Legal firms should stay within the law

Public trust in legal confidentiality is generally accepted as an essential element in the rule of law. It may be assumed that the same standards are transferred to any new non-lawyer owner by virtue of a 'fitness to own' test. The success or otherwise of that sort of test has been obvious in connection with the recent affairs of a Glasgow football club

Public trust in legal confidentiality is generally accepted as an essential element in the rule of law. It may be assumed that the same standards are transferred to any new non-lawyer owner by virtue of a 'fitness to own' test. The success or otherwise of that sort of test has been obvious in connection with the recent affairs of a Glasgow football club

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Ownership of legal practices by non-legal businesses may not be the best way forward despite financial attractions, says Michael Sheridan

AN EXCITING new business profile has emerged into the legal profession, emanating from Australia, in which the ownership of law firms would no longer be restricted to qualified lawyers, but could be extended to other professional persons, such as accountants and surveyors and even be shared with commercial institutions such as banks and supermarkets.

This would provide law firms with opportunities of offering a wider range of services, securing business from the clients of these joint professional owners and of access to financial services and borrowing from institutional investment part-owners and the facility of providing legal services at locations more convenient to the customers such as supermarkets.

It would also provide any large or medium-sized Scottish firms which happened to be suffering from financial discomfort with an opportunity to secure future borrowing in exchange for part-ownership of their businesses, thus making cash available to pay the capital accounts of retiring or outgoing partners.

However, these changes are not yet in force in Scotland and our Society continues to challenge their wisdom. One of the problems of legal services is costs. The proposed changes will add on the costs of investment owners and their shareholders. For example, in England, where these changes have been implemented, the trucking company, Eddie Stobart Limited, has acquired the business of a team of barristers. No doubt this acquisition was made with the best of commercial and professional intentions, but this is unlikely to have been done for the benefit of the general public but rather to reap the commercial dividend to which the shareholders are entitled. That dividend can only come from the pockets of clients.

These changes may present new means of exploiting business possibilities, but it is difficult to see how the consumer will meet anything other than rising costs.

More important is the issue of professional confidentiality. A solicitor is bound by professional standards, by law and by convention, including European Convention, to treat a client’s information in total confidence. Public trust in legal confidentiality is seen to be an essential element in the rule of law and is required for the effective operation of the legal system.

Once the law firm is owned by non-lawyers, that confidential information is committed to the control of an agent who is not a solicitor and is not bound by those standards. It may be said that the same standards are transferred to the new non-lawyer owner by the virtue of a “fitness to own” test. The value, or rather the futility, of that sort of test was demonstrated in connection with the recent affairs of a Glasgow football club. The public may prefer to entrust its confidences to the ten years of education, training and supervised practice which prepare a solicitor for the ownership a professional practice, rather than to an illusory fitness-to-own test.

More important still is the question of professional independence. If a solicitor’s practice is owned substantially by a bank or is part of a joint enterprise with firms of accountants or surveyors then how can that solicitor possibly advise independently on financial matters, asset valuation or property valuation? Despite the best of intentions, that solicitor will always be seen to be spoken for by his business partners in these issues.

It is frequently the case that a solicitor’s client requires access to independent financial advice, property appraisal or to an independent opinion as to the value of company shares or other financial assets.

With these changes all these services will become available at a one-stop shop. But, if the solicitor is a business partner of the professional expert who provides these services, then can he offer any truly independent advice as to the value of those services?

A similar deregulation of the financial services industry not so long ago made huge fortunes for some of its first generation but, within a few years, there was not a single Scottish bank left standing, despite a centuries-old proud tradition. This is not prophecy but hindsight. Already, since the passing of the legislation, a significant number of large and middle-sized Scottish law firms have been subsumed into English ownership and at least some others have shut up shop.

Perhaps the best way forward for the profession and for the public which it serves would be for the traditional distinction between Scots and English law to be maintained and for proper primacy to be given in Scotland to the long-standing and essential values of independence, confidentiality and financial prudence, before short-term business advantage and for these regulations to be quietly binned, as has happened in the past when legislation has enacted principles which, when examined in the cold light of day, just do not stand up.
• Michael Sheridan is secretary of the Scottish Law Agents Society www.slas.co.uk

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