Scottish solicitors reject Government's '100% Tesco Law' model

Scottish solicitors have backed a compromise motion on Alternative Business Structures (ABS) by 1,550 to 1404 votes at their Annual General Meeting; with the compromise motion securing the highest number of votes in support of any ABS motion at the Law Society of Scotland's AGM on Thursday 27 May 2010.  The compromise motion would permit ownership of law firms by non-legal professionals to a maximum of 25% of the business.

The motion was proposed by GLC's Mike Dailly, seconded by Govanhill Law Centre's Lorraine Barrie, and backed by the Scottish Law Agents Society among others. ABS has been dubbed 'Tesco Law' because it would enable supermarkets, banks, corporate investors, fund managers - and potentially even organised criminals - to own and control 100% of a law firm as an 'external investor': the Scottish Government's Legal Services (Scotland) Bill, as introduced, makes provision for a 100% external ownership model of ABS. 

The Council of the Law Society of Scotland's motion called for a reduced version of the Scottish Government's own ABS model, with no more than 49% of a firm being owned by external investors. The Council's motion was narrowly passed by 21 votes: 1486 to 1465.  At the meeting of Council following the AGM, GLC's Mike Dailly argued that the Society's policy on ABS now had no moral mandate standing the AGM, and that the will of the legal profession was clearly divided, and incapable of being said to be in favour of 49% external ownership.  Council accepted that there was now no clear consensus on ABS.   The Society's official AGM report is here (opens as PDF).

Mike's main speech proposing the compromise motion is here; for arguments explaining why 100% external ownership of Scottish law firms could result in significant consumer detriment and be contrary to the public interest in Scotland see here (2010) and also see here (2008).

Scottish solicitors reject Government's '100% Tesco Law' model

Justice for Scotland candidates elected; please grant a proxy vote in favour of SLAS

John McGovern, solicitor-advocate and President of the GBA, Walter Semple, solicitor and GLC's Principal Solcitor, Mike Dailly have all been elected to the Council of the Law Society of Scotland in the Sheriff Court District of Glasgow and Strathkelvin.  Together with past GBA President, David O'Hagan, solicitor, they represent a strong contigent against the external ownership and control of law firms in Scotland, and the need for progressive Law Society reform.  The full results are available here.

GLC's Mike Dailly said: "I would like to thank all of the Glasgow solicitors who voted for me.  I will work with my colleagues to deliver progressive reform in the interest of the Scottish public and their independent solicitors and law firms. If any Glasgow solicitor wishes to raise any law society or justice related issue with me you can e-mail me on councilmrd @ gmail.com (with 'council' in the subject line) and I will do my best to try and help".

"Together we have already changed the Law Society's policy on 100% external ownership.  Together we can go further. There is a growing consensus for a compromise position of capping non-solicitor ownership at 25%, but requiring those non-solicitor professionals to be working within the firm, and providing a service incidental to the work of the firm.  This would mean Scottish law firms remained independent, Scottish, law firms. If you want to support this reasonable compromise position please grant a proxy in favour of the Scottish Law Agents Society.  A proxy form can be downloaded here (opens as PDF)".

The papers for the forthcoming AGM of the Law Society of Scotland are available online here.

Justice for Scotland candidates elected; please grant a proxy vote in favour of SLAS

GLC to move compromise ABS motion at Law Society AGM

There has been great division within Scotland's legal profession over Alternative Business Structures (ABS). For example, a large majority of solicitors at the most recent SGM voted against the principle of external, capital, ownership of law firms – while there is no denying there remains support for this form of ABS within the legal profession. Accordingly, Govan Law Centre's motion is an attempt to square the circle, heal divisions, and unite Scotland’s legal profession around an effective and reasonable compromise.

A primary policy aim of the Legal Services (Scotland) Bill (‘the Bill’) is to enable greater legal services competition, innovation and growth in Scotland. We all support those principles, notwithstanding the Justice Committee has pointed out that no evidence has been presented to show our current system is deficient.

The strength of the Scottish legal system is that legal services are provided by independent firms of solicitors within a robust and invasive regulatory regime. A system where practitioners are more than sum of their business parts; operating as members of a common profession with an ethical framework instilled as undergraduate, postgraduate, trainee solicitor; enforced through peer pressure and our Law Society. A system where practitioners provide a quasi-public service and owe their first duty to the court.

The proposed motion would safeguard those core values, while facilitating innovation, growth and greater competition. Innovative ABS arrangements and partnerships could be entered into with non-solicitors. However, the motion would help ensure that any ABS remained a Scottish law firm by capping non-solicitor ownership or control at 25%. Clients of such an ABS would continue to enjoy legal professional privilege.

From a regulatory perspective, all of the concerns associated with the ability of corporate external investors and shareholders to own and exercise control, or influence, over an ABS would be resolved by requiring non-solicitors to be natural persons providing services as part of the business: for example, as surveyors, architects, IT experts, estate agents, accountants, or other professionals.

The arguments for, and against, external capital ownership have been well discussed and there is no need to repeat them here. As presently drafted, the Bill would create a liberalised ‘light touch’ regulatory system for Scottish legal services, relying upon a weak risk management system.

This form of ABS was conceived in the era before the UK financial services meltdown. For example, while the UK Parliament was enacting the English Legal Services Act in 2007, the consequences of a liberalised financial services market were only beginning to show, with a run on Northern Rock in September of that same year. It is highly doubtful that the UK Parliament would have embraced the current English form of ABS if they had known what we know now.

Certainly, financial services regulation in the UK has since moved towards an invasive, deep search, system. The economist John Maynard Keynes famously said: ‘When the facts change, I change my mind. What do you do, sir?’ The facts on ABS have changed.

Motion proposed by Mike Dailly, Govan Law Centre and seconded by Lorraine Barrie, Govanhill Law Centre.

"The members of the Law Society of Scotland in general meeting call upon the Scottish Parliament to amend the terms of the Legal Services (Scotland) Bill, presently before parliament, to the effect that at least 75% ownership and control of any entity authorised to carry out work which is reserved to persons qualified to practice as solicitors in terms of the Solicitors (Scotland) Act 1980 should (except in relation to any entity not vested in persons so qualified but which provides legal services as authorised by current law) be vested in solicitors who hold valid practising certificates free of conditions (as construed by reference to section 15(1) of the 1980 Act); and that no more than 25% of said entity should be owned or controlled by natural persons not being solicitors with a valid practising certificate, each of whom provides services which are in support of, incidental to, or complementary to the provision of legal services by the entity".

GLC to move compromise ABS motion at Law Society AGM

Promoting competition whilst balancing the Scottish public interest and consumer protection

GLC's briefing paper on the Stage 1 debate of the Legal Services (Scotland) Bill (Wednesday 28 April 2010):

We believe the Legal Services (Scotland) Bill is unable to deliver its stated policy aim of promoting legal services competition and, as drafted, is presently not fit for purpose. For the reasons set forth in this briefing, the Bill is highly likely to lead to serious detriment to Scottish consumers, the Scottish public and their legal system, and the independence of Scotland’s legal profession.

We believe the ‘external ownership’ principle in the Bill is conceptually flawed and unworkable, but may be able to be cured by substantial amendment. We would propose amending the Bill to replace ‘external ownership’ with a new form of licensed business practice which balanced the need to promote competition and innovation, with consumer protection and the Scottish public interest.

Our proposed principle of ‘co-ownership’ would comprise of non-legally qualified persons owning up to 25% of a licensed business practice, but working alongside qualified solicitors, with direct operational input to the business. This model would build upon a safe and robust, tried and tested regulatory system, while facilitating innovative new business arrangements and partnerships.

The full paper is available in PDF format here.

Promoting competition whilst balancing the Scottish public interest and consumer protection

‘Tesco law’ open to abuse by gangsters

The Herald reports that plans to allow Scottish law firms to use outside investors would increase the risk of money-laundering and allow drug barons to expand their empires, according to one of the country’s most senior lawyers.

Frank Maguire, senior partner at Thompsons Solicitors, one of the Glasgow’s largest firms, fears the so-called “Tesco law” will undermine his profession’s integrity and independence by allowing firms to be able to raise capital from outside investors, while banks and supermarkets could offer a full range of legal services.

The proposed changes, contained in a Bill currently going through the Scottish Parliament, have divided Scotland’s 10,500 solicitors, and the arguments are becoming increasingly heated. Mr Maguire believes that by allowing non-lawyers to open legal services will be a blessing only for organised crime as it would be impossible to monitor whether those running the new firms had criminal records.

Mr Maguire told The Herald: "If you had a legal firm, or someone wanted to set up a legal services-provider, that could in future be done by a drug baron who could use it as a legitimate front to launder money. If we opened up legal services then sophisticated organised criminal networks would be able to run them or put their own people in place".

"The financial memorandum says there is £1,300 to monitor whether those opening new firms have criminal records. Even £100,000 would not cover it. It means putting in jeopardy the independence and integrity of the legal profession. Those working in such businesses would not even have to be lawyers under the Bill. They could be legal service-providers with just one lawyer".

‘Tesco law’ open to abuse by gangsters

Democracy shamed and silenced

More than 3,200 Scottish solicitors were disenfranchised and silenced today when the President of the Law Society of Scotland, Ian Smart, used a technicality to deny them a vote on whether to embrace or reject ‘Tesco Law’ (Alternative Business Structures or ‘ABS’).

Despite Mr Smart having previously challenged opponents of Tesco Law to ‘bring it on’, he faced a humiliating defeat today which he, Council members, and a small number of multi-millionaire big firm partners refused to face for fear of certain defeat.

Approximately, 2,300 solicitors had granted proxy votes against Tesco Law, with only around 921 in favour of the Law Society’s position. As the prospect of defeat presented itself to the Law Society’s minority elite they tried desperately to nobble the democratic will of the majority opposition.

They called for a comfort break, and asked opponents if they would agree to a restriction on external ownership whereby ABS providers would be required to have a majority of solicitors. The opposition agreed to enter into dialogue after the SGM but refused to compromise their motion, and pressed for a vote.

Facing certain defeat, Scotland’s Law Society President called for the meeting to be adjourned and seized upon a technical rule whereby only those present in the room could vote, resulting in over 3,000 proxy member votes being discounted. The net result was that 70 members of the profession – including around 50 Council members and a handful of multi-millionaires – voted to disenfranchise the democratic will of over 3,200 members.

GLC’s Principal Solicitor raised two points of order at the meeting. The first noted that given over 3,200 members had cast their vote by proxy, it would be undemocratic to deny them a voice in the future of our profession, and that the spirit of the debate required their voice to be heard and respected. This concern was rejected by Vice President, Jamie Millar of Brodies Solicitors, who chaired the SGM.

Secondly, Mike called for a vote of 'no confidence' in the Society’s President, Ian Smart, who had presided over the most undemocratic period in the Law Society of Scotland’s history, and by denying 3,200 members a voice in this debate had brought the legal profession into disrepute. This call was rejected by Mr Millar as incompetent.

GLC’s Principal Solicitor said:
“This is a dark day for Scotland’s legal profession. Democracy has been shamed, denied and abused by a small elite of 70 members, against the clear will and voice of of 2,300 members who had voted against Tesco Law. The Council of our Society has lost all credibility today. You can deny a democratic vote by filibuster or technicality, but the only loser is the reputation of our profession which now lies in tatters after this affront to democracy”.

A report on proceedings at the SGM is in The Times (Friday, 26 March 2010) here, and in The Scotsman here.

Democracy shamed and silenced

A fair and level playing field?

When a Government Minister fights an election, he or she does not do so on Government time, with paid civil servants producing campaign materials. Likewise, if the Scottish Government were to hold a referendum on independence, they would campaign not as Ministers, but as members of their political party. They would not be permitted to use civil servants to produce campaign materials or use their Office to run a campaign. Such referenda are subject to campaign rules.

For example, in 'Scotland's Future' the Scottish Government explain why their proposed referendum would need to be subject to campaign rules: "it is essential that rules are in place to ensure that the campaigns are run in a demonstrably fair and open manner ... The aim is to create a level playing field for those involved in campaigning; no organisation should have an unfair advantage over another. In particular, a single wealthy organisation should not be able to influence the campaign disproportionately".

But incredibly there are no such campaign rules for Law Society of Scotland referenda. Which explains why the President, Council members, and the Chief Executive Officer can help themselves to resources - paid for by the members - such as staff time, organisational facilities, confidential databases, and Law Society financial resources to run their own campaign in favour of 'Tesco Law', and the Legal Services (Scotland) Bill.

Does that give them 'an unfair advantage'? You betcha. Have they been prepared to offer the same resources to Scottish solicitors who have concerns over aspects of the Legal Services (Scotland) Bill? No, because they want to win at all costs. It's their game, their rules, and if you don't like it, it's their ball too. This is a very sad indictment on Law Society President, Ian Smart, who is ultimately responsible for this undemocratic process.

GLC's Principal Solicitor's call for Mr Smart to resign is reported in today's The Scotsman here, and concerns over the lack of fairness in next week's SGM is reported in today's The Herald here.

A fair and level playing field?

Scottish Government's concession on section 92 welcomed

GLC welcomes reports (Scotsman, 19 March 2010)that the Scottish Government has agreed to delete parts of section 92 of the Legal Services (Scotland) Bill, which would have given the Scottish Government the power to set the proportion and number of non-solicitor members on the Council of the Law Society of Scotland, and the criteria for such appointments.

Fergus Ewing's intervention is positive, yet it still leaves the irreconcilable problem that non-solicitors cannot 'represent' the interests of solicitors. GLC supports non-solicitor membership of the regulatory aspects of the legal profession, but on the proportions as applicable in England and Wales. The Bill should be amended to exclude non-solicitor membership of the Council of the Law Society.

Fergus Ewing has said that the 'without the Bill, Scottish law firms may be less able than their competitors to take advantage of the opportunities arising in areas of law not reserved to Scottish solicitors.” That is hardly an endorsement for the Tesco Law provisions of the Bill which extend far beyond reserved law matters, and include all devolved Scots law issues. If the Bill reflected the Scottish Government's own position, the ABS sections of the Bill would be restricted to corporate law issues.

Scottish Government's concession on section 92 welcomed

Prickly Paw

GLC's Principal Solicitor's note on the Law Society's CEO's position of separating the regulatory and representative functions of the Law Society of Scotland.

Lorna Jack’s reference to the Monkey’s Paw tale is apt. It’s a short horror story where each wish results in an unexpected gruesome outcome. In truth, our Law Society has been wishing on that Monkey’s Paw for the last couple of years: the Legal Services (Scotland) Bill is the consequence.

If the Law Society had truly represented the interests of our profession, and the interests of the Scottish public, it would not have embraced an unrepresentative, flawed, consumer lobby supposition, which proceeded upon the notion that access to justice was a consumer service. Consumerism is based upon choice, and choice is driven by wealth. Justice is based upon constitutional right. Fairness, not wealth.

All people are equal before the law regardless of wealth; in a consumerist world, equality and justice are commodities to be purchased. The moment you see legal services as any other commodity, you end up in the consumer lobby’s Casino, where the house always wins and cash gets you a better service. What then flows is Tesco law, the erosion of what makes a profession a profession, and the commodification of justice itself.

Organisations like Consumer Focus Scotland do not represent the majority of people in Scotland who lack the wealth to purchase ‘consumer choices’. CFS see life through the spectacles of a small, affluent, well educated, cohort. They have a disproportionately large influence on policy in this nation, and its time for Scotland’s communities to be represented by the people who live and work in those communities, and not an unelected consumer elite.

Sadly, we are where we are. Unlike, Lorna Jack, I would suggest the most logical and cost efficient way forward would be to incorporate the Scottish Legal Complaints Commission into a new slimmed down Law Society of Scotland which was purely a statutory regulator, comprised of a mixture of solicitors and members of the public: ‘the Scottish Solicitors Regulator’. That would streamline cost. There is no need for a committee of 60 to regulate 10,500 solicitors. The representative side of the Law Society’s function could be left to existing professional associations and the new networks which would arise.

The Law Society of Scotland has opened Pandora’s box. It’s time for Scotland’s solicitors to close it in the forthcoming referenda.

Prickly Paw

Royal Faculty debates the Legal Services (Scotland) Bill

Tonight, Glasgow's Royal Faculty of Procurators hosted an informative and passionate debate on the future of Scotland's legal profession in relation to the Legal Services (Scotland) Bill.

Chaired by the Dean of the Faculty, Paul Carnan, the audience of experienced practitioners heard from Alan Campbell, Managing Partner, Dundas & Wilson LLP; Mike Dailly, Principal Solicitor, GLC; John McGovern, Solicitor-Advocate and President of the Glasgow Bar Association; and Ian Smart, President of the Law Society of Scotland. A wide ranging debate took place with excellent contributions from the audience.

Representatives from the Scottish Law Agents Society advised participants that the Parliament's Justice Committee had announced the Stage 1 report on the Bill would be delayed to allow the SGM on the ABS (Tesco Law) aspects of the Bill to take place.

The contribution from GLC's Mike Dailly is available here.

Royal Faculty debates the Legal Services (Scotland) Bill

Referendum: time to protect the independence of Scotland's solicitors

The President of the Law Society of Scotland, Ian Smart, confirmed to BBC 1's Politics Show yesterday that an urgent secret ballot of every solicitor would take place, to determine whether the Society should continue to support the 'Tesco Law' provisions of the Legal Services (Scotland) Bill. The Bill would enable non-solicitors to own and control firms of solicitors, and give the Scottish Government the ability to set the number of non-solicitors, and criteria for appointment, on the Society's ruling Council.

GLC's Principal Solicitor challenged the case for Tesco law with Mr Smart on the Politics Show, and argued that the Bill would effectively end over 500 years of solicitor and legal profession independence. Mr Smart's dismissed fears upon the basis that 27% of all solicitors were already employed by banks, companies, and local authorities, and insisted that 'no one would suggest these solicitors were not independent'.

However, GLC's position is that the 27% of solicitors who are already employed by businesses or councils, do not provide advice to the public. They are in-house lawyers providing a specialist service to one client only, the entity that employs them, and therefore, this defence misses the point. The concern is that if the Bill is passed vested corporate interests would be able to provide solicitor services direcly to the public, and those services would not be independent. You cannot have 99% independence, and allowing businesses with track records in unethical and immoral practices to control access to justice is a receipe for moral hazard and disaster.

The debate on the BBC Politics Show can be watched here (105 mins in)

Today's The Scotsman article on this issue is available online here.

Referendum: time to protect the independence of Scotland's solicitors

Solicitors call for split in Law Society roles

The Herald reports that the regulatory body for Scotland’s 10,500 solicitors faces a damaging schism following news that three major law firms want to break away. The Govan Law Centre, MacRoberts and Thomsons claim the Law Society of Scotland’s independence has been compromised.

They have now allied themselves with the Glasgow Bar Association (GBA), and have warned that the society’s backing of so-called “Tesco law” threatens to undermine ­centuries of independent legal representation in Scotland. The GBA has called for a ­referendum of the country’s solicitors, questioning whether the Law Society should continue to represent them.

The row is about two different parts of the Legal Services Bill which is currently going through the Scottish Parliament. In addition to the ability of banks and large vested corporate interests to control solicitors, concern is focused on section 92 of the Legal Services Bill which provides for direct Government control over Scotland's legal profession. In relation to membership of the legal profession's governing body, section 92 provides that:

"The Scottish Ministers may by regulations— (a) specify—
(i) such additional criteria as they consider appropriate for
appointability as non-solicitor members,
(ii) the number of non-solicitor members, or proportion of the nonsolicitor
part of the membership, in relation to whom the criteria are to apply,
(b) prescribe a minimum—
(i) number of non-solicitor members, or
(ii) proportion of the membership that is to comprise non-solicitor
members, if they believe that such prescription is necessary for ensuring that the
number or proportion of non-solicitor members is adequate".

John McGovern, the president of the Glasgow Bar Association, said: “The public and profession expect solicitors to be ­independent – and that should be non-negotiable. Unfortunately the Law Society seems to have negotiated a bill which gives the government certain control over the profession.”

There will be a “special ­general meeting” of the society later this month at which the GBA and others want to overturn the ­decision to support “Tesco law”. Mike Dailly, head of Govan Law Centre, said: “People are starting to realise the bill will be a disaster because it will end the independence of legal firms.

“The key problem is that ­ministers will be able to affect the membership of the council and could have direct control of the number of non-lawyers. It is peculiar for a progressive nation to be introducing ­measures you are more likely to find in a developing country where you have complete ­government interference and political bias in all walks of life".

“It is completely regressive and strikes at the heart of what the profession stands for. The cases we take are often ­unpopular and may also be against the government.”

Solicitors call for split in Law Society roles

High street solicitors fear annihilation by ‘Tesco law’ giants

The Times reports today that hundreds of small independent solicitors across Scotland could be forced out of business after four of the biggest law firms in the country voted through reforms that will enable supermarkets and banks to provide cut-price legal advice on services such as house purchases and small claims.

Yesterday, opponents of the reforms, including the Scottish Law Agents Society, which represents independent firms, and the Faculty of Procurators of Dumfriesshire, expressed anger at the scope of the new measures, which they said would introduce a “Tesco Law,” and change the face of the high street.

GLC's Principal Solicitor accused the bigger practices of “railroading” the changes through the Law Society of Scotland. Mike said: “This was the senior partners in the big firms who wanted to protect their vested interest. The rest of us were asleep. There are thousands of solicitors in Scotland — the difficulty has been in conveying to the profession how significant a change this is.”

Critics fear that the vote will threaten the independence of solicitors and inhibit the constitutional right of the consumer to access justice. The full story in available on the TimesOnline.

High street solicitors fear annihilation by ‘Tesco law’ giants

Call for solicitors to back Scottish Law Agents Society's stance on ABS

Govan Law Centre is calling on all Scottish solicitors to back the Scottish Law Agents Society's proposal to call a Special General Meeting of the Law Society of Scotland to address the significant consumer detriment that is presented by the 'Alternative Business Structures' provisions (ABS)within the Legal Services (Scotland) Bill.

GLC's Mike Dailly said: "It is understood that the Law Society's support for ABS and the Bill was largely the product of Scotland's four big firms procuring mandates in support of ABS from their own solicitors. There is nothing wrong in marshalling support, but it's hardly representative. Furthermore, when support equates to pecuniary self-interest its public interest value is almost meaningless".

"Everyone knows that ABS is an English law solution to an English law problem. In Scotland, it means a few very large legal firms getting together with chartered accountants and bankers, to the benefit of a tiny handful of people. And those people aren't consumers. The independence and integrity of the legal profession is at stake here, as is access to justice and the public interest".

"There is no empirical evidence of the need for ABS in Scotland. What evidence there is points to Scottish consumers losing choice, and access to independent legal advice. While most Scottish solicitors are busy coping with casework demands, we all need to make an effort to support the SLAS. I would ask colleagues to downloadthe SLAS proxy form and back the call for a proper discussion of what the Legal Services (Scotland) Bill means for Scottish consumers and our profession".

Further background information is available on the SLAS site here. Read Mike's blog on this issue on The Firm.

Call for solicitors to back Scottish Law Agents Society's stance on ABS

Scottish 'Tesco law' Bill published

The Scottish Government has published its Legal Services (Scotland) Bill, which aims to pave the way for supermarkets, banks and large corporate interests to own and operate Scottish legal firms.

The selling point of this law reform is to create more consumer choice for legal services in Scotland, however, it is equally possible that opening up ownership of previously independent Scottish legal firms, will do exactly the opposite and ultimately restrict choice and legal independence in the longer term.

GLC's Principal Solicitor said: "Access to justice is a constitutional right, not a tin of beans to be bought and sold".

"This Bill promises a future of Scottish 'Tesco law' where multinational supermarkets and banks can own, control and trade shares in solicitors, advocates and the gateways to justice".

"It's a scary thought. Particularly, as the predatory and anti-competitive nature of some multinationals is likely to result in small and medium sized Scottish legal firms being artificially undercut and forced out of business in mainstream areas of legal practice."

"The most curious aspect of the rush to embrace 'Tesco law' in Scotland is the startling fact that neither the OFT nor Which? provided an empirical Scottish case which showed the legal market in Scotland was failing consumers in terms of choice and competitiveness".

Further discussion of this story is on the Scottish Television site, and at Mike's The Firm online blog.

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Scottish 'Tesco law' Bill published