WORKING GROUP FOR RESEARCH INTO THE LEGAL SERVICES MARKETS IN SCOTLAND
NOTE OF EIGHTH MEETING ON 23 MAY 2005
Present:
Andrew Dickson, Scottish Executive Justice Department, Head of Access to Justice Division
Professor Alan Paterson, Director of the Centre for Professional Legal Studies, University of Strathclyde
Professor Frank Stephen, Professor of Economics, University of Strathclyde
Professor Robert Baldwin, London School of Economics and Political Science
Elaine Samuel, University of Edinburgh, School of Social and Political Studies
Lindsay Montgomery, Chief Executive, Scottish Legal Aid Board
Martyn Evans, Scottish Consumer Council
Sarah O'Neill, Scottish Consumer Council
Alan Williams, Office of Fair Trading
Douglas Mill, Chief Executive, Law Society of Scotland
Michael Clancy, Director, Law Reform, Law Society of Scotland
Roy Martin QC, Dean of the Faculty of Advocates
James Wolffe, Advocate
Dr Anita Morrison, Head of Legal Studies Research Team
Debbie Headrick, Senior Researcher, Legal Studies Research Team
Mike West, Scottish Executive Justice Department, Legal Services Policy Team
Carole Johnston, Scottish Executive Justice Department, Legal Services Policy Team
Apologies
1. Apologies had been received from Michael Walker, Maclay, Murray & Spens; Neil Ross, Grigor & Young, Elgin; and Chloe Clemmons, Citizens Advice Scotland.
Minutes of the Last Meeting
2. The minutes of the last meeting were agreed.
Matters arising
3. It was agreed that these would be covered within the agenda.
Report on Auditor of Court research (paper RWG 2005/8/3)
4. Debbie Headrick updated the Group on the progress of the research since the last meeting. Interviews had been held with an independent auditor, the Scottish Legal Aid Board and a former sheriff clerk. An interview with the Society of Sheriff Court Auditors would take place shortly. A few findings had already emerged, as presented in paper RWG 2005/8/3, which would be incorporated into the final report. Alan Paterson noted that these were preliminary and tentative findings, as they were based on relatively few interviews with auditors. Nonetheless the potential for inconsistent decision making on taxations had already been identified. The researchers had not as yet interviewed any law accountants, who had an important role in this area and Professor Paterson planned to fill this gap by approaching the Society of Law Accountants in Scotland.
5. The research findings would have to be seen in the context of the Scottish Court Service (SCS) consultation exercise. SCS had not yet reached conclusions from their exercise, but the way forward on both the consultation and research exercises would be discussed with SCS and the issues would be put to Scottish Ministers in due course.
6. SLAB asked if the research had looked at how auditors were paid for taxation work. The Group was advised that the researchers had felt that the SCS consultation exercise imposed some constraint on doing extensive work on feeing by auditors for the time being. There was a limited amount of centrally held data on the number of cases referred to auditors and the percentage they applied to the sum taxed. It would be possible to chart the volume of judicial taxations manually in particular areas, such as Edinburgh, but it would be much harder to calculate the level of extra-judicial audits carried out.
Oral report on meeting to discuss feeing arrangements
7. SLAB confirmed that they had met with the Law Society and Faculty of Advocates on 12 May and had agreed that each organisation would look at their respective feeing arrangements. The three bodies would meet in the following week to discuss their first draft and would as soon as possible thereafter provide a paper which could be circulated to the Group and assimilated into the report.
Legal services expenditure in Scotland (paper RWG 2005/8/1)
8. The Executive explained that this paper was based on input provided by economists in the Scottish Executive Enterprise, Transport and Lifelong Learning Department (ETLLD). The paper raised two points of potential interest :
the figures suggested that expenditure on legal services in Scotland was £1,025m in 2003 and that the legal services industry employed 21,510 people that year. The expenditure figure appeared broadly comparable to that provided by the Law Society's own data (£940m in 2004) which suggested the profession was on the cusp of being a billion pound a year industry.
9. Doubts were expressed about the usefulness of the ETLLD figures. The Society said that the basis for the figures quoted in the paper for expenditure on legal services was not in fact in line with their own, which were based on returns provided by solicitors for the purposes of the Master Policy. The figures in the paper did not for instance seem to take account of the economic impact of employed solicitors (27% of solicitors) or the economic contribution of the Faculty.
10. The paper recorded that 21,510 people were employed in the legal services industry which seemed much too low a figure and it was not clear whether the figure related only to those in private practice. The Executive asked if the Faculty and the Society could provide a more accurate analysis. It was made clear that the Group was trying to establish what contribution the legal services industry made to the Scottish economy so that the significance of any changes which might be made in this area could be seen in context.
11. OFT and Professor Frank Stephen suggested that the report should include only figures relating to the total fee generated income of solicitors in private practice and of advocates, and that the basis should be clearly defined, rather than attempting to capture the whole costs of the wider justice system. This approach was agreed; the Law Society had already provided a figure for solicitors (£940m for 2004) and the Faculty undertook to provide an equivalent total figure for advocates' income. The report should also include details of the numbers of solicitors and advocates covered.
Discussion of second draft of final report (paper RWG 2005/8/2)
12. The Executive reminded the Group that the main objective of the research was to provide an evidence base for future policy formulation. Comments received from members of the group since the last meeting had been incorporated in the second draft of the report and the group was thanked for its helpful contributions. It was proposed that the Group should work through each chapter and offer views, giving priority where possible to those chapters which required most further work. General views were invited from the group on the report.
13. Rob Baldwin felt there was a lack of consistency in the format of the chapters and suggested they might follow a standard format covering :
14. Lindsay Montgomery and Frank Stephen were sympathetic to this approach. James Wolffe thought it was important to identify those areas where there was a lack of evidence and agree how to address this. There was general agreement that the report should be as accessible as possible for readers. It was acknowledged that it might be difficult to present conclusions within the chapters in the light of the agreement from the outset that views should be attributed to the members of the Group. Chapter 13 and the Executive Summary were still to be drafted and might be used to draw out the Group's conclusions. Rob Baldwin suggested that to avoid duplication chapter 13 might be dispensed with and conclusions should be provided in the Executive Summary.
Chapter 1: Introduction
15. The Executive explained that this chapter set the scene and explained the purpose of the report. Rob Baldwin suggested that there should be a paragraph to summarise the categories of the legal services market and that it should be made clear that the report did not cover the whole justice system.
16. The Law Society explained that it had not had sufficient time to consider the report because of other commitments and the relatively late circulation of papers. The Executive agreed to accept written comments and asked that these be supplied as soon as possible.
17. Frank Stephen suggested that the chapter should finish with a statement which clarified what the Group was constituted to do and spelt out its overriding objectives to avoid the purpose of the Group's work being misinterpreted by readers. James Wolffe added that there might also be a short description of what the Group had done. The Executive agreed to consider these points and acknowledged that it was essential that readers of the research were clear about what the Group had been set up to achieve.
18. The level of evidence which could be identified varied from chapter to chapter and there was discussion of the extent to which empirical evidence could or should in future be made available in relation to restrictions which appeared to be anti-competitive. The Scottish Consumer Council asked how much weight the report would place on the evidence base and suggested that the report should make clear what was being done in relation to those areas where no evidence existed.
19. The Executive noted that the weight which could be attached to evidence depended on the subject matter being looked at. For instance, it had been possible to identify relevant empirical evidence in relation to entry requirements to the legal profession. In certain other areas the considered views of the relevant stakeholders were the only form of evidence available, though it would be possible for Ministers to assess the strength of competing arguments.
20. The Executive emphasised that the purpose of the Group was not to make policy, but to assess what evidence was available or could readily be made available on the legal services market in Scotland so that this could assist Ministers in policy formulation. The particular need of Scottish Ministers was to satisfy themselves that regulation of the Scottish legal services market was free of anti-competitive restrictions, and that those restrictions which did exist were proportional to the actual need to protect the public interest. The review would provide a basis for an initial response to be made to the agenda set out for member states in the European Commission's report on Competition in Professional Services. It was agreed that policy formulation was for Scottish Ministers: the report should concentrate on setting out relevant evidence and views, and identify areas where evidence was lacking.
21. The Group was reminded that they had already reached agreement in relation to the Society's three year rule (which only permits lawyers to practise as a principal after 3 years experience) which was a restriction which could be justified in the public interest. This was an example of an area where precise evidence was not available, but a rational assessment could be made with some confidence.
22. SLAB suggested that the Group should consider whether its aims, as stated in paragraph 1.17, had been met for each of the issues the Group had considered. The Executive asked that when comments were being prepared by Group members they should consider if the aims set out in paragraph 1.17 had been followed.
Chapter 2 : Setting the Scene
23. The Scottish Consumer Council suggested that the structure of this chapter might be clearer if the sequence was adjusted to start with the regulation of solicitors, advocates, and then move on to external regulators. The Executive agreed to reflect on the most suitable sequence.
24. OFT thought that paragraphs 2.1 and 2.2, which outlined the statutory remit of the Scottish Ministers and Scottish Parliament respectively, were repetitious. The Society suggested that it was important to identify the differing remits of the UK Parliament, Scottish Parliament and Scottish Ministers and that the paragraphs should run in that order. The Executive agreed to adjust these paragraphs.
25. The Scottish Consumer Council asked whether text could be included in this chapter to reflect the dual role which the Law Society and Faculty had in both representing its members and regulating them in the public interest, as this was a key issue for the Council. It raised the question of whether the remit of the group (as stated at paragraph 1.17) had been met in relation to governance. The Executive pointed out that this issue was addressed in the Executive's consultation paper 'Reforming complaints handling, Building consumer confidence' and had not been the subject of much discussion by the Group. SLAB wondered if the Group should have focused on this issue, since governance structures could have an impact on how the legal services market operated. The Council suggested that it should be made clear that the Group had not focused on this in case readers were looking for a conclusion to be reached on the issue by the Group. Members of the Group were invited to submit any thoughts on governance and competition in the legal services market to the Executive in the next two to three weeks. The Executive would then consider a short passage on the issue of governance, taking Clementi's discussion of governance as a starting point.
26. The Law Society questioned where the issue of legal markets should fall in the report. The Society suggested that chapter 12 could shift to become chapter 3. Frank Stephen agreed with this approach and welcomed a more prominent position for chapter 12. The Executive agreed to consider changing the sequence of these chapters.
Chapter 3 : Legal education and legal careers in Scotland
27. The Executive invited the Group's views on whether this chapter might conclude with regard to market entry that no case for intervention had been identified. The Scottish Consumer Council stated that the OFT criteria set out at paragraphs 3.38 and 3.39 might form a more suitable conclusion to the chapter.
28. The Group discussed the case for trainee advocates to be remunerated and the impact of current training arrangements on the supply and cost of legal services. The Dean confirmed that the Faculty discussed this issue from time to time, but did not at present remunerate devils, though some bursaries were available. He observed that university students did not expect to be paid in the course of their studies, but undertook to check if the absence of remuneration for devils was the subject of a rule or simply a matter of practice.
29. SLAB saw the main issue in this chapter as whether the market was getting the right numbers of the right people at the right price, and thought that concerns had been identified about whether existing training arrangements worked well enough. OFT agreed with this view and thought it was unclear whether current arrangements restricted competition or not. OFT saw the main uncertainties as whether the supply of training places for prospective advocates and solicitors was sufficient, and the effect of not paying trainee advocates. Frank Stephen agreed there was a fundamental issue of whether the existing training framework inhibited competition and whether the lack of remuneration for devils affected supply to the market. A gap in the evidence was identified in this respect.
Chapter 4 : Professional rules etc
30. The Group agreed that its aims had been met in relation to sections (a) and (b) of Part A of the chapter and that section (d) on legal professional privilege should remain in this chapter rather than be moved to the rules of court chapter. It was agreed that the words "or for extending its scope" in the second last sentence of paragraph 4.30 were inconsistent with the first sentence and should be deleted.
31. With regard to section (e) on solicitor advocates, the Faculty pointed out that the rules of conduct for solicitor advocates mentioned at paragraph 4.34 appeared to be interpreted differently in practice from the equivalent rules of conduct for advocates mentioned at paragraph 4.35. The Law Society confirmed that its Professional Practice Committee did not construe the Society's rule as preventing a solicitor advocate from combining with senior counsel; in such circumstances the solicitor advocate would not be regarded as having been deprived of the responsibility for the conduct of the case. It was agreed that this paragraph be revised to make clear that the Society's rule had not been tested in practice.
32. Moving to section (a) of Part B dealing with the Faculty's restriction on "mixed doubles", the Group considered whether its research aims had been met by the treatment of this issue. The Faculty confirmed that its views were clearly set out and thought that the different opinions of the Group were identified. It was noted that the subject of "mixed doubles" also came up in chapter 7 in the discussion of partnerships between advocates and legal disciplinary practices and cross referencing was suggested. It was agreed that the views expressed on the restriction on "mixed doubles" should remain in the report.
33. It was agreed that the treatment of the cab rank rule at section (b) was sufficient to meet the aims of the Group as identified at paragraph 1.17.
Chapter 5 : Restrictions on advertising
34. With regard to the market research commissioned by Department of Constitutional Affairs, referred to in the footnote at the end of the chapter, the Executive explained that it had decided not to take up the opportunity to take part because the costs were too high and the questions to be asked were not flexible enough to get a full record of Scottish views. The Executive would commission its own research if this was thought necessary.
35. The Faculty asked the OFT to clarify whether its views as recorded in section (d) meant that the OFT was against any rule which prohibited comparative advertising. The OFT confirmed this to be the case, subject to any need for consumer protection, and agreed to make the text clearer on this point.
36. The Executive asked whether advertising should be flagged as an issue for further research. The Scottish Consumer Council advised that the Law Society of Scotland had published research in 1998 which had looked at how people chose lawyers. A key finding had been that personal recommendation was a strong influence when consumers chose a lawyer.
37. Rob Baldwin noted that paragraphs 5.14-5.15 indicated some difference of views, but it was agreed that the section on advertising by advocates might conclude as at paragraph 5.17.
Chapter 6 : Restriction on direct access to advocates
38. The Faculty noted that to permit advocates to deal with clients directly would require the same degree of regulation as solicitors, which would result in a rise in the cost of the Faculty's professional indemnity insurance and an increase in the cost of advocacy services to the client. The Faculty explained that advocates could not normally sue for their fees and agreed to provide some text on the position.
Chapter 7 : Restrictions on business structures
39. The Society agreed that more text would be appropriate at paragraph 7.24 to expand on its views on restrictions on non-lawyers owning a law firm and on employed solicitors acting for third parties. It was agreed that the final sentence of paragraph 7.28 should be clarified by substituting "The employers" for "They". With regard to the question in paragraph 7.29, Frank Stephen agreed to provide an additional sentence to clarify the position.
40. The implications of non-lawyer owned service providers entering the market was discussed. As such providers would have at stake their reputations and their economic viability, Frank Stephen believed that such considerations could be argued to provide a significant restraint on their behaviour. In this instance different markets could be regulated in other ways. If purchasers were informed about what was an appropriate level of service to expect from a provider, the market would act as a self regulator. The Law Society noted that law firms were also concerned to protect their reputations and thought there were limits to this line of argument.
41. With regard to the reference at paragraph 7.68 to Clementi's conclusion on MDPs, OFT thought that the introduction of MDPs should not be delayed too long. Frank Stephen suggested that care would be needed to take account of the particular position of a small jurisdiction with a widely dispersed population. The viability of professional practice in rural areas might in fact be safeguarded by an MDP which provided a range of professional services. The regulatory requirements of small High Street and large multi-national MDPs would be very different, but both models would provide the opportunity to share costs and risks.
42. The Scottish Consumer Council suggested it was inconsistent that this chapter should mention Clementi's views (on LDPs and MDPs), but other chapters did not and thought that the reader would expect the report to outline Clementi's proposals and explain why they were not given more weight. They accepted that the Group was not set up to look at the Clementi proposals but emphasised that an explanation would provide clarity on this matter. The Executive agreed to consider if Clementi's views needed to be reflected elsewhere in the report or whether the mention in chapter 7 might be specifically justified.
Chapter 8: Rules of Court
43. This was identified as one of the less fully developed chapters, but the new material on feeing arrangements to be provided by the Society, the Faculty and SLAB would make the chapter more substantial. There was still a question of whether some of the issues in this chapter had any real impact on the legal services market. SLAB agreed that this should be given more consideration once the material on fees and the auditor of court was available. OFT confirmed that it would redraft its views on fees to make its position clearer.
Chapter 9 : Legal fees and the taxation of costs
44. OFT questioned whether solicitors' fees needed to feature in both this chapter and the first part of chapter 8. The findings of the research into taxation processes had to be included in this chapter and the Executive agreed to consult with Alan Paterson and Frank Stephen on the economic impact of taxation.
Chapter 10 : Title of Queen's Counsel
45. The Faculty thought that this chapter relied too much on setting out the position in England and Wales, and did not cover Scotland sufficiently: and shared SLAB's doubts in relation to paragraph 10.7 as to whether solicitor advocates were paid less than QCs. There was an issue of how consumers were informed about the different rates of fee that might result from the choice of legal professional. SLAB suggested this should be expanded on, and would be better placed in the chapter on fees. The Scottish Consumer Council wondered if evidence could be sourced on this matter or whether the report should recognise a gap in the evidence and suggest how it might be resolved. The Executive noted that the position on QCs might be clarified once Sir Roy Cameron had completed his observation of the current appointment round.
Chapter 11 : Comparative review of the availability to non-lawyers of rights of audience and rights to conduct litigation
46. The Executive invited the Group to comment on the scope of this chapter and whether it went further than the title suggested, noting that the chapter was more than a comparative review to the extent that it featured interviews with interested parties such as the Chartered Institute of Patent Agents. The Faculty agreed, and suggested that to give balance a paragraph was needed to set out the reasons for restrictions on rights of audience and the need to consider the interests of both clients and the courts. The Faculty offered to provide some relevant text.
47. The Scottish Consumer Council was uncertain about the purpose of this chapter and suggested it might explain why the provisions on extended rights of audience had not been commenced. The Executive noted that part of the purpose of the comparative review had been to give an indication of the case for commencing these provisions.
48. The Executive asked if the CCBE analysis at the end of the chapter was worth including as it related to research carried out in 1998 which was interesting but dated. It was agreed that the table should not be used.
Chapter 12: Characterising the legal services markets in Scotland
49. The Executive agreed to ascertain whether the Society wished to revise the expression of its views on the Clementi proposals in paragraph 12.59.
50. With regard to the need for some written assessment of findings on the level of fee competition to complement the grid, it was unclear if focused conclusions could be reached. It was agreed that the report should include an assessment of the implications of legal aid reform, community legal services and the Public Defence Solicitors' Office. As this chapter set out the findings of the phase 1 interviews conducted on legal markets, such material might be better presented elsewhere.
Chapter 13
51. The Executive agreed to consider if this chapter was required or whether a more focused Executive Summary might suffice. OFT suggested that the report should explain what it would be used for, possibly in a foreword. The Executive explained that it might not be possible to say significantly more than was already stated in the published purpose and aims of the research, namely that it would provide an evidence base for subsequent policy consideration of competition issues in relation to the legal services markets in Scotland.
Any other business
52. The Society raised the issue of how the report should be published and its findings disseminated. As the report covered a series of complex issues, there was a need to consider the best way to promote public understanding and engagement. The Society suggested that the Group should consider at its next meeting the strategy to be adopted in publicising its work : a conference of stakeholders might be one option.
53. The Executive advised that the report would probably be published on the SE website: it would be for Ministers to decide on any wider publication. The Executive doubted whether a conference would be the best approach, given the disparate nature of the views to be summarised in the report.. It was suggested that the current report might not be the best vehicle for public debate. The proposed Executive Summary might provide a more focused basis for this.
54. At the next meeting the Group would look at a further draft of the report which was expected to be a final draft, subject only to minor revision. The Executive asked for comments to be provided as soon as possible to allow time for a revised version to be developed and circulated in advance of the meeting.
SUMMARY OF ACTION POINTS
1. The Group to submit written comments on the report to the Executive as soon as possible, including comments on the extent to which its chapters met the aims set out in paragraph 1.17.
2. The Executive to revise and amend the draft report to take account of the Group's discussions.
3. The Group to let the Executive have its thoughts on governance and competition in the legal services market in the next 2-3 weeks.
4. The Faculty to provide the Executive with a figure for total income of advocates in 2004.
5. The Faculty to check whether the absence of remuneration for devils was the subject of a rule or simply a matter of practice.
6. OFT to clarify text recording its views on comparative advertising and fees (chapters 5 and 8).
7. The Faculty to provide material on whether advocates can sue for their fees (paragraph 42).
8. Frank Stephen to provide a form of words for the final sentence of paragraph 7.29.
9. The Scottish Legal Aid Board, the Law Society of Scotland and the Faculty of Advocates to provide a paper on feeing arrangements (chapter 8).
10. The Executive to consult with Alan Paterson and Frank Stephen on the economic impact of taxation (chapter 9).
11. The Faculty to offer text to set the context for restrictions to rights of audience and set out the interests of both clients and the courts to be considered (chapter 11).
12. The Executive to ask the Society if their description of the Clementi proposals in paragraph 12.59 should be reworded.
Any comments on the note should be sent to:
Carole Johnston
Legal Services Policy Team
Access to Justice Division
The Scottish Executive Justice Department
Second Floor West
St Andrew's House
Regent Road
Edinburgh EH1 3DG