now being provided through a whole range of alternative business structures, including the co-operative movement, in order to provide ready access to the general public to legal services at lower cost and to provide that access through different locations, maybe high street locations rather than high-end office locations.
What are the benefits of multi-disciplinary practices to the legal profession? If one is a small solicitor's firm operating in a rural part of Ireland and nearby a small accountancy firm is operating and one is constantly interacting with the other because they serve the same area with, largely, the same clients, why should not one be able to operate a single business providing that service, the synergies and complementarity that come with it? On the disciplinary issue, in the context of a strong regulatory framework, an independent legal services regulatory authority and appropriate codes of practice, there is no difficulty or mystery as to how one ensures that the appropriate ethical principles and obligations of lawyers are complied with, including the lawyers' obligation as an officer of the court to behave in a particular manner.
Deputy Pádraig Mac Lochlainn recited the part that comes directly from the bible of the Bar Council submission about barristers. It is not phrased this way but the implication is that they might be corrupted by having to ply their trade within a corporate structure. I have more faith in the ethics of members of the Bar than that. At the end of this process if barristers find themselves in a position where there are part of a multi-disciplinary practice, they will have to comply with the legal ethics and principles prescribed by the legislation with the appropriate codes of practice that are consistent with the legislation, not the restrictive codes that are currently in place to provide a block on how one sells one's legal services. Should they fail to comply with the ethical requirements what will happen? If there is misconduct we will have an independent process to adjudicate on that.
Enron has been mentioned. It is one of the great myths that it is of some relevance to this particular issue. Enron is of no relevance to this issue. The circumstances that led to the problem with Enron had nothing to do with the existence of multi-disciplinary practices. The failures of Enron were not related to the conduct of lawyers but rather of corporate governance, an accountancy failure of regulation. That is the key. The Enron problem arose in respect of a large incorporated publicly quoted entity with a range of different business areas and subsidiaries in associated companies. The overall Enron entity, to which the share price was pinned, managed to portray itself as profitable in circumstances in which, clearly, it was not and it inflated the share price on the markets. At the same time it used various accounting devices to hide what were large scale losses. It did this through the use of the accounts of its subsidiary and regional operations. It appeared that the accounting firm, which was the Enron auditor, was at worst either complicit in the accounting devices of Enron or at best was negligently oblivious to them on an extraordinary scale. However, the source of the problem was not the professional conduct of lawyers but accountants supervising the accounts of a corrupted corporation. I do not know why Enron is brought into this debate, other than as some spectre to hang over of a threatening nature to indicate that if we have multi-disciplinary practices, everyone will be automatically corrupted by the existence of the structure.
The issue of the relationship between the Enron case and multi-disciplinary practices is very specifically addressed by Mr. Paul Paton in a 2010 article in the Fordham Law Reviewin which he said:

If accounting firms were willing to sacrifice audit integrity in order to secure more lucrative consulting arrangements, the argument went, then certainly lawyers working for MDPs controlled by accountants would be pressured to compromise their integrity and independence for financial gain. Such a position, however, fails to acknowledge one hard truth: Enron resulted from the improper behaviour of many professionals, including lawyers, acting in separate accounting or law firms [he emphasises the lawyers were acting in separate law firms, not in multi-disciplinary practices] rather than from an inherent flaw in the multi-disciplinary practice arrangements. Rather than pointing to Enron as a justification for banning MDPs, regulators and others should instead consider how best to structure incentives for the ethical behaviour of lawyers and others within all professional service firms, whatever the configuration of the firm. Simply banning outright a business model for delivering legal and other professional services fails to address the more complex questions of how best to reward independent, ethical, and candid advice, regardless of the conduit through which that advice is delivered.
What we envisage is ethical, independent and appropriate conduct with a sophisticated regulatory oversight independent of the legal profession. There is nothing the Deputy has said or presented which indicates there is a public interest reason for not proceeding with multi-disciplinary practices. All of the arguments are public interest reasons for doing so.
The Deputy has cited what exists in other parts of Europe. We recently passed our insolvency legislation.

In other parts of Europe, there is not a precedent for the personal insolvency arrangement which allows arrangements to be entered into between debtors and creditors to resolve debt in circumstances where there is secured debt. We set a precedent in that regard and I am proud of that. That provision in our legislation is now forcing financial institutions to enter into arrangements without debtors having to engage in the formal structural approach set out in the personal insolvency legislation because the institutions know that if they do not so engage they may be forced to do so under the personal insolvency arrangement. They realise that if they do not co-operate in that engagement, the option of bankruptcy, with a very limited term, may be sought.

The rest of Europe is talking about replicating our insolvency legislation. One of the officials in my Department who is principally responsible for helping to draft that legislation is currently, at the request of European Commission, assisting with the drafting of similar insolvency legislation for another EU state. I do not mind if we are a trailblazer on the legal services Bill in dealing with an appropriate provision to establish multidisciplinary practices to enhance the public's ability to gain access to legal services. However, I do not accept what is suggested in this regard. There is no member of the Law Library, for example, who would be compelled to join a multidisciplinary practice. There will be many members of the library with niche expertise in their individual areas who will want to continue to work as they do, with the option of being recruited by individual solicitors when there are clients in need of their niche expertise. There will be areas of work in respect of which one could not possibly join a solicitors firm because the firm would not have the volume of work to justify employing one on an annualised basis as opposed to for an individual case. However, there will be circumstances where solicitors and barristers may work together to the benefit of their clients and their own business arrangements. Members of the Bar will join in. I do not understand the fear that exists within the Bar on that issue.

The Deputy has raised some important issues regarding the Law Society. It was always the provision in this Bill that in advance of the creation of multidisciplinary practices, the legal services regulatory authority would engage in a consultative process to ensure any regulatory measures or codes of practice that need to be put in place would be considered and put in place. We would ensure they had the insights needed for anything that may need to be done in the area of financial oversight. On Committee Stage, as we go through the legislation, we are tidying up provisions in the Bill based on where we got to some weeks ago.

Owing to my interest in this Bill, I am very interested in all the submissions we have received, and I have paid very careful attention to them. The Law Society has made some very constructive suggestions for fine-tuning the legislation with regard to some regulatory matters. We will be taking these on board on Report Stage. Very recently I received a submission from the Law Society following the publication of the amendments we are dealing with today. It raised some issues and this is why the consultative process is so important. We are dealing with a new area. Just as the consultative process helped to improve the insolvency Bill, it will help to improve this one.

It is disappointing that a party that presents itself as reformist in the context of this Bill is simply presenting the arguments of those who are utterly opposed to reform, and particularly opposed to changing anything with regard to the manner in which legal services are delivered. It is opposed, apparently, to giving the public greater access to legal services, should it require them, and to the possibility that the cost of legal services may decrease if there is greater competition. I refer also to the desire to cut off the possibility of members of the legal profession who are qualified, ethical and well trained providing legal services through alternative business mechanisms in a manner that might produce economies of scale, reduce their overheads and enable them to pass the reduction in their overheads on to clients by way of reduced costs.

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