Jakob Weberstaedt, English Alternative Business Structures and the European Single Market, Humboldt U. Berlin Working Paper (2013), available at SSRN.
In the last several years, alternative business structures (ABS) have been a top agenda item regarding the legal profession in the United States and Canada. Moves in Australia and England to liberalize legal markets—including the introduction of non-lawyer ownership of law firms—have inspired and influenced conversations about whether ABS should be introduced into the North American market for legal services. Most North American lawyers, however, don’t likely know much about how these overseas reforms have also fuelled the debate about ABS in Continental Europe. Fortunately, in his recent article, Jakob Weberstaedt provides an engaging account of this very issue.
Weberstaedt focuses on the reaction of the German Federal Bar to reforms introduced in England and Wales by the 2007 Legal Services Act, which allowed for law firms to be wholly-owned by non-lawyers (“English ABS”). The German reaction is, as he notes, of particular interest given both its forcefulness and the size of the German market for legal services (approximately 22% of the total revenues of the legal services sector in Europe). To provide some background for his analysis, Weberstaedt begins his article by outlining “[a] brief history of the Continental resistance to English ABS.” In this section, a number of interesting factual tidbits are offered, including the fact that, even before English ABS reforms were finalized, the German Federal Bar, via a 2006 letter from its president to a UK parliamentary committee considering the draft Legal Services Bill, made it clear that it “did not like the proposed reforms and that English ABS would not be allowed to operate in Germany.” A similarly negative position was subsequently taken by the Council of Bars and Law Societies of Europe (CCBE), which argued that provisions in a European Union directive1 addressing lawyer mobility would allow the Continental European bars to prevent English ABS from operating within their national jurisdictions. In turn, this analysis made its way into a response from the German Federal Bar to a 2011 American Bar Association issues paper on ABS. The background provided by Weberstaedt is both an informative summary of the events leading to the current debate about English ABS in Continental Europe and also a helpful reminder that the once-parochial issues of lawyer regulation now have an unprecedented global reach.
At the heart of Weberstaedt’s article is a detailed analysis of the legal ability of English ABS to enter other European markets. He first considers a number of “small European ABS cases”—ranging from, for example, a relatively simple hypothetical involving German lawyers investing in an English ABS to more complex hypotheticals involving cross-border online legal services and English ABS providing services in Continental European markets—before tackling the “big European ABS case” (i.e., what happens “if an ABS with non-lawyer investors seeks to establish a presence on the Continent”). In considering these scenarios, Weberstaedt is attentive not only to the applicable legislative context and case law but also to the relevant political background.
The conclusions that Weberstaedt reaches suggest that the future of English ABS on the European Continent may be lively despite protestations of the Continental European bars. The law, he observes, is in many ways favourable to the “pro-ABS” side of the debate. With respect to the “small European ABS cases,” he concludes, for example, that Continental European bars will not be able to successfully invoke the current regulatory regime to prevent English ABS from offering services outside the scope of reserved activities or from engaging in the temporary provision of legal services in Continental Europe. Although he acknowledges that the fate of an English ABS that wants to more permanently establish itself in another European jurisdiction is “uncertain,” he also suggests that “the English side could improve its odds in the ECJ by developing a comprehensive litigation strategy taking maximum advantage of its influence over the facts and timing of the ‘big ABS case’ in the ECJ.”
Weberstaedt’s analysis of the various scenarios that may play out regarding the entrance of English ABS into other European markets is both comprehensive and accessible. As such, it will likely be of interest to those both familiar and unfamiliar with the European debates. His article also helpfully offers broader lessons for non-European jurisdictions grappling with the issue of ABS and how far to liberalize legal markets.
One of Weberstaedt’s major critiques is that the CCBE and the Continental European bars “could have done a better job of recognizing what is going on in England . . . [and that] [t]he failure to see beyond the self-painted cartoonish picture of ‘banks, insurance companies and supermarket chains’ moving into legal services was at the origin of a deplorably incomplete legal analysis.” Although Weberstaedt credits the American Bar Association2 and the Law Society of British Columbia3 for a more sophisticated and consultative approach to the ABS question in their jurisdictions, North Americans are still wise to heed his warning about not allowing the “Tesco law” model to disproportionately dominate the conversation about ABS and fuel knee-jerk negative reactions.
Weberstaedt also helpfully reminds us that arguments for and against the introduction of ABS take place in what is largely “a data-free zone”. As time passes and more empirical data is available from England to complement the several existing Australian studies,4 speculation on predicted outcomes of introducing ABS will be replaced by reference to actual outcomes. If Weberstaedt is correct that this future data is unlikely to strengthen anti-ABS arguments, we may see an acceleration of reform measures globally. Although bar organizations in many jurisdictions continue to rebuff calls to introduce forms of ABS, one wonders if developments over the next few years will quickly render such resistance futile.
- As explained on the European Union website: “a ‘directive’ is a legislative act that sets out a goal that all EU countries must achieve. However, it is up to the individual countries to decide how.” [↩]
- As Weberstaedt observes, although the ABA has, to date, rejected the introduction of ABS (i.e. the types of business structures now permitted in England and Australia) into the United States, the approach taken by the ABA is laudable for being broadly consultative. [↩]
- The Law Society of British Columbia, Alternative Business Structures in the Legal Profession: Preliminary Discussion and Recommendations (2011). [↩]
- See, e.g., Susan Fortney & Tahlia Gordon, Adopting Law Firm Management Systems to Survive and Thrive: A Study of the Australian Approach to Management-Based Regulation, 26 St. Thomas L. Rev (forthcoming 2014), available at SSRN; Christine Parker, Tahlia Gordon, & Steve Mark, Regulating Law Firms Ethics Management: An Empirical Assessment of an Innovation in Regulation of the Legal Profession in New South Wales, 37 J.L. & Soc’y 466 (2010), available at SSRN. [↩]