Intricacies of a Borderless World – Part III

The COVID-19 pandemic has brought about social and economic disruptions of a devastating scale not seen before. Just take the shocking disruption to travel for illustration. For the month of September 2020, there were only 100,000 airplane passengers arriving at and departing from Hong Kong (including transfer), compared to 4.8 million passengers in September 2019. The statistics speak for themselves. Some describe the pandemic as a corrosion of globalisation.

In March1 and November2 2019, under the title of “Intricacies of a Borderless world”, I have shared how the world has become more interconnected as a result of globalisation, using how the wave of alternative business structures (“ABSs”) swept across the legal community around the world as an example of how it is difficult, if not impossible, to insulate the changes made in one jurisdiction from affecting others. 

How globalisation will adapt to the changes post-pandemic and whether businesses will retrench within national borders is an interesting debate for another day. Putting aside whether the world will still be “borderless”, as Part III to the series of articles on ABSs, this article will report on the further development of non-lawyer management, ownership and control of legal practices.

2020 has seen significant softening of resistance put up by some hardliners against ABSs. To recap, an ABS is a type of law firm, which enables lawyers and non-lawyers to share the management and control of a business, which provides reserved legal, and other services, to the public, as well as allowing 100 percent external (that is non-lawyer) investment and ownership of law firms. 

In February 2020, the American Bar Association (“ABA”) passed a number of resolutions. Two of them attracted much attention in that they encourage U.S. jurisdictions “to consider innovative approaches to the access to justice crisis” and “to consider regulatory innovations that have the potential to improve the accessibility, affordability, and quality of civil legal services”.

Following the passing of the ABA resolutions, in August 2020, the Utah Supreme Court approved reforms that allow for non-lawyer ownership or investment in law firms and permit legal services providers to try new ways of serving clients during a two-year pilot period. Innovative approaches to serving legal consumers are permitted to be tested in a regulatory sandbox pilot programme. Those that prove to have contributed to improving the public’s access to justice will be permitted to continue practising the services after the pilot programme ends. 

Following Utah, the Arizona Supreme Court announced on 27 August 2020 that it had approved some changes to the court rules regulating the practice of law. These changes went one step further than those of Utah in that the changes are permanent, not with only a 2-year life span. Among them is an important change eliminating the rule prohibiting non-lawyers from fee sharing and from having an economic interest in a law firm. The regulatory framework addressing this change introduces a licensing requirement for ABSs. These changes will take effect from 1 January 2021.

Apart from the US, the tide has also begun to turn in Canada. On 10 September 2020, the Law Society of British Columbia issued the Final Report of the Futures Task Force on “Anticipating Changes in the Delivery of Legal Services and the Legal Profession”. One of the recommendations in the Report calls for “innovation in legal service delivery through use of regulation in a manner that does not inhibit growth” which must include “regulatory sand boxes”. One of the observations in the Report is that lawyers are good at legal skills but not necessarily other complementary skills (like applying technologies to improve service delivery and business management) required for running a legal practice. “But with law firm ownership being largely limited to lawyers, those with technological - or other - expertise have few incentives to develop new delivery and business models with the law firm structure.”. It therefore recommends developing a regulatory structure that permits the creation of ABSs through which legal services are provided to meet the future needs of clients and the broader justice system.

ABSs have also gained support in Mainland China, as illustrated by liberalisation in the structure and operation of legal practices in the Hainan Special Economic Zone (“Hainan SEZ”) in the Hainan Province in October 2019 (details in Part II3 of this series of articles). It is probable that other parts of the Mainland may adopt similar ABS reforms in due course. 

The legal services market is evolving rapidly. It is important that we keep abreast of the changes taking place around and keep a constant review of how best to map out our own way forward to ensure a sustainable development of the legal profession while enhancing access to justice. 

1 http://www.hk-lawyer.org/content/intricacies-%E2%80%9Cborderless%E2%80%9D-world

2 http://www.hk-lawyer.org/content/intricacies-borderless-world-%E2%80%93-part-ii

3 http://www.hk-lawyer.org/content/intricacies-borderless-world-%E2%80%93-part-ii

 

Jurisdictions: 

Secretary-General, Law Society of Hong Kong