Brian Inkster

Section 47 to 49 of the Legal Services (Scotland) Act 2010 allowed for the creation of licensed legal service providers (commonly referred to as alternative business structures) in Scotland provided they remain, in effect, in 51 per cent solicitor ownership.

Fourteen years later and that provision has yet to be fulfilled with the legal profession still awaiting the Law Society of Scotland, as approved regulator, allowing the first applications to be made to them.

Section 80 of the Regulation of Legal Services (Scotland) Bill seeks to reduce that ownership percentage to 10 per cent.

There are many observers, including myself, who consider that the reduction should be to zero per cent.

Motion against Alternative Business Structures at the AGM

Some, however, think the opposite and there is a motion before the AGM of the Law Society of Scotland this Thursday by Michael Sheridan and others asking the meeting to resolve:

“that the Law Society of Scotland calls upon the Scottish Parliament and the Government of Scotland to exclude said section 80 from the 2023 Bill and to repeal said sections 47, 48 and 49 from the 2010 Act and to make such other statutory amendments as may be required to exclude the operation of ABS in the Scottish jurisdiction.”

Michael Sheridan previously set down his reasons for this in a letter to The Herald published on 31 July 2023 to which I, at the time, responded.

Mr Sheridan’s motion to the AGM of the Law Society of Scotland pretty much mirrors that letter.

He believes that the Regulation of Legal Services (Scotland) Bill 2023 (which he mistakenly refers to as the Regulation of Solicitors (Scotland) Bill 2023) is a threat to solicitor service as we know it. This could not be further from the truth.

Arguments against the motion

Legal practices currently operate as private businesses run to generate profit for their owners. They are not, and can in no way be considered to be, “public assets”.

They do, however, as Mr Sheridan says, currently enjoy a monopoly in that those owners must be practising solicitors. That monopoly was correctly identified some considerable time ago as not being in the best interests of the legal practices nor consumers.

In England & Wales that monopoly was removed by the Legal Services Act 2007. The first Alternative Business Structure under that Act was licensed on October 6, 2011.

The liberalisation of legal services in England & Wales was often referred to as “Tesco Law” due to a fear that supermarkets would start providing legal services. There was fear amongst certain solicitors that they would lose their livelihoods as a result. That never transpired. Instead, non-solicitor spouses become part-owners in a business they had supported as did employees. More options were now available to law firms for raising finance and for succession. Thirteen years of liberalisation of legal services in England & Wales has demonstrated that there is nothing to fear from us adopting the same approach north of the border. Indeed, there is, on the contrary, everything to be gained by so doing.

Speed in introducing Alternative Business Structures

However, Scotland has been very slow in the uptake. The Legal Services (Scotland) Act 2010 (enacted on October 9, 2010) introduced for the first time the concept of Alternative Business Structures in Scotland.

It took more than 11 years for appointment of the Law Society of Scotland as an approved regulator. That was announced on December 22, 2021. However, the scheme still has to launch.

Under that scheme, whenever it sees the light of day (which we are continually told should be soon), 51 per cent of an Alternative Business Structure must still remain effectively in solicitor ownership.

The Regulation of Legal Services (Scotland) Bill, simply seeks to reduce that percentage to 10 per cent.

My view, and that of many others, is that the ownership percentage should be reduced to 0 per cent to give Scotland parity with England & Wales.

Amendment to the Motion by the Council of the Law Society of Scotland

Thus, I consider that Scottish solicitors should be opposing Mr Sheridan’s resolution at the AGM and instead approving the amendment put forward by the Council of the Law Society of Scotland, which is that the Society:

1. Notes that the Legal Services (Scotland) Act 2010 provides for the creation and regulation of licensed legal service providers ‘alternative business structures’ and was passed unanimously by the Scottish Parliament in 2010.
2. Notes that this legislation followed votes of the Law Society membership both in favour of LLSPs and of the society regulating these new entities
3. Notes the cross-party support in the Scottish Parliament for changing the current ownership requirements for LLSPs through the Regulation of Legal Services (Scotland) Bill, a position now also supported by the Scottish Government.
4. Believes the best protection against any risks associated with LLSPs is for an effective and robust system of regulation of these new entities.
5. Therefore agrees that the Council should continue to press for amendments to the Regulation of Legal Services (Scotland) Bill currently before the Scottish Parliament in order to address deficiencies in the 2010 Act and ensure that the proper regulation of LLSPs can commence.

Although, it would be interesting to know what amendments the Law Society consider need to be made to the Regulation of Legal Services (Scotland) Bill in order to address supposed deficiencies in the 2010 Act and ensure that the proper regulation of LLSPs can commence.

What do your clients think?

Rob Aberdein commented on Mr Sheridan’s (at the time proposed) motion in an article in The Scotsman, on 20 May 2024, by saying:

“My overriding thought… and the question I’d pose to the Scots lawyers reading this, is – how would members of the public ‘looking in’ view the current debate within the profession and what might they conclude was the best way forward to advance their interests? Would they perhaps be encouraged by the prospect of investment that improves the customer experience and the removal of a monopoly? If the client was able to ask those advocating for the status quo to outline the positive arguments for the consumer, I also wondered what these might be? I struggled to come up with any to be honest.

“The very nature of the profession and all that’s good about it means that healthy debate about its future should be encouraged and facilitated, but ought the debate not to centre on what is best for our clients, as opposed to what is best for some in the profession?”

As part of the consultation process, consumer representative bodies came out wholeheartedly in favour of alternative business structures with no percentage limit on ownership. For example, Consumer Scotland stated that they “support these proposals as they are likely to improve access to services for consumers, especially in areas which are less well served by private practices”.

Competition and Markets Authority

Sharon Horwitz of the Competition and Markets Authority said that alternative business structures in Scotland would provide several benefits like:

“Access to external capital efficiencies, the ability to achieve efficiencies by exploiting economies of scale, the ability to retain high-performing non-solicitor employees or attract outside talent, the involvement of non-legally qualified practitioners in management who could facility entry of more business oriented firms and the ability to deal with entry and exit, allowing partners in small firms who wish to retire opportunities to transfer opportunities.”

These are all benefits that the legal profession should be embracing and not rejecting.

If Mr Sheridan’s motion is approved on Thursday, it will undoubtedly reflect badly on the legal profession as a whole and demonstrate we are inward and backward thinking.

Voting

Members of the Law Society of Scotland can vote online (via their own online membership logins) on this resolution as amended up until 12 noon on Tuesday 25 June 2024 or at the AGM on Thursday 27 June 2024 at 5.30pm.

If you wish to attend the AGM you should email the society at agm@lawscot.org.uk, by 12 noon on Wednesday, 26 June, marking your email as ‘AGM 2024 Registration’ in the subject line.