GLC to move compromise ABS motion at Law Society AGM

There has been great division within Scotland's legal profession over Alternative Business Structures (ABS). For example, a large majority of solicitors at the most recent SGM voted against the principle of external, capital, ownership of law firms – while there is no denying there remains support for this form of ABS within the legal profession. Accordingly, Govan Law Centre's motion is an attempt to square the circle, heal divisions, and unite Scotland’s legal profession around an effective and reasonable compromise.

A primary policy aim of the Legal Services (Scotland) Bill (‘the Bill’) is to enable greater legal services competition, innovation and growth in Scotland. We all support those principles, notwithstanding the Justice Committee has pointed out that no evidence has been presented to show our current system is deficient.

The strength of the Scottish legal system is that legal services are provided by independent firms of solicitors within a robust and invasive regulatory regime. A system where practitioners are more than sum of their business parts; operating as members of a common profession with an ethical framework instilled as undergraduate, postgraduate, trainee solicitor; enforced through peer pressure and our Law Society. A system where practitioners provide a quasi-public service and owe their first duty to the court.

The proposed motion would safeguard those core values, while facilitating innovation, growth and greater competition. Innovative ABS arrangements and partnerships could be entered into with non-solicitors. However, the motion would help ensure that any ABS remained a Scottish law firm by capping non-solicitor ownership or control at 25%. Clients of such an ABS would continue to enjoy legal professional privilege.

From a regulatory perspective, all of the concerns associated with the ability of corporate external investors and shareholders to own and exercise control, or influence, over an ABS would be resolved by requiring non-solicitors to be natural persons providing services as part of the business: for example, as surveyors, architects, IT experts, estate agents, accountants, or other professionals.

The arguments for, and against, external capital ownership have been well discussed and there is no need to repeat them here. As presently drafted, the Bill would create a liberalised ‘light touch’ regulatory system for Scottish legal services, relying upon a weak risk management system.

This form of ABS was conceived in the era before the UK financial services meltdown. For example, while the UK Parliament was enacting the English Legal Services Act in 2007, the consequences of a liberalised financial services market were only beginning to show, with a run on Northern Rock in September of that same year. It is highly doubtful that the UK Parliament would have embraced the current English form of ABS if they had known what we know now.

Certainly, financial services regulation in the UK has since moved towards an invasive, deep search, system. The economist John Maynard Keynes famously said: ‘When the facts change, I change my mind. What do you do, sir?’ The facts on ABS have changed.

Motion proposed by Mike Dailly, Govan Law Centre and seconded by Lorraine Barrie, Govanhill Law Centre.

"The members of the Law Society of Scotland in general meeting call upon the Scottish Parliament to amend the terms of the Legal Services (Scotland) Bill, presently before parliament, to the effect that at least 75% ownership and control of any entity authorised to carry out work which is reserved to persons qualified to practice as solicitors in terms of the Solicitors (Scotland) Act 1980 should (except in relation to any entity not vested in persons so qualified but which provides legal services as authorised by current law) be vested in solicitors who hold valid practising certificates free of conditions (as construed by reference to section 15(1) of the 1980 Act); and that no more than 25% of said entity should be owned or controlled by natural persons not being solicitors with a valid practising certificate, each of whom provides services which are in support of, incidental to, or complementary to the provision of legal services by the entity".