South-west firm Burges Salmon is to axe up to four property lawyers and up to 27 support staff in its second redundancy round of the year. The firm said that redundancy pay will be ‘more generous’ than the statutory minimum. In March, Burges Salmon let 18 lawyers go and asked seven prospective trainees to volunteer to defer their start dates. Burges Salmon is also freezing the salaries of all lawyers and support staff except trainees at 2008 levels. Trainees will receive the standard pay increase when they move into their second year with the firm. Managing partner Chris Jackson said today: ‘The proposals we are announcing today are the culmination of the business services and secretarial review we started in March, aimed at achieving enhanced and more efficient levels of service delivery. [The proposals] also represent a considered response to the continuing depressed conditions in the property market. ‘The firm remains strong across our sector teams and practice areas. We are confident that we will be well placed for the economic upturn.’
The Co-operative Group is to launch a fresh campaign to promote its legal services to food shoppers in its 3,000 supermarkets nationwide. The news comes as the group, which aims to be one of the first alternative business structures, told the Gazette that it believes ‘the die is cast’ for legal services reform, no matter which party is in government at the next election. The advertising campaign will see the Co-op’s legal services division promoted for nine weeks in a campaign that will include the use of in-store radio and animated till screen displays. The group aims to increase awareness of Co-op Legal Services by 5%, matching the success of a similar campaign run last year. Co-operative Legal Services managing director Eddie Ryan said the division had increased the number of solicitors and Institute of Legal Executives (ILEX) staff it employs by a third over the past 12 months, and is continuing to recruit. It currently employs around 37 solicitors. Ryan said he was confident that legal services reforms would press ahead, regardless of who wins the election. Comments made by the Conservative shadow justice minister Henry Bellingham last November had suggested that ABSs would be ‘one more assault on the high street solicitor’, with big names able to cherry pick more lucrative work. Ryan said: ‘Having looked at the excellent work the Solicitors Regulation Authority and Legal Services Board have done so far, I can’t see the legal services reforms not happening… Ultimately, we want to be one of the first ABSs. But we have not yet made any hard and fast decision on which areas to expand yet.’ Jonathan Gulliford, sales and marketing director of Co-operative Legal Services, added: ‘The die is cast on ABSs. If there is a change of government, changing direction on legal services reforms will not be high on its agenda.’
Acquitted defendants can claim the full cost of private legal fees, after the Ministry of Justice admitted there is a drafting error in the regulations intended to implement its controversial policy to cap awards. The admission came in documents submitted by the MoJ in connection with the Law Society’s judicial review of the policy, which was introduced in October 2009 to ensure that acquitted defendants who paid privately for their defence cannot claim back more than legal aid rates for their legal fees, regardless of how much they actually paid. The Law Society contends that the policy to cap the costs award is unlawful and ultra vires for the purposes of the Prosecution of Offences Act 1985, which requires that acquitted defendants are compensated sufficiently for expenses incurred. The Society says that limiting the sum recovered to legal aid rates would not provide sufficient compensation. The High Court heard the case last week and has reserved judgment. In its defence papers, the MoJ accepted there was a drafting error in the 2009 regulations, which meant the new rule could not be applied where recovery is awarded by the court. The MoJ papers said: ‘Such a result was not intended by the lord chancellor when he made the 2009 regulations. Accordingly, the lord chancellor intends to amend those regulations as soon as reasonably practicable.’ The Law Society has issued a practice note advising firms to lodge with the court a written application for full costs together with supporting documentation.
Merger activity at small and medium-sized firms climbed by a third in the first half of 2010, according to new research published by the Law Consultancy Network in association with the Gazette. Three-quarters of firms surveyed said they had actively considered the option. Information from 60 firms showed a 34% increase between January and June 2010 in the number of approaches made to or by firms with regard to a possible merger, compared with data for the second half of 2009. But while 75% said they had looked at the possibility, 47% said there was little likelihood of a merger actually taking place. Five firms (8%) said a merger was ‘almost definite’, with 11 (8%) saying there was a ‘good chance’ of it and 16 (27%) saying a merger was possible. Eight respondent firms had completed a merger in the previous year. Responses differed depending on the size of the firm. Of those firms with 10 or more partners, 40% considered there was a ‘good chance’ of a merger or that it was ‘almost definite’. By contrast, 11% of firms with fewer than 10 partners rated the possibility of a merger as high. Firms cited an improved size or structure, and better opportunities post-Legal Services Act, as the main drivers to merge or acquire another firm. The median size of the firms surveyed was 11 partners/members and most were outside London. The sample encompassed 38 general practice firms; 15 commercial firms; 10 private client firms; nine legal aid firms; eight litigation firms; and three firms describing themselves as ‘commoditised’. Andrew Otterburn, the consultant who carried out the survey, said: ‘The possibility of a merger or acquiring individuals from another firm is high on the agenda of many firms. However, most are approaching the issue with a degree of caution. ‘There are some real opportunities but also real risks. It will be interesting to see if the pace of activity increases in 2011 as the Legal Services Act 2007 implementation approaches.’ Fellow Law Consultancy Network member Simon Young said: ‘I would be surprised if any sensible firm was not at least considering merger. Whether they are actively pursuing it is another matter. It should be part of their determined strategy.’ Young warned that firms should approach the issue seriously: ‘It needs to be a more scientific process than just a chat between senior partners over a good bottle of something.’ Peter Scott, founder of Peter Scott Consulting, said: ‘There’s a need for wholesale consolidation in the legal sector. At present, law firms are far too fragmented.’ Scott predicted that over the next five years the number of law firms will fall by half. For firms with four or fewer partners, Scott said mergers will be necessary both to enable them to compete, and to build resources so they can deal with compliance and risk management issues more effectively. ‘The big driver over the next few months will be the professional indemnity insurance renewal, which will be a killer for many small firms,’ he said.
Very few major policies to emerge from the coalition government do ‘exactly what it says on the tin’, and the consultation on reform of the UK’s competition regime, published last week, is no exception. In this case, ministers have given the consultation a thoroughly ‘pro-business’ headline. And it’s true that there is much in the paper with which the CBI finds favour, including stricter timescales for investigations. But proposals that are pro-consumer, pro-government and pro-regulator also have a dramatic and unexpected presence in this consultation. The aim of creating more ‘case law’ – for which read prosecutions, investigations and fines – and mandatory notification for clearance of mergers all fall into this category. This is part of a rapid-fire approach to law reform that is coming to characterise this government. One might have expected a coalition government to change the law less, concentrating on areas of consensus only. Yet this administration prefers to allow many of each party’s pet policies free rein, even when they pull overall policy in different directions. In this atmosphere, lawyers bear a special responsibility to scrutinise reforms. While public policy has some tolerance for internal contradictions, the rival perspectives contained in the competition review are so divergent that achieving the synthesis that both businesses and regulators will welcome is too delicate a job to be left to ministers and civil servants.
Polly Botsford is a freelance journalist The challenge of alternative business structures (ABSs) appears to have given fresh legs to a neologism. Lawyers should be ‘pessoptimistic’ – that is, in a state of contradiction, living with both dread and a sense of opportunity. A pessoptimist (the word was coined by Palestinian writer Emile Habibi) reacts to change with a shrug, a shudder – and a visit to a strategy consultant. The profession could perhaps have coped well with the structural and regulatory changes which are being heaped upon it – were this its only demanding challenge. But the fact is that ABSs could not be happening at a worse or better time (depending on whether you are feeling pessimistic or optimistic). Like the straw that overburdened the camel, ABSs are coming at a time when law firms are coping with an extremely sluggish economy, hefty public funding cuts, new technologies, and more articulate and demanding clients. The licensing of ABSs from 6 October has also brought to the fore concerns over reserved activities and the uncomfortable truth articulated by Professor Stephen Mayson, director of the Legal Services Institute, that 80% of lawyers’ work falls into the unreserved category. But any analysis of ABSs should start with what lies at their ideological heart. The Legal Services Act 2007 was the product of the then Department for Constitutional Affairs’ 2005 white paper, The Future of Legal Services, which itself originated in an Office of Fair Trading report on competition in the professions back in 2001. The OFT report stated: ‘Markets generally work best for consumers when there is unrestricted competition between existing suppliers, and unrestricted potential competition from new suppliers and from new forms of supply.’ What ABSs are designed to do, therefore, is increase competition between existing law firms and introduce new entrants to the market for the benefit of the client. Whether or not one agrees with the OFT’s hypothesis as it applies to legal services, many lawyers would say that competition has been a fact of life for partnerships for a very long time, and firms have streamlined their operations in consequence. But ABSs not only challenge the way that partners run their operations, they challenge the very entities themselves. Driven by an imperative to drive down costs, as a very different kind of competition bites, the partnership-based law firm will become just one of myriad possible business models. We will see incorporation, joint ventures, mergers, acquisitions, franchises, outsourcing and even shared services. To take just one example: today’s typical in-house legal team comprises a cohort of lawyers covering a broad range of practice areas, such as commercial, compliance and employment. In-house departments have grown inexorably over the last few years as a response to a combination of increasing levels of regulation, greater demand for industry specialisation and growing awareness of the cost of using private practitioners. Come 6 October, it will be far simpler for an in-house team to deliver legal services directly to other organisations, as it will not have to set up as an independent law firm to do this. In this way, the team could become income-generating instead of a cost to the business. What could be more attractive in a recessionary economic environment? Denise Nurse, a director at Halebury, one of the so-called virtual law practices, works very closely with one of the firm’s client’s in-house teams at BSkyB. She explains: ‘These in-house teams are in a good place right now. They combine legal knowledge with real business knowledge and skills, so they have something to offer other corporations which private practice cannot.’ The net result is that law firms could find themselves competing with their own clients: curiouser and curiouser. In-house teams could even follow the shared services model. This emerged as a cutting-edge concept in business efficiency as long ago as the 1980s. More recently, it has been employed in local government, where councils’ legal departments have combined to deliver legal services back to their authorities, reducing costs. In the private sector then, instead of a standalone in-house team providing legal services externally to other organisations, teams could do this in combination. Another feature of the newly liberalised market will be consolidation among ‘suppliers’. This happened in the accountancy profession a decade ago. Peter Clements, director at Global BPO, the legal process outsourcing firm, was formerly with Ernst & Young. He says: ‘There will inevitably be fewer suppliers. ‘The combination of the current economic environment and ABSs will encourage consolidation to lower per-transaction fixed costs.’ Of course, amid the creative destruction many will perceive opportunities. Certainly, one of the more obvious shifts will be to incorporation, not only for its own sake but also as a means of opening new doors in respect of joint ventures and, potentially, as a means of selling on the business. Paul Quain and Jon Gilligan set up GQ Employment Law, a boutique employment practice in the City, a year ago and are seriously considering incorporation. Quain says: ‘Part of our rationale is that, if we did want to consider aggressive growth or were seeking external investors, or even buyers, then incorporation makes that much easier and cleaner.’ Gilligan says: ‘We could also look at joint ventures and, again, the incorporated model makes that much more doable.’ But there is more to it than that, says Quain: ‘A company structure is just more modern. If you want to take on someone new, then you can think about shares and share options. And it will be more attractive to the next generation, who prefer to keep things portable and exchangeable, like shares.’ An open and competitive legal market will, then, bring about a variety of business models as the traditional law firm structure is undermined by ostensibly more cost-effective alternatives. In parallel, firms will also pursue new financing options, raising external capital either on the open market or privately. Traditionally, external capital has come from the banks. Chris Marston, head of professional practices at Lloyds TSB, is sceptical about the degree of innovation one can expect in this regard and is comfortable about the potential threat to his business. He says: ‘We have seen no trend away from our core lending such as overdrafts, longer-term loans and partner equity loans. In fact, lending in January was up 8% on January 2010, and this followed growth in 2009. I believe law firms will still come to us for financing because we have expertise in their business. ‘Our solicitor customers are very important to us and we have 150 CPD-trained relationship managers who are trained to understand their business.’ Nurse disagrees: ‘It is actually really difficult for law firms to get an injection of cash, because the banks always ask: “where are your fixed contracts?”, and firms tend not to have them. ‘Firms that have long-standing relationships with banks will get loans, for sure, but often there are personal guarantees involved which will become less attractive when there start to be other financing options.’ Given that last year private equity accounted for three-quarters of UK mergers and acquisitions activity, it would seem inevitable that private equity will have a prominent role. Yet private equity houses remain sceptical. Jon Moulton, former managing partner of Alchemy Partners and now founder and manager of Better Capital, is not jumping up and down with excitement about ABSs. He says: ‘There have been quite a few telephone calls with law firms, but when you actually sit down and talk about it, it is hard to see what would work. If you invest £10m in a law firm, private equity would want to take out £20m in four years’ time. That’s how we operate. How is that going to happen in a law firm? How can the private equity investor make the money which is, after all, his job?’ Moulton outlined two possible scenarios that could interest private equity. The first is in extending the concept of litigation funding: ‘There may be potential to set up a new firm which only did large-scale contingency litigation cases. ‘Existing firms may not do these because of the risks involved, but you could have a big win here which would bring in sufficient income to make the project worthwhile.’ Moulton’s other scenario relates to what he calls ‘the processing points’ – by which he means highly commoditised work. Private equity investment in, for instance, IT for this type of work could generate increases in income at the level and speed required by private equity. There may be a few flotations to fund growth, and much has been said about the pros and cons of listing. The first flotation of a law firm was that of Australian firm Slater & Gordon in 2007 – its shares have more or less tracked the market since. It is more likely that many law firms will find themselves being consolidated within larger cross-professional practices. Global BPO’s Clements argues: ‘Accountancy firms have been waiting to buy up law firms for a long time. ‘We know one of the big four accountancy firms is more than a long way down the road towards opening up its “professional services suite”, which will involve buying in a law firm.’ So, if other businesses want to buy law firms, the next question is: will law firms buy other businesses? There may be firms which buy into accountancy and tax practices, but in theory at least the door is open to a whole range of services into which lawyers could diversify. The elephant in the room, of course, is the extent to which firms that provide consumer legal services will be swamped by major brands such as retail giants entering the market. Co-op Legal Services is already present in a limited way, exploiting its status as a member organisation. The Co-op claims to have far exceeded its original targets when it opened for business in 2006, when it forecast a staff of 150 five years on. Today Co-op Legal Services employs more than 300. Much has been written in the Gazette about QualitySolicitors and its high-profile bid to compete in the new environment by carving out a national franchise on the Specsavers model. Guy Barnett, managing partner at Blakemores, also understands the pull of an attractive brand, as founder of consumer-led Lawyers2You. This operation does not have offices or outlets, but bright and unintimidating stands in shopping malls (indeed, almost every shopping mall in the Birmingham area and at Birmingham Airport). The stands are manned by sales staff who are, quite deliberately, not lawyers. They are there to find out what the passing customer needs help with, to talk about what Lawyers2You could do to help, and to get personal details so that a lawyer can call back later. This is about as far from a traditional law firm as has so far been seen in the market. Barnett is up front about the competitiveness of the big brands: ‘Make no mistake, they want legal services because they want to control all their customers’ buying power. ‘They want you to buy everything you need in the world from them: food, clothes, white goods and so on. One day, without any big fanfare, there will be leaflets at the till, selling you legal services, as happened with insurance. ‘And they know how to upsell. They will sell you your will, but they will also talk about burial options and sell you a plot. They will take on your personal injury claim from a car accident, and they will sell you a new car, and insurance for that car, and so on.’ Still, market observers reckon it is not all bad news: many major brands may use the franchise model and firms will continue as they are, but under that brand’s wing. And it is conceivable that the supply of legal services by major brands could create a whole new set of customers who have never consumed legal services before (economists call this ‘induced demand’). Those who come up with innovative ideas such as Lawyers2You and QualitySolicitors look set to be the beneficiaries. However, there are some practice areas which the major brands will avoid, Barnett predicts: ‘What [they] won’t do is offer matrimonial or civil litigation, because it tarnishes the brand. If you are getting a divorce and you get a letter from Sainsbury’s Law, you are not going to shop at Sainsbury’s again.’ And that is not all that could be tarnished. Lawyers are concerned that inviting non-lawyer participants into the market could undermine the brand of the entire profession. Consider personal injury. After ABSs, one of the more plausible joint ventures will be between claims managers and lawyers. It is argued that this relationship could be unhealthy if not regulated robustly. Andrew Parker, head of strategic litigation at Beachcroft, says: ‘With the additional pressure on solicitors to cut corners, could not the interests of the client conflict with the interests of the business in such an arrangement? ‘Regulatory standards must be kept high and must be enforced.’ Much now rests on the professionalism and diligence of the Solicitors Regulation Authority, which is applying to regulate ABSs and is expected to begin taking applications from 6 August. What the arrival of ABSs has also done in the sphere of regulation, says Crispin Passmore, strategy director at the Legal Services Board, is call into question the concept of reserved activities. The Legal Services Act lists only six activities which are reserved and which therefore only solicitors can deliver. We are all fully versed in what they are (and their origins, thanks to the research of professor Stephen Mayson). At the time, the then Labour government did not choose to investigate why these six were reserved in contrast with those activities which make up the other 80% of the work done by lawyers, such as employment law, will-writing, corporate law, or tax (though some of this activity is bound by codes of conduct from other sources). But it did empower the LSB to add or remove activities from the list. So will it? This is work in progress at the LSB. It has commissioned research on the list and is currently conducting consumer analysis on the specific issue of will-writing. But one must remember that the whole rationale behind ABSs is to open up the market for the benefit of the consumer, so it seems unlikely that the list is going to get much longer. If it is the case that much of the lawyer’s work need not be done by lawyers, but by paralegals instead (as at present, but under supervision), are we going to need so many lawyers in future? Comfortingly (perhaps) Clements concludes: ‘We need lawyers but we don’t need law firms; we don’t need vast offices in prime locations; we don’t need legal secretaries. Lawyers will practise under different brands and umbrellas.’ Which makes sense – just don’t let them come to be called ‘legal services managers’.
I was admitted to the roll in January 2010. I declined to attend an admission ceremony (not my cup of tea). I assumed that my admission certificate would be put in the post but alas it did not arrive. Time flew by and, what with the pressures of work and so on, I never got round to chasing this up. Reminded by the many certificates adorning my colleagues’ offices, I contacted the SRA to make enquires. It helpfully told me that my certificate was issued on 4 January 2010, and if I wanted a duplicate certificate I would have to pay £50 (despite the fact that I never received the original). I accept that £50 is not a lot, but when the only logical possibilities are: (a) the certificate never made it into the postal system; or (b) it got lost in the postal system, I fail to see why I should have to pay £50 for a duplicate. Stuart Adams, Farnborough, Hampshire
RM Napier, Albinson Napier & Co, Warrington Every conveyancer knows that the possibility of an old covenant imposed upon a freehold property being enforced is practically nil. Yet instead of taking a view, as was the practice 20 to 30 years ago, everyone now demands insurance to the great benefit of insurance companies, but, so far as I can ascertain, virtually no one else. Very often the premium will cost something in the order of 25% of the solicitor’s conveyancing costs. If the pre-registration title deeds are available it is sometimes possible to work out who could potentially benefit from the restrictive covenants, but this is rarely the case with registered conveyancing since the Land Registry does not make any entry to show who has the benefit of the covenants. I can well understand someone selling a portion of their garden to a neighbour not wanting their view spoilt, but most newly created covenants are imposed by builders and are designed to keep housing estates in the course of construction presentable until the builder has sold the last property. I note that one or two builders now limit the life of their covenants to a specific period, say five years, and in my view this is a welcome development – surely planning controls are sufficient thereafter for most purposes. Further, the average buyer, notwithstanding the fact that his solicitor reports on the existence of covenants, blithely ignores or indeed more probably fails to understand their relevance, and when building an extension happily proceeds with the benefit of planning and building consent believing that this is all that is needed. Until, that is, he comes to sell the property and needs retrospective consent or insurance. Could we please have a statutory ‘shelf life’ for freehold covenants – I would suggest a maximum of 20 years with the option for certain specialist landowners in particularly sensitive locations (for example, the Grosvenor estate) to be able to register their entitlement to the benefit of longer-lasting covenants. It should be made a relatively complicated matter to register such covenants, perhaps involving an application to the court for leave to effect such a registration and with the court having power to limit the validity of the registration to, say, 20 years but with the possibility of a renewal. Is there any genuine need for the vast majority of old covenants to clutter up the titles of freehold properties?
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