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Dáil and its legal reforms are pro-lawyer

The circumstances of the demise of former Minister for Justice, Alan  Shatter, diverted attention from the risk of the thwarting of his reforms of the legal profession. Infamously many ministers, and their – often informal – advisers, are lawyers.

Indicative of the problem is that at the last reading of the proposed reform bill, it was clear that both Fianna Fáil and Sinn Féin, the principal opposition contributors on the bill,  had nothing to contribute beyond what they had been fed by the representative bodies of the legal profession, the Law Society and Bar Council.

The only person who seemed concerned by this was, ironically, the ex-Minister himself, a high-flying solicitor. Under successor minister, Frances Fitzgerald, the substance of his proposals remain intact. So far.

To the detriment of all but the most pampered senior lawyers, they do not go far enough anyway.
When the bar is accused of privilege and anticompetitive practices, the defence is often proffered that the fact that so many barristers are struggling and even leaving the profession proves lack of privilege and anticompetitive practices. This defence is incorrect.

On the contrary, in a profession, the relative suffering of the incoming juniors is indicative of anti-competitive practices, not of their absence: both the general public and those less established in a profession pay for the profession’s obstruction of competition.

Ireland shares with the UK the distinction of maintaining the highest legal costs in Europe, and a similar system of practices, including separate functions for barrister and solicitor, the real pressure to hire three lawyers in the higher courts, the much-questioned institution of Senior Counsel, and a system of legal-cost adjudication (formerly called ‘taxation’) in which the question of whether a lawyer has overcharged you is decided in a process which seems designed to punish you severely for challenging the lawyer’s bill.

Obstacles to barrister right of establishment and to price competition

Two key obstacles to barrister competition are restrictions on advertising, particularly of fees, and prohibition of direct access to barristers by clients (approach must be done through a solicitor).

These obstacles have a powerful twofold economic effect in favour of established barristers: first, they obstruct new entrants from establishing themselves, getting market share and competing with the incumbents; second, they inhibit what economists call price competition: the system inhibits the client’s ‘shopping around’ for the best-value barrister for their needs, and haggling for fees, and thus bringing normal market forces to bear for lower fees.

These two obstacles are of the Bar Council’s own making and it vehemently resists their repeal, desite the issuance of an infringement ‘formal notice’ by the EU Commission in November 2013. Theoretically the solicitor can do this ‘shopping around’ for the client. But there are three major problems with this.

Firstly, the solicitor is not necessarily going to take this ‘shopping’ seriously enough as her own money is not on the line.

Secondly, as this shopping takes the solicitor’s time, the solicitor can bill for it; if she does not, she is not incentivised to work thoroughly on it.

Thirdly, there can be a fee-splitting practice where solicitor and barrister, while having actually billed the client distinctly, aggregate their actual received fees and split them. Fee-splitting is a form of kickback to the solicitor on the barrister’s fees, and actually puts price competition in reverse by perversely incentivising the solicitor to use a more expensive barrister.

The barrister’s code of practice is totally silent on any such kickbacks; it does not prohibit them or even require that the client be notified of them, indeed it does not mention  them at all.

Investigation by the Irish Competition Authority

The Irish Competition Authority investigated the Irish legal profession and in a final report published in 2006, concluded that the legal profession was “in need of serious reform”, and “permeated with unnecessary and disproportionate restrictions on competition”.

It set a target date of 2008 for the implementation of its many recommendations. As of 2014, the most important recommendations have not been implemented.

Troika pressure and glacial government response

The Irish government was under pressure from the Troika to reform the legal system and to do something about excessive legal fees. The first draft of the Legal Services Bill was published in 2011, already three years after the Competition Authority’s target date for implemented reforms.

Since then, the draft bill has sat on the shelf for a further three years. In November 2013, the European Commission initiated an infringement procedure against Ireland (reference NIF 2013/2192) for continuing to allow the Bar Council to maintain the restrictions it has on advertising.

The first draft of the bill had many problematic provisions, some of which have removed or improved in the new draft of the bill.

Key obstacles to barrister competition not removed

The draft seems to be pretending that it is implementing direct access to barristers, with a heading ‘code not to prevent direct access to barrister’. When you look closely, it is only implementing direct access in ‘non-contentious’ cases, that is, about 2% of barristers’ work.

The bill does not mandate effective freedom of advertising for barristers at all.

Flagrantly unjust legal cost adjudication regime

The current draft of the Bill codifies and slightly modifies an existing 18th-century practice of financially flogging those who challenge lawyer’s bills: if you challenge your own lawyer’s bill and she is found to have overcharged by anything less than 15%, you have to pay an 8% ‘stamp duty’ on that bill and, additionally, the costs of the hearing.

An even worse current practice is left unmentioned and unchanged by the Bill: you have to pay the stamp duty of 8%, regardless of whether or how much you have been overcharged, when you challenge the bill of a lawyer who is not your own (which happens only when you have to pay the costs of the other side).

This system is in flagrant violation of natural justice, equality before the law, and arguably the constitution.

In Ireland, unlike for example in Germany, there is no cap on costs in such a case, and exposure of €200,000-€600,000 might be expected. Legal costs inhibit the correction of many injustices, including those related to high legal costs!

The Minister for Justice exacerbated the injustice in 2012, by raising this particular stamp duty from 6% to 8%.

Inconsistency with open justice, and obstruction of research

The Bill mandates that legal-cost determinations are to be ‘published’ by archiving them locally in each county registrar’s office.  This obscure arrangement powerfully inhibits legal-costs research and therefore public awareness of legal costs.

Transparency demands that they be published and searchable on the central court website.  This would also be cheaper.

Also, the recently-introduced practice of allowing journalists into family-law cases needs to be extended to legal costs adjudications relating to family-law cases.

Ministerial veto without political accountability

In a welcome move, the Bill establishes the Legal Service Regulatory Authority (LSRA), an authority which will regulate barristers and solicitors.

But all of the reform proposals of the LSRA – as is currently the case for the proposals of the Superior Courts Rules Committee – are to be subject to veto by the Minister for Justice. To facilitate accountability and inhibit interminable ministerial foot-dragging, the minister should have a limited period to exercise such veto giving reasons, as is the case for Minister for Enterprise with the Competition Authority.

Outlook

While the legals-cost regime benefits a small number of elite lawyers, it is a disaster for society as a whole and has profoundly backfired on lawyers as well.  The public has long responded to the huge fees in Ireland by eschewing  legal services and depriving lawyers of work; the civil litigation rate of Ireland and the UK is a fraction of what is typical for developed, democratic countries.

Further, institutions such as the PRTB, which are largely bandages on the problem of excessive legal fees, and are doing what courts should be doing, now permanently deprive lawyers of work.

The cost to society is not just in direct costs for those whose lives are ruined by legal bills, and in hidden and distributed expenses such as higher insurance premiums but in the indirect cost of unjust, antisocial and anti-competitive practices that go unlitigated.

Real reform should bring legal fees down. It should also in the long run bring the rate of litigation up, and improve the state of public justice.

 

by David Reynolds