WORKING GROUP FOR RESEARCH INTO THE LEGAL SERVICES
MARKETS IN SCOTLAND
NOTE OF SEVENTH MEETING ON 4 APRIL 2005
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Present:
Valerie Macniven, Scottish Executive Justice Department,
Head of Civil and International Group
Professor Alan Paterson, Director of the Centre for
Professional Legal Studies, University of Strathclyde
Professor Frank Stephen, Professor of Economics,
University of Strathclyde
Martyn Evans, Scottish Consumer Council
Sarah O'Neill, Scottish Consumer Council
Alan Williams, Office of Fair Trading
Chloe Clemmons, Citizens Advice Scotland
Douglas Mill, Chief Executive, Law Society of
Scotland
Michael Clancy, Director, Law Reform, Law Society of
Scotland
Neil Ross, Grigor & Young, Elgin
Michael Walker, Maclay, Murray & Spens
Roy Martin QC, Dean of the Faculty of Advocates
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 Lindsay Montgomery,
Scottish Legal Aid Board, Andrew Dickson, Scottish
Executive, James Wolffe, Advocate, Elaine Samuel,
University of Edinburgh, School of Social and Political
Studies, and Professor Rob Baldwin, London School of
Economics and Political Science. Valerie Macniven explained
that she was chairing the meeting in Andrew Dickson's
absence on leave.
Minutes of the Last Meeting
2. The minutes of the last meeting had already been
agreed in correspondence.
Matters Arising
3. The Faculty confirmed that it had provided Professor
Stephen with the information he had requested on advocates
overheads and the functions of Faculty Services
Limited.
Auditor of Court: Oral Report
4. Professor Paterson outlined progress to date on the
research. Although a small number of Sheriff Court auditors
had now been interviewed, the majority of auditors had
declined to take part, the recent consultation by the
Scottish Courts Service (SCS) being a key factor in the low
participation rate. The Auditor of the Court of Session had
been interviewed, along with 4 Sheriffs Principal, the
Scottish Legal Aid Board (SLAB), SCS, and the Law Society
of Scotland. A law accountant had still to be identified
for interview, and practitioners were to be interviewed as
part of the research into advocacy services. The Society
expressed disappointment at the low response rate from
auditors, but it was difficult to press hard for
cooperation in the light of the recent SCS consultation
exercise. Progress had been made on establishing the role
and duties of the Auditor of Court. Evidence was emerging
of a potential for a lack of consistency in outcomes and of
the possible absence of mechanisms to ensure consistency
but it would be important to study the guidance available
to auditors before reaching any conclusions. There were
still some practitioners to interview and the Legal Studies
Research Team would write up the findings for the next
meeting. [The Society of Sheriff Court Auditors have since
agreed to be interviewed].
RWG 2005/7/1 Legal Disciplinary Practice (LDP)
5. In introducing his paper Professor Stephen noted
that
- The norm which the paper assumed was that of a
split legal profession. The paper did not address the
implications of merging the two branches of the
profession in Scotland or explore the fact that the
great majority of other jurisdictions had a unified
legal profession.
- he did not accept arguments that the absence of
apparent demand for LDPs meant that change should not
be considered. It was unrealistic to take the concept
of market failure as a starting point and to assume
that the market could not benefit from a structure that
was currently prohibited.
6. Professor Stephen explained that as LDPs were new
there was little empirical evidence available for
evaluation. Risk spreading was not a significant issue for
LDPs, as the paper explained. The crucial issue was whether
there were economies of scope to be gained from combining
the litigation role of the solicitor with the advocacy role
of the advocate within the one organisation. There was
limited research on the detailed workings of LDPs.
Economies of scope might be more obvious when the
litigation and advocacy services were provided by the same
individual eg a solicitor advocate (which did not
necessarily require an LDP structure), but not so obvious
if the two types of service were provided by different
individuals in the LDP. He concluded that arguments for
economies of scope were not as strong as they were often
made out to be; the question was what the costs and
benefits were of providing services in the same
organisation.
7. The paper suggested that another way to examine LDPs
was as a form of vertical integration between the
litigation stage and the advocacy stage in the resolution
of a dispute. The motive for vertical integration could be
a desire to reduce transaction costs, or less probably a
desire to exercise a monopoly power which might arise if an
LDP was able to foreclose a particular market to its
rivals. It was conceivable that foreclosure might occur if
LDPs were to involve senior counsel. The issues were
whether the risk was sufficiently great to raise concerns
that LDPs would foreclose the market for advocacy for some;
and whether LDPs would destroy specialisation. Professor
Stephen doubted whether large numbers of LDPs would emerge
if restrictions were relaxed; and wondered whether the
risks were so great as to justify preventing opportunities
for development of this business structure.
8. The literature on 'corporate architecture' argued
that partnerships were the most efficient organisational
form for professional services because of the asymmetry of
information between clients and professionals and the
absence of the need for the financing of large amounts of
physical capital. This differed from the view of LDPs taken
by the Clementi report. The absence of empirical work made
it difficult to draw conclusions. If LDPs were allowed,
Professor Stephen suspected few would emerge or be
successful.
9. Professor Stephen thought that the discussion in Sir
David Clementi's report which linked external ownership and
LDPs had the effect of confusing the regulatory issues.
What was proposed was the regulation of the business unit
or LDP, not the individual members, but given that LDPs
were likely to be created in relation to particular
sub-markets what would be involved in practice would be the
regulation of sub-markets. In conclusion he asked why
opportunities to develop LDPs should be denied to those who
believed there were advantages to be gained, particularly
in the light of a lack of concrete evidence.
10. The Society noted that it was not aware of any
demand from its membership for LDPs in Scotland, but agreed
that lack of demand was not a reason in itself to prohibit
LDPs. The Society also agreed that the introduction of LDPs
was unlikely to have a huge impact on the market, but had
substantial concerns in relation to non-lawyer ownership of
LDPs.
11. OFT agreed that the key question was whether a
prohibition on LDPs could be justified, given that the
market place was dynamic and thrived on innovation and new
ideas. OFT thought that a prohibition was unnecessary
unless there were clear public interest dangers which could
only be resolved by banning the particular business
structure. The market should otherwise be left to decide
what was most appropriate. While there should be no
obligation to enter into a new business structure, OFT
recognised the need to allow choice.
12. The Faculty noted that the paper was written from an
economic perspective and did not take account of possible
considerations relating to the interests of justice and
possible conflicts of interest. The key issues from the
Faculty's perspective were :
- the formation of LDPs with senior
counsel as members could have the effect of foreclosing
a market and the potential to create conflicts of
interest; and
- the issue of how LDPs should be
regulated and by whom would have to be resolved; would
advocates practising individually who joined an LDP
become subject to regulation by the Law Society of
Scotland for example ?
13. The Executive asked whether more work was planned on
the paper or whether work could start on integrating the
analysis into the Group's final report. Professor Stephen
confirmed that further work was not possible in the absence
of empirical evidence. He emphasised that the key question
was whether the availability of certain advocacy services
was so concentrated that the introduction of LDPs including
experienced practitioners would foreclose the market.
Insufficient information was available however to allow
existing degrees of specialisation in the advocacy market
to be assessed. OFT observed that where there were limited
numbers of practitioners in certain areas of law, this
could be classified as a merger with a concentrated market,
but alternative methods to rectify the situation existed in
the former of merger controls. Such situations would be
dealt with on a case by case basis.
14. The Scottish Consumer Council (SCC) suggested that a
more detailed examination of the ownership issue was needed
to ensure standards were upheld, as this was a key public
concern. It was not clear how the LDP would be regulated as
a business without the individuals working in the LDP also
being regulated as individual practitioners. The Society
agreed that the issue of ownership was crucial. If economic
analysis suggested that LDPs should be permitted, the
Society saw the regulatory overlay as the key issue to be
resolved, and noted that the issue required more
consideration, possibly in a forum other than the research
working group. The Executive agreed that the issue of
ownership and regulation needed more reflection.
First draft of the final report
15. The Group discussed the first draft of the final
report and agreed that general discussion at the meeting
should be augmented by detailed written comments. The
Executive noted that the first draft of the report
contained no new material for the Group, with the exception
of parts of Chapters 1 and 3. The main change was that the
lengthy paper on professional rules had been split between
6 chapters. There was a significant amount of new material
still to be added, including the analysis contained in
Professor Stephen's paper on LDPs, a section on feeing
arrangements, and the Auditor of Court research. The final
chapter had still to be written. In line with the
Executive's publication policy, recent papers would not
appear on the Executive website as they would be
incorporated directly into the final report. References in
the first draft to 'majority views' would be replaced with
views attributed to representative bodies.
16. The SCC thought that the report should explain why
it did not include any analysis of complaints handling
arrangements and that these were the subject of a separate
consultation exercise. The Executive agreed the report
should make the position clear. The SCC also noted that the
report analysed professional rules at some length, but did
not contain any assessment of whether existing regulatory
structures were appropriate or of the respective merits of
self regulation, co-regulation or independent regulation.
The issue of current structures was reflected in Chapter 2,
but in descriptive rather than analytical terms.
17. Professor Stephen took a different view to SCC and
thought that the Group had looked at how legal markets
functioned, and whether existing rules interfered with the
operation of the market in a way that was contrary to
public interest. The Society agreed with Professor Stephen
that a review of models of regulatory framework would go
beyond the Group's remit, which was to look at the extent
to which current rules interfered with the operation of the
market for legal services. SCC clarified that it did not
intend that the Group's remit be extended, but wanted it
made clear to readers of the report that the issue of the
regulatory and representative functions of the legal
profession were being addressed.
18. The Executive noted the SCC concerns and thought
there might be a case for a second phase of the Group's
work, which looked specifically at Clementi and regulation,
but there were other ways too in which that agenda could be
taken forward. The response to the imminent public
consultation on complaints handling arrangements would also
have some relevance to that agenda.
19. The Faculty questioned whether the Group's role was
to make recommendations in the final report, as in its view
that was outwith the original remit, and the specific
purposes and aims. The Faculty believed that the remit
required the Group to set out current rules and debate
advantages and disadvantages, but not to give a majority
view on these rules. The Executive noted this point, and
referred back to their preliminary comments in introducing
the paper : references to majority views would be taken out
and views would be attributed to members. The Executive saw
the report as an evidence base for future policy
formulation.
20. The Faculty welcomed this approach, and preferred
views to be made attributable to members of the group. SCC
felt the conclusions at the end of each chapter helped
provide a summary of the issues and welcomed reporting of
their views. Professor Stephen was uncomfortable with the
use of the word 'conclusions', and suggested replacing it
with 'summaries' of each member group's arguments or views
on the different issues covered.
21. The Executive expressed concern at the possibility
of giving undue emphasis to opinion, as the report was
intended to be a research based piece of work looking for
evidence. They agreed that members should be given the
opportunity to have their views recorded however. If
conclusions were to be taken out, SCC confirmed that they
would want to put in their views on all issues, but noted
that the remit included an express commitment to evaluate
whether restrictions were proportionate to their purpose.
SCC thought that each individual member should be able to
make an evaluation, and have that evaluation reported as in
their view the Group's role was not simply to identify
empirical evidence. The Executive thought that some topics
lent themselves to evaluative conclusions, while others did
not.
22. The Faculty emphasised its concern that the final
report should adhere to the Group's remit, and that if the
report was to include recommendations, those
recommendations should reflect consideration of where the
interests of justice lay in any situation. OFT thought it
would be important to ascertain whether all members of the
Group wished to express their views in the report.
23. Dr Morrison explained the Group's remit had set out
expressly that the purpose of the research was to provide
an evidence base for future policy consideration of
competition issues. This should involve drawing conclusions
from the evidence available at this stage. The Executive
undertook to take away and consider the views of the Group
on this issue.
24. The Executive noted that the report still required a
lot of thought and detailed input and had circulated paper
RWG/7/3 to identify matters on which written comments from
the Group would be very useful. The following were
highlighted :
- pages 24 and 32: comments for Dr
Morrison were indicated.
- page 34: brief written comments
were invited.
- page 36: The discussion on
recommendations/conclusions in the report. The
Executive would reflect on the approach.
- page 38 Legal Professional
Privilege. The Society commented that this would need
more reflection as a result of the 3 Rivers case.
- page 44 As above The group would
need to reflect on mixed doubles.
- page 61. The Group were asked to
comment on whether a separate chapter was needed on
MDPs.
25. The Executive noted that the issue of the title of
QC needed to be flagged for further action in Chapter 10.
OFT suggested that Chapter 11 was one of the areas where a
consensus on the need for commencement had been reached by
the Group. The Faculty pointed out that it held no
particular views on the issue which had not been considered
in any depth by the Faculty. The Executive confirmed that
the decision would be for Ministers and that further
interviews had been carried out which would be reflected in
the next draft.
27. The Group were invited to send the Executive written
comments on the points set out in paper RWG 2005/7/3 by 18
April. Mrs Macniven then asked the Group to consider next
steps, in particular (i) completion of the current piece of
work, and (ii) whether the Group should reconvene at a
later stage to think about a further phase of work on wider
issues to be considered, such as Clementi proposals. The
Society commented that they shared the SCC view that more
work was required in future, but agreed that the current
phase should be drawn to a conclusion soon, particularly in
the light of media and public interest in the outcome.
28. SCC asked the Group to consider the best process for
taking forward work, and asked whether there was to be
consensus building on common areas to explore. SCC wondered
whether the Working Group was necessarily the best way to
explore the larger issues in Phase 2: the Group needed to
be clear what work still required to be done, and how this
should be carried out. The Executive agreed that there was
a need for the Group to debate how future work should be
carried out. The aim was to present the report to Ministers
at the end of June. The Executive suggested that the next
meeting of 23 May should be extended to 3 hours to allow
for a fuller discussion of the report. SCC asked whether it
was in fact possible for that meeting to be the last, as
any comments raised would need to be considered by the
Group. Dr Morrison also confirmed that the research into
Auditors of Court should be completed, but indicated that
although the research on advocacy services was underway, it
was unlikely to be completed in time for 23 May. The paper
on feeing arrangements would also have to be incorporated.
The Society expressed doubt that the Group would be able to
sign off the report at the next meeting.
29. It was
agreed that another meeting should be
scheduled in case further issues were raised. The Executive
undertook to arrange a meeting in mid to late June.
Scottish Executive Justice Department
April 2005
SUMMARY OF ACTION POINTS
Oral report on Auditor of Court Research
1. Legal Studies Research Team to write up findings on
the Auditor of Court research for the next meeting.
RWG 2005/7/1 Legal Disciplinary Practice
2. The Executive to integrate paper RWG 2005/7/1 into
the final report.
3. The Executive to consider the best forum for future
discussion of the issue of ownership and regulation of
LDPs.
Discussion of first draft of final report
4. The Group to provide comments on the first draft of
the final report and on those points raised in paper RWG
2005/7/3 by 18 April.
5. The Executive to remove references to majority views
and attribute comments wherever possible to members of the
Group.
6. The Executive to amend the draft report to make clear
that the issue of complaints handling was being addressed
in its forthcoming consultation paper.
7. The Executive to indicate in the report that the
title of QC was an area for further action in Chapter
10.
8. The Group to consider whether to reconvene at a later
stage to think about a further phase of work on wider
issues to be considered, such as Clementi proposals.
Any other business
9. The Executive to arrange a meeting for the Group in
June.
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