Members noted the letter from the Attorney Generals Chambers (AGC) and the information note from the Law Society of Hong Kong (the Law Society) on "Professional Indemnity Scheme" issued vide LegCo Paper Nos. CB(2)427/96-97 on 14 November and CB(2)454/96-97 on 18 November 1996 respectively. The meeting agreed to consider the issue at a later meeting.

Foreign lawyer corporations

2. Members noted the letters from the Coudert Brothers, the Law Society, and from Mr Jon W Zinke, chairman of the Law Committee of the American Chamber of Commerce in Hong Kong, issued vide LegCo Paper Nos. CB(2)428/96-97 on 14 November 1996. CB(2)450/96-97 on 18 November 1996 and CB(2)460/96-97 on 18 November 1996 respectively. Members agreed to discuss the issue at a later meeting.

Clauses 14 and 15 of the Bill which add new sections 43B and 49A providing for notaries public and solicitors to enter into multi-disciplinary practices

3. Members noted the paper from the Action Committee on "Outline of Submission on Multi-disciplinary Practices" and the letter from the AGC, issued to them on 18 November 1996 vide LegCo Paper Nos. CB(2)453/96-97 and CB(2)470/96-97 respectively.

The Administrations position on Multi-disciplinary Practices

4. Mr Wesley WONG briefed members on the paper on "Multi-disciplinary Practices" (MDPs) which had been issued to members vide LegCo Paper No. CB(2)221/96-97. Mr WONG assured members that the Administration was fully aware of the need to establish safeguards relating to solicitors and notaries public entering into MDPs, as expressed by the Law Society and the Consumer Council. The Administration understood that the Law Society had no objection to the removal of statutory prohibition on MDPs provided that it was able to ensure the independence and integrity of the profession through the making of rules governing MDPs. He explained that the Administrations approach on MDPs fell in line with the Law Societys view in the sense that (a) new sections 43B and 49A would be added to the Legal Practitioners Ordinance, Cap. 159, which provided for notaries public and solicitors to enter into partnership with persons who were not notaries public or solicitors in accordance with rules in force, at the first stage; and (b) these new sections would not be brought into operation until relevant rules were made at the second stage. Proposed section 49A(5)(e) also provided for existing relevant rules to be applicable to non-solicitor partners in the business of MDPs. Members noted that the Administration would also either amend or repeal existing provisions which were inconsistent with new sections 43B and 49A, such as the Solicitors Practice Rules No. 4, which prohibited fee and profit sharing with unqualified persons, at the second stage.

The Law Societys position on MDPs

5. At the invitation of the Chairman, Mr Peter SIT briefed members on the position of the Law Society in relation to MDPs as detailed in the attached speaking note. Mr Allcock then asked through the chairman about the Law Societys stance. Messrs. Christopher CHAN and Peter SIT responded that the Law Society could not support the proposal enthusiastically, neither did it oppose the proposal as such if it was empowered to make rules governing MDPs. The Law Society did have genuine concerns about whether implementation of MDPs was in the public interest. In response to Ms Emily LAUs enquiry, Mr SIT referred to the experience in Holland (as quoted in his speaking note) and explained that once the legislation removing the statutory prohibition against MDPs was enacted, the Law Society might be forced to implement MDPs even if it was not ready to do so.

6. As regards the questions raised by the Law Society, Miss Margaret NG asked and Mr Wesley WONG responded that the Administration had considered the questions raised. However, it was the stance of the Administration that these matters should be dealt with at the second stage of the legislative process so that the Law Society, as a self-regulating body, could decide at their own pace when MDPs would be appropriately implemented. Mr ALLCOCK supplemented that the Bill, which sought to remove the statutory prohibition of MDPs, would give the Law Society the ability to control the pace and process for implementing MDPs. Miss NG then asked why the Administration considered that statutory prohibition against MDPs ought to be removed in spite of the problems. Mr ALLCOCK explained that it was the Administrations position that no restriction should be put on the manner in which legal services were delivered unless it could be justified on public interest grounds. He added that even if the statutory prohibition against MDPs was removed, the Law Society could make rules to prohibit such practices if it thought fit. The proposal was merely a recognition of the Law Societys powers to regulate the profession.

7. Mr Albert HO took the view that there must be justifications behind the policy decision in the past to impose a statutory prohibition against MDPs. The Administration should fully convince members that the proposal, which was equivalent to a reform, had definite advantages and would be in the public interest. He was concerned that implementation of MDPs before the problems had been resolved might prejudice public interest. Mr ALLCOCK explained that the arguments for MDPs had been set out in the relevant extracts from the Consultation Paper on Legal Services, the Lord Chancellors Green and White Papers, the Final Report of the Australian Trade Practices Commission, the Australian Governments Access to Justice Action Plan which had been attached to the discussion paper. He cautioned that legal services could and were being delivered through MDPs under the existing system by those who were not qualified legal practitioners. The Administration therefore considered that it was in the public interest to allow solicitors and barristers to participate in these practices. In this connection, Ms Emily LAU said that she did not oppose the principle for the Administrations proposed reforms of the legal services if adequate rules were in place to safeguard the interests of consumers and were to be made by way of positive resolution procedure.

8. Mr Albert HO further asked why abolition of the statutory prohibition could not wait until the problems identified had been solved or policy principles for the rules governing MDPs had been set out. Mr ALLCOCK said that other jurisdictions had also adopted such a two-stage approach proposed in the Bill. It might take years before the problems identified could be resolved. He reiterated that the Administration would not rush the Law Society into implementing MDPs and the Bill simply empowered it to do so at its own pace, after it had resolved the problems identified.

II.Meeting with the Action Committee

Experience of the United Kingdom in conveyancing

9. At the invitation of the Chairman, Mr Martin RAYBOULD spoke on his conveyancing experience in the United Kingdom. He informed the meeting that problems due to abolition of scale fees in the United Kingdom were not apparent until the economic recession in late 1980s. Small law firms which relied on conveyancing work had experienced the most serious blow, particularly for those firms which needed the conveyancing profit to cross-subsidise other areas of practice such as litigation and divorce. Price competition had brought down the level of conveyancing fees to the extent that the profit for conveyancing job was below the minimum hourly fee of a solicitor, the effect of which was that conveyancing work was passed to clerks or trainee solicitors. Proper legal expertise was not provided, even for properties of unregistered titles. Leases were badly drafted for low-price properties. A lender would resort to bring the case to court if problem of defective title arose. Members noted that about a quarter of the total claims amounting to $200M pounds per year involved defective titles, i.e. $50M pounds per year. Contribution to the solicitor indemnity inurance fund therefore had increased 300% over the last five years. In reply to Mr Ronald ARCULLI , Mr RAYBOULD said that owners would not be able to sell those properties until the claims were settled. Mr RAYBOULD pointed out that the number of small law firms had dropped considerably. It was predicted that 25% of them would be forced out of business in the next three to five years. He took the view that scale fees should be restored in the light that: (a) it allowed consumers to know exactly the amount of fees payable; (b) its abolition affected badly the business of the small law firms; and (c) ultimately it would be the consumer who suffered.

Meeting with the then Vice-President of the English Law Society

10. Mr Winston CHU informed the meeting that Mr Robert SAYER, the then Vice-President of the English Law Society was prepared to appear before the Bills Committee, if it agreed, to speak about the advantages and disadvantages of scale fees and the consequences of that abolition in the United Kingdom in general. After discussion, members agreed to meet Mr SAYER in January 1997 and asked Mr CHU to request Mr SAYER to set out his viewpoints in writing, as well as to cover the following points:

a) how the abolition of the scale fees had affected the consumers and law firms in the United Kingdom and whether there were any supporting facts and data; and

b) the average amount of claims on the professional indemnity insurance per year over the last three years in the United Kingdom, and the breakdown of the claims involving defective titles in terms of number and value of properties and amount of claims.

The Chairman also suggested that members could provide the clerk with other questions they would like to raise on the experience of the United Kingdom by 30 November 1996, so that she could them forward to Mr CHU. Mr CHU undertook to convey members request and questions to Mr SAYER and make the necessary arrangements.

Mr. Winston
CHU

III.Date of next meeting

11. The next meeting would be held on Monday, 25 November 1996 at 4:30 pm to meet with the Action Committee.

12. There being no other business, the meeting ended at 4:25 pm.

LegCo Secretariat
2 December 1996

Last Updated on 27 October 1997

Minutes of the Fourth Meeting of the Bills Committee on the Legal Services Legislation (Miscellaneous Amendments) Bill 1996

held on Tuesday, 19 November 1996 at 2:30 pm in Conference Room A of the Legislative Council Building

I.Meeting with the Administration and the Law Society of Hong Kong

Matters arising from the last meeting

Solicitor corporations

Foreign lawyer corporations

Clauses 14 and 15 of the Bill which add new sections 43B and 49A providing for notaries public and solicitors to enter into multi-disciplinary practices

The Administrations position on Multi-disciplinary Practices

The Law Societys position on MDPs