The next item of business is a debate on motion S3M-6168, in the name of Fergus Ewing on the Legal Services (Scotland) Bill.
15:13
I am delighted to open the debate on the general principles of the Legal Services (Scotland) Bill.
At the heart of the bill is the removal of current restrictions on how solicitors can organise their businesses. The bill will allow solicitors to form partnerships with non-solicitors, to create businesses that offer a range of legal and non-legal services and to seek investment from outside the profession. The bill will also introduce a robust regulatory regime to govern those new entities. However, the bill is enabling rather than prescriptive, so traditional business models will remain an option. No solicitor’s practice in Scotland will be forced to choose an alternative business structure.
Let me spell out some of the opportunities that the bill will create. First, it will open up opportunities for the larger legal firms, which is excellent news. We are all for that. The reality is that the partnership model restricts such firms’ options to grow and compete in the international business market. The multidisciplinary practice is an attractive model for firms that wish to bring a range of services under one umbrella. I believe that the bill will encourage firms to remain Scottish rather than choose to be regulated in England.
The provisions will also allow such firms to bring their office managers, accountants and paralegals into the partnership. They will have the opportunity to seek to join other professionals so that they might continue to be viable in challenging economic conditions.
In December, the Law Society of Scotland, through its estimable president, Ian Smart, gave the committee an excellent example of the opportunities that the bill might provide. He said that a business could offer
“a land acquisition service that scouted out land for clients. The business would have a land agent, a surveyor and a solicitor to deliver a seamless service that involved identifying and valuing the ground, negotiating the price and acquiring the ground. That would all be done by one partnership of different professionals.”—[Official Report, Justice Committee, 15 December 2009; c 2479.]
Contrary to what some people have claimed, the bill offers possibilities to smaller and medium-sized solicitor firms to bring others into the partnership and to join with others so that they might continue to be viable and competitive in challenging economic conditions. The bill has been supported by business experts and the Scottish law forum, which explicitly endorsed the ABS model as being good for business. I have given just a few examples—members will no doubt come up with their own.
The bill will create an environment in which we will see economic growth, opportunities, more jobs being created, more business being done in Scotland, more business being done by legal firms in Scotland, and more business being done by Scottish legal firms furth of Scotland. It will be a particular benefit in years to come—it will certainly be a huge benefit in the medium to long term—to young Scots and young lawyers, as more work will be created, there will be more business for them to do and there will, therefore, be more opportunities for jobs. I hope that everyone will join me in endorsing the view that the bill is an outstanding opportunity for people in the legal profession in Scotland to avail themselves of new business frameworks that will permit them to grow their businesses and create jobs and opportunities for fellow Scots.
The minister will agree that a significant part of the legal profession, particularly smaller firms, do not exactly share his enthusiasm for the bill. What assurance can he give them that the bill will not damage their particular interests and the future of traditional legal firms in Scotland?
I will address that matter specifically later. I will say now simply that the experience abroad in another jurisdiction—although that jurisdiction is not identical to ours—is extremely encouraging. Similar frameworks were created in Australia 10 years ago, and there were predictions of doom at that time. In particular, there were predictions that small businesses would go to the wall. We have received authoritative statements and evidence from Australia—albeit that the evidence is not a thorough analysis of exactly what is happening there right now—that nothing could be further from the truth. Experience there has shown that small firms have benefited from the opportunities that were created 10 years ago. The doomsayers have been proved wrong. I will address that matter further later on.
The bill will not set up a super-regulator quango in Scotland that is equivalent to the Legal Services Board in England and Wales. By not doing so, we will save tens of millions of pounds. Despite understandable fears about the proposals, I have no doubt that they will result in necessary change that will benefit the legal profession, the consumer and the wider Scottish economy.
I welcome the Justice Committee’s comments in its stage 1 report and its support for the general principles of the bill. The committee suggested that a number of points be considered further. I accept the vast majority of those points, and in my formal response to the report, I set out our plans to address them.
I am pleased that there has been much debate about the proposals in the legal profession in recent months. However, many of the arguments that have been put forward by those who oppose the bill have been misinformed, exaggerated or downright misleading. Many opponents of the bill whom I have met and with whom useful discussions have taken place have raised legitimate and reasonable concerns, but the rather lurid accusations that have been made by a few people risk turning a constructive discussion about the future of the legal profession in Scotland into an unedifying stramash. I would like to take a few minutes to refute some of the more outlandish claims that have been made about the bill.
First, the bill will not destroy the independence of the legal profession in Scotland, nor will it endanger Scots law. All of us, regardless of party, support a strong and independent Scottish legal profession. That is set out in the regulatory objectives in section 1 of the bill, to which the Scottish ministers are bound.
Secondly, the bill will not give the Scottish Government control of the Law Society of Scotland—we have quite enough to do. Provisions to give the Scottish ministers powers in relation to lay members of the council of the Law Society were always seen as a last resort. They would never have allowed the Scottish Government to control who was a member of the council. However, after further discussions with the Law Society, I have decided to lodge an amendment to delete those regulation-making powers at stage 2 because they are not necessary, given the assurances that we have received from the Law Society.
Thirdly, the bill will not allow criminals to take over law firms. The fit-to-own tests in the bill are robust. Regulators will have wide powers to reject people whose “probity and character” suggest that they are unfit to own a firm that provides legal services. The relevant provision takes account of the “associations” of applicants. The bill proposes an extremely strong system of safeguards, and we are not aware of any comparable legislation in this country that offers more protection. Furthermore, we are, following constructive suggestions from the Justice Committee, preparing additional sanctions that can be used to disqualify individual investors from the new licensed providers.
Other suggestions that have been made by people who are in possession of overdeveloped powers of imagination are that the bill will give the Scottish Government control over the legal profession, that the recent referendum on ABS was rigged by the Law Society and that drug barons will be able to use licensed providers to launder money. I could go on. Although I appreciate the depth of feeling that debate on the bill has provoked, those suggestions have been unhelpful.
The profession has now voted in favour of ABS twice, albeit by a narrow margin in its referendum involving the whole of the solicitors branch of the profession in April, and has voted against it once. Although I am sure that it will continue to discuss the issue—we remain open to discussing any concerns—I think that we must also move forward.
The bill was designed primarily to open up the legal services market in Scotland. It certainly presents significant opportunities for the legal profession, but we should not overlook the benefits to the consumer and, indeed, to the wider economy. Consumer groups have come under criticism for being unable to give definitive proof that ABSs will provide consumer benefits, but that is understandably hard to do, given that the entities in question do not yet exist and that experience in other jurisdictions is relatively limited.
The minister is discussing the benefits of the bill. Earlier, he said that the bill would result in
“tens of millions of pounds”
being saved. How does he feel about the Institute of Chartered Accountants of Scotland’s view that the bill’s provisions will be costly to introduce and operate? Does he feel that the financial memorandum is fit for purpose, when it suggests that the proposed regulatory changes will cost less than £100,000 to implement?
My reference to saving tens of millions of pounds is based on the fact that the cost of the Legal Services Board is, as I understand it, circa £4 million to £5 million per annum. In Scotland, we would not have required a quango of that size, so that level of cost would probably not have been incurred. However, even if the cost had been only half that—a couple of million pounds a year—running such a quango would have cost tens of millions of pounds over the years.
I am extremely proud of the fact that my officials have developed a proposal that will cost the taxpayer a tiny fraction of that. In fact, I am absolutely delighted to introduce a proposal that will provide a uniquely Scottish solution by applying to a problem our traditional assets of thrift and common sense, so that instead of setting up a new quango that is not required, we are simply setting up a robust regulatory regime, the cost of which we have estimated, as Mr Kelly said, to be less than £100,000. I know that that figure has been criticised, but neither ICAS nor the Law Society has offered an alternative figure. Until we know how many regulators there will be, it is simply not possible to state with any certainty what the cost will be, although I am delighted that a significantly more economical solution is to be provided in Scotland than has been provided south of the border, where a different route has been chosen.
Consumer groups can speak from years of experience of monitoring the introduction of more competition into restricted markets. Increased competition generally results in increased choice, lower costs and the development of more consumer-focused business models. Austin Lafferty, my former colleague at the University of Glasgow, recently opined that he does not think that solicitors who are doing a good job have anything to fear and that if they are doing a good job, they can stand up to any competition. He said that if they are providing a quality service, their clients will come back to them, they will trust them and they will continue to give them their business. There is no reason to doubt that there will be significant benefits for the consumer, which is also a good thing.
As Labour members will no doubt be aware, Bridget Prentice repeatedly stressed the consumer benefits that were driving the Legal Services Bill during its passage through Westminster. She said:
“Consumers today want their legal services delivered the same way other services are: they want a high quality, cheaper and more personalised service to suit their individual needs and one that is easy to access”.
In addition, Lord Neuberger, the Master of the Rolls in England and Wales, predicted just this month that increased competition as a result of the Legal Services Act 2007 would lower the costs of litigation and lead to the development of new business models. I understand the fears about such increased competition, particularly in the current economic climate, but I have confidence in the ability of Scottish firms to innovate and to thrive under the opportunities that will be provided through the bill.
We must not overlook the dangers to the Scottish economy of not passing the bill. The four largest law firms have already threatened to move to London if the bill fails to take advantage of the opportunities that are offered by the Legal Services Act 2007. We cannot afford to lose firms to England. The long-term sustainability of the Scottish legal profession will be threatened if Scottish firms are not able to operate on a level playing field. The biggest danger to the profession and to Scots law is in doing nothing.
Of course, the bill does not only make provision for alternative business structures: it also includes statutory codification of the framework for regulation of the Faculty of Advocates, provisions to allow non-lawyers to apply for confirmation rights, and provisions that will enable the Scottish Legal Aid Board to monitor the accessibility of legal services, which last point will further strengthen access to justice. We have already substantially increased the fee rates that are payable to solicitors for civil legal aid as well as making it available to potentially one million more Scots. Furthermore, at stage 2, we intend to lodge an amendment to allow citizens advice bureaux to employ solicitors.
Perhaps the minister could draw his remarks to a close. You will get another shot at the end.
I just have two paragraphs to go, Presiding Officer.
We also plan to lodge other amendments, including provisions relating to McKenzie friends and regulation of non-solicitor will writers. I have been encouraged by good cross-party support on those and on all issues in the bill, which I appreciate and welcome, and which I am sure will continue today.
In conclusion, we need to ensure that the Scottish legal profession remains competitive, and that it is free to develop innovative and flexible new business models that are to the benefit of consumers, the profession and the nation.
I move,
That the Parliament agrees to the general principles of the Legal Services (Scotland) Bill.
15:29
I am pleased to present the Justice Committee’s stage 1 report on the bill. At the start, the committee took the view that this would be a relatively non-controversial matter and that the concerns of witnesses could be dealt with in relatively short order. I regret that that has proved not to be the case. Perhaps for the first time in my political career, I have been proved wrong.
The bill has, as its genesis, a European Commission review of competition and liberal law self-regulation systems, dating from 2003. Another driver for change was the UK’s response to a 2001 report by the Office of Fair Trading, which challenged the restrictions on competition in certain professions, including the legal profession.
Following an initial review and consultation by the Department for Constitutional Affairs, Sir David Clementi was appointed to conduct an independent review of the regulation framework in England and Wales. On the basis of Sir David’s report, the UK Government brought forward the Clementi proposals in a bill that became the Legal Services Act 2007. It is anticipated that alternative business structures will be commenced in England and Wales sometime in mid 2011.
In Scotland, the previous Executive established a working group to examine the legal services market. It reported in May 2006. Shortly before the previous Scottish Parliament elections, Which? submitted to the Office of Fair Trading a supercomplaint under section 11 of the Enterprise Act 2002, stating that the consumer interest was being harmed by, among other things, restrictions on solicitors and advocates providing services jointly, and restrictions on third-party entrants to the legal services market. In response to the complaint, the OFT said that it was supportive of greater liberalisation of the market and it called on the Scottish Government and the Scottish legal profession to take matters forward and to consider how best the restrictions might be limited. After what might be described in another place as sundry procedure, and following consultation involving both the Government and the Law Society of Scotland, the Government introduced the bill, which came before the Justice Committee for stage 1 consideration.
What had been thought to be a relatively non-controversial measure turned out to provoke a great degree of discussion both within and outside Parliament. The committee considered it to be essential that those whose views were not supportive of the bill should have the opportunity to give evidence.
The committee considered the bill over nine meetings and received more than 40 pieces of written evidence. The oral evidence sessions involved the OFT, Which?, the Faculty of Advocates, the Law Society, the Scottish Law Agents Society, the Scottish Legal Action Group, the WS Society, the Scottish Legal Aid Board, solicitor advocates, Professor Alan Paterson, Consumer Focus Scotland, the trade union Unite and the solicitor Gilbert Anderson. The committee also heard from Fergus Ewing, the Minister for Community Safety.
I record the committee’s appreciation of all those who provided written and oral evidence, all of which was carefully considered. I also thank the committee clerking team—in particular Anne Peat—and my colleagues on the committee, whose dedication and professionalism is well known in this Parliament.
I think that it is fair to say that, if we had been left to our own devices, the matter would not have been a legislative priority. However, we were mindful of the UK position, so we accepted that a failure to legislate could prejudice an important sector of the Scottish legal profession.
It is important to accept, and the committee report recognises, that the bill is permissive legislation and that the vast majority of Scottish law firms will not seek to use it. The committee also recognises that the principal beneficiaries will be commercial lawyers at the upper end of the scale and that, although it is important that they be given appropriate opportunities, we require to ensure the protection of the core values of the legal profession in order to protect the interests of both justice and consumers. In that respect, the committee identified a number of issues that the Government should address at stage 2. In particular, the committee was concerned about the regulatory objectives in part 1, so we invited the Government to confirm that its intention is for the regulatory provisions to apply to delivery of all services. The Government responded positively—Mr Ewing has underlined that today.
The committee was also concerned about the prospect of bodies external to Scotland becoming approved regulators, so I am delighted to note that the Government has given assurances in that respect. The committee also reflected on the combining of representation and regulatory functions in one body. I appreciate that the distinction already exists in organisations such as the Law Society, and that it can create what some might term “creative tension”. How the dual role will apply to the Law Society is a matter for it to resolve, but the committee does not want such difficulty to be exacerbated by additional provisions.
The committee also took the view that there was not sufficient evidence to require the establishment of a body in Scotland that would be similar to the Legal Services Board for England and Wales. As there is no equivalent of the Legal Services Board, the role of the Scottish ministers becomes extremely important, and the committee expressed concerns about ministerial involvement in relation to the new approved regulators and licensed legal services providers. Independence from the Scottish Government is crucial, and the committee agrees that the Lord President should have a much greater role in the process of approval of regulatory bodies, and that his agreement should be given before any regulator is approved. I am pleased that the Government has stated that it will consider lodging at stage 2 an amendment that will give the Lord President such an extended role.
In respect of the lack of a provision that would require licensed legal services providers to contribute to a guarantee fund, the committee welcomed the minister’s undertaking to give further consideration to that important suggestion, and we look forward to more explicit explanations and answers being provided at a later stage. Although I can understand the concerns that have been expressed in relation to certain aspects of the bill, the committee will undertake to scrutinise matters carefully at stage 2—particularly, the question of a guarantee fund.
The committee was also concerned about the step-in powers in section 35. It agreed with the Law Society that the bill should detail when that provision might be used and that there should be an obligation on ministers to consult on any regulations made in that respect. I am pleased to note that the Government has given the issue further consideration and is currently drafting an appropriate amendment emphasising the last-resort nature of the power. However, I think that the committee will be just a little disappointed with the other aspect of the Government’s response, in which it states its opinion that there should not be an obligation on the Scottish ministers to consult on any regulations made under section 35.
The committee also raised issues about the description of licensed legal services providers, and I know that the Scottish Government is giving further thought to that, as well.
Much concern was expressed about outside investors. A broad range of stakeholders expressed anxiety that legal services entities would be subject to prey by organised crime, and that the definition of “fitness to own” is inadequate to deal with that. The committee acknowledged those concerns and had sympathy with much in the views that were expressed. At the end of the day, however, the committee’s view is that no test can provide a guaranteed protection against undesirable third-party investment. In those circumstances, the fitness-for-ownership tests must be as robust as possible. Members of the Law Society have also expressed concern about the fitness-to-own provision, which has been reflected in internal debates in the legal profession.
The committee has also raised concerns about legal profession privilege. Again, that and the obligation of confidentiality were referred to in the stage 1 report, so I am pleased to say that the minister has given an undertaking to review the matter.
Sections 64 and 65 relate to complaints about approved regulators: the provisions provoked some criticism. The minister undertook to check whether any further provisions are required, so that, too, is an issue that I envisage being debated at stage 2.
Lastly, in respect of part 2 of the bill, the committee had concerns about how sanctions will be applicable to outside investors and how they will operate in practice.
Part 4 of the bill deals with the legal profession, and the committee agreed with the Government that there is no need to impose alternative business structures on the Faculty of Advocates, although I suspect that some advocates might want to rebadge as solicitors in order to take advantage of any ABS arrangements. The reverse might also apply. In respect of advocates and solicitor advocates, the Thomson review on rights of audience in the supreme courts was published on 17 March, and I know that the Government will be giving close consideration to that report.
There are other issues of governance relating to the Law Society, and the committee is pleased that the Government has already moved to explain that it will lodge stage 2 amendments on non-solicitor membership of the Law Society. That is a most welcome development.
Parliament will appreciate that a great deal of time and effort has gone into the stage 1 report. We shall presently move towards stage 2, which I hope will be characterised by focused arguments, especially outwith the Parliament.
There are sincere differences and divisions in the profession, which is understandable. However, at times, the tone has been unfortunate. I feel particularly sorry for Ian Smart, the president of the Law Society, a man with whom I have seldom been politically compatible but who has suffered some criticisms that have been decidedly unfortunate. Someone once said;
“I hold every man a debtor to his profession”.
When someone seeks to repay that debt by putting his head above the parapet I do not think he should be subject to the criticism to which Ian Smart has been subject.
The committee, as ever, will be willing to consider constructive amendments. I urge all concerned to approach the issues within the spirit of compromise and conciliation. The Parliament’s mood is to legislate, but we wish to do so to ensure that the Scottish legal profession emerges strengthened rather than weakened, and so that it moves constructively forward while retaining all that is good within our legal profession and fitting it to accept the challenges of the future.
15:40
In reforming our legal services sector in Scotland, the first principle must be access to justice—maintaining it and improving it. In changing the law with a view to extending the availability of legal services, we must not unintentionally restrict access to justice for some people in our society. There are important questions about how we strike the right balance in making the changes.
The case for alternative business structures was first considered in the previous session. We acknowledge that the finding of the Office of Fair Trading requires a response from the Scottish Government and that changes be made in our legal services industry. There can be benefits to consumers if change brings more co-location of legal and related services—a one-stop shop model, as it is being called—but there are important questions about how, in opening up the potential for new business structures, we can maintain current valued legal services.
We can use the legislative process to improve access to justice and give our law firms a competitive edge, but we are not persuaded that the bill will necessarily achieve that. There are big questions about the timing of the legislation and the scope of the changes. We do not argue that changes to legal services in England and Wales should simply be imported north of the border. Our system is part of an international legal services industry, but we must ensure that changes that are made in Scotland are right for our legal services here. The changes down south were made before the global banking crisis and it will take time to see what effect they will have.
Let us acknowledge that, as both Bill Aitken and the minister said, there are genuinely and passionately held views within the Law Society on both sides of the debate, particularly about the independence of the profession. I note that the minister has sought to give reassurances on some of those points. Labour members have met people on both sides of the debate and we benefited throughout stage 1 from advice from some of those who have expressed their concerns about the proposed changes. We valued the input of Ian Smart, whom Bill Aitken mentioned, and the evidence that he gave to the committee represented the strongest case that was put in favour of the bill.
The Law Society’s referendum showed that there is great interest among its members on the issue and that views on it are divided. I hope that Parliament and, indeed, ministers will now play a role in moving the debate forward.
I say in favour of the bill that we know that, in challenging economic times, new investment in legal services is welcome. We all want our law graduates to move on to practise in successful Scottish firms. However, concerns have been raised about how access to legal services that are provided by small firms, often in rural areas, can be maintained if a move to alternative business structures threatens their survival. As Bill Aitken said, Frank Maguire of Thompsons and others have expressed their fear that, under the proposals, there is potential for organised crime to become involved in ownership of firms. The minister stated again that the regulatory regime around the reforms will be adequate to address that concern. That makes the issue of regulation vital, but the bill allows any number of regulators, even if the Law Society and ICAS are the two organisations that are expected to apply. No legal services board of the type that exists in England and Wales has been proposed. I still have concerns about how, in that context, there will be uniformity of regulation. Moreover, the financial memorandum’s claim that regulation will cost less than £100,000 does not strike me as realistic.
At least we have stage 2 for proposing changes in not only that area, but others. I am, for example, disappointed that the Cabinet Secretary for Justice did not agree to the regulation of no-win, no-fee companies that has been introduced down south. We will lodge amendments on that and on the regulatory framework at stage 2.
We must also look to make progress on the vexed question of external ownership or investment, so I am pleased that the minister has met people on both sides of the debate and that those who have expressed concerns have made constructive proposals. For example, members will have seen the proposal from Mike Dailly of the Govan Law Centre for a co-ownership model with a 75:25 per cent split. It is good that the Parliament, the committee and the Scottish Government will have a range of proposals to decide on.
These matters are not simple; they are technical and often complex, so I urge ministers to take adequate time to ensure that they are properly considered. The saying “More haste, less speed” might well apply here. As the convener said, anyone who thought that these matters were uncontroversial and merely technical will have been thoroughly disabused of that misconception. That is because our legal services industry and the principle of access to justice in a legal system that we rightly cherish and are proud of are important in Scotland, and that is why, in proceeding with the bill, we will need an extensive debate about the changes that must be made at stage 2.
15:46
I find it interesting to reflect on the fact that only a few months ago the Parliament completed its consideration of the Tobacco and Primary Medical Services (Scotland) Bill. A feature of that bill, which has now received royal assent, was the debate over the appropriate business model for the providers of general practitioner services. Members will recall that, thanks to the craven failure of Labour and the Liberal Democrats to support the policies that they had advocated and enacted when they were in government, the present Scottish Government was able to pass a measure specifically barring third-party commercial providers from having a stake in general practitioner practices, which must be wholly owned and run by practising GPs. According to the Scottish Government, such a business model is in—indeed, is essential to—the public interest.
With this bill, however, it appears that, when it comes to legal services, precisely the opposite is claimed to be in the public interest. GPs can share the profits that they make out of the national health service only with other GPs, but solicitors are to be permitted to sell their businesses to and share profits with non-solicitors, notwithstanding the public interest obligations that are currently imposed on them by statute and the fact that, in some cases, a significant amount of revenue is derived from criminal and civil legal aid. In other words, they are providing services and running businesses that, in 2008-09, were partly financed by the taxpayer to the tune of approximately £117 million.
As a former solicitor in private practice and a member of the Law Society of Scotland, I am grieved by the division of opinion and turmoil in the legal profession over this measure. As members will be aware, consideration of the bill was specifically postponed to allow MSPs to be aware of the outcome of the Law Society’s special general meeting on the topic and to ensure that our debate could be informed by the views of our legal professions. That initial meeting was pre-empted by a referendum in which the Law Society’s position in favour of the bill was endorsed by the tiniest of margins. Last week, however, when the special general meeting was reconvened, members voted against alternative business structures by a margin of 3:2. I understand that at the annual general meeting, which will be held next month, the position will be finalised.
The situation has been confused rather than clarified by what has happened but, in essence, we have to acknowledge that the divisions in the profession represent a difference in economic interests as well as a difference in view about the nature and ethics of a profession that many solicitors firmly believe is fundamentally different from a commercial concern. In essence, the solicitors who are opposed to the concept of alternative business structures are no different from the GPs who successfully lobbied the Government to bring about a change in the law to secure their monopoly of ownership and provision of services through their practices. Those solicitors believe that external ownership is incompatible with the concept of an independent profession; that conflicts of interest would arise; that the standard of service would fall; and that many of the consumer protections that are inherent in the regulation of the legal profession as currently organised would be diluted or lost in legal services businesses that are owned by third parties and regulated by others.
Some will see the proposals as a final stage in the process that started in the 1980s with measures to introduce competition between legal firms, such as the ability to advertise, through to allowing third-party providers to compete with solicitors in respect of the provision of certain services, to the present proposals, which will enable third parties to own law firms. Many of the dissenting solicitors, if I can call them that, believe that those who favour the scheme predominantly come from larger firms, whose owners are interested simply in selling out their businesses for a one-off pot of gold to one of the major international accountancy practices. As we have heard, others fear the development of Tesco law, with an employed solicitor in every supermarket. However, let us not forget that, notwithstanding those strongly held differences of view, a commitment to professional ethics and standards is shared, I believe, by all solicitors, whether they practise law in large commercial firms or in small family ones.
The fundamental point is that, as others have said, the reforms are in essence forced on the legal profession and the Parliament by the report of the Office of Fair Trading, following the super-complaint from Which?, and by changes in the system in England and Wales. Accordingly, I have a lot of sympathy with my former professional colleagues, both those who resist the tide of change and others who want and recognise the need for change. The Law Society has tried hard and manfully to reconcile those positions. I am sure that its office-bearers and council members will be troubled by the divisions that have emerged.
The Scottish Conservatives support the bill and we will vote for it at stage 1. In doing so, we recognise that the present system of legal services provision and regulation has many features that are in the public and consumer interest and that those features need to be sustained in the new regime. In that respect, I identify the guarantee fund, which protects clients in the event of the misappropriation of funds by dishonest practitioners. I also identify the requirement for professional indemnity insurance; the disciplinary code, to deal with complaints of professional misconduct; and accounts rules and a tough inspection regime, to ensure that client funds are not imperilled.
The rules of the approved regulators must provide a level playing field, so that, whichever legal services provider a member of the public chooses, they can have confidence that that provider is subject to a system of effective regulation. We have such a system at present—it has stood clients in Scotland in good stead until now and it does not receive the credit and acknowledgement that it deserves. I firmly believe that, in changing the system, we need to build on the best and must not settle for the lowest common denominator on standards.
15:53
As has been said, the bill raises complex issues. The divided view among solicitors has made assessment of its merits particularly difficult for the Justice Committee. I am bound to say that, although the committee earlier paid tribute, through the convener, to the evidence that the various witnesses gave, the case for the bill was not helped by the highly unimpressive evidence from Which? and the Office of Fair Trading, which, far from establishing the basis for the bill, tended to undermine the case for it substantially.
As has been said, part of the difficulty is that the bill has different implications for different parts of the legal profession and the so-called legal services market. I strongly dislike using the concept of a market to describe my former profession, as it is a highly inadequate definition of what solicitors do and the context in which they operate.
Our whole approach to professional regulation has changed profoundly since the banking meltdown. A lot of attention focused on the faults of light-touch regulation, but the real problem in banking was the replacement of traditional prudent and professional banking practices by a new breed of money wizards with too little depth in the banking profession and too much adherence to slick sales methods, greed and obscene levels of unmerited bonuses. In short, the problem was a loss of ethics and not primarily a failure of regulation. There are lessons in that for us, too. A vibrant legal profession with values and standards developed over many years, independent of Government and not beholden to outside funders, seems to me to be at the heart of our democracy and the rule of law.
The desire to allow the development of new business structures is driven, as I think we all agree, by the larger commercial firms. The extent to which English law has become the international legal system of choice, not just in these islands but across the rest of Europe and beyond, is not commonly recognised. The committee raised concerns that we could gain equal access to the English market for Scottish legal firms only to find ourselves barred from parts of the continent where there are greater restrictions on who may practise law and under which business model. Our fears on that front were not established but, in any event, the issue of access to the European market is dwarfed by the need for equal access to the much larger English market. I am therefore satisfied that it is in Scotland’s interests to allow our commercial firms to operate in comparable ways to those of their colleagues in England and to do so under the umbrella of the Scottish legal system.
I am by no means convinced that the requirements around business structures, ownership and investment apply to anything like the same degree to the bulk of the profession operating in private practice. We have to draw inferences from the hostility to the proposals articulated by the Scottish Law Agents Society and others and by almost half the membership of the Law Society. Ways must be found to modify the proposals, particularly in so far as they affect that part of the profession with no significant international or cross-border practice. Although it is said that alternative business structures are voluntary and no one would be forced into adopting new structures, the reality is that wider arrangements for funding, ownership and partnership with other professions will affect everyone. Unrestrained competition in other spheres has seen the virtual disappearance in many areas of traditional town or suburban shopping centres, of post offices and even of off-licences, and it will not necessarily be different with solicitors when there is less competition and choice rather than more.
The second implication is that Scottish solicitors must continue to belong to and be regulated by one body. David McLetchie rightly talked about the key components of the guarantee fund and the master policy, but those depend on the continuing contribution of the whole profession, not least of the larger firms, without which the economics of those key client protections could become shakier.
I will sketch out what I think is possible. There is scope for some multidisciplinary partnerships—an obvious example is between solicitors and accountants or other tax professionals. However, we have to be careful in that regard because such partnerships often raise the conflicts of interest that David McLetchie was right to warn against. The suggestion of partnerships between solicitors and surveyors that was made by Which? seemed improbable in the extreme and shot through with undesirable conflicts of interest.
We have to look carefully at the idea that seems to be advancing of multiple and competing regulators with all the complex issues that that brings. I do not mean that we should be looking at the super-regulator role that the Scottish Government rightly put to one side; no one would suggest a rival regulator to Her Majesty’s Inspectorate of Education, for example. The Law Society is the obvious regulator and we should consider whether proceeding on that basis is an option available to us. One encouraging outcome of the complex proceedings at the Law Society was a clear commitment to and recognition of the importance of the society being the key regulator.
The bill must be more restrictive about outside ownership and investment, given all the problems of designated persons and undue and unprofessional influence that we have talked about—we do not want any Robert Maxwells in this sphere. That was one of the clearest messages from the Law Society’s debates on the matter.
On behalf of the Liberal Democrats I am prepared to offer support for the general principles of the Legal Services (Scotland) Bill at stage 1, but only on the basis that a fundamental rethink is required of some of the details, which might involve substantial and radical surgery of the bill at stage 2. At this stage, we make no commitment to support the bill at stage 3. A satisfactory resolution of those challenges will require statesmanship and flexibility on all sides. I am in no doubt that the Justice Committee stands ready to respond properly on an issue that is uncomplicated by party positions.
I suggest that the minister might consider building on his meetings with the various bodies involved by having a more organised round-table discussion involving representatives of the Law Society, the Scottish Law Agents Society, the minister and his officials and perhaps members of the Justice Committee to re-examine some of the principles of the bill along those lines in the light of today’s debate.
I discovered, somewhat to my surprise, that very few areas or functions are the sole province of professional lawyers, whether solicitors or advocates. However, the public would normally expect to rely on the advice of a qualified professional to help them to resolve many practical business and personal issues, just as one would expect a complicated medical operation to be carried out by a trained and qualified surgeon. In my view, much of the talk about opening up the market and providing increased competition is hogwash. It is about opening up the market to people who are not professionally qualified in law, who perhaps do not subscribe to the ethics of the law and who, in some instances, may regard offering legal services as the same as selling cornflakes or yoghurt. That is not my view of the law and the profession of lawyers or what the public expect of them.
It seems to me that the bill must sustain the legal profession. As the convener said, it must strengthen it rather than weaken it, because it is in the public interest to do so.
None of the difficulties is the fault of the Scottish Government. The minister has brought great enthusiasm and technical expertise to the proposals. The Government proceeded after proper consultation and on the basis of what it thought was the view of the legal profession.
The Law Society officers have also formulated their views in accordance with the democratic rules of the society and have had a somewhat torrid time as people got to grips with the bill.
This is a difficult and complex area. We require flexibility and statesmanlike approaches to dealing with it. Getting it right is of significance to the future of the profession.
16:01
As usual, I do not want to spend too much time repeating what colleagues have already said. Instead, I will look at one or two issues and perhaps offer a few helpful comments.
The first thing that I will do is go right back to the very beginning and point members in the direction of section 1, which sets out the regulatory objectives as
“(a) supporting the constitutional principle of the rule of law,
(b) protecting and promoting—
(i) the interests of consumers,”
and
“(ii) the public interest generally,
(c) promoting—
(i) access to justice”
and
“(ii) competition in the provision of legal services,
(d) promoting an independent, strong, varied and effective legal profession,
(e) encouraging equal opportunities”
and
“(f) promoting and maintaining adherence to the professional principles.”
I take us back to those objectives simply to make the point that that is the intention of the law. Some of the comments that have been made have tended to suggest that the bill might be there to undermine those things, but it is made clear at the beginning that that is not the intention. We have to ensure that, when the bill is out there working, it sticks to its original principles.
I am conscious that there is concern about ethical principles. Section 2, which I will not quote, expands on those. It was clear in evidence to the committee that the minister felt that nobody who is involved in any of the alternative business structures should be subject to any lower ethical standard than the standard to which lawyers are subject at present.
On the question of ethics, does Nigel Don accept that writing all that down in the bill is one thing but imbuing it right through the legal profession is something else?
I take Robert Brown’s point, although I would also make the point that those who have trained as lawyers have those ethics, in exactly the same way that those who have trained as medics have them—it is part of what they do. In exactly the same way, I might say that, for those in my profession of chemical engineering, safety is their middle name. That does not alter the fact that we should ensure that those ethical standards are somewhere in the text of the bill—it does not matter where. There is an argument that the professional privilege, which is accorded in section 60, assumes those kind of ethical standards. However, it might be worth ensuring that we write them down.
Another issue is how we might allow businesses to describe themselves. I do not think that there has been any comment on that yet, so I would like to make some. Some people have described it as branding, which I think is an error. I ask members to turn their minds to the idea of a can of soup, which I hope will be helpful. The brand would be the “Heinz”, “Campbell’s” or “Baxters” on the label. They all make tomato, minestrone, mushroom and other soups. The descriptor is the word “tomato”, “minestrone” or “mushroom”; the brand is “Heinz”, “Campbell’s” or “Baxters”.
Reserved descriptions are known in the law of food. Once upon a time, we used to buy margarine. We no longer buy much margarine because little is sold as margarine. That is because the reserved description is that margarine must be 80 per cent fat. We look for reserved descriptions of legal services providers, so that potential clients know from the business’s description what they will get. The branding is the commercial name and the descriptor should say what the business is.
With that in mind, some possibilities arise. Members will understand that I present them not because I think that they represent the right answer but because they might be a way of progressing the debate and finding sensible words. If a future firm were composed of 60 per cent solicitors and 40 per cent accountants, it might be at least reasonable to describe it as “solicitors and accountants”. If the numbers were the other way round, it would be “accountants and solicitors”. If the split were 50:50, we would have to resolve that—how that would be achieved does not really matter.
A firm would have to say underneath its description and in letters that were not too small that it was a regulated legal services provider, so that we were clear that it fell under the umbrella of the bill. I suggest simply for further comment that, if the split were not 60:40—if the percentage of solicitors were more than 80 per cent and the percentage of accountants or others less than 20 per cent—the firm might be “solicitors with accountants”, along with the subtitle of being a regulated legal services provider.
We will have to produce a table with such descriptions. I have merely presented some thoughts in the hope that other people can improve on them. In connection with that, a firm should not have to be 100 per cent solicitors to describe itself as a firm of solicitors. Perhaps being at least 90 per cent solicitors would be enough.
I will push on quickly because time is against me, as always. The suggestion has been made and continues to be made that advocates should be able to be involved in alternative business structures. It is worth putting it on the record that we do not have many practising advocates. They are supposed to obey the cab-rank rule, to which I will return briefly. If they were allowed to be involved in alternative business structures, the number who would not have a conflict of interest would be reduced, which is clearly not in the interests of competition.
Paragraph 10 on page 58 of the Thomson review quotes an authority that suggests that the cab-rank rule is “a polite fiction”. The Faculty of Advocates might choose to address that issue, because the perception is that the system does not work as well as it should.
I endorse Richard Baker’s view that we must accept the bill in principle and push it forward. We must see whether we can improve it—I am pretty sure that we can. I take on board Robert Brown’s comments about the effects of unrestricted competition, of which we must be aware. Voting down the bill is in no way the right thing to do at this stage. We must proceed with the bill today and find out whether we can improve it, in the light of the many comments that we have received.
16:09
Usually when we consider change in legislation on any issue, areas where there is confusion become clearer and areas where there are controversies become more or less controversial. That is life in the Scottish Parliament. The experience of the Legal Services (Scotland) Bill has been no different, but the bill could bring major change to the delivery of our legal services. It is clear that the profession is divided on the way forward and that the Government and we in the Parliament must ensure that the concerns that have been expressed are heard and properly considered. We should not attack people whose views differ from ours.
We should remember that the most important outcome is to ensure that all of us—regardless of where we live or how much we have in our pockets—have access to justice. To have that, people need to be able to access an independent solicitor.
We may be where we are because of the super-complaint that was made on consumers’ behalf, but the committee received little evidence that the public had been consulted on the matter and no solid evidence that the public would get a deal financially or otherwise, leaving me with concerns that the complaint was brought in the interests not of the public but of the big business model.
Encouraging business is not a bad thing—it is good to have a playing field that allows our legal profession to compete in the international market—but it must not be at the cost of destroying the profession’s confidence. A one-door approach to legal, financial and accountancy services may seem attractive to some, and modernisation of our system may be due, but there are too many ifs, buts and maybes to rush through the measure. If the Parliament agrees to allow the bill to progress, the next stages cannot be rushed to meet the Government’s timetable—we need to get this right.
The issue of the so-called Tesco law has split opinion in the legal profession in Scotland. John McGovern, president of the Glasgow Bar Association, has been quoted as saying:
“The professional interests of high street solicitors are clearly different to the professional interests of big commercial firms.”
That is true. The needs of small communities and individuals for legal services must also be considered.
There is a case for saying that a number of smaller, independent firms could be overshadowed by the larger conglomerates. The problems that are faced by the main street butcher or baker when a new superstore opens nearby are similar to the problems that small solicitors firms could face. With the possibility that cheaper legal advice could be acquired along with the out-of-town weekly shop, it is understandable that more small partnerships are venting their concerns. There are viable arguments on both sides, but a number of the fears that have been put forward are fair and need to be aired.
That is not the only potential flaw in the bill. Another relates to the plans to allow those without links to the legal profession to hold majority stakes in law firms. To me, that is fundamentally wrong. There is a chance that felonious individuals, entrenched in organised crime or the drug trade, would invest and become the majority owners of legal practices. As a consequence, legal services providers could become puppets to Scotland’s criminal underworld, leaving our lawyers compromised as a result of dodgy investors. It may sound like something out of a Hollywood gangster movie, but those in the organised crime trade are not stupid: if they see an opportunity to gain access to the respectability of a firm that is providing legal services, they will pounce on it. The minister mentioned the fit-to-own test. The test that we have heard about so far is not right. There are questions that need to be asked, answered and fully examined during the bill’s next stages.
Scotland’s legal system is unique. Our approaches on many issues are different from those in the rest of the UK. Sometimes that is good and sometimes it is bad, but it is clear that our legal profession is deeply divided—so much so that Ian Smart, who has been doing a good job as the president of the Law Society of Scotland, stated recently that relations could be “unbridgeable”. I do want to disagree with him, as he happens to be one of my constituents, but I hope that in this instance he is wrong and that a resolution can be found. However, the fact is that there is no consensus. The tone of the minister’s speech this afternoon did not do anything to take matters forward. Like Robert Brown, I hope that the minister will think on that.
We must remember that our job is to ensure that the bill gives the best deal to both solicitors and clients, who are our constituents. We must listen to both sides. I am against tampering with the traditions of our legal services on a major scale. As has been pointed out, there are many areas that the Scottish Government must iron out.
In principle, I am willing to support the bill proceeding to stage 2, as are other members who have spoken in the debate. However, I have substantial reservations and I think that the Justice Committee will have a big job to do before we can bring the bill back to the Parliament as one that is worthy of support and of progressing into statute.
We have a job to do—there is a lot of work to be done. I do not think that we should try to keep to the timetable of the Government or of business managers. The committee needs time to deal with the next stages of consideration in a competent manner.
16:15
As other members have indicated, the examination of the Legal Services (Scotland) Bill at stage 1 has been somewhat complicated by divergent views among the legal profession itself. Having said that, I believe that, alongside the evidence, opinions and genuine concerns that we have received about the bill, a number of red herrings have been thrown in.
I listened to “Good Morning Scotland” with interest this morning, as it ran a story on this debate. One of the suggestions that was made by a contributor from The Firm magazine was that there was nothing wrong with solicitors having a monopoly with regard to the ownership of legal firms, because it was the same thing as airline pilots having a monopoly on flying planes. I thought that was a strange analogy to use as an argument against the proposed changes. It is true that pilots fly the planes, but they do not own the airlines, so why is it necessary for solicitors to own the business as well as operate within it? Nobody is suggesting that non-solicitors should carry out the expert legal work, just as nobody would suggest that non-pilots should fly the planes. It is necessary that the experts carry out the expert work, but it is unnecessary for them to be the sole owners of the operation.
Other members have raised the spectre of organised crime gangs or drug barons buying up Scottish legal firms. I wish to examine that suggestion in detail. There are a number of reasons why I think it unlikely that criminals will invest in or buy legal firms.
First, there is the robust protection in the bill itself—and I believe that it is robust protection. In laying out the rules governing “Fitness for involvement”, the bill states, at section 49(1):
“An approved regulator must—
(a) before issuing a licence to a licensed legal services provider, or renewing it, satisfy itself as to the fitness of every outside investor in the licensed provider for having an interest in the licensed provider,
(b) thereafter, monitor as it considers appropriate the investor’s fitness in that regard.”
The bill goes on to state, in section 50, what the appropriate “Factors as to fitness” are. Section 50(2) states:
“The following are examples”—
and they are only examples—
“relevant as respects an outside investor’s fitness for having an interest in a licensed provider—
(a) the investor’s—
(i) financial position and business record,”
and, importantly,
“(ii) probity and character (including associations).”
Concerns have been expressed in relation to not only people with a record, which is provable and clearly ascertainable, who might invest, but their associates—people who work in the same industry, if it can be called that—if the investor does not themselves have a proven criminal record. The bill uses the words
“probity and character (including associations)”,
which we should take care not to ignore.
In section 50(3), the bill gives the reasons why a person is presumed to be unfit. Paragraph (d) states:
“the fourth condition is that the investor—
(i) has been convicted of an offence involving dishonesty, or
(ii) in respect of an offence, has been fined the equivalent amount to the maximum on level 3 of the standard scale or more (whether on summary or solemn conviction) or has been sentenced to imprisonment for a term of 2 years or more.”
That means taking robust action to ensure that we do not get the kind of people who we do not want investing in legal firms, whether because they have a record or because of their associations.
The member, as a committee colleague, has asked questions on and taken an interest in these issues. However, what comfort can I take from the debate, given that although his Government has recently challenged the fitness of people to benefit from national health service contracts, for example, it has not been able to win its argument in court about the suitability of the people involved?
I do not quite know where Cathie Craigie is going with that argument. The argument here is about the ability to identify individuals who may—improperly—be trying to invest in legal firms, and it is clear that the bill has robust defences to ensure that we are able to do that.
Sections 51 and 52 also cover an outside investor’s behaviour. Section 51(2) states:
“An outside investor in a licensed provider must not (in that capacity)—
(a) interfere in the provision of legal or other professional services by the licensed provider,
(b) in relation to any designated or other person within the licensed provider—
(i) exert undue influence,
(ii) solicit unlawful or unethical conduct, or
(iii) otherwise behave improperly”.
I am not so naive as to think that just because the bill says that
“outside investors ... must not ... solicit unlawful or unethical conduct, or ... behave improperly”,
a criminal will not behave in a criminal manner—that is how criminals operate. However, it takes two to tango. I think that Cathie Craigie missed that point.
That brings me to my second reason for thinking that criminal gangs are unlikely to think that investing in an ABS is desirable. Solicitors and other people who might form an ABS, such as accountants, will not be exempt from operating within the rules of their own profession. Even if an investor tried to
“solicit unlawful or unethical conduct”,
the collusion of the solicitor or accountant would be required for the improper behaviour to occur. Such collusion on the part of a solicitor, for example, would have serious implications, because the individual concerned would run the risk of losing their right to carry on working as a solicitor.
My third reason for rejecting the notion that the criminal fraternity will take over legal firms can be summed up in one phrase: why would they bother? Given the sanctions and difficulties that they would face in dealing with professionals who operate under a high ethical code and who would have much to lose personally, why would people involved in organised crime choose to buy a legal firm? If a so-called Mr Big needs a solicitor they can engage one. Why would they get involved in investing in a firm, with all the extra problems that doing so could and probably would bring?
Some people have suggested that criminals would buy legal firms so that they could use them to launder drugs money, but that seems unlikely. A criminal who is deciding how best to launder their ill-gotten gains could buy private taxis, sunbed salons or security firms. They would have a number of options. I cannot see why they would try to launder their money through a legal services provider rather than choose an easier option. The risk that criminal gangs will invest in or buy legal firms is pretty small and we should not be sidetracked by that suggestion.
Despite the heat that surrounds the bill, light has been shone into areas that required to be looked at, such as the role of the Lord President and the employment of solicitors directly by citizens advice bureaux. I note that the Government is involved in discussions and I hope that solutions can be found that will garner cross-party support at stage 2. I welcome the minister’s comments on CABx.
I am concerned about sanctions against outside investors. In committee I noted that, although inappropriate behaviour on the part of an outside investor could lead to the suspension or revocation of an ABS’s licence, the bill appears to provide no sanctions against the individual. I welcome the general sanctions, but the outside investor appears to be left almost untouched. Will the minister seriously consider adding to the bill provisions for sanctions against an individual outside investor who has behaved inappropriately? It does not seem right that the only sanction against the actions of an individual would be the closing down of the entire business, which could have a devastating impact on many innocent individuals.
The bill is controversial in some people’s eyes and much work remains to be done on it. However, we must face the world as it is and not as some people would like it to be. The bill is required and I ask members to support it at stage 1.
16:23
I am deputy convener of the Justice Committee and I place on record my sincere thanks to the clerking team, the Scottish Parliament information centre and the many witnesses who gave invaluable evidence to the committee at stage 1.
The bill seeks to enable the establishment of new business structures in the legal services industry in Scotland and to deliver an appropriate regulatory framework for individuals and organisations that provide legal services. The reforms in the bill have the stated aim of creating a more flexible and up-to-date regulatory framework for legal services and, consequently, achieving improved access for all to high-quality legal services.
At first sight, those policy objectives appeared to committee members to be worthy and relatively uncontroversial, not to say somewhat dry and even esoteric. However, the bill has excited a degree of passionate debate and a level of controversy within the profession, the like of which has not been seen in modern times. The result of a recent referendum that was conducted by the Electoral Reform Society on behalf of the Law Society of Scotland and the society’s special general meeting of 21 April illustrate the division of opinion within the profession on the bill.
In his letter of 26 April to members, Michael Clancy noted with admirable diplomacy:
“these expressions of democracy ... show ... there is no consensus in the profession on two important areas—external ownership; and solicitor participation in a minority role in an entity with other professional participants.”
Quite so.
In his briefing to members of 26 April, Mike Dailly of the Govan Law Centre puts it rather more robustly:
“We do not believe the Bill as presently drafted contains appropriate safeguards”.
Furthermore,
“the particular concept of Alternative Business Structures adopted in the Bill does not lend itself to acceptable safeguards for those citizens requiring access to justice or a legal service.”
Indeed, according to Mr Dailly, safeguards need to be put in place to
“protect the public interest and the independence and professional ethics of solicitors subject to ABS.”
That division within the legal profession places elected members in a very awkward position, to say the least. It is clear that there needs to be a commitment to positive dialogue both within the legal profession and between practitioners and politicians to ensure that a workable compromise can be agreed that addresses the salient concerns of a significant proportion of people who work in the legal services industry in Scotland.
As my colleague Richard Baker said, Labour members are committed to the extensive debate that is necessary at stage 2 to deliver legislation that has at its core the maintenance of access to justice. There must be no unintended consequences that restrict access to justice for any section of Scottish society. Especially with regard to the make-up of alternative business structures and external involvement in such organisations, there is need for more dialogue and for a willingness to listen to constructive proposals from those who have expressed concerns about those aspects of the bill.
I am confident that the ministerial team will listen carefully to such suggestions, as will the committee. Indeed, the minister’s formal written response to the committee’s stage 1 report shows constructive engagement with many of the concerns that the committee raised, for which he must be commended. For example, on section 36, the committee noted that a restriction on eligibility for being a licensed legal services provider may restrict
“the way in which ... not-for-profit organisations can provide legal services.”
The committee expressed its sympathy for the concerns that Citizens Advice Scotland raised in that regard. I am heartened by the minister’s promise to consider the issue further and the discussions that his officials have already had with CAS in respect of its desire simply to allow citizens advice bureaux directly to employ solicitors by way of an exemption under section 26(2) of the Solicitors (Scotland) Act 1980.
Further, I am cheered by the ministerial team’s willingness to consider the role of the Lord President. The committee shared
“the concerns expressed in much of the evidence about the extent of proposed ministerial involvement and the perceived threat to the independence of the legal profession as a consequence”.
In his written response, the minister noted that he had been
“listening to those who have called for the Lord President to have an equal role to the Scottish Ministers”,
and that the Government was
“considering an amendment at Stage 2 to give the Lord President a greater role in the process of approving approved regulators.”
That is a good thing.
I am also heartened by the assurance in the minister’s speech that the Government will introduce additional sanctions regarding the fitness-to-own test. That is only prudent.
Such a listening approach is welcome, necessary and must be adopted if our stage 2 consideration is to be successful in making the amendments that are necessary to shape a robust piece of legislation that is acceptable to the whole legal profession and which addresses the major concerns about which there is still no agreement. That lack of agreement is concerning.
In that regard I hope that the Government will consider carefully what my colleague Richard Baker described as constructive proposals, such as the one that Mike Dailly outlined for a co-ownership alternative business structure model, with a 75:25 per cent split. He made that suggestion in his fairly detailed briefing paper, which members have seen.
On that clear understanding as to how we should proceed, Labour will support the general principles of the bill at 5 o’clock tonight.
We move to wind-up speeches.
16:30
I feel perhaps a little outnumbered as someone who is not a lawyer, but it must be a positive thing that a number of ex-lawyers are so involved in the debate.
Let me clarify that I am not a lawyer and am most certainly not rich.
I was not implying that all lawyers are rich or that the convener of the Justice Committee is a lawyer. I understand that, like me, he was a magistrate at one point.
The Legal Services (Scotland) Bill, which was introduced on 30 September 2009, is intended to enable the establishment of new business structures within Scotland’s legal services industry and to deliver a suitable regulatory framework for individuals and organisations that provide such services. Currently, legal practitioners must operate within business structures that are strictly limited, both by statute and by professional practice rules, and within a regulatory framework in which the regulators both regulate and represent the legal profession.
I have had several conversations with friends—including an ex-president of the Law Society of Scotland—who probably know more about the bill than I do. They have looked closely, perhaps closer than I have, at the proposals. However, it must be said that many practitioners are not hugely supportive. Opinion on the bill among the legal profession is extremely divided. I will come back to that later.
The reforms in the bill are intended to liberalise the legal services market to create a more flexible and modern regulatory framework for legal services, with the ultimate objective of achieving improved access for all to high-quality legal services. Some have referred to the bill as one that introduces a sort of Tesco law, on the basis that it will allow organisations that are not owned by legal professionals, such as banks and supermarkets, to offer legal services to the public. Those with whom I have discussed the bill perhaps have the biggest issue with that proposal.
The Law Society of Scotland supports the bill, but it has echoed the Justice Committee’s concerns that the bill should be amended—we have heard almost every member who spoke in today’s debate say this—to ensure the independence from Government of the legal profession and the licensed legal services providers that may be created under the bill. I entirely agree with my colleague Robert Brown that multiple regulation is an idea too far that should be removed at stage 2. I know that he intends to do that.
The legal profession faces significant challenges, including competition from English firms, as it has been significantly affected by the economic downturn. Perhaps that is driving some in the legal profession down the route of supporting the bill. One need only ask any lawyer about the economic downturn to get confirmation that the legal profession is not doing as well as it was several years ago. More and more legal businesses in Scotland that also operate outwith Scotland—in England and further afield in Europe—are using English firms to conduct their legal business both south of the border and in Europe. I understand that many of the firms that operate in Europe are now using English law, whereas in times past they would, I suspect, have used Scots law, which we all accept is better. For Scottish firms that operate outside Scotland, the current arrangements may be to their detriment. If the bill can help to address that, it must be positive.
I return to the issue that has divided the Law Society of Scotland. In April 2008, the society published a paper in which it was argued that allowing alternative business structures would be in the interests of both the legal profession and the public as long as such firms were subject to a regulatory framework that protected the profession’s core values. That policy was endorsed by the society’s annual general meeting in May 2008. The society continues to adhere to its policy on ABS as stated at that AGM and accordingly it supports the general principles of the bill.
However, as David McLetchie said, there was a very narrow majority in favour of ABS in the Law Society referendum, the results of which were announced on 7 April. Some 2,245 voted in favour of the introduction of ABS, as long as there were appropriate safeguards, and 2,221 voted against it. That is a majority of 24, or 0.53 per cent of the people who voted, which is pretty narrow. I suspect that most lawyers would have got involved and voted on the issue. The resolution that was voted on and passed at a special general meeting that the Law Society held on 16 April, in which the issues were debated again, was at complete odds with that vote. I am sure that the committee will carefully consider that matter in the run-up to stage 2.
So who will benefit—the small firms or the large firms? Of course, solicitors in small firms and individual solicitors make up the biggest percentage of lawyers practising in Scotland, and it is expected that many of those solicitors will wish to continue to operate in traditional solicitors’ practices. Nothing in the bill should prevent them from doing so. Therefore, are we passing legislation for the benefit of perhaps four, six, eight or 10 firms? I do not know. Existing forms of regulated legal practice, such as solicitors who operate as sole practitioners in partnership, will, of course, continue to be regulated by the society. Will larger Scottish firms benefit? The committee has found little, if any, evidence of alternative business structures or multidisciplinary practices working elsewhere. The minister mentioned Australia as an example, but it is the only example. It has therefore proven to be difficult to reach a conclusion on the issue.
In conclusion, I note that the committee said that the bill is permissive and that it has the support of the Law Society of Scotland—just. The committee is in no doubt that the bill may be of importance for larger Scottish firms, but its advantages for smaller Scottish firms and, indeed, most consumers are much less clear. We must continue to protect those two groups. As a result of all that has been said by the members of the Justice Committee, I am sure that they will ensure that that happens.
16:37
The debate, which has been interesting, has reflected many of the divisions of view that have come to light in the wider public debate and among the legal profession in the past few months.
The Minister for Community Safety, Mr Ewing, took a characteristically robust tone in an unequivocal defence of the key principles of the bill. He was right to remind us that the bill is enabling rather than prescriptive in respect of future models for our legal profession’s business structures. He was also right to remind us of the opportunities in the alternative models, particularly for our larger legal firms, one of which I used to work for.
If the minister’s tone was robust at the start of his speech, I worried a little bit that it was verging on the uncompromising. It has emerged in the debate that the bill will need to be significantly modified at stage 2 if we are to address some of the concerns that have been expressed. I am a little concerned that some concerns that bear further examination were too casually dismissed.
Mr Aitken reminded us of the Justice Committee’s lengthy and careful scrutiny of the bill. We are grateful to that committee for the care that it has taken in examining the bill, its consideration of the oral and written evidence, and the comprehensive report that it presented.
Richard Baker made fair points about the big questions that remain to be asked. There is the important question whether a body can have a representative as well as a regulatory function. I noticed in the committee report that some had suggested that the legal profession might like to follow the medical profession. I made that analogy in my opening speech. The medical profession has a representative body in the British Medical Association and a separate and distinct regulatory body in the General Medical Council. However, having said that, we must acknowledge that whatever divisions there may be among members of the legal profession about the merits or otherwise of the ABS provisions, there is substantial support from the profession for the view that the Law Society should be a regulator under the new regime and should have representative functions as well.
I was interested to hear Robert Brown’s critique of the unimpressive evidence that he said was presented to the committee by Which? and the Office of Fair Trading. His analogy with the banking crisis was characteristically thoughtful. He suggested that, at heart, it might have been caused by a failure of ethics and professional standards rather than by a failure of regulation. That goes to the heart of many of the concerns that have been raised in the debate on the bill. Fundamentally, people expect those who provide them with legal services to be persons who are qualified in the law. Although the monopoly on the provision of those services is reserved to qualified solicitors and advocates whose range of expertise might be quite limited, people expect providers of legal services to have the same high level of training and qualification over the whole range of legal services. They will be sadly disappointed if that is not the case.
Nigel Don made some interesting observations about the descriptions and designations that may be applied to businesses. Although his speech verged on the esoteric in some respects, it underlined the fundamental principle that by a company’s name is it known. The public need to know the nature of the business with which they are contracting at first hand and the service that they can expect from it.
Along with other members, Cathie Craigie highlighted the work that needs to be done at stage 2.
I thought that Stewart Maxwell was a little dismissive of the concerns about people who might end up owning law firms. There is a greater danger than some people think in that regard, which needs to be examined further. I am talking not just about the test that is to be applied on who can own such a firm, but the supervision and application of that test. The issue is about not just the rule, but the resourcing of the regulator and whether the regulator does a good job.
I was struck by Stewart Maxwell’s point that it is not necessary to own a business in order to provide a service. I remind him that that was precisely the point that I made in the context of general practitioner services a few months ago, on which, regrettably, I could not persuade him or his Government.
I thought that Bill Butler’s winding up on behalf of the committee struck exactly the right tone. He drew attention to the concerns that still need to be addressed and to the need for workable compromises to be arrived at that will bring together some of the disparate views that are held by members of the profession. The committee still has a great deal of work to do on the bill at stage 2, and I wish its members every success in their endeavours in squaring what I think will be an extremely difficult circle.
16:43
I welcome the opportunity to close on behalf of the Labour Party. As a member of the Justice Committee, I thank the clerks and the team at the Scottish Parliament information centre for the amount of work that they put into assisting us during our nine evidence sessions on the bill at stage 1.
The committee’s consideration of the bill was my first outing as a member of the Justice Committee, and I was advised that it would be a relatively calm and uncontroversial journey. How wrong that proved to be. As we took evidence, it became clear that there were strong views on both sides about the benefits and the disadvantages of the bill. As many have said during the debate, there are divisions of opinion within the legal profession and the Law Society. That has made it difficult for the members of the committee to navigate their way through the bill, to understand it, to grapple with the issues around it, and to map a way forward that will ensure that the passage of the bill benefits the legal profession and the consumers and users of legal services throughout Scotland.
As I have said, there are strong arguments for and against. In favour, there are those who point to the modernisation of legal services in England and Wales, and there is a feeling that we do not want Scotland to be left behind. If we are left behind, Scottish firms could become disadvantaged. The minister pointed out that there are potential economic advantages to moving down the ABS route. We do not want to disadvantage our Scottish legal firms. If we can, we also want an opportunity to boost that sector of the Scottish economy. Consumer Focus Scotland pointed out that, if ABS is successful, the bill provides the opportunity of helping consumers by giving them better access and reducing prices.
Against those strong arguments are those who say that the independence of the legal profession is under threat, and that long-standing arrangements, such as the guarantee fund, will be in danger of being terminated. There are also fears that the bill spells the death of many small firms, and that there is a danger of unscrupulous third parties becoming involved.
The committee’s role in assessing the effectiveness of the legislation was not helped by the lack of evidence. The Law Society gave the committee some strong evidence but, as Robert Brown pointed out, some of the other evidence was not so strong. It was also difficult because we did not have strong international examples. The changes that have been introduced in England and Wales have yet to be implemented, so we cannot see the advantages or disadvantages of them yet. The minister quoted Australia, but there are no strong examples nearer to home that allow us to assess whether this is the correct route to take.
Throughout the process, we have seen divisions in the Law Society. It has gone through a number of processes and taken different views on ABS. As far back as 2008, there was a strong vote in favour. There was then a special general meeting, which was halted. In between times, a referendum voted narrowly in favour of alternative business structures, and then the reconvened special general meeting voted against. We are now awaiting the results of the Law Society’s executive’s discussions and a further AGM. I am sure that we all wish Ian Smart and the officers well in their efforts to come up with a consensus and a way forward that can be agreed by the majority of members. That will not be an easy task.
A number of important issues are still to be addressed as we move to stage 2. There are concerns that the legislation could undermine the independence of the legal profession. As Bill Butler and others said, the proposal made by Mike Dailly of Govan Law Centre for a co-ownership model with a 75:25 per cent split is one way forward. Mr Dailly has been critical of ABS structures, and his proposal gives us the opportunity to build consensus.
The issue of regulation is complex. Concerns were expressed at the committee about the power vested in ministers. I welcome the minister’s commitment to look at an enhanced role for the Lord President. That is the correct route to take. David McLetchie is right to point out that we want a level playing field, no matter how many regulators we have. It is important that those proposals come forward.
If the change is to be successful, it must be properly resourced. As I said earlier, ICAS said that the new regulatory system would be costly to operate. The financial memorandum is sketchy on detail, and the finances to back up the bill are not adequate. The estimated cost for moving applications through the process is a minimum of £27,000 and a maximum of £71,000, and the estimated cost for the monitoring of the process is a maximum of £48,000, depending on staff numbers. If we are to address the concerns that members have raised about potentially unscrupulous third-party involvement, we need greater resources to perform the task properly and not the paltry sums that we see in the financial memorandum.
As Bill Butler, Richard Baker and others have said, it is important that we can demonstrate that the proposals give adequate access to justice. As Robert Brown helpfully pointed out, there is an important role for the minister in getting the interested parties round the table to discuss the issues and hammer out a way forward. I recognise that the minister wants to make a robust defence of his bill, but some of his criticisms went a bit too far. He must reach out to those in the legal profession who have been critical and get them on board, so that we can all move forward on the issue.
Labour supports the bill at stage 1, although it will have to be amended heavily at stage 2. We will await further developments with interest.
16:52
I thank all members for their contributions, which have been extremely useful—at times thoughtful, perceptive and coming at the issue from a large number of different perspectives. As our response to the committee clearly demonstrated, we have not only listened to the committee but responded positively to most of the points that it made, many of which have been repeated in the debate.
As Mr Maxwell mentioned, it seems unreasonable that the citizens advice bureaux should not be able directly to employ solicitors. A removal of that restriction would seem to be sensible and easy to effect, and I hope that it will be done at stage 2. The committee recommended an enhanced role for the Lord President. We have given that recommendation careful consideration, and we agree with the committee and the arguments that it adduced to that end. That change, too, will be brought forward.
At the very outset, I indicated to the committee that it is imperative that the new alternative business structures should be subject to the protection of clients in exactly the same way as the principle exists at present with regard to both negligence and fraud. So far as I recollect, I made it clear in my stage 1 evidence that it will be necessary therefore to introduce provisions at stage 2 for a compensation fund, so that clients of the new licensed providers receive protection against fraud. That protection, which a number of members rightly raised, will be introduced at stage 2.
Section 35—on the step-in powers of ministers to act as regulator in the event of default of approved regulators for whatever reason—was intended only ever to be a last resort, and amendments to make that clear will be lodged.
Mr Maxwell mentioned sanctions on outside investors, as I think did Labour members. The argument is well made that there should be sanctions that can be taken on individual outside investors, and that issue will be the subject of amendments at stage 2.
In addition, I have decided that, although I have been told by the Scottish Government’s legal experts that it is not strictly necessary, because it is already implicit in the terms of section 2—in subsections (c) and (e), from memory, which could, of course, be at fault—it should be said explicitly in the bill that those who are working under the new licensed providers business structure will be subject to the same duties of confidentiality that are owed by solicitors to clients in traditional solicitors’ practice. Making that clear will ensure that there is no doubt that we are aiming for the highest ethical standards to be provided by everyone who engages in alternative business structures. That is the type of business that we envisage being done, and that is the type of approach that we will require to be taken.
Nigel Don talked about the terms of sections 1 and 2. Those are the first and second sections of the bill because of the importance that we attach to their provisions. Section 1 sets out the regulatory objectives
“supporting the constitutional principle of the rule of law”,
protecting and promoting “the interests of consumers” and “the public interest generally” and promoting “access to justice”, which Labour members have, rightly, highlighted as a key objective. Section 2 sets out professional principles, which all solicitors hold dear, such as acting “with independence and integrity” and
“in the best interests of their clients”.
In my response to the debate, I hope that I have indicated that we have listened to all members and that we have responded to their points. In most cases, we are responding to the points by doing exactly what has been asked of us.
Richard Baker quite fairly raised a point about claims management companies. We have no fixed position on the matter, and we understand the case the Richard Baker outlines. I welcome the opportunity to discuss the matter with Richard Baker, and I think that that would be useful, even in advance of stage 2.
We are aware of concerns relating to claims management companies, but we are not aware of much evidence relating to malpractice in Scotland. We know of about four or five complaints about such companies, but we do not know whether they can be substantiated. At my request, officials have made inquiries of the OFT, trading standards officers, Citizens Advice Scotland and the former Scottish Consumer Council, but we have not detected a huge amount of evidence. If Mr Baker has evidence, we would like to see it. It might be that this bill is not the correct vehicle for addressing the matter, and I do not know whether an amendment on the subject would be competent—that is for the Parliament to decide, not me. Nonetheless, we wish to engage with Richard Baker on the issue and respond to those concerns.
In case of doubt, as I said in my opening remarks, I have had useful discussions with the profession. I was determined so to do when I took over responsibility for the handling in the Parliament of the bill. I have had, I think, 11 meetings with various interested parties, including several representatives of the legal profession, the Scottish Law Agents Society, the Law Society, MacRoberts and individual solicitors. Even before the referendum, I had sought further meetings and will continue to seek them. I am to meet representatives of individual firms and will have a further meeting with SLAS. Like all members who have spoken, I think that it would be preferable if we could secure broad support in the profession for our proposals. That is what I aspire to, but I will not predict at this stage whether it is achievable—suffice it to say that, for whatever reason, the attempts that have been made in that regard have so far not been successful.
I echo the sentiment, expressed by speakers from across the chamber, that those in the Law Society who have been involved in the bill have carried a huge burden over the past year and have faced a difficult time—I think that Mr Brown referred to it as a torrid time.
I pay tribute to Ian Smart, who will soon demit office as president of the Law Society and who, I think, is present in the gallery today. Ian has worked tirelessly to support the interests of the legal profession and the public in relation to the bill and on many other matters. A sole practitioner, Ian clearly has the wellbeing of all solicitors at heart, and I have no doubt that, in his remaining time as president, he will continue to work hard on their behalf. I thank him for his extremely constructive contribution over the past few months.
I commend the principles of the bill to the Parliament.