Review of the Legal Profession Act Final Report


Executive Summary



EXECUTIVE SUMMARY OF THE REPORT OF THE NATIONAL COMPETITION POLICY REVIEW OF THE LEGAL PROFESSION ACT 1987


INTRODUCTION

The Legal Profession Act 1987 introduced a comprehensive scheme for the regulation of the legal profession.

As a signatory to the Competition Principles Agreement, endorsed by the Council of Australian Governments in April 1995, the New South Wales Government is required to undertake a review of the Legal Profession Act 1987.

The Competition Principles Agreement requires that legislation must not restrict competition unless it can be demonstrated that the benefits of the restrictions to the community outweigh the costs, and that the objectives of the legislation can only be achieved by restricting competition.

In addition to the review required to be carried out of the Legal Profession Act 1987, a review of the amendments made to the Act by the Legal Profession Reform Act 1993 is required by clause 1B of Schedule 8 of the Legal Profession Act 1987.

The Legal Profession Reform Act 1993, introduced reforms to legal practice, costs and the complaints system. The 1993 Act aimed to foster competition within the profession and make the profession more accountable.

The Government resolved that these two reviews were to be conducted together, and terms of reference were prepared which incorporate the requirements of the Competition Principles Agreement and clause 1B.


TERMS OF REFERENCE

I. The review of the Legal Profession Act 1987 shall be conducted in accordance with the principles for legislation reviews set out in the Competition Principles Agreement. The guiding principle of the review is that legislation should not restrict competition unless it can be demonstrated that:

A. the benefits of the restriction to the community as a whole outweigh the costs; and

B. the objectives of the legislation can only be achieved by restricting competition.

II. Without limiting the scope of the review, the review is to:

A. clarify the objectives of the legislation, their continuing appropriateness, and whether the Act remains appropriate for securing those objectives;

B. identify the nature of the restrictive effects on competition;

C. analyse the likely effect of any identified restriction on competition on the economy generally;

D. assess and balance the costs and benefits of the restrictions identified; and

E. consider alternative means for achieving the same result, including non-legislative approaches.

III. When considering the matters in (II), the review should also:

A. identify any issues of market failure which need to be, or are being addressed by the legislation; and

B. consider whether the effects of the legislation contravene the competitive conduct rules in Part IV of the Trade Practices Act 1974 (Cth) and the NSW Competition Code.

IV. The review is to consider the functions of the Legal Services Commissioner, the Legal Profession Advisory Council, the Attorney General’s Department and costs assessors.

V. The review shall consider and take account of relevant regulatory schemes in other Australian jurisdictions, and any recent reforms or reform proposals, including those relating to competition policy in those jurisdictions.

VI. The review shall consult with, and take submissions from, the Law Society, Bar Association, other organisations representing members of the legal profession, the Legal Services Commissioner, the judiciary, the Legal Profession Advisory Council, consumers, representatives of business and the insurance industry, and other interested parties.

The review considered the continuing relevance of the objectives of the current regulation of the legal profession in the context of competition policy and assessed whether changes to regulation of the legal profession implemented by the Legal Profession Act, the Legal Profession Reform Act and other amending Acts, fulfilled the obligations required by the Competition Principles Agreement.

The issues are complex because the legal services market differs in significant ways from other kinds of markets. The additional requirements placed on legal practitioners to comply with ethical rules, the unpredictable nature of legal outcomes and the possibilities of market failure due to specialisation of some legal services mean that anti-competitive regulation of the legal profession may be justified in some circumstances.

Conduct of the Review

The review was conducted by the Attorney General’s Department, and a reference group was appointed by the Attorney General to advise on the review. The Reference Group was chaired by Mr Laurie Glanfield, Director General of the Attorney General’s Department, and consisted of representatives of the Cabinet Office, the Insurance Council, the Australian Consumers’ Association, the Law Society, the Bar Association, the courts, and the Legal Services Commissioner.

An Issues Paper was released by the Attorney General’s Department in August 1998 and submissions invited from any person having an interest in the profession and its regulation, or the legal services market. Submissions were received from:

• The Legal Aid Commission (LAC)
• The Insurance Council of Australia (ICA)
• Office of the Protective Commissioner and Public Guardian (OPC)
• Mr Rob Zikmann
• Mr Ken Gabb, Acting Chief Executive Officer, Supreme Court of New South Wales
• The Law Society of New South Wales
• Willis Corroun Professional Services Limited
• Mr Wayne Lawrence
• Mr Justice Windeyer
• Mr Reg T. Fisk
• The Public Interest Advocacy Centre (PIAC)
• New South Wales Bar Association
• Mr Frank Riley, President of the former Legal Services Tribunal
• Mr DB O’Connor, Director General, Department of Fair Trading
• Mr Phillip King
• Mr Steve Mark, Legal Services Commissioner (LSC)
• Council of Social Service of New South Wales (NCOSS)
• Mr Wayne Lawrence
• Australian Competition and Consumer Commission (ACCC)
• Mr Simon Rice, Law Foundation of New South Wales
• Mr John Mulhall
• Mr Bruce Cutler, Managing Partner, Freehill Hollingdale and Page
• Dr Peter Lansky
• For Legally Abused Citizens (FLAC)
• Ms Sandra J Welsman
• Ms Marsha Wajnsztajn, President, Australians for Banking Justice
• Mr Peter Rosier
• The Adamstown Branch of the Australian Labor Party
• Mr Robert Sidford, National Secretary of the Australian Institute of Conveyancers
• Mr Matthew McAuliffe
• Mr WJ Drain

The regulation by Government of the provision of general licences to solicitors and barristers promotes the protection of consumers from incompetent service providers. The scheme for universal licensing of lawyers can be justified by the requirement for legal practitioners to adhere to common ethical and professional rules, the complexity of legal work and the need for clients to be assured of access to an independent complaints handling and disciplinary process.

If general licences were replaced by restricted licences, it would be difficult for consumers to be satisfied that a practitioner who could only act in certain areas of law was qualified to accept their instructions.

Nevertheless, the general licensing scheme should not confer an exclusive right to practise in all areas of law. This issue is discussed below.

There may be scope for the general licensing system to be maintained together with other schemes which would permit other service providers to accept some kinds of legal work. However, there appears to be no demand for such schemes at present.

No.

If a selective licensing scheme is to be supported, ethical and professional standards should be developed to apply to any participants in the legal services market, as part of any selective licensing scheme.

A voluntary scheme would offer inadequate protection to consumers. The public benefit of a compulsory scheme outweighs any anti-competitive effects.

Yes. A comprehensive disciplinary system is a necessary adjunct of a licensing scheme which confers rights on solicitors and barristers which are not extended to other members of the community.

Further consideration should be given by Governments to the removal of the requirement for corresponding laws to be passed in each jurisdiction, as a prerequisite to permitting practitioners from other jurisdictions to enter State and Territory markets. The requirement for corresponding laws is likely to affect competition across State and Territory boundaries. However, this consideration should be weighed against the incentive for the enactment of national practising certificates legislation provided by the requirement for reciprocity.

Consideration should be given to the enactment of a uniform scheme for the regulation of the legal profession and the matter should be placed on the agenda of the Standing Committee of Attorneys General. It is recommended that the scheme be administered on a co-operative basis by existing State and Territory based bodies. The removal of inconsistencies between State and Territory schemes would enhance competition and facilitate the development of a national market.

Are the subjects set as prerequisites to admission appropriate, having regard to the diverse nature of legal practice?

There appears to be general agreement among those who made submissions to the review that the subjects provide appropriate academic training for solicitors and barristers. However, it is suggested that the academic training should be complemented by training in client service skills, negotiation skills and communication skills for graduates seeking admission.

No. There does not appear to be public concern about this issue.

Should all categories of practitioners be required to complete the same level of practical training before admission?

The requirement for all students to complete practical legal training promotes competition within the profession because it enables any practitioner to move between different employers and areas of practice, once admitted. However, appropriate exemptions should be available to students on the basis of experience, character and competence.

Any exemptions should be given on a case by case basis. Practical legal training should be a prerequisite to admission for all other students.

No. The experience obtained by employees in the public sector should be assessed on the same basis as that of other applicants for exemption from practical legal training.

In the light of the recommendations made above, exemptions should only be given on the basis of experience, character and competence.

It appears that the removal of the restrictions would permit the entry of unqualified service providers into the market. In an unrestricted market, consumers would be at risk of misleading conduct by these service providers.

Statutory protection of titles can be justified by the application of the provisions of the Act dealing with legal practice, complaints handing and discipline to practitioners who adopt those titles.

The reservation of certain titles to solicitors and barristers appears to be generally accepted in the community. It allows the public to distinguish practitioners who are subject to the regulatory scheme set out in the Act, regulations made under the Act, and professional rules, from other participants in the legal services market.

Yes.

There does not appear to be general concern about any anti-competitive effects flowing from the reservation of certain categories of work to solicitors and barristers. The criteria for any reservation of work should be based on the potential harm to the public if the work is undertaken by a person who is not a solicitor and barrister or a barrister. However, some potential for harm is likely to arise if any legal work is undertaken by unqualified persons.

Although there may be no objection in principle to the introduction of licensing scheme to permit non-lawyers to enter the legal services market, a need for such a scheme would need to be demonstrated and appropriate safeguards included in such a scheme.

Further consideration should be given to this issue, based on the matters set out above.

Where there is a genuine and necessary requirement for legal professional skills, lawyers should perform those functions. In other areas there should be appropriate competition between various professionals.

The issue of separate practising certificates enables clients to identify the branch of the profession of a legal practitioner. There does not appear to be support within the profession for change. Practitioners are able to choose which branch of the profession they wish to join and the titles and type of practice they wish to undertake. While barristers offer specialist advocacy services, solicitors can practise solely as advocates if they choose to and can use the title ‘solicitor and barrister’.

The existence of a separate, specialist Bar facilitates access to specialist advocacy services by the public, and promotes a high standard of advocacy by barristers.

It is possible a voluntary Bar could serve a purpose similar to that of the Bar established under the Act. However, the existence of separate practising certificates complements the enforcement of the Barristers’ Rules by ensuring that barristers are accountable to their clients and that clients are made aware of the professional rules which govern barristers.

The existence of the compulsory scheme provides a means of accountability and supervision of barristers and it is unclear whether these outcomes could be achieved by a voluntary scheme.

An advocate may choose to practise as a solicitor and barrister if he or she wishes to be subject to the Solicitors’ Rules. While those rules confer greater freedom on solicitors to accept work and form business associations, they do not affect the ability of a solicitor to practise solely as an advocate. It therefore appears that any restrictions in the Barristers’ Rules can be overcome if a legal practitioner instead seeks to practise as a solicitor and barrister.

There does not appear to be any evidence that competition between the branches of the profession is impeded by restrictions on the use of titles.

No respondent to the review identified any need for major change in the respective roles of the Councils and the Government in the regulation of the profession. The scrutiny of the Rules by the Legal Profession Advisory Council and the requirement for the reports of the Council on the Rules to be made public ensures that any anti-competitive aspects of the Rules are publicly debated.

However, it is recommended that procedures be introduced to provide for the exposure of professional Rules before they are made to ensure public scrutiny of the making of the Solicitors’ Rules and Barristers’ Rules. The details of such procedures should be settled in consultation with the Councils.

It appears that there is a need for the legislative scheme to be supplemented by professional rules.

Yes. No evidence was provided to the review that the making of Rules by the Councils has had an anti-competitive effect or has harmed the public interest.

It would be appropriate for the current single practising fee to be replaced by a system of two separate fees levied by the Law Society Council and the Bar Council. A compulsory fee would represent the cost of licensing and an optional fee would apply for membership of the Law Society or Bar Association. This system would ensure that practitioners can choose whether to support the representative and membership functions of the Law Society and Bar Association. It is suggested that this proposal would need to be phased in for a period of 3 to 5 years to enable the professional bodies to adjust their activities and resources, if necessary.

It appears that specialist accreditation schemes may have assisted consumers in choosing solicitors with appropriate skills. However, no submission has provided evidence that the schemes have prevented the entry into the specialised market of solicitors who have not received accreditation.

It does not appear that the schemes have had an anti-competitive effect.

There is nothing in the Act to prevent other organisations from offering accreditation schemes. However, an amendment to the Act to place schemes offered by other organisations on the same footing as those offered by the Law Society Council and Bar Council, may be warranted. There may be a need for standards to be developed for such schemes and this issue may require further consideration.

Respondents agreed that the Council has discharged its statutory role, in the review of the Solicitors’ Rules, Barristers’ Rules, and the structure and regulation of the legal profession. The Council provides scrutiny of any potential for anti-competitive practices within the profession.

Yes, although expansion of the role undertaken by the Council as to scrutiny of the Solicitors’ Rules and Barristers’ Rules, as recommended in chapter 5, may be warranted.

There appears to be general support for the balance of legal profession representatives, and lay representatives, on the Council.

It appears that in certain areas of practice where discrete services or transactions are provided, such as wills and conveyancing, advertising may have facilitated competition.

There is limited evidence of harm to the public as a result of the removal of restrictions on advertising. However, it appears that any harm to the public is outweighed by the public benefit conferred by freedom to advertise.

The reintroduction of controls on advertising does not appear to be justified. While ethical standards may be undermined by inappropriate advertising, any attempt to regulate in this area would inevitably rest on subjective concepts. While it is noted that this matter does not appear to have been tested by the Tribunal, the LSC states that vulgar advertising may form a basis for disciplinary proceedings and this position suggests that remedies are already adequate.

Such controls could be justified only if it could be demonstrated that the public benefit outweighed their anti-competitive effect.

The disciplinary scheme does not have an anti-competitive effect because all members of the profession are subject to the scheme. It is possible that the costs of the scheme affects the ability of legal practitioners to compete with non-lawyer service providers within the legal services market. However, the scheme serves the public interest by assuring independence and impartiality, openness and accountability, and external scrutiny and review of the profession. The review of the conduct of practitioners also serves an educative role.

The composition of the Tribunal appears to be appropriate. Consideration should be given to removing the distinction in the application of evidentiary rules between categories of hearings into unsatisfactory professional conduct and professional misconduct.

Yes. It appears to be appropriate for professional disciplinary proceedings to be dealt with in public where an issue of conduct arises, unless there are compelling reasons to close the hearing. However, any hearings into the [mental or physical] capacity of a practitioner to practise should be conducted in camera.

Is the standard required for a finding of unsatisfactory professional conduct, or professional misconduct, appropriate? Should the standard be based on the standards of conduct expected by the profession, or on that of a ‘reasonable person’?

The standard should be based on the standard expected of a reasonable person. However, a relevant factor in establishing the standard is the standard of diligence that a reasonable person would expect of a competent practitioner.

Codification does not appear to be required.

It is noted that the Law Society Council and Bar Council publish reports of decisions of the [former] Legal Services Tribunal. There does not appear to be a need for further publication of the standards which apply or of the decisions of the Tribunal.

Complaints resolution for consumer disputes and conduct issues should continue to be dealt with in a single stream. However, consideration should be given to enhancing the power of the LSC to deal with consumer disputes through:

Consideration will need to be given to the cost of the implementation of the proposed reforms, in the context of their benefits for consumers of legal services.

The existing jurisdiction of the Tribunal to make compensation orders should be increased to $50,000. The upper limit of the jurisdiction of the Tribunal to make orders by consent, currently $50,000, should also be reviewed.

Consideration should be given to giving a broader power to the General Division of the Administrative Appeals Tribunal to deal with complaints which are about costs and service, independently of conduct matters. The costs of such matters should be borne by the parties.

Is the review power providing appropriate scrutiny of decisions of the Councils?

Yes. However, amendments to the Act should be considered to enable the LSC to require a practitioner to comply with a request made in the course of a review and for the LSC to direct a Council to refer a matter to the Tribunal following a review.

Further consultation should be undertaken concerning the conferral on the LSC of an express power to monitor and review the complaints investigation and handling policies and processes of the Councils, and to report on the results of any review directly to the Attorney General or in the LSC annual report.

Respondents to the review have not identified anti-competitive effects flowing from the sole practice rule. However, it is recommended that this issue be considered further following consideration by the ACCC of the rule in New South Wales and other jurisdictions.

Solicitors should continue to be permitted to become members of MDPs, but the current rule requiring a majority of solicitor members should be repealed.

Solicitors practising within MDPs should practise on a level playing field with other solicitors and clients should receive at least the same level of protection.

Provision should be made to ensure that the ethical and professional duties of solicitor members of MDPs and corporations cannot be disturbed by the requirements of other members of the partnership or corporation.

Disclosure should be made to clients of a MDP as to whether the services are provided by solicitor or a non-solicitor member.

Solicitor members of MDPs and corporations should be permitted to obtain professional indemnity insurance and fidelity insurance in common with other members of the MDP or corporation, provided that the minimum terms of the insurance comply with guidelines set by the Attorney General.

Solicitors or barristers should be permitted to form incorporated practices under the Corporations Law. The objects and membership of such practices should not be restricted but, as noted above, clear provision should be made to ensure that solicitors’ professional and ethical obligations are maintained and insurance and fidelity cover is at least as favourable to clients as in the case of other solicitors.

Practices should not be subject to a requirement that a majority of directors hold practising certificates. Regulation should continue to be directed to individual solicitors and barristers, not the structure they adopt for practice.

It may be necessary for the Act or professional rules to make provision to ensure that the professional and ethical obligations of solicitors are not compromised by their choice of business structure. The regulatory scheme should also to ensure that consumers are aware of the different obligations of service providers within MDPs and corporations, and to clarify the application of legal professional privilege to these entities.

Consideration should be given to restricting the membership of incorporated practices and limiting the number of non-solicitors who have voting rights.

Deregulation of the market for professional indemnity insurance for solicitors should take place, subject to appropriate protection for clients being addressed, through minimum standards for policies, run-off and indemnity.

There is no reason in principle that the Fidelity Fund should not be replaced by fidelity insurance.

A deregulated market would provide adequate protection to the public provided that adequate safeguards were developed dealing with the minimum terms and standards, consistent with the terms of the policy now offered by LawCover.

In particular, insurers would be required to offer run-off cover and to accept claims even if no disclosure had been made by the solicitors. Consideration would need to be given to arrangements to be made between insurers in the event that an insurer ceased to operate.

Should there be limits on the price differentials between policies and an obligation on insurers to accept any proposal?

A competitive market will not be established unless insurers are able to adopt risk weighting. Risk weighting is essential to avoid undue distortion of the insurance market through cross subsidisation.

Arrangements will need to be made for the insurance of solicitors who are poor risks. Such arrangements may be an ‘assigned risk pool’, where all insurers are required to accept a certain number of high cost practitioners, or a maximum differential between the minimum and maximum premiums which could be set. A limit on the price differential between policies would ensure that solicitors continue to accept instructions in high risk areas of practice. Any limit should be struck having regard to the relative costs of claims against practitioners with poor claims records and the profits of practices in that category. Insurers should be required to accept any proposal.

The implementation of a deregulated market should be accompanied by compulsory and continuing risk and practice management education for insurable solicitors and barristers. Percentage of each premium paid by solicitors and barristers should be paid into a fund to be administered by the Law Society and Bar Association, and used to provide risk and practice management training. The regulatory bodies would be required to report on the use of the funds in their annual reports.

Compliance with the standards set by insurers by APRA should suffice.

There does not appear to be justification for limiting the number of insurers in the market. However, no other Australian jurisdiction has approved policies offered by more than two insurers because of concerns about the need to ensure a viable market share. It is therefore recommended that a maximum of three insurers be permitted to offer policies for a trial period until the market is established.

There is currently insufficient evidence to conclude that costs disclosure has led to the development of a more competitive market for legal services.

Information about the expertise and charges of barristers is readily available. At present in many categories of matters consumers have insufficient information to shop around for solicitors. However, even if more information is made available, it may not help consumers judge the quality of legal services and it must be noted that this difficulty is inherent in the nature of legal services.

It is anticipated that the survey to be conducted in the near future by the Law Society will provide information about current market rates for solicitors. It is recommended that developments in this area be monitored and that the Law Society, or an independent organisation, be encouraged to collect this information on a regular basis.

It appears that the removal of scales has enhanced competition in certain areas of practice where the services are discrete and predictable, such as conveyancing. It is not clear that competition has affected prices in other areas such as litigation.

It is acknowledged that there appears to be concern among solicitors that the requirements for disclosure set out in the Act are unduly complex. A working group consisting of representatives of the Law Society, the Bar Association, the Attorney General’s Department and a representative of a consumer advocacy organisation such as the Public Interest Advocacy Centre or the New South Wales Council of Social Service, should be convened to consider whether amendments to the disclosure provisions are warranted, and the content of any amendments.

Compliance with costs disclosure should be monitored on a continuing basis by the Councils.

Comparative price information should be gathered on a regular basis from solicitors and barristers. The information should be published and made available by the Office of the Legal Services Commissioner, the Law Society or the Bar Association.

In view of concerns expressed about conditional fees, further submissions will be sought by the Department, as to:

Whether there should be conditional fees at all; and

If conditional fees are to be retained, whether the Act should be amended to require solicitors and barristers to provide clients with advice about the prospects of success before signing an agreement; and to provide that an uplift cannot be levied on any costs incurred after liability has been admitted.

A practitioner should be required to provide a client with the reasons for any revision in the original estimate of a matter. Assessors should be expressly required to review the reasonableness of a revision of an estimate, as part of the assessment process.

Is the costs assessment scheme an effective means of reviewing the fees charged by legal practitioners? Could improvements be made to the scheme? Should there be any change to the provisions governing access to the scheme?

Yes. The rights to reasons and review by a panel of costs assessors, introduced by the Legal Profession Amendment (Costs Assessment) Act 1998, appear to address concerns about rights of review of costs assessments.

Although there is little information available as to the standard applied by costs assessors, few complaints have been made. However, assessors should have access to benchmark fees, which should be made publicly available.

In addition, assessors should publish guidelines for fees to be charged in consumer matters, such as straightforward appearances, probate, and conveyancing. Consideration should be given to publishing guideline fees for other matters, for example, in the form of a lump sum fee for particular categories of litigation.

Consideration should be given to the application of scale fees to matters where costs are passed on to third parties.

Parties to certain contracts, including mortgages and leases, should be required to pay their own costs.

A right of review from the decisions of assessors was introduced by the Legal Profession Amendment (Costs Assessment) Act 1998. These amendments address the need for a right of review.

Mediation appears to be the best way of dealing with small costs disputes, provided that procedures ensure that conduct issues are investigated. The limit applying to mediation should be raised, for mediation conducted by the Law Society and the Office of the Legal Services Commissioner. There appears to be no need for the Act to include further guidance as to the conduct of mediation.

The costs indemnity rule should remain. It is not clear that alternative dispute resolution would contain costs but any consideration of the implementation of alternative dispute resolution should include an assessment of its impact on costs to the parties.