Annex E: Review of Multi-disciplinary Practices
1. There is recent evidence of increasing support for the relaxation or removal of restrictions on MDPs. At a European level, the 2004 report by the European Commission on Competition in Professional Services recognised the possibility of justifications for regulating business structures in markets where there is strong need to protect practitioners' independence or personal liability, though the possibility of alternative mechanisms for protecting independence and ethical standards was raised as an option which would be less restrictive of competition.
2. This survey looks at the position of MDPs within jurisdictions worldwide. Mainly theoretical in nature, it summarises the key arguments in literature put forward to justify removal of prohibitions on MDPs, and also the arguments put forward by those wishing to maintain prohibition. Models of MDPs are discussed, and a brief jurisdictional comparison is undertaken. Very little empirical evidence on the functioning of MDPs in jurisdictions where such business structures are permissible has been uncovered to date - while the development of MDPs is relatively recent in most jurisdictions, which may account for the lack of evidence, in some ( e.g. Germany) MDPs have been permissible for many years. Further work may be needed in due course to assess the extent of evidence on operation in the context of different jurisdictions.
3. There are a number of definitions of multidisciplinary practices, including the definition in section 65 of the Solicitors (Scotland) Act 1980 210. Clementi (2004) defines an MDP as 'a business structure having as Managers at least one lawyer and one non-legal professional, which provides legal services to the public, as well as the services of another profession'. For the purposes of this paper, that adopted by the American Bar Association Commission on Multi Disciplinary Practice is chosen as a working definition ( ABA 2000), i.e.:
' a partnership, professional corporation, or other association or entity that includes lawyers and non-lawyers and has as one, but not all, of its purposes the delivery of legal services to a client (s) other than the multidisciplinary practice itself or that holds itself out to the public as providing non legal, as well as legal, services'211
4. There is a distinction between 'multidisciplinary practice' and 'multidisciplinary partnership'. The former describes the activities of the professional services firm; the latter describes the legal relationship between the members of the firm (Daly 2000). MDPs should also be distinguished from the situation where a number of professions may have in house solicitors on their staff. For example, this is common in accountancy firms and banks.
5. Further, it is important to distinguish between Multi Disciplinary Practices and Legal Disciplinary Practices. LDPs are law practices bringing together lawyers from different branches of the legal profession - for example solicitors and barristers - providing legal services to third parties. MDPs are practices bringing together lawyers and other professionals ( e.g. accountants, surveyors etc) to provide legal and other professional services to third parties (Clementi 2004).
Arguments for and against MDPs
'The reality is that MDPS do exist today; are likely to stay, and are likely to continue to grow' (Norwood and Paterson 2002 at 354)
6. Literature on the topic of MDPs in the UK context is relatively sparse in comparison to that in relation to the USA, despite the fact that debate over MDPs has been evident for the past 2 decades - MDPs were the subject of consideration by both the Royal Commission on Legal Services in England and Wales and in Scotland in 1979 and 1980.
7. Paterson, in 2001, found that 'almost to a scholar, the American writers have been accepting of the inevitability of MDPs' (Paterson 2001 at 161) 212. Pressures for allowing MDPs have come from a variety of sources: some solicitors see MDPs as business opportunities or at least a way in which to challenge the threat from informal or de facto MDPs already in existence (in particular, accountancy-led MDPs) (Deards 2001). The 'Big 5' accounting firms have had a key role in the lobby for change. The global move towards increased competition and removal of restrictive practices has prompted regulatory bodies worldwide to express support for MDPs - OFT in the UK, for example, supports MDPs and sees prohibition as a restriction on competition.
8. Client pressure for change is harder to establish. Literature suggests that actual client demand for the services of MDPs is to a large extent untested (Deards 2001) and that any opinion surveys which have been done have been inconclusive (Paterson 2001). The Law Society of Scotland in 2000 noted that 'what evidence there is suggests that there is no great demand from consumers for MDPs' (Law Society of Scotland 2000). A more recent review by the Society (Law Society 2004) refers to a lack of empirical evidence demonstrating existence of demand for MDPs.
Potential benefits of MDPs
9. Nonetheless MDPs are seen as providing numerous potential benefits to clients. The benefits of MDPs to clients are seen as, in part, summed up in the simple notion that
'Legal problems in a complex society often require the knowledge and skills of more diverse professionals. Multi-professional offices, staffed by a variety of different experts…facilitate the dispute resolution process. Someone with a problem could come to the office and get help from the professional or team of professionals best suited to deal with the problem. Like a supermarket, the multi professional office could provide one-stop shopping' (Muneke 2001 in Norwood and Paterson 2002 at 341)
10. However, a variety of other benefits of MDPs are argued. In literature, the same benefits and drawbacks of MDPs are generally highlighted. This paper does not rehearse these in great depth; LCD (2002) usefully summarises key advantages and disadvantages of MDPs (many were discussed in the Lord Chancellor's Advisory Committee on Legal Education and Conduct Report of July 1999 on Multi-Disciplinary Practice) - key advantages are seen to be:
10.1 MDPs free up potential for greater choice for customers. By allowing for increased specialisation and the development of innovative types of practice which could provide better, more integrated ways to meet customer needs including one-stop-shops;
10.2 MDPs provide potential for lower prices for customers. Through innovation, economies of scope, better use of resources, reduced costs of co-ordination and duplication between firms including accommodation and overheads;
10.3 MDPs provide potential for increased quality of services. By attracting investment of outside capital and attracting and retaining good non-solicitors/other professionals into the market by offering the status of partnerships and directorships allowing them to participate. One-stop-shops may also make it easier for customers to have complaints addressed. 213
11. MDPs are seen as business structures allowing more innovative and efficient means of delivering legal services to clients who are now looking for more flexibility - commercial transactions are becoming increasingly complex, and it is argued that the nature of legal problems faced by many large commercial organisations nowadays can no longer be simply classified as legal problems and business problems. As lines between legal and non-legal areas become increasingly less clear a combination of legal solutions, or a 'holistic' service, may be appropriate and beneficial for many clients (Paterson 2001, Dixon 2003).
12. For the lawyers and other professionals working within a MDP, a key benefit is seen to be cost sharing and economies of scale. A further benefit is seen as improved capacity to retain clients through regular contact resulting from the provision of a range of services. Members may also benefit from a growth in skills and knowledge; MDPs are seen as having the potential to improve career development with beneficial effects on the quality of staff and accordingly client service (Deards 2001).
Potential drawbacks of MDPs
13. LCD (2002) summarise the key potential drawbacks of MDPs as follows:
13.1 Possible reduction in choice. If the most profitable commercial practices gravitate to MDPs this could drive out other local firms from that market, thereby reducing competition and provision; or if commercial pressures were to lead firms to 'bundle' different services this could discourage customers from shopping around for the individual components they require;
13.2 Potential loss of, or perception of a loss of, professional independence and a threat to professional standards. MDPs may involve risk to solicitors' ability to give 'fearless advice' to clients where in business with non-solicitors due to absence of privilege over information divulged to non-lawyers. A perception of loss of professional standing could inhibit solicitors ability to compete in the market and especially on the international stage;
13.3 Potential for conflicts of interest. If the number of independent firms providing each individual service is seriously reduced, customers may find it more difficult to engage with service providers who do not have a conflict of interest.
14. However the key concerns in relation to MDPs centre on potential threats to professionalism and the core values of the legal profession due to greater commercial or other pressures on solicitors working within MDPs , and regulatory reach. Paterson and Norwood (2002) usefully summarise the 5 key concerns typically flagged in relation to potential threats:
14.1 Partnerships with non lawyers are seen as undermining the collegial nature of the legal profession and its core values - in particular competence, independence, confidentiality, loyalty (in the conflict of interests context) and access to justice. The possibility of MDPs being controlled by non-lawyer partners is seen as a matter for concern.
14.2 As MDPs will involve a variety of professions with different codes of ethics (and less onerous than those followed by the legal profession) it is seen as likely that non-lawyer controlled MDPs which provide legal services will offer less protection to clients without the clients being aware of this.
14.3 In the context of MDPs involving accountancy firms, there is the now well known fundamental conflict between the accountancy firm's auditing duty of public disclosure and the lawyer members duty of non disclosure.
14.4 MDPs may enhance choice for clients through diverse providers - however they may also create conflicts of interest whilst restricting client choice as the lawyer members maybe more likely to refer clients to non lawyer professionals within the MDP rather than referring them to the best independent adviser.
14.5 MDPs as a concept create regulatory challenges which to date most competition authorities have failed to address. Clementi (2004) raises the question of how a legal services regulator can exercise power over those members of MDPs who are not lawyers or not supervised by lawyers, pointing out that with MDPs the regulatory focus is diffused, since different professions would have potentially differing codes of practice.
15. The issue of legal professional privilege ( LPP) is key in relation to the ethical concerns about MDPs. The difficulty in relation to MDPs would be lack of clarity for clients as to whether LPP applied only in legal matters discussed with a legal professional, or whether it applied to all members of an MDP. One option would be that 'Chinese Walls' would have to separate different departments clearly within an MDP - questions would arise however as to the operational viability of MDPs in this situation.
16. The Working Party of the Law Society of Scotland on Multi-Disciplinary Practices in Scotland concluded that 'the existing prohibition on MDPs arises from the nature of the Solicitor profession' (Law Society of Scotland 2000). The Working Party saw 'very substantial risks' to the maintenance of the 4 underpinning principles of independence, conflict of interest, confidentiality, and privilege, should MDPs be allowed. Further, they doubted that the public protections given by the legal profession in relation to indemnity (Law Society Master Policy Scheme); Fraud (Guarantee Fund); Financial Probity (Client Account); and Complaints (Scottish Legal Services Ombudsman) would be taken on by non lawyer members of MDPs. In 2004 the Law Society of Scotland once more reiterated strong opposition to the creation of MDPs, stating the view that
'the total restriction in both management control and ownership is the best mechanism for securing the public interest' (Law Society of Scotland 2004; p34)
17. While recognising potential for benefits outlines above, the Law Society of Scotland saw as key disadvantages:
- MDPs would give rise to an increased risk of conflicts of interest;
- MDPs would lead to conflicts between ethical duties and commercial interests which would be against the public interest;
- MDPs would undermine the operation of essential public protections offered by the legal profession unless required to provide equal protections;
- The conduct of non-solicitor members would not be subject to effective regulation;
- The likelihood of confusion on the part of consumers as to the nature of the MDP and the qualifications of the individuals in it.
18. The view of the Law Society of Scotland is that MDPs would result in:
- A diminution in the independence of advice;
- A reduction in the consumer safeguards which firms could offer in comparison to solicitor only partnerships;
- Restriction in choice and accessibility;
- Erosion of the obligation of confidentiality and legal professional privilege; and
- Difficulty in enforcing discipline and complaints. (Law Society of Scotland 2004, page 33)
Models of MDP
19. The concerns in relation to the need to protect public interest, and preserve legal professional ethics, necessitate discussion of the various models of MDP. Literature shows that a variety of models for MDPs exist, though in depth discussion of the variety of models is outwith the scope of this general overview paper. For the purposes of discussion however models in literature, and models advanced by the Law Society of England and Wales and the Clementi review are described briefly.
20. Key issues in relation to the ethical viability of MDPs for lawyers are the management and control relationships among the MDP professionals. Depending on the model adopted, non lawyer professionals could be involved in both ownership and management of an MDP, with an interest in promoting commercial services other than law, and bound by different professional rules to those within which legal professionals will operate.
21. Norwood and Paterson describe the 4 types of model for management and control of an MDP, drawn from jurisdictional experience and from published literature (Norwood and Paterson 2002):
Model 1: The lawyer or lawyers in a partnership act as leaders of a multi disciplinary team, the members of which are employees of the partnership, report to the lawyer partners, and are managed by the partnership.
Model 2: The spin off or ancillary business owned by the lawyer or law firm which can do work related to the practice of law and even channel profits back into the law firm.
Model 3: the full partnership or agreement between professionals from different disciplines - the fully integrated MDP, and the subject of most global debate. This model is seen as causing major regulatory difficulties. The more formal relationship in this model brings up issues of fee sharing, potential control of lawyers by non lawyers and the resultant loss of professional independence. As can be seen below, full blown partnerships between lawyers and non lawyers to offer legal services remain prohibited in most countries (Norwood and Paterson 2002). In those countries where such models are allowed, MDPs must provide services subject to the practice rules of the legal profession (Norwood and Paterson 2002).
Model 4: Collaboratives of independent professionals, with professionals within one body referring on clients in need of the services of another body. These can take many forms - some involve more formal arrangements which may be contractual in nature, others are loosely formed teams of professionals working in a cooperative relationship for the benefit of a client.
Law Society models
22. A number of models for MDPs have been considered by the Law Society of England and Wales 214 (Deards 2001). These fall into 2 categories: those offering full Law Society regulation, and full client protection; and those not offering client protection.
Models offering full regulation and protection
A partnership in which all partners are solicitors or registered with the Law Society and /or a recognised body (incorporated practice in Scotland) in which all directors and shareholders are solicitors or registered with the Law Society.
23. Under this model MDPs could offer any services, but all Practice Rules would apply to the solicitor members and to any legal work. Issues arise however in relation to who should control the MDP - solicitors or other professionals. This is seen as depending on what work MDPs are permitted to carry out - in particular would an MDP controlled by non lawyers be able to provide legal services in areas reserved to solicitors. A further issue is whether the non-solicitors would be required to be members of approved professions, with more compatible regulatory and ethical cultures.
A recognised body (incorporated practice) which undertakes only 'solicitor-type' work and in which non-lawyers may not be directors or hold a majority of the shares
24. Only legal services may be provided under this model, and non lawyers could only have a limited management role (although they could share in the profits).
25. The advantage of all 3 models is seen as being that the Law Society would regulate all owners and the full Practice Rules would apply to the solicitors and the legal work. Non solicitors would be regulated by the Law Society (requiring legislation). However, the extent to which these models are realistic is seen as 'highly debatable' (Deards 2001).
Models not offering full client protection
26. Here, alternatives are the non lawyer owned model, and the mixed ownership model. The non lawyer model is seen as having simplicity as a key advantage, as it would be similar in nature to the current position with regard to employed solicitors. Practice Rules would apply to solicitors, although the Compensation Fund would only apply in the case of a solicitor member's dishonesty. The business would require indemnity insurance for solicitor members, and would have to be held out primarily as that of some other profession, although the solicitors could provide unreserved legal services. Under the mixed ownership model a more complex relationship would exist. The business would have to be held out primarily as that of another profession but solicitors could carry out unreserved legal services. Clients would not be guaranteed all the client protections afforded under the first type of model 215.
27. The Clementi review set outs four possible options for alternative business structures:
- LDP1 brings together lawyers from different professional bodies (barristers, solicitors, conveyancers, legal executives, trade mark attorneys, patent agents) to work together on an equal footing to provide legal services to third parties; non-legal professionals might help in the management of such practices, but they would not be able to provide services to third parties. The practice would be owned by those who managed it.
- LDP2 is similar to LDP1, except that this option would allow for a practice owned not exclusively by its managers but also by third parties such as an automobile association or a supermarket.
- MDP1 allows the development of practices that would bring together lawyers and other professionals such as accountants and surveyors. It could therefore offer a one stop shop to clients who require the services of more that one professional. Those who managed the firm would also own it.
- MDP2 is similar to MDP1 except that this option would allow for a practice owned not exclusively by its managers but also by third parties such as an automobile association or a supermarket.
28. If lawyers are in control of the management of the business, the regulatory reach will be relatively direct. Alternatively, Clementi talks of the option of 'ring fences' around lawyer members as a protection from interference with the core values of the legal profession by non lawyer members- however the issue remains of how binding any such agreements would be.
29. The Wouters, case, which was concerned with a challenge on competition law grounds to a prohibition on MDPs, must be considered in this context. In Wouters the Court drew attention to certain key duties of the legal profession, namely "the duty to act for clients in complete independence and in their sole interest, the duty to avoid all risk of conflict of interest and the duty to observe strict professional secrecy". It is of interest that the judgement in the case of Wouters has been recognised by the European Commission in drafting a proposed Directive on Services in the Internal Market ( http://europa.eu.int/eur-lex/en/com/pdf/2004/com2004_0002en03.pdf ), Article 30 of which reads :
1. Member States shall ensure that providers are not made subject to requirements which oblige them to exercise a given specific activity exclusively or which restrict the exercise jointly or in partnership of different activities. However, the following providers may be made subject to such requirements:
(a) the regulated professions, in so far as is justified in order to guarantee compliance with the rules governing professional ethics and conduct, which vary according to the specific nature of each profession;
(b) providers of certification, accreditation, technical monitoring, test or trial services in so far as is justified in order to ensure their independence and impartiality.
2. Where multidisciplinary activities are authorised, Member States shall ensure the following:
(a) that conflicts of interest and incompatibilities between certain activities are prevented;
(b) that the independence and impartiality required for certain activities is secured;
(c) that the rules governing professional ethics and conduct for different activities are compatible with one another, especially as regards matters of professional secrecy.
3. Member States shall ensure that providers supply the recipient, at his request, with information on their multidisciplinary activities and partnerships and on the measures taken to avoid conflicts of interest. That information shall be included in any information document in which providers give a detailed description of their services.
4. In the report referred to in Article 41, Member States shall indicate which providers are subject to the requirements laid down in paragraph 1, the content of those requirements and the reasons for which they consider them to be justified.
Jurisdictional practice in relation to MDPs
30. Despite the concerns voiced in relation to MDPs, more liberal polices in relation to MDPs can be seen in some jurisdictions, although these appear to be in the minority. The international picture regarding the position of MDPs within jurisdictions is varied, and changes constantly. The more liberal policies of Australia and Canada, for example, can be contrasted to the position in Europe where more restrictive attitudes are evident - at least at a formal level (Law Society, 2000). Norwood and Paterson (2002) ascribe the 'pragmatic motivations' propelling jurisdictions who have allowed the 'fully integrated' MDP as a combination of a fear that market forces and the growing scrutiny of restrictive practices by governments would ultimately 'force' MDPs onto the legal profession, thus lawyers should alter regulations to allow their development now, while in a position to control shape and content of any regulations (Norwood and Paterson, at page 350).
31. Some European countries have never viewed the MDP as a problem. In Germany accountants and lawyers have formed partnerships to provide tax advice for over a decade, and multidisciplinary partnerships are permitted in many other countries. But the major common-law jurisdictions, US, UK and the Commonwealth, have tended to be against the principle of having law firms controlled by non-lawyers and there has also generally been a prohibition on lawyers sharing fees with non-lawyers. This has inhibited the creation of MDPs in many jurisdictions 216.
32. The focus of this analysis is jurisdictional comparison across Europe, though details of the position in Australia, Canada, and the USA have also been included.
33. The annex to this paper sets out national situations regarding multidisciplinary partnerships, based on information given by national delegates of the Council of the Bars and Law Societies of the European Union ( CCBE). This is based on information as at 2000. The table shows that, as at 2000, cooperation without restriction was allowed only in Germany (with chartered accountants, tax advisers, auditors, and patent agents - there is a strict prohibition against cooperation with financial advisers); Italy (with notaries, chartered accountants, and tax advisers); and the Netherlands (with notaries, tax advisers and patent agents ).217 However, in all 3 jurisdictions there are controls - MDPs are prohibited from offering legal services where the MDP is controlled by a non lawyer professional. Various measures preserve specific obligations of each profession - in Italy accountants are subject to the same confidentiality rules as lawyers, in Germany cooperation with other professionals is only allowed if the member of the other profession is subject to the same specific obligations as lawyers and regulated by a professional body. In the Netherlands freedom and independence in the exercise of the profession of lawyer are preserved.
34. In other jurisdictions, limited cooperation is allowed with certain members of other professions, but subject to a variety of forbidden forms of cooperation - commonly there are prohibitions against sharing benefits and losses, and a prohibition against lawyers employed by non-lawyers providing legal services. In a minority there is a strict interdiction of cooperation with all professions.
35. At the time of writing no evidence on models of MDP adopted in those jurisdictions where they are permitted was available. Further work will be necessary to explore the availability of evidence on whether potential benefits have been realised, and what drawbacks if any there have been. At this stage, there appears to be a dearth of empirical evidence on the operation of MDPs.
36. The principle that lawyers should be able to share fees and enter into partnerships with non-lawyers is supported by the Law Council of Australia. However, only New South Wales has passed legislation to facilitate the establishment of MDPs. Section 48G of the amended Legal Profession Act 218 (amended 2002) permits solicitors to enter into partnerships with non lawyers, despite anything to the contrary in the Solicitor's Rules. Barristers may practise in MDPs, subject to Barristers Rules. (Dixon 2003). Both are subject however to Regulations governing MDPs. Under the Act, profits and receipts can be shared between lawyer and non lawyer partners; non lawyers can also conduct legal services (Dixon 2003).
37. MDPs are subject to the same obligations and requirements of any legal partnership. Only the legal practitioners are subject to the complaints system, although the disciplinary tribunal can order that any person is not fit and proper to be a partner.
38. New South Wales Solicitors Rules provide that lawyer partners of the MDP must ensure that:
- The NSW lawyers have the responsibility and authority for the management of the legal practice and delivery of legal services in NSW;
- The MDP provides the legal services and conducts the legal practice in compliance with the Legal Profession Act and subordinate legislation and rules;
- The MDP provides the legal services and conducts the legal practice in conformity with general legal requirements, ethical and professional standards in relation to areas such as privilege, duties to disclose, and conflict of interest;
- The MDP provides the legal services and conducts the legal practice in a way that ensures that the lawyers' ethical and professional duties are not affected by other members;
- The services offered are accurately and fairly represented to clients and potential clients and the qualifications of the persons providing the services are disclosed.
39. However, the MDP concept has not had the positive response anticipated at the time of reform - as at 2002 only around 26 reasonably small law firms had established a MDP in New South Wales. Large firms are seen as waiting for international developments (Dixon 2003). The view is that these larger firms are sceptical of the MDP developments, and would tend to merge only with very large global top tier firms (Dixon 2003). The low response is seen as partly due to uncertainty over client uptake and demand, and also concern over the issues of conflict and different professional ethics.
40. The American Bar Association and the US Securities and Exchange Commission both oppose MDPs (Dixon 2003). However, literature suggests that in practice there are many 'de facto' MDPs with accountancy firms employing many lawyers (the lawyers however do not practise law in its strict sense, rather they provide 'consulting services') or different professional sharing premises and services (Dixon 2003). Some legal firms have formed subsidiaries or affiliates to provide non-legal services for clients. In Washington DC, MDPs are permitted 219 and can be controlled by non lawyers. Lawyers may form partnerships and share fees with non-lawyers but the business must have as its sole purpose the provision of legal services, and non-lawyers must abide by lawyer's rules of professional conduct. The lawyers in the MDP must undertake responsibility for non-lawyers as if they were lawyers (Deards 2001). A model MDP was operating in 2000 (Law Society of Scotland 2000).
41. The ABA formed a Commission on Multi-Disciplinary Practices to examine whether MDPs should be permitted which inclined toward the establishment of MDPs, though with safeguards to preserve the profession's independence. However in 2000 the ABA maintained its opposition to the sharing of fees between lawyers and non lawyers, and the control or ownership of legal practices by non-lawyers (Dixon 2003).
42. The Enron case has strengthened opposition to MDPs in the USA and is seen as illustrating why MDPs are not in the best interest of the client or the public, due to conflicting loyalties within the MDP. The collapse of Enron and other financial scandals re-awakened interest in issues such as the need to protect the public by ensuring the independence of auditors and in the dangers of the multi-disciplinary practice in relation to conflicts of interest and confidentiality. The US Securities and Exchange Commission has been particularly vocal about the dangers of auditors having ties with the provision of consultancy services - including legal services.
43. The Canadian Bar Association has approved establishment of MDPs as being in the public interest - MDPs are already allowed in Upper Canada. Although the CBA Code of Conduct prohibits sharing of fees between lawyers and non-lawyers, and most provinces have adopted this approach, there have been exceptions to the rule. Ontario has allowed MDPs since 1999 provided they are effectively controlled by lawyers; the primary service is legal service, and the firm's professional indemnity insurance policy covers the non lawyers (Deards 2001).
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