What Can We Learn From the English ABS Experience After Five Years?
After five years of ABS liberalization in England (and Wales), it is worth having a look at what has happened. Surprisingly and significantly, the answer is “not much”.
ABS liberalization in England
A decade ago, Legal Services Act 2007 brought about significant changes to the practice of law in England. These changes included allowing what were called alternative business structures to provide legal services where only lawyers were previously permitted to serve clients. The first alternative business structures were licensed in late 2011.
The essential idea of alternative business structures is that constraining ownership of legal practices constrains competition and innovation. This is not to say that the practice of law is not competitive without non-lawyer ownership. The fact is that there is a large number of legal practices that intensively compete with each other. But the nature of those practices is the same. Highly educated professionals spend time providing services to clients with the assistance of their staff. The practice of law is highly labour intensive and the labour is expensive labour. While these practices compete with each other, they do not have to and are limited in their ability to compete using different ways of providing legal services. From one perspective, law is highly competitive. From another perspective, competition is highly constrained where only practising professionals can provides legal services and own professional practices.
The ABS idea contemplated that allowing non-lawyer ownership would encourage competition and innovation in two ways. Liberalizing access to capital inherently facilitates the provision of services in ways that are less, or are not, labour-intensive. Liberalizing non-lawyer ownership facilitates management of legal practices by non-lawyers who have business expertise and experience. The result was expected to be the entry of new participants into the legal services market. The result was also expected to be the evolution of existing practices because existing practices could have improved access to capital and to non-legal expertise and because existing practices would have to evolve to better compete with new entrants.
The English context
There are important differences between England and Canada that should be kept in mind in considering the English ABS experience. There is a divided bar although solicitors are increasingly permitted to act as advocates. There are eight distinct legal professions[i] with separate front-line regulators, each front-line regulator being under the supervision of the Legal Services Board. There are far more solicitors than all other types of legal professionals combined.
Perhaps most significantly, licensing is not required in England to provide legal services in substantial areas where licensing is required in Canada. In England, only the exercise of a right of audience, the conduct of litigation, reserved instrument activities, probate activities, notarial activities and the administration of oaths are reserved to licensed legal professionals.
The reason that this limited reservation (or limited monopoly) is significant is that being or becoming an ABS isn’t necessary where it is not necessary to be licensed. Accordingly, ABS liberalization and consideration of its results is limited to these reserved areas. ABS liberalization was designed to address what we would see as core areas of legal service.
Bifurcation of the legal services market
Before looking at the English ABS experience, it is also important to distinguish between the consumer and the business legal services markets. It is clear that there has been substantial change in the supply of services to large businesses and other organizations over the last decade. In-house counsel have taken on increased shares of legal work. Alternative legal service providers have emerged to directly supply in-house counsel groups and to provide services through external counsel.
Significantly, it does not appear that this significant evolution requires or is dependent on ABS liberalization as is clear from the fact that much of this evolution has occurred in the United States, which is entirely hostile to non-lawyer ownership and unauthorized legal practice.
In considering the impact of ABS liberalization in England, it is worth keeping in mind that the “big business” demand for legal services is not the same as consumer demand and, more significantly, that the nature of the legal services that are consumed and the way that legal services can be supplied are quite different in these very different markets.
The 2017 Legal Service Board Report
With five years of ABS liberalization in England, it is possible to assess how these intended market impacts have played out so far. With this in mind, the Legal Services Board has released its report Evaluation: ABS and investment in legal services 2011/12-2016/17 (“2017 LSB Report”).
ABSs were first licensed in 2011. By March of last year, 892 ABS licenses had been issued by four licensing authorities[ii] and were in active practice[iii]. To put these nearly 900 ABSs in context, there were just over 10,000 solicitor firms as of the end of 2016[iv] of which 25% were sole proprietorships. It is fair to observe that a significant number of ABSs have been licensed.
According to 2017 LSB Report, the active ABSs are predominantly existing firms that have converted to ABS status. Only one in five of respondent ABSs is a new firm. This means that there are approximately 180 new entrant ABSs and approximately 720 existing practices that have converted to ABS status.
Much has been written about the new entrant ABSs. A significant number have been personal injury consolidators with Slater and Gordon being the most famous new entrant and the most famous failure. Not surprisingly, many new entrants have focused on the more lucrative areas of practice. Not surprisingly, rapid growth and consolidation has been a risky business strategy.
But what about the substantial number of existing practices that have taken on ABS licensing? This is a bit tricky to tease out from the 2017 LSB Report as information some of the reported information is not broken down between new entrants and converted existing practices. But the implications of the reported data is pretty clear.
The focus of the 2017 LSB Report is on the investments made by ABSs and the sources of capital for those investments. It is reported that two-thirds of ABSs have “either have already invested or are planning to do so, since they gained their ABS licence” and that “[t]hese investments have mainly been made to hire more staff, increase marketing activity or to purchase IT. The report sees “this as evidence of the increased scale that allowing non-lawyer ownership was designed to enable”. The report also notes that “[t]here are statistically significant links between higher levels of non-lawyer ownership and the likelihood of having made an investment. Larger organisations are also more likely to have invested in their business.”
These observations are entirely unsurprising. One would expect practices that take on an ABS license to make investments. Larger organizations are naturally more likely to make investments. It would be odd to find that practices with non-lawyer ownership were not making investments.
What is surprising is the source of capital used for investment. According to the report:
The most frequent source of funding for investments was business profits or cash reserves, which were used by 49% of those who had invested in their business. Just over a quarter of investments were solely funded using a loan from a bank, and a quarter were solely funded using the business’ overdraft facility. External sources of equity finance accounted for only a minority of investment funding sources either as the sole or joint source of investment funds, and only 12% of ABS had used any form of external finance.
We know that the usual sources of investment capital for ordinary legal practices are business profits/cash reserves and bank debt. According to the 2017 LSB Report, 88% of ABSs invested using these traditional sources of capital. Only 12% of ABSs used non-traditional sources of capital for investment purposes.
As noted above, only approximately 20% of ABSs are new entrants. As just discussed, only 12% of ABSs has used external finance for investment purposes. Putting these points together, one can only conclude that very few existing practices that have become an ABS have accessed capital that was not previously available to them. It may be that becoming an ABS has been attractive to recruit and to offer incentives to non-lawyer staff. It may be that becoming an ABS has been used to allow family members to participate in ownership. But it appears clear that, so far, access to capital has not been a significant reason to convert to ABS status. As the report puts it “Except perhaps in the personal injury sector, it would appear that bank lending is a substitute for external capital”.
The essential conclusion of the 2017 LSB Report is that there is not yet sufficient competition in the legal services market to require existing practices to innovate:
The low level of external investment seen to date may be a symptom of weak competition in the market overall, as found by the Competition and Markets Authority market study, LSB’s Market Evaluation and the joint SRA LSB research revealing that levels of innovation are not increasing. The dynamics of competition create incentives for suppliers to increase productivity through innovation, which lowers costs and hence prices through time. This is likely to involve taking a different approach to delivering a service, or developing new services completely. In the absence of strong competition, there is insufficient impetus for law firms to take the greater risks (and rewards) involved with using external capital. Until these incentives change we may not see significant growth in the use of external capital by ABS firms.
So what are the implications for Canadians?
What appears to be clear is that not much has happened in England as a result of ABS liberalization. The conclusion of the 2017 LSB Report is essentially that existing practices have not had to innovate because they have not faced strong competition particularly from new entrants. But the report does not address why relatively easy entry into the legal services market and the fact of unreserved areas of practice have not led to increased competition.
It may be that the emergence of new entrants simply takes time. It may also be that existing legal practices are reasonably well suited to the work that they do and that there isn’t substantial profit to be made serving existing reserved legal markets though new forms of practice.
So the implication of the first five years of ABS liberalization in England is that it has not led to much accessing of external capital nor to much innovation. At the same time, it does not appear that ABS liberalization has led to significant problems either. That said, spending substantial regulatory time and effort to enable a significant regulatory change of rather limited impact does not seem like a great use of resources.
Of course, things don’t necessarily stay the same. It is clear that technology continues to advance significantly. There is ample evidence that unlicensed direct-to-consumer legal services are being provided in Canada and that the volumes are likely to increase especially as technology evolves. It seems logically to follow that this will lead to competitive pressure on existing legal practitioners who will require access to external capital to respond effectively. There is a credible argument that limiting access to external capital will handicap existing practices against new entrants.
But it must be admitted that these credible arguments are not yet supported by market evidence in the very significant and competitive English market. The dilemma is that there isn’t cogent current evidence for regulatory reform while our ability to respond nimbly if and when required is doubtful. In resolving this dilemma, my inclination is to watch and wait given the advantage of having the English “experiment” to guide our thinking.
[i] Solicitors, Barristers, Legal Executives, Licensed Conveyancers, Patent Attorneys, Trademark Attorneys, Costs Lawyers and Notaries
[ii] Most of these were issued by the Solicitors Regulation Authority.
[iii] Nearly sixty ABS licensees are not in active practice.
[iv] 84% of English and Welsh lawyers are regulated by the Solicitors Regulation Authority based on data from the 2017/2018 Legal Services Board Business Plan
ABSs can’t make legal services affordable because they perpetuate the same method of producing legal services. In other words, the cause of the problem is that there are no economies-of-scale in the practice of law due to the method by which the work is done to produce legal services. Therefore, the motivation of ABS investors is to “corner the market” on routine legal services. They offer no solution to the fact that any service that takes any significant amount of a lawyer’s time has become unaffordable because the method of producing legal service is now very obsolete. It is a “cottage industry method” that has not evolved to become a “support services method” of production.
All producers of goods and services have moved to a “support services” method of production, meaning that producers do not make every part themselves of their services or goods. The exception is production that is not under sufficient pressure to bring innovation in its method of production.
For example, legal research can be much more cost-efficiently done by highly specialized, high volume legal research support services. And there are several other parts of lawyers’ work that can be done more economically by support services. The medical profession is made up entirely of such support services. There are no “generalists.” Similarly, the “parts industry” is a massive support service for all of the automobile manufacturers.
See: “Access to Justice–Unaffordable Legal Services’ Concepts and Solutions” (SSRN, August 29, 2017); online:
I think what the English experience has shown us is that, no, ABS does not make the sky fall, pigs fly, or hell freeze over. And I think that’s significant in itself.
There are many legal services that could benefit from some form of alternative business structure or innovative delivery service. There are many legal services that could easily scale to serve a large number of people cheaply and efficiently. Most of these are traditionally “solicitor” areas – estate planning, residential conveyancing, corporate work, commercial transactions, etc. There’s space in all of those areas, and more, for innovation and alternative ways of doing business. It seems that most people who argue against ABS or other similar ideas use litigation as the prime example of why it wouldn’t work. But (and please, someone correct me if I’m wrong), I’d argue that the majority of people who use legal services are coming to lawyers for “solicitor” work: doing their wills, buying a house, starting a business, negotiating a lease, etc.
Sure, high-end, complex litigation needs expensive lawyers in big office buildings charging a lot of money. I don’t see that changing anytime soon. But for the majority of legal services that the population needs, liberalizing the business structures to allow innovation would, I think, result in massive, positive changes to how those legal services are delivered.
ABS is the Worst Idea Ever to Hit the Legal Profession.
First, it is inevitable that it would cause a very serious loss of our hard-won independence as the monied string-pullers increasingly over time exerted ever-increasing influence over the then wholly-controlled minions with law degrees who would toil for the remote profit seekers. Adding a whole new level of rapacious profit takers to the legal market is not calculated to reduce the cost of legal services.
Second, far from constraining competition, keeping the profit-seeking vultures away from ownership of the legal profession greatly enhances competition. It is inevitable over time that ABS would lead to a very serious loss of competition as the ever-enlarging ABS firms clump together. It has been predicted in England (population 60,000,000) that all PI work will be handled by no more than 12 giant firms (controlled by non-lawyers) instead of the hundreds if not thousands of firms currently handling that work. Go from thousands or hundreds of firms to 12 and what do you suppose would happen to prices? Look no further than the US which, with no laws to protect lawyers, allowed the predatory and voracious title insurance industry (essentially ABS firms) to decimate the real estate bar, reducing the conveyancing market from tens of thousands of small firms to four behemoths who, according to Fitch Inc., have 87% of the market and who offer, in the words of an employee of a US title insurer, “shit services”. No wonder Americans pay through the nose for conveyancing services in an environment described by the Government of California thusly: “Title insurance is a dysfunctional industry in which the public pays too much” and by the Supreme Court of Iowa as “an invidious form of business”. That, and not the fanciful dreamy hopes of the ABS proponents, is the result of non-lawyer ownership of the provision of legal services.
Third, I have been campaigning at Convocation for over four years that we set up a task force to look at ways to achieve the goals that are falsely claimed as achievable only through ABS; for example, how to identify, find, create (especially create), borrow, lease, adapt or steal (if in the public domain) technology and other innovative advances and ideas for the benefit of the profession and the public. Three Treasurers in a row have refused to do that, including the incumbent who got elected largely on the basis that he was the only candidate opposed to ABS (most benchers are opposed, but, strangely, three of the four candidates were from the small minority who favour ABS; it is too bad that more candidates from the sensibly anti-ABS majority did not run for Treasurer). Instead of dealing with the most important, even existential, threat to the health of the legal system, we have wasted our time:
(a) changing our name on the basis of arguments so logically fallacious that, even in our era of nobody failing anything, would have garnered an F in any credible Philosophy of Logic course (and without waiting for the Legislature to actually pass the law, such is our contempt for the legislative process),
(b) passing a likely unconstitutional and a definitely unnecessary and demeaning Statement of Principles when Convocation, elected by our far-sighted and fair-minded profession, is more diverse than the population of Ontario and when, never before in history, have more people from more backgrounds been succeeding in our profession (an evolution I applaud with all my heart),
(c) wasting demonstrably valuable human resources such that a task force looking at real estate advertising featured one (!) real estate lawyer on it with the result that we botched the new rule (I do not blame the task force; I blame the task force populator),
(d) repeatedly raising false hopes among the members of 2 out of 600 First Nations that, somehow, they have an ownership interest in the trillions of dollars of property values that make up the GTA,
(e) looking at ways to amend, yet again, our governance structure with the stated, but incompatible, goals of reducing the number of benchers but increasing the diversity of Convocation including by practice area (in other words, continue the dumbing down of Convocation, begun in 2009, by throwing away valuable and experienced resources, reducing the number of voting benchers even as our workload increases, while somehow ensuring that more practice areas and any number of clamouring groups are represented),
(f) approving yet another law school, at Ryerson, when (a) we have added two law schools recently (Lakehead, and the more than doubling in size of Ottawa U LS), (b) when there are hundreds of recent graduates for whom there are no jobs (but huge loans!), (c) when the students who will go to Ryerson will be essentially the students whose marks were so bad that they could not get into any of the 14 or 15 law schools in Canada and had to go abroad (Leicester already accepts Canadian students who have, I kid you not, below average undergrad marks and no LSAT), (d) when the foreign law schools will turn to accepting the next lower group of students who, like their below standard predecessors, will return to Ontario and successfully demand to be called to the bar here, and (e) where the Leicesters of the World will now accept students whose “qualifications” will be below that of the below average students currently being accepted,
(g) I could go on but space is limited and my despair tolerance is being reached.
Mr. Mercer says “not much” has happened in England as a result of ABS arriving. Only the loss of hundreds of millions of pounds and hundreds of jobs as firms such as Slater & Gordon and Simpson Millar, among others, crash and burn.
When advised that Slater and Gordon’s investors (mainly two large pension funds) had lost over Six Hundred Million dollars, one ABS supporter dismissed it as “growing pains”. Try telling that to the pensioners who entrusted their retirements to those pension fund managers. Since then, Slater & Gordon have “grown” to cause even more pains, including to the taxpayer funded British court system where they and other litigants are mired in an endless court battle.
ABS has not worked in England. It has caused untold amounts of busywork to be performed by regulators who should have been more profitably employed or not employed there at all. It has caused its supporters to go ever farther out on the limb seeking justifications for this evil, tragically harmful “idea”.
Be careful reading anything produced by England’s Legal Services Board. It is a nest of ABS supporters who cannot now admit they were wrong. Mr. Mercer quotes from the report: “The dynamics of competition create incentives for suppliers to increase productivity through innovation, which lowers costs and hence prices through time.” ABS supporters refuse to acknowledge that a handful of giant corporations are not more competitive than thousands of smaller businesses in the provision of services requiring judgement. Toasters are not legal advice. In reality, there are some “dynamics of competition” that serve to reduce competition. We have to be careful and not employ sweeping platitudes that are not always borne out by experience. We have a highly competitive legal market. We need to channel the profession toward innovations and let the undoubted brainpower in the profession produce the desired goals either by themselves or by seeking inspiration or assistance from non-owners. The task force I have been campaigning for would help immeasurably in that channeling.
Mr. Mercer laments a supposed lack of access to external capital. However, nothing stops law firms from accessing external capital. It’s called loans. With loans, you eventually get rid of the lender. With equity, you are stuck with the other equity non-lawyer owners forever.
Mr. Mercer points out that the ABS firms in England have concentrated on the lucrative areas of practice. Many firms offer services in both lucrative and not-so-lucrative areas. When the plunderers steal the lucrative work from those firms, those firms will not be able to deliver the non-lucrative services on every second street corner in England. What happens to the social fabric then? More government intervention at the cost of yet more productivity-harming tax increases or more government borrowing (i.e., deferred tax increases) featuring even more bureaucracy?
A balance beam is four inches wide in a Universe that is incalculably wide. It is on that balance beam that we find the stability and health of a properly functioning society. It does not take much to knock a society off that beam. ABS is one enormous cannon aimed at knocking a critically important component of society off that beam. When a society’s balance does get knocked off beam, it is almost always caused by a tumbling to the left (communism, money fairy socialism). ABS would be the exception of a cannon aimed at a knocking to the right.
A wait-and-see approach to ABS is more than dangerous. Standing idly by is nothing more than a capitulation to ABS. Even as we write, it is reported that the Big Four international accounting firms are “taking aim” at Big Law here in Ontario, and, of course, at least one title insurer has long been bent on the destruction of the real estate bar, repeatedly lobbying the government to be allowed to do Transfers whereupon they would undercut that bar to extinction and, once the market was cleared of pesky lawyers, would overcharge the public forevermore. ABS needs to be blunted and lanced, now and effectively. The blunting and lancing should have started four years ago. The long-term health of both the legal profession and the public interest is at stake, and that trumps all other considerations.
Small firm solicitor services are very affordable and should never be lumped into the discussion of legal services unafforability. 90% of the fees I collect in a year per file are for less than $990, and many much less than that, all to ferry properties worth hundreds of thousands and over a million dollars through the title and loan security system, or to render estates, through well-drafted wills, easy to administer, or to incorporate or otherwise set up businesses, etc., etc. There is one sure-fire way to make those services far more expensive and less satisfactory: wipe out the small solicitor firms and turn those services over to a handful of giant corporations.
What is not affordable is the Ruinous Time and Cost of Litigation. That can only be solved by greatly streamlining the litigation process (which only government can do) and by reducing the number of people all trying to make a living out of the hides of the disputants (which government could engineer in the public interest). Until we do that, all discussion about improving access to justice is just tepid air.
Thank you, Malcolm, for your thought-provoking post. As I read it, the following came to mind:
1) It is true that England & Wales regulates ABSs in a heavy-handed manner. It is also true that traditional structures in England & Wales are regulated in a nearly equally heavy-handed manner given that many of the regulations that apply to ABSs in fact apply to all legal service providers.
2) It should not be assumed that it is necessary to regulate ABSs or traditional structures in such a heavy manner. Australia does not come anywhere close to England’s heavy regulation – no one claims to be suffering from this and no one is calling for heavier regulation of ILPs or other legal service providers in Australia. In fact, in 2015 New South Wales and Victoria lightened the regulatory load for ILPs via the Legal Profession Uniform Law, with the result that in those two states they are now regulated in much the same manner as traditional structures.
3) There are a number of ABSs in England & Wales and ILPs in Australia that I think many would describe as “innovative” in some manner but whose neither purpose nor objective has ever been to obtain significant amounts of outside investment. Indeed, the ABS/ILP structure can be used to achieve a number of different purposes, it is not by any means useful only for the purpose of receiving outside capital investment. Here are just some of those ABSs and ILPs: Aspire Law, Proelium Law, Counterculture Partnership, BMA Law, Radiant Law, Schillings, Omnia Strategy, Omnia Legal, LegalVision, BPIF Legal, Road Traffic Representation, Nottingham Law School Legal Advice Centre, and, of course, the often-cited Salvos Legal. Others have used the ABS structure less in order to innovate with respect to client services and more in order to innovate for their employees by offering share ownership and/or profit sharing schemes, for lawyer and non-lawyer employees alike: Stephens Scown, Postlethwaite.
4) For the most part, today in Canada as well as in the United States lawyers have a monopoly on the practice of law. Of course you can (and many do) argue about the full extent of that monopoly, but the bottom line is that there is a large portion of the legal services market that today is reserved for lawyers and for lawyers only. At the same time, there is a huge unmet need for legal services – lawyers are unable or unwilling to meet the need – they don’t even come close to meeting it. England & Wales as well as Australia prove that it is possible to open the market to other legal service providers without causing the harm that so many predicted would result. Australia proves that this can be done with light regulation – that the heavy regulation of England & Wales is by no means necessary. Given all this, by what right can lawyers in Canada and the United States continue to claim that the entire legal services market should belong to them? By what right can lawyers require proof that opening the market will actually result in increased outside investment, or indeed increased access to justice at all? In what other markets do we require proof that new entrants will “succeed” before we let them in, and, in that case, who would get to define and measure “success”? Should we in turn require lawyers to prove that their monopoly is the best way to assure access to justice? Could lawyers prove that? Don’t the responses we give to these questions touch at the very heart of the purpose of legal services – who they are intended to benefit and protect?
Jamie Nay: Obviously you do not value the services provided by solicitors, even though you are one, so willing are you to cast that bar to the wolves.
You cannot possibly be a wills lawyer if you think machines and algorithms can produce better results. What about detecting undue influence by the bad child hovering just out of keyboard or Skype range? What about issues of witnessing and getting an affidavit of execution commissioned? What about the innumerable very subtle issues that arise in the in-person meetings with the clients? The most remunerative estates files I ever open are the wills that have been done without the trained, in-person assistance of a lawyer. The second most remunerative are the estates with no will. The least remunerative, by far, are the estates featuring well-drafted, lawyer-prepared wills.
Solicitor services outside big firm work are extremely affordable. In jurisdictions where allowing nonsolicitors to deliver those services has been tried, the result has been far higher costs to the public and a noticeable drop in the quality of the services delivered. You do not have to believe me. Read the research already done in the US. They have the worst world of high conveyancing costs and lousy service. We have a far better world of low conveyancing costs and far better service (although the entry of “dysfunctional” and “invidious” title insurance into Canada is eroding that quality).
You say “the English experience has shown us is that, no, ABS does not make the sky fall, pigs fly, or hell freeze over”, but that fails to apply the lessons of history. Just as Rome was not built in a day, the garotting of the legal profession and public interest does not occur in a day. Major changes such as letting go of our independence and being swallowed by the vulturous market consolidators would happen in lurches. Our generation of lawyers, including you, would probably not change our spots, but the next generation certainly would. Money is too powerful and the nonlawyer string pullers would demand financial coverage, not just for our current costs of (a) overhead, (b) income to the lawyer, and, if you are in a firm large enough to be subject to billing targets set by management/compensation committees, (c) return to the partners, but also (D) profits to the string pullers. Explain to me how adding a significant additional layer of profiteering is going to benefit the public. You may say ‘economies of scale’, but that would return me to my point that the handful of giant companies that have cartelized conveyancing in the US have given absolutely no benefit of any such economies, if they even exist, to the public. The small firms that handle the overwhelming majority of real estate deals are lean operations. We have to be because the competition from the thousands of other real estate lawyers is so fierce. That is what benefits the public, not some fantasy that big business is always the answer.
Another very major problem with ABS is that, once allowed, it can never be reversed. The Australians and the English are going to find over time that their decisions have greatly harmed the public interest and the legal profession.
To me, supporters of ABS are like missionaries assisting cannibals. We need to stop passing them the salt. We need to wake up to this evil threat and fight it.
Laura Snyder: Regulation in Australia may not be heavy-handed. I don’t know. I will take your word for it. But if they have temporarily lightened the regulatory load, just wait. It is the nature, even raison d’etre, of bureaucracies to bloat over time. Further, did they lighten the load when it comes to ethics? Competence? Practice Standards? Not likely, nor should they have.
In any event, ABS is wholly unnecessary to allowing staff to benefit from profits. Incentive bonuses, ex post facto bonuses, and salary increases work perfectly well but without the evil of giving up ownership of the legal profession to nonlawyer profit seekers.
ABS is wholly unnecessary to access external capital. Borrow and pay back. That is far, far, far better than giving up ownership. If your plan is good enough, you will have no trouble borrowing the money. If it is not good enough, you should not be allowed to access vulture money where the price of that access is the loss of our independence and guarantee of an increasingly consolidated, anti-competitive market.
As for lawyers having a monopoly, it is not a monopoly as that word is normally used. It is a “monopoly” featuring tens of thousands of competitors in Ontario alone. That healthy competition has, for example, kept the low, small-firm solicitor fees stable against inflation for over 50 years. Nor are such lawyers getting so rich that they can retire at 55 on a guaranteed, inflation protected pension. The average age of retirement is close to 75 and the pension are anything but guaranteed and inflation protected.
The problems of high cost to the public are almost entirely on the litigation side of legal services. You are right when you point out far too many people cannot access those services. But that problem cannot be solved by turning ownership of the legal profession over to investment houses. As England has proven, these profit-seekers are mainly interested in lucrative areas of law especially where there are opportunities for a fast buck. Early settlement PI files are an example of the fast bucks being salivated over. Late settlement PI files still interest them though. How competitive would an ABS PI world be? The English are predicting such a monumental consolidation in an ABS PI environment that they might be left with 12 giant firms doing all PI work.
The problem of unaffordability of litigation services has two main causes: One, a dispute resolution system that is deliberately, though short-sightedly, structured by government to be expensively grinding in order, they suppose, to reduce or avoid the need for more judges, court staff, and court infrastructure. And two, far too many litigation lawyers per capita such that the pan-profession billing calibrations required to make a decent living (retire in your 70s in less security than an elementary school teacher) tip from efficient resolutions of disputes to churning those resolutions.
Resolving disputes takes far, far, far too much time, and time is money. Until the time it takes to resolve disputes is reduced, we will never solve the problem of unaffordability. Governments can easily create the means to truncate the time, but so far, through myopia, they have steadfastly refused to take effective steps to do so. Many people, even people in government, even many judges, and other people like me know this and know how to do it, but it doesn’t get done. It would take a wise and far-thinking government to do it, so don’t hold your breath, so perpetually focused are they on the next election.
I agree with you that legal services should be delivered for the benefit of the public. It is one reason I turned down numerous invitations to join firms large enough to impose billing targets on their lawyers. I hate billing targets. They force (yes, force) the lawyers to be more interested in pleasing the compensation/management committee’s desire for maximum cash intake than in the efficient handling of the client’s matter. I have never set a billing target. I do the work efficiently and competently. At the end of the month, the bookkeeper tells me what I earned. No client of mine is ever charged for unnecessary research, sending unnecessary letters, bloating up documents with endless boilerplate, and so on. But that’s because of two reasons. One, I am busy and have no time for inefficiencies. Two, I only have to please my clients, not a management committee.
When there are too many lawyers per capita (an evil second only to too few lawyers per capita), then the lawyers are not busy unless they work to make themselves busy, mostly by putting too many frankly unnecessary hours into a matter (churning), and by looking under every rock for a reason to sue, sue and sue. These two problems, plus having allowed the invidious title insurance industry to take over the conveyancing market, are what have turned the USA into the World’s most expensive legal market. They have the highest number of lawyers per capita in history. Shouldn’t they have the lowest cost legal services as a result? Instead, they have the highest cost legal services in history. The US experience is a gigantic billboard of what not to do but, we in Canada, are such witless zombies that we have been steadfastly copying every American blunder ever made. We are not better people than the Americans (indeed, they are far more generous than we), but we had a better system. We are in the process of destroying that advantage. The inevitable result is the replication here of all the American legal miseries. It is to cry.
The delivery of legal services does not follow the traditional economics of supply and demand to the same degree as most sectors of the economy. Lawyers can drive demand for our services in ways that most sectors of the economy cannot. That is why we are regulated with statutorily-imposed ethical requirements. It is no accident that there is no Society of Refrigerator Makers and Purveyors of Saskatchewan. The manufacturing and sales of appliances are regulated by consumer protection laws of wide and general application because the appliance customer can quite easily determine their needs. But because lawyers and some other professions such as medicine and engineering can drive demand for our services, it is necessary that such professionals be regulated by profession-specific bodies mandated to act in the public interest.
Too many lawyers per capita inevitably results in a driving up of demand for legal (especially litigation) services. Where generating demand for dispute resolutions demands is concerned, those services come at an immeasurably great societal cost (the legal costs themselves, stress-related reductions in workplace productivity and access to medical care, frayed family and social relationships).
If governments were to force law schools down to actuarially sensible admission and graduation rates, one can imagine the howls of protest from some members of the public claiming that it would be just feathering the nests of lawyers. Yet, the overall cost of legal services to the public would come down, as history has proven. Further, a time-reducing streamlining of the dispute resolution process would allow for a huge increase in the number of disputants being represented at affordable (because less time) rates. Why don’t we do that? It’s not lack of knowledge. It’s Myopia, Inertia, Paralysis, and Vested interests.
And ABS is not the answer. It is an exacerbation to the problem.
My intent in this column was modest, being to look at newly available data and to see what might be learned from it.
England is a useful laboratory for those who are interested in and prepared to engage with evidence. As matters currently stand, the English and the Canadian markets broadly divide into the consumer market and the larger organization market.
From a regulatory point of view, England is interesting for a Canadian because only the “core” or traditional legal practice is regulated (i.e. reserved). There is little if any point taking on an ABS license unless the intent is to perform “reserved” activities. Thus, the LSB data provides insight into what happens if non-lawyer ownership is allowed in traditional practices and in new entrants that compete with traditional practices.
What the English data tells us (so far) is that traditional practices don’t take on ABS status to access equity capital. Presumably, they become an ABS for tax reasons (i.e. income sprinkling) or to include a non-lawyer staff member as a partner. The effective point made by the LSB report is that traditional practices aren’t really doing things differently (which would require capital) and remain labour-intensive professional practices.
The implication of this evidence is that permitting non-lawyer ownership of traditional practices in Canada is not likely to have much effect. The fact that traditional practices in Quebec have been permitted significant non-lawyer ownership for some time with little effect seems to corroborate this. There are two possible justifications for this. One is that traditional practices aren’t forced to evolve in order to compete (the LSB view). The other is that the traditional approach is currently the most effective approach in traditional areas of practice. Mr. Wright seems not to appreciate that the conclusion that I drew was that the current English evidence argues against permitting non-lawyer investment in traditional practices. My “wait and see” observation reflected that the evidence might change and that we should be open to that.
It is also important to recognize that the non-reserved area in England is economically significant, is not regulated, seems to be working reasonably well and has been judged by the LSB as being relatively innovative. This LSB report inherently did not address the unreserved sector because it is not necessary to be an ABS to provide unreserved services. In most of Canada much what is unreserved in England is regulated but is unserved. As I have observed previously, it is hard to understand demanding that work be limited to lawyers and paralegals that is not actually being done by them.
I don’t suggest that some interesting things aren’t happening in England. But it is significant that not much of what is interesting is on the consumer side where access to justice is the issue. And where interesting things are happening on the consumer side seems to be where technology is brought to bear in direct-to-consumer applications outside of the reserved area.
I just say that the evidence does not seem to me to justify the time, effort and cost of allowing non-lawyer investment in traditional practices.
Thank you, Malcolm, for clarifying that you do not think that the evidence from England justifies non-lawyer ownership in traditional (‘reserved’) practices. However, I argue that sitting back and waiting to see how things evolve in England is dangerous. Inactivity on our part is to invite incursions that would be increasingly hard to reverse. There have been several articles lately about attempts to make those incursions by, for example, some international accounting firms, and, of course, there is a least one title insurer who never seems to stop trying to rout the real estate bar in the insurer’s naked self-interest.
If you have the time, it might be helpful if we had a clearer picture of what are reserved areas and what are unreserved areas of legal practice in England, and how they match up with those of our legal services that are reserved for lawyers.
One of the major claims, if not the major claim, made by many supporters on behalf of ABS is the supposed improvements to access to justice that ABS would supposedly bring about. Then we see that what most of them are really talking about is the sacrificing of the small firm solicitor bar, whose fees do not constitute a barrier to justice, to large corporations with track records of higher costs and lower services than what solicitors deliver. In the whole at that exercise in sacrificing the solicitors, no breath is exhaled on the subject of the actual, enormous barrier, the only barrier worth the time and effort to address – the Ruinous Time and Cost of Litigation.
Readers are asked to forgive me for being a tad cynical about the whole exercise. After seven hours of discussion over five months, the ideas proffered for improving access to justice were (1) more money for legal aid (to be extracted somehow from the most indebted sub-national government in the world), (2) more e-filing, (3) more pamphlets in more languages, (4) re-purposing the Shirley Dennison fund to laud someone who does something beneficial wrt A2J, and (5) encouraging indigenous peoples to use circles of healing instead of the court system. I support all five ideas. Not one of them amounts to a flea’s sneeze toward reducing the time it takes to resolve Ontario’s litigious disputes. Those ideas, coupled with the ridiculous attacks on the modest and demonstrably affordable fees for wills and real estate deals, have made me very cynical indeed about the real motivations of many ABS supporters. Some clearly believe that they will make a killing in an ABS world. None of them believes that they will suffer economically. Others might (and isn’t that just too bad), but not them. Some clearly believe that all this hoohah and the sacrifice of the solicitor bar is necessary to ensure that the golden goose of outrageously high litigation costs is not touched or even examined. I do not accuse you, Malcolm, of harbouring those thoughts. I know you to be an honourable man.
What is utterly insupportable is our failure at the Law Society to set up a properly mandated task force to look at ways to provide the benefits falsely claimed as only being possible through ABS models. The County of Carleton Law Association has a technology committee mandated to identify and recommend on issues of technology and innovation. As if often the case, the CCLA is ahead of the curve. For example, we already have a position on the Board of Trustees reserved for a lawyer with fewer than ten (or is it eight?) years experience.
A law society technology and innovation task force would have to have an even broader mandate than that of the CCLA committee, but such a law society committee should have been set up four years ago, as I have continued to harp. It is a disgrace that we have let four years slide by on this issue.
If I do not reply to a reply in a timely way it is because I will be away for awhile. All the best to all who contribute to and read SLAW.
This column is interesting when contextualized within this debate:
Lawyers’ class action over unpaid employment benefits masks regulatory inaction over unauthorized legal services:
Deloitte has taken the position that the lawyers weren’t providing legal services. That suits the class just fine, because individuals providing legal services don’t enjoy the protection of Ontario’s employment standards legislation, on which they found their lawsuit.
At first blush, then, Deloitte’s position seems an odd strategy, because it deprives the firm of the argument that the lawyers weren’t entitled to the benefits they claim in the first place.
But there’s a back story here: admitting that the class performed legal services would almost certainly have exposed Deloitte to charges that the firm was involved in the unauthorized provision of legal services. Currently, only firms owned by lawyers can provide such services.