Scandals involvingsolicitors. with the resulting erosion of public confidence in the legal system, and the economic slowdown are blowing a chill wind through the legal professions, writes Carol Coulter
ALMOST EXACTLY a year ago the legal and financial worlds were shocked by the revelations that a solicitor, Michael Lynn, owed €70 million to a number of banks, and his practice was shut down. He then went missing.
Within days his name was joined in ignominy by that of Thomas Byrne, whose solicitors practice was also shut down following the discovery of irregularities in his financial dealings. Both had been involved in property speculation on a major scale, and their combined debts were more than €100 million.
The two cases illustrate both the way in which the legal and financial worlds have become intertwined over the past decade, and the dangers this posed. The practices of Lynn and Byrne had more to do with property speculation than law, and the lending practices of the banks they borrowed from exemplified those that have now brought the international financial system to its knees.
THESE CASES WERE followed during the year by other scandals involving solicitors, such as Colm Carroll and Henry Colley, who were suspended from practice by the High Court after admitting they operated secret accounts, including one containing €32 million, in order to evade tax. These and other cases renewed calls for external regulation of the legal profession, which has up to now been regulated by its own representative bodies, the Law Society and the Bar Council.
Meanwhile conscientious and hard-working solicitors, their morale buffeted by these revelations, were beginning to face difficult times as conveyancing shuddered to a halt and the Personal Injuries Assessment Board culled the income from that other cash cow, personal injuries litigation.
In July, the number of lawyers signing on for unemployment benefit or Jobseeker's Allowance was 504, up from 370 the previous year. While this represents a 36 per cent increase, the absolute numbers are still relatively small. Nonetheless, a chill wind is blowing through the legal professions, threatening to dent the complacent "fat cat" image burnished during the Celtic Tiger years.
All of this takes place within the context of unprecedented examination of the regulation of the legal profession, with a major, and highly critical, report from the Competition Authority and two separate reports on legal costs published in the past two years. A Legal Services Ombudsman Bill is currently before the Dáil, with proposals for overseeing disciplinary procedures against lawyers.
The exponential growth of the financial services sector in recent years has been matched by the growth in the legal professions. The number of solicitors grew from fewer than 5,000 in 1998 to more than 10,000 by November 2007. In 1998 there were 1,112 barristers. By the end of this year there will be 2,138.
According to the Competition Authority report of 2006, 82.7 per cent of solicitors stated an increase in fee income of 10 per cent or more on an average annual basis over recent years, approximately double that of inflation, so the total income of the sector grew enormously, along with its numbers.
While barristers do not handle clients' money, and therefore have been untouched by the scandals affecting solicitors, they too are facing into uncertainty. The numbers entering the profession have increased dramatically in the past decade, while all the signs are that the increased volume of work has not been spread across the profession, and many young barristers are forced to leave after a few years.
Both branches of the profession are facing questions about their future direction in a society where money will not be in such plentiful supply, where the public is demanding regulation of all the professions and where there is a perception that many lawyers are overpaid, often at public expense.
Shortly before the Lynn and Byrne scandals broke, the chief executive of the National Consumer Agency, Ann Fitzgerald, warned that levels of consumer confidence in the legal system had been seriously eroded in the past 25 years. Quoting an Amárach survey, she said that overall levels of confidence had dropped from 57 per cent to 40 per cent between 1981 and 2006, with just 33 per cent of those aged 25-34 having confidence in the legal system. The confidence seems unlikely to have increased since.
"Trust is the essence of any relationship and it is particularly important in the lawyer/client relationship," she says. Essential to that trust is the feeling on the part of the client that they are not being ripped off.
The high level of earnings from tribunals has been well documented. By November last year one senior counsel had earned almost €4 million from the Mahon Tribunal, and another €3.5 million. Four solicitors had earned €3.17 million between them.
While the representative organisations insist that high fees are justified by high levels of skill and expertise, both barristers and solicitors will admit privately that sometimes fees are set arbitrarily and without transparency. "Figures are being plucked out of the air," admits one. "The phrase used about the fees for a case is 'what will it bear?'"
A barrister claims solicitors are often responsible for inflated fees. "They will wait until the barrister has set his fee, and then multiply it to set his own. A solicitor might complain that the barrister has set too low a fee. I have often seen settlements break down on the issue of costs, where the client has accepted the deal with costs, but the solicitor wants more."
Many lawyers will admit that fees on one side of a case can sometimes differ greatly from the fees sought by the other side, though the work, based on the same set of documents, will be essentially the same.
THE MOST AUTHORITATIVE data on lawyers' earnings come from the 2006 Competition Authority report on solicitors and barristers. Using 2002 data from the Revenue Commissioners, it reported that the average income of all lawyers that year was €164,023, with the median income (that closest to the income of most lawyers) €92,280. According to CSO figures, the turnover from "legal activities" doubled between 2003 and 2006, so it is likely that incomes will have similarly increased.
Great discrepancies were revealed in the Competition Authority report between the earnings of young lawyers and those at the top of the professions. The median income of recently qualified barristers was just over €30,000, while employed solicitors earned more than €48,000. At the other end of the scale were senior counsel, where the average income was €330,000, while the top 10 per cent earned more than €500,000 in 2002.
Owners of solicitors' firms and partners had a median income of €140,000, though the average was almost €210,000, indicating that some had much higher earnings that the median. These higher figures are likely to have doubled since 2002, reflecting the increased turnover in legal activities.
Much of this is concentrated at the higher end of the professions, with the big solicitors' firms, mainly based in Dublin, along with the most sought-after senior counsel, enjoying very high earnings, mainly from commercial work. This reflects the increased economic activity of the last decade, whereby both Irish and international companies have needed the assistance of lawyers in a range of activities - including the acquisition of assets, mergers, the renting or purchase of offices, the negotiation of loans, contracts with each other and with employees and the litigation of disputes. Increasingly, the practice of law has become another kind of business.
The bigger firms in particular have honed their business practices, with the introduction of key performance indicators (KPIs) and "fee targets" as a measurement of their success, and of the value of the individual solicitors within the firms. This does at least mean that there are some objective measurements of costs.
"Commercial transactions are global," says Claire Callanan of Beauchamps solicitors. "You are expected to perform as well as international firms who have 24-hour teams of lawyers. If you're trying to make sure you're doing your end of the transaction you have to be able to measure up."
KPIs, fee targets and hourly rates are all necessary to measure the work put in and the level of skill acquired by the solicitors, many of whom have done a considerable amount of post-third-level training, she says.
There is also no doubt that lawyers in such firms work extremely hard and long hours, keeping in touch with colleagues in the US and Australia across many time zones.
However, the Competition Authority found that approximately two-thirds of legal work came from private rather than commercial clients. Typically an individual seeks the assistance of a lawyer at a crisis point in their lives - when a relative dies, when they are moving house, when their marriage falls apart, when they suffer a serious injury at work or when they are charged with a criminal offence. It is arguable that the methods used to establish the value of work to a commercial client, who purchases legal services on a daily basis, are not applicable to individuals, who may only seek the services of a lawyer once or twice in their lives, and usually at a very stressed time.
Such individuals would not be in the same position as a major commercial or State client to judge whether the course of action being proposed was the best and most cost-effective. They would probably not even be aware that the lawyer advising them might be judged on the basis of the fee-income brought into the practice, and that this could influence the nature of the service being offered.
Surely there is a danger that if solicitors' work is driven by fee targets, for example, the interests of the client will take second place, and the need to drive up the fees earned will encourage the solicitor to increase the amount of work done, whether necessary or not, in order to increase the fees?
"That would be unethical," said James McGuill, president of the Law Society. "It would be like a publican selling more drink to someone who has had too much."
THE ISSUE OF legal costs is one of great concern to the general public, and has prompted the setting-up of two Government-sponsored committees, whose recommendations are still under discussion. It was also a central concern of the report of the Competition Authority on barristers and solicitors, where it concluded that restrictive practices and the lack of external regulation impeded competition and pushed up costs.
The issues identified included the fact that the solicitor's "instruction fee" encompassed too many different elements, which were not clearly identified to the client; that, where a senior and junior counsel were involved, the latter automatically was paid two-third's of the senior's fee, regardless of the work done by each; and that the client did not receive in advance any meaningful estimate as to the fees he or she might be liable for.
Change has been agreed in principle by the professional bodies with regard to most of these issues, but it is coming slowly.