Siena 2005

REGULATION OF THE LEGAL PROFESSION

Nuno GAROUPAUniversidade Nova de Lisboa

CEPR, Londres

NG 2

CONTENTS

1. INTRODUCTION.

2. OVERVIEW OF THEORY

3. COMPARATIVE ANALYSIS.

4. CONCLUSIONS.

NG 3

INTRODUCTION

• Comparative analysis of regulation of professions: lawyers.

• They satisfy the following requirements in all jurisdictions:– Specialized skills;

– Investment in human capital;

– Credence goods;

– Self-regulated.

NG 4

THEORY

• WHY SHOULD LAWYERS BE REGULATED?– Market Failure (Asymmetry of information

concerning quality);– Other Public Interest Objectives (Patronizing views);– Private Interest (Rent-Seeking).

NG 5

THEORY

• HOW SHOULD LAWYERS BE REGULATED?– Regulation by the Government (Licensing);– Self-regulation;– Regulation by Third Parties

• Regulation through Litigation

• Self-regulation is not a signal in itself of rent-seeking.

NG 6

THEORY

• WHAT SHOULD BE REGULATED?– Entry Restrictions with Consequent Professional

Monopoly Rights; – Restrictions on Advertising and Other Means of

Promoting Competition within the Profession; – Restrictions on Fees and on Fee Contracts;– Restrictions on Organizational Forms; – Restrictions on Conduct and Procedures.

NG 7

THEORY

NG 8

THEORY

NG 9

THEORY

NG 10

THEORY

NG 11

THEORY

NG 12

THEORY

NG 13

THEORY

NG 14

THEORY

• Regulation by Professional Litigation– Fundamental Divergence between the Private and the

Social Motive to Litigate– Alignment of Interests between Professionals and

Organizations (should Law Firms be liable?)

NG 15

SUMMARY OF THEORY

TABLE 4 – SELF-REGULATION OF PROFESSIONS

ENTRY RESTRICTIONS

FEE RESTRICTIONS

ADVERTISING RESTRICTIONS

ORGANIZATION RESTRICTIONS

CONDUCT RESTRICTIONS

PUBLIC INTEREST

MINOR MINOR PRICE NO MORE ON SUBSTANCE

PRIVATE INTEREST

SEVERE SEVERE PRICE QUALITY

YES MORE FORMAL

NG 16

QUICK STATISTICSTABLE 1 – NUMBER OF LAWYERS PER 100,000

COUNTRY 1983 1990 2000 % 1983-2000 US 250 261 338 35%

GREECE - - 296 - UK 100 - 283 183%

SPAIN 135 - 241 79% PORTUGAL 54 (1980) 116 188 248% (1980)

ITALY 80 - 160 100% BELGIUM 122 137 155 27%

GERMANY 70 - 142 103% NORWAY - - 116 -

DENMARK - - 81 - NETHERLANDS 30 57 77 157%

FRANCE 51 - 68 33% AUSTRIA - - 51 -

JAPAN - - 18 - Source: Faure et. al. (1993), World Bank Legal and Judicial Reform Practice Group, Council of the Bars and Law

Societies of the European Union, own calculations.

NG 17

QUICK STATISTICSFIGURE 1

C R O SS C O M PA R IS O N O F L A W Y E R S A N D P H Y S IC IA N S p e r 1 00 ,0 00

NE T HE R LA N DSD E NM A RK

F R AN C EA U ST R IA

GE R MA N Y

B E LG IU M

P O RT U G AL

JAP A N

N O RW A Y

UK

U S A

G RE E CE

S PA IN

IT A LY

0

50

100

150

200

250

300

350

400

150 200 250 300 350 400 450 500 550 600 650

P HY S IC IANS

LA

WY

ER

S

NG 18

COMPARATIVE ANALYSISTABLE 7 – COMPARATIVE INSTITUTIONAL ANALYSIS: LAWYERS

NETH US BEL E&W GER SPAIN POR FRA AUS NOR SAMPLE

Faure a) 3.08 (1)

2.60 (2)

2.33 (3)

2.30 (4)

1.50 (5)

- - - - - 5

Faure b) 2.55 (2)

3.10 (1)

2.07 (5)

2.30 (3)

2.22 (4)

- - - - - 5

Faure c) 3.28 (1)

3.00 (2)

2.53 (3)

2.30 (4)

1.90 (5)

- - - - - 5

Garoupa Weighted

7.12 (3)

8.17 (1)

7.30 (2)

5.95 (7)

5.38 (8)

6.54 (5)

4.79 (9)

5.96 (6)

4.80 (10)

6.83 (4)

10

IAS Entry

2.1 (3)

- 2.5 (6)

2.9 (8)

3.7 (12)

3.4 (9)

3.5 (10)

3.9 (14)

4.1 (15)

- 15

Garoupa Entry

3.75 (4)

4.5 (1)

4.25 (2)

3.25 (6)

2.75 (9)

4 (3)

2.75 (9)

3.75 (4)

3 (8)

3.25 (6)

10

IAS Conduct

1.8 (5)

- 2.1 (6)

1.2 (4)

2.8 (10)

3.1 (12)

2.2 (8)

2.7 (9)

3.3 (13)

- 15

Garoupa Others

11.08 (2)

12.5 (1)

10.59 (4)

8.91 (6)

7.92 (8)

9.25 (5)

6.91 (9)

8.75 (7)

6.59 (10)

11 (3)

10

Notes: In brackets, the ranking position. IAS also includes Finland (1 and 1), Sweden (2 and 2), Denmark (3 and 3), Ireland (5 and 6),

Italy (7 and 14), Luxemburg (13 and 10), and Greece (10 and 15).

NG 19

COMPARATIVE ANALYSISFIGURE 2

REGULATION OF PROFESS IONS

WEIGHTED AVERAGE

AUSTRIA

NORWAY

USA

SPAIN

BELGIUM

NETHERLANDS

FRANCE

GERMANY

PORTUGAL

3,5

4

4,5

5

5,5

6

6,5

7

7,5

8

8,5

3,5 4 4,5 5 5,5 6 6,5 7 7,5 8 8,5

PHYSICIANS

ENGLAND AND WALES

NG 20

LEGAL PROFESSION IN EUROPE

• Code of Conduct for Lawyers in the European Union:(a) Personal advertising and publicity is forbidden unless explicitly allowed by the

local bar; (b) Contingent fees (pactum de quota litis) are banned; (c) Multidisciplinary partnerships are restricted since lawyers cannot share

honorariums and fees with other professionals unless explicitly allowed by the local bar; (d) Lawyers should not conflict with other lawyers, but if they do, the local bar

should be asked to intervene before the case goes for litigation; (e) A lawyer should not accept instructions to represent a client in substitution for

another lawyer in relation to a certain matter if the client has not fully paid and reimbursed the first lawyer.

• The Code also refers to the “corporate spirit of the profession" by which a relationship of trust and cooperation should be developed (a principle regulated under the name of duty of solidarity among lawyers).

NG 21

LEGAL PROFESSION IN EUROPE• CCBE Response to the European Commission Competition Questionnaire on Regulation in Liberal

Professions and its Effects, May 2003:

• (a) Contingent fees (i.e., an agreement between a lawyers and his client by virtue of which the client undertakes to pay the lawyer a share of the result regardless of whether in the form of money or any other benefit) being forbidden is a necessary rule of the profession;

• (b) Fee sharing with non-lawyers is a consequence of the duty of confidentiality and avoidance of conflicts, thus multidisciplinary partnerships should not be permitted since they offend the core values of the profession;

• (c) These restrictions cannot be considered a restriction of competition under EU competition law since they are applied in the specific context of a profession;

• (d) Comparative conclusions with respect to different regulations across Europe should be avoided because they follow from legal and cultural intrinsic differences, and are respected by the jurisprudence

of the ECJ.