News / Member News

The Real Issues of the Day

By SLAS Spokesperson

The last few months of Society business have been obstructed by an expensive, wasteful and ultimately pointless cat and mouse game of raising proxies, guessing how many proxies are elsewhere and watching out for draft constitutions, here one moment, gone the next, as various persons and bodies seek to advance particular interests by fair means or foul and so that serious debate of the issues which confront the profession has been excluded almost altogether. Which is rather unfortunate because what confronts the profession looks very much like a train crash – called, or used to be called, Alternative Business Structures. (See the quotation from the QualitySolicitors.com below). However, it has to be said that, if SLAS had not engaged in this particular game then the profession would have been lumbered by now with a constitution which is seen by some as catastrophic and is now generally accepted as being at least inappropriate.

SLAS hopes that a serious debate will be allowed to ensue and produces below a paper by Walter Semple which sets out the fundamental issues and we invite comment from around the membership and the wider profession as to how we should take these matters forward. We will be very willing to publish on this page and in our own Gazette any serious comment, of whatever sentiment, which might assist members to increase their insight into the changes which lie (not very far) ahead and into what has to be done in the interests of practitioners, of the legal profession and of the public which it serves. Please reply to secretary@slas.co.uk

REGULATION OF LEGAL SERVICES PROVIDERS:
ISSUES FOR THE LAW SOCIETY OF SCOTLAND

I. EXERCISING THE POWER TO REGULATE LSPS.

1. The power given by section 131 of the 2010 Act to regulate LSPs requires a detailed study of whether or how this can be done within the statutory object of the Law Society (“the Society”) under section 1 of the Solicitors (Scotland) Act 1980 to promote the interests of the solicitors’ profession in Scotland.

2. If the Society is to act as regulator of LSPs it will have responsibility to decide issues of professional conduct concerning conflict of interest, confidentiality and acting independently for both solicitors and providers of legal services who have no legal training. The Society with its present statutory object will not and should not be seen as an impartial decision maker between solicitors and non solicitors.

3. The 2010 Act proceeds on the basis that there is an express difference between solicitors’ firms and LSPs. This cannot be ignored. This fundamental conflict of interest issue must be properly resolved before any decision is taken to exercise the power given to the Society to regulate LSPs.

4. As the Society has decided to regulate LSPs, it is bound to review whether it can do so without seeking a change in section 1 of the 1980 Act. Otherwise it must explain how it can reconcile the conflict.

II. GUARANTEE FUND

5. There needs to be special protection for clients’ funds in the hands of commercial organisations and others who may have other commercial interests which expose them to risks of insolvency of a different kind from those which apply to law firms and who may not have the dishonesty cover which the Master Policy provides.

6. For example, protection might include a requirement to hold clients funds with a separate organisation with no common ownership which had the obligation to guarantee that sums owed to clients were fully represented by cash deposits, and to grant indemnity if losses were caused from any shortfall in clients’ funds: i.e. a fidelity bond.

7. The Society should not offer to regulate LSPs unless its scheme includes some form of special protection for clients’ funds held by LSPs.

II1. MASTER POLICY FOR PROFESSIONAL INDEMNITY INSURANCE

8. It should be a precondition for any organisation which wishes to participate in the Master Policy that all individuals who take responsibility to provide legal services should have a proper legal training and a current practising certificate. To expose the Master Policy to risks arising from untrained persons giving legal advice is not acceptable. The Society should not offer to regulate LSPs unless its scheme protects the Master Policy from this type of risk.
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IV. LEGAL PROFESSIONAL PRIVILEGE SHOULD REMAIN WITH LAWYERS

9. Section 75 of the 2010 Act conflicts directly with the principles laid down by ECJ in Akzo Nobel (C-550/07 P) and the Court of Appeal in England and Wales in HMRC v Prudential ([2010] EWCA Civ 1094).

10. In the interests of the rule of law, the Law Society must seek a change in primary legislation to ensure that legal professional privilege remains only with qualified lawyers.

V. THE SECOND REFERENDUM QUESTION OF MAY 2010

11. The second referendum question and result were as follows:

“Should the Law Society of Scotland as statutory regulator continue to be responsible for promotion of the interests of, and the representation of, solicitors in Scotland?
Voting closed on 24th May 2010.Result: 3037 voted yes and 1101 voted no.

12. Stage 2 of the Legal Services Bill was completed on 29th June 2010. The second referendum was held before the introduction of sections dealing with Guarantee Fund and the conflict caused by the power to regulate LSPs. Circumstances have changed. The referendum can no longer be relied on.

13. The new factor is that as the Society is to regulate LSPs, it creates the conflict referred to. If, as seems clear, the conflict cannot be resolved, the dual function in section 1 of the 1980 Act cannot be maintained. In consequence it is necessary to change section 1 of the 1980 Act. In future the Society must be a body with duties only to the public interest and not to the promotion of the interests of the solicitors’ profession in Scotland.

VI. THE SECTION 1 DUAL FUNCTION CONFLICT MUST BE REMOVED.

14. The Society should discontinue its role as promoter of the solicitor’s profession. It should in future be limited to a public interest role involving:

a) Admission of Solicitors

b) Standards of Professional Conduct and Discipline

c) Dealing with clients funds

d) Professional Indemnity Insurance

e) Other public interest work.

f) Regulating other providers of legal services.

15. It is right that this body would have significant lay representation. This change would largely remove the tension which has arisen from the proposed changes to lay representation in the Council acting under its present statutory object.

VII. AMENDMENTS TO THE CONSTITUTION

16. The Council’s draft Constitution would have had the effect that these issues were matters only for the Council, before explaining their implications to the members.

17. Pending such a review of primary legislation, there should be no changes to the present Constitution which are not made necessary by the 2010 Act.

18. There is no justification for the attempt to reduce members’ rights in the governance of the Society in any way.

Walter Semple 22nd April 2011

Says QualitySolicitors.com “Co-operative Legal Services have shown the potential, growing to be a £25m turnover law firm in just 4 years.. If you want to see the full impact of brand entrants upon a fragmented professional market, look no further than the opticians market. Before its deregulation in the 1980s, it closely resembled the current legal market – a profession made up of thousands of local and regional companies with no national brands. Now just 3 brands have grown to take c.80% of that market. The legal market is no less ripe for brand dominance." 

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