Report on ABS benefits says England and Wales experience “inconclusive”

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28 September 2015


Canada: reservations expressed to one state Law Society

Canada: reservations expressed to one state Law Society

A report on alternative business structures (ABS) has issued a cautious verdict on majority non-lawyer ownership, judging the model to be as yet unproven, based on the experience so far in England and Wales and Australia.

Based on its work to date, the Law Society of Upper Canada’s professional regulation committee working group on ABSs in Ontario said it did “not propose to further examine any majority or controlling [non-lawyer] ownership models for traditional law firms”.

But it said it would consider majority ownership of legal services entities by organisations such as “charities, not-for-profits, and trade unions” in the context of access to justice-focused ABSs.

While on a number of occasions the report acknowledged the potential of ABSs in areas such as innovation and access to justice through more efficient, lower-cost working practices in traditional law firms, the group repeatedly returned to reservations over, for instance, the cost of regulation and the perceived risk of “profit over professionalism”.

A year earlier, the group produced four potential ABS models for discussion: Legal services-only entities with either up to 49% non-lawyer ownership, or unlimited non-lawyer ownership; and legal and non-legal services entities with either minority or unlimited non-lawyer ownership.

Having discounted the need for further examination of majority non-lawyer ownership models, it pledged to explore further the advantages of minority non-lawyer ownership ABSs, which is what is to be allowed in Scotland.

It noted that since Ontario already permits multi-disciplinary partnerships (MDPs), there could be scope to expand on the MDP model. By “combining it with greater access to capital, the Law Society could facilitate innovation, the development of more comprehensive and client tailored services, and new means of addressing access to justice”, it said.

But returning to its reservations, the group added: “However, any… effort to unlock gains from enhanced multi-disciplinary structures must also consider the attendant risks, which primarily relate to avoiding conflicts of interest, protecting confidentiality and privilege, and protecting the independence of the legal service provider.”

The group evaluated ABSs against seven criteria: access to justice; responsiveness to the public; professionalism; protection of solicitor-client privilege, promotion of innovation; orderly transition [from the status quo]; and efficient and proportionate regulation.

On access to justice, it said: “The experiences in Australia and in England and Wales demonstrate that, while there have been ABSs which facilitate certain forms of access to justice, generally, non-lawyer ownership of law firms in those jurisdictions does not appear to have caused transformative change to facilitate access to justice…

“The regulatory changes required to permit and the consequences of permitting non-lawyer ownership, or effective control, for any and all legal practices do not appear to be justified at least from the perspective of the potential access to justice benefits.”

The group was no more impressed with the evidence for ABSs delivering innovation: “While there are some more significant innovators, it is notable that most ABSs in Australia and in England and Wales are existing practices that have taken on limited non-lawyer ownership in order to innovate in ways that may be described as evolutionary rather than revolutionary…

“Although ABSs appear to be innovating more than their non-ABS counterparts, the [group] is of the view that it is too early to determine whether the levels of innovation taking place in England and Wales support a shift to majority or controlling [non-lawyer] ownership of traditional law firms in Ontario.”

On the impact of external ownership on the professionalism of lawyers, the jury was still out. “[We consider] that the better course is to wait for further experience to develop in other jurisdictions before attempting to reach conclusions as to the effect of public ownership and consolidation on professionalism.”

It believed that the potential for conflicts of interest are more prevalent in some areas of law than others, and this raised regulatory questions. “For example, casualty insurers in England have invested in personal injury law firms which could compromise the general approach taken in the representation of injured persons.”

Where the group showed greater enthusiasm for ABSs was in what it saw as their potential to assist non-profit organisations. It highlighted the two law firms owned by the Salvation Army in Australia, whose fees were used to support its charitable humanitarian law practice, Salvos Legal Humanitarian.

Confusingly, it linked this development with the “legal franchise” model represented in England and Wales by the QualitySolicitors network. The two models are “innovations through ABSs… aimed at providing affordable, accessible legal services”, it said.

On the question of “proportionate regulation”, the group was “concerned that a shift to generally permitting [non-lawyer] majority ownership or control likely creates disproportionate regulatory complexity and risk when weighed against the likely benefits as currently observed through the ABS experiences in Australia and England and Wales to date”.

It concluded: “While the working group does not rule out the potential of majority [non-lawyer] ownership or control of traditional law firms at some later date, it does not intend to address this more fundamental structural shift at this time. Rather, the [group] considers that waiting for further evidence from other jurisdictions to develop is the better approach.”

In August 2014, a report by the Canadian Bar Association strongly backed the introduction of ABSs in Canada.

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