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Legal services liberalisation: opportunity or threat?

22.01.2011

|   Linda Lee, President, The Law Society of England & Wales

Last summer, the Knesset approved new legislation that would open up the Israeli legal services market to foreign law firms. We at the Law Society of England and Wales were delighted by this announcement, having spent many years discussing this issue with our colleagues at the Israel Bar Association and making representations on behalf of many of our members wishing to practise in Israel.

It is on the back of that announcement, and anticipating closer ties between our professions, that I am delighted to make the first Law Society visit to Israel. I look forward to discussing the advantages and challenges of liberalising the market for legal services at a seminar that the Israel British Chamber of Commerce and the Israel Bar Association are hosting during my visit.

 

Invariably, there will be some members of the Israeli profession who will argue that liberalisation of the Israeli legal services regime constitutes a threat of unwanted competition to the advocates profession. This sentiment is not a uniquely Israeli one and indeed the Law Society of England and Wales has heard variations from law societies, bar associations and governments across the world. In developing countries, where the dominant - and often justified - view is that the terms of trade are biased towards the interests of developed countries, this fear is particularly prevalent.  Trade in legal services is no exception and poses another challenge to the notion of imports having a negative impact on the domestic economy and exports having a positive impact.

 

But what evidence is there of this happening in those jurisdictions where liberalisation has already occurred?

 

The experience of England and Wales certainly does not lead to this conclusion. On the contrary, the proliferation of American firms and individual lawyers, and more recently, firms from Europe and beyond, has contributed to greater competition in the profession and to facilitating an attractive, business friendly and stable investment environment. A cursory look at the countries represented by firms and sole practitioners in London immediately demonstrates the benefits to domestic consumers of the breadth and quality of legal services available as well as a reduction in their cost.  For example, earlier this year, my predecessor welcomed the first Ghanaian law firm to open its doors in London with a reception at the Law Society.

 

American attorney and former Chair of the New York State Bar Associations International Law and Practice Section, James P Duffy described the benefits of having the presence of such a large body of highly competent foreign lawyers in New York as enormous.  In my jurisdiction, this has been further facilitated by permitting foreign legal consultants to employ local lawyers and to enter into partnerships with them creating a one-stop shop offering multi-jurisdictional expertise.

 

These types of practice vehicles in England and Wales continue to play a vital role in supporting and facilitating business, attracting foreign investment as well as international clients and contributing to the overall infrastructure of commerce. It is no surprise, therefore, that the new legislation was part of the Israeli governments Economic Efficiency Bill as the government clearly recognises the role of a competitive and diverse legal services sector in facilitating trade and growth.

 

It is understandable that sections of the Israeli profession may balk at the idea of attracting the large, well-financed international firms that, on the face of it, give the impression of a formidable competitor. However, the local firms will always have the advantage in purely local transactions. Indeed the proposed legislation provides for partnerships between foreign and domestic lawyers with foreign lawyers only providing advice on home country and international law.

 

The key benefits of liberalising the legal services sector are three-fold. First, the transfer of know-how; much of the work undertaken on an export basis relates to privatisation, infrastructure and major projects, and mergers and acquisitions. In addition, the contracts and other work related to these areas are often based on English or New York law. As a result, the expertise for this kind of work rests primarily in English or US firms. Israeli lawyers can continue to acquire this expertise by working with these firms as they do now. However, the only way this can happen systematically is if foreign firms are allowed to employ and go into partnership locally. In countries where this is permitted, it is usually the case that the number of local lawyers in the foreign firm well outnumbers the number of foreign lawyers in that branch. 

 

It is important to note that domestic firms also benefit from the business generated by international firms especially in litigation and advice on domestic law and maintain an advantage in local transactions.

 

Secondly, the advent of foreign firms usually has the effect of increasing opportunities for local lawyers, which benefits young lawyers and the legal economy in general. In his 2003 paper on liberalisation of legal services, Antonio Prida, Vice-President of the Ilustre y Nacional Colegio de Abogados de Mexico (Mexican Bar), maintained that, Mexican professional associations should not promote Mexican lawyers taking the role of simple intermediaries between clients and foreign firms and, therefore, should not object to the participation of Mexican lawyers in international firms with full capacity to satisfy the requirements of the global clientele.

 

Finally, having a liberalised legal services regime and environment will only serve to attract more business and commerce and also allow Israeli lawyers access to working in new areas of law and potentially, globally.

 

While this may provide some comfort to the sceptics, perhaps the most important point to make is that liberalisation does not entail the removal of regulation. On the contrary, liberalised markets often require more, not less, regulation. In the European Union, the Lawyers Establishment Directive has led to more regulations being drawn up by Member states bar associations and migrant lawyers being subject to several rules and obligations. In most cases, both within and outside the EU, the ultimate objective of regulating foreign lawyers is to protect clients and ensure the smooth functioning of the justice system, whilst facilitating the transaction of international business.

 

While regulation gives the host bar the ability to keep an eye on foreign firms and to ensure the public and professions interests are safeguarded, it is important to note that overly restrictive regulatory measures can create distortions that only disadvantage the domestic profession. Over-protection could result in merely closing doors for the domestic profession to participate in international legal practice. I am pleased to see that the proposed law in Israel will provide for partnerships between foreign and local lawyers.

 

The Israeli profession is at an exciting point in its development. I very much look forward to sharing our experiences with members of the Israeli profession and its regulators. Most of all, I look forward to the new opportunities for collaboration and co-operation between our two professions.

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