Members noted that Mr R ALLCOCK had answered members questions raised on solicitor corporations, foreign lawyer corporations and multi-disciplinary practices at the last meeting vide his letter dated 25 October 1996 (issued vide LegCo Paper No. CB(2) 243/96-97). He had also prepared relevant discussion paper for each of these topics. Members further noted that a submission dated 28 October 1996 from the Law Society of Hong Kong (the Law Society) on these three topics had been issued to members vide LegCo Paper No. CB(2) 259/96-97.

2. At the invitation of the chairman, representatives of the Law Society briefed members on their submission. In this regard, Mr Christopher CHAN stressed that the Law Society had participated in various activities for the common good and was not a self-interested body. It was the stance of the Law Society that minimum changes should be made to the existing legal system (so as to ensure stability) in view of the impending change of sovereignty. He urged the Bills Committee to be extremely cautious in the scrutiny of the Bill so as to ensure the independence of the legal profession and to avoid possible adverse impact on the solicitors. Members then raised a number of questions and representatives of the Law Society and the Administration had responded accordingly. The gist of the discussion is summarised in the following paragraphs.

Solicitor corporations

(LegCo Paper No. CB(2) 218/96-97 dated 24 October 1996)

3. Mr Paul TAN informed the meeting that although the Law Society supported the proposal for solicitor corporations, its interaction with other proposals in the Bill should be considered with utmost care. He explained that the relevant individual solicitors of the solicitor corporations would nevertheless be liable personally to the clients in various areas (so that public interest would not be compromised) despite the fact that incorporation might reduce the personal liability of solicitors in their capacity as members of the corporations. It was important for solicitors to maintain their independence and thus the Law Society would exercise the authority and powers to make relevant regulations and rules governing incorporation for the protection of public interest.

Level of insurance coverage and authorised capital for incorporation

4. Mr Albert HO asked how the level of insurance coverage and that of capital would be determined for incorporation. Mr Christopher CHAN said that the Law Society had not studied the issue in detail. He informed the meeting that the coverage of professional indemnity insurance was $10 million for each case. In this connection, Mr HO asked and Mr ALLCOCK agreed to provide information as to (a) how the levels were determined in other jurisdictions and (b) their basis for determining the level of insurance coverage and for the capital for accountants firms. Mr CHAN also undertook to liaise with the insurance trade about the appropriate insurance coverage and would revert to members later.

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Law Society

5.Miss Margaret NG informed members that the Hong Kong Bar Association (the Bar) had no objection to the proposal. Yet they were concerned about the protection of consumers interest in the light that professional indemnity insurance could only cover damages arising from negligence of a solicitor but not those arising from bankruptcy of a solicitors firm. Miss NG therefore asked and Mr Christopher CHAN explained that top-up insurance was to be acquired separately, the level of which would be studied if the proposal was implemented.

Rules governing incorporation

6. Mr Albert HO queried whether it was appropriate or fair for Law Society to draft the relevant regulations and rules which would be subsidiary legislation and suggested that drafting legislation should be the responsibility of the Administration. Mr Christopher CHAN assured members that the Law Society had the manpower and capabilities to perform such a task. In this regard, Mr R ALLCOCK said that the Administration considered it appropriate for the details to be put in the rules which were to be drawn up by the profession on the grounds that (a) it followed the approach which had been adopted in the relevant exercise in England and (b) the Professional Accountants (Amendment) Ordinance (Cap. 50) also provided for the rules setting out the details to be made by the Hong Kong Society of Accountants. He reminded members that (a) the Law Society was a self-regulatory body and (b) the rules to be made by way of subsidiary legislation would be subject to the approval of the LegCo. Mr HO held the view that, unlike self-regulating rules, making subsidiary legislation should not be the work for the Law Society because of the obvious public interest involved. Ms Emily LAU shared his view.

7. Miss Margaret NG asked whether rules governing solicitor corporations, foreign lawyer corporations and multi-disciplinary practices required approval of the LegCo, given that it had been contended that the Professional Accountants Rules made under the Professional Accountants (Amendment) Ordinance 1995 (Cap. 50) were not subsidiary legislation. Mr ALLCOCK said that it was the firm view of the Administration that all rules to be made under the Legal Practitioners Ordinance (Cap. 159) would need to be tabled at the LegCo in the form of subsidiary legislation. He said that there were significant differences in the statutory framework of these two Ordinances.

Solicitor corporations scheme in England

8. Mrs Miriam LAU referred to the fact that the legislation for implementing the solicitor corporations scheme in England had been enacted in 1985 but did not come into force until 1 January 1992. She asked the Administration to respond as to (a) the reasons for the slow progress in implementation and (b) whether there was any requirement for the related rules to be passed by the Parliament. Miss Margaret NG further asked and Mr ALLCOCK agreed to provide information on (a) whether the solicitor corporations scheme in England had any taxation or insurance or other problems and (b) whether its implementation had created any adverse impact on the community. In this regard, Mr ALLCOCK cautioned that the proposal was only to offer a choice for solicitors firms to incorporate if they wished, subject to compliance with relevant rules of the Law Society and provided that appropriate safeguards were in place.

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Advantages of incorporation

9. In response to Ms Emily LAUs enquiry, Mr Christopher CHAN confirmed that incorporation did not necessarily bring direct advantage to the consumers. Mr Paul TAN said that solicitor corporations would enable the profession to provide more efficient services to the public, since the existing structure of partnership could create difficulty in decision-making and operation processes. Solicitor incorporation would therefore simplify and facilitate the process. Mr ALLCOCK then drew members attention to the extracts from the Final Report of the English Royal Commission on Legal Services and the quotations from the Australian Governments "Access to Justice" Report as well as the Final Report of the Australian Trade Practices Commission (his discussion paper referred), which were in favour of incorporated practices subject to appropriate safeguards being in place.

10. Some members expressed grave concern that (a) they did not have sufficient information on the actual operation of an incorporated solicitors firm to make a judgement on the possible impact on the general public and (b) the legislation only provided for a very basic framework and yet all the relevant powers would be delegated to the Law Society. In this regard, Mr Ronald ARCULLI queried how the line of responsibility could be traced and whether the public interest would be protected when the damage arose from negligence of a non-solicitor employee or a solicitor who was not director of the incorporated solicitors firm. Mr TAN explained that besides the contractual obligations of the solicitor corporations with the client, professional indemnity and top-up insurance would offer protection to a certain extent. Members noted that the Consumer Council and the Hong Kong Association of Banks had not given support to the proposal. At Mr Ambrose LAUs suggestion, Mr ALLCOCK agreed to provide a copy each of their submissions for members reference. Members further noted that the Clerk had already written to invite views from these two organisations.

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Clerk

Foreign lawyer corporations

(LegCo Paper No. CB(2) 219/96-97 dated 24 October 1996)

11. Mr Anthony CHOW informed the meeting that the Law Society had not given its support to the proposal on foreign lawyer corporations. In this connection, Mr ALLCOCK provided a letter dated 12 April 1996 (at the Annex) from the Secretary General of the Law Society to the AGC for members information. Members noted that the Law Society had then agreed in the letter that a similar provision should be made for registered foreign lawyers if Hong Kong solicitors were permitted to incorporate. Mr Christopher CHAN doubted whether the proposal had been considered by the Council of the Law Society before the letter was issued and the submission dated 28 October 1996 represented the present views of the Law Society on the matter. Mr CHOW pointed out that more time would be needed to review the possible effects of this proposal, given the differences in various disciplinary codes and policies of the 11 jurisdictions, where the 55 foreign solicitors firms came from. Mr CHOW also queried (a) whether the comments received from two foreign law firms represented the general views of the foreign law firms in Hong Kong; (b) there might be misunderstanding that the concept of incorporation solely equated with limiting lawyers liability; and (c) the Administrations view that the concept of limited partnership was not recognised in Hong Kong.

12. In response to the comments and observations made by Mr CHOW, Mr ALLCOCK made the following points: (a) consultation with foreign law firms had been conducted in the standard way, with one foreign law firm acting as a co-ordinator as there was no association of foreign law firms in Hong Kong; (b) the Administration had sent the same Consultation Paper on Legal Services to these foreign law firms, as it had to the Law Society and the public; and (c) the Limited Partnership Ordinance (Cap. 37) did not provide for the form of Limited Liability Partnership as described in the two comments received from foreign law firms. As regards point (c), he supplemented that a solicitor member, being an active member of the firm, could not be a limited partner under the Limited Partnership Ordinance who was not allowed to take part in the management of the business. Yet, he agreed that more effort should be made to solicit views from foreign law firms in Hong Kong. At members suggestion, the clerk would write to all the foreign law firms in Hong Kong, asking whether (a) they had any views on the proposal; and (b) whether incorporation was allowed in their home jurisdictions.

Clerk

13. Mr Ronald ARCULLI queried how a foreign law firm could be permitted to incorporate if incorporation was prohibited in its home jurisdiction. Mr CHOW shared his concern. Mr ALLCOCK responded that it was possible that the legislation of other jurisdictions prohibited incorporation of their law firms even in Hong Kong. However, he reminded members that it was not proposed that incorporation should be compulsory. It only proposed rules to be made which would allow foreign law firms to incorporate if they wished. The proposal was to ensure level playing field for Hong Kong solicitors and foreign solicitors registered in Hong Kong. Mr CHOW cautioned that complication might arise as far as insurance was concerned if some foreign law firms could incorporate and yet others could not.

14. Mr Bruce LIU asked why foreign lawyers should not be allowed to incorporate if Hong Kong solicitors were permitted to do so. Mr CHOW replied that although foreign law firms and Hong Kong solicitors firms should be allowed to operate on equal footing in theory, differences in disciplinary codes and policies in their home countries might make the proposal not feasible for them. He stressed that the Law Society simply could not give an unqualified support at the present stage without having reviewed the possible effect of the proposal.

Proposal on the rights of audience

15. Mr ALLCOCK informed the meeting that the Administration was preparing to put forward proposal to extend solicitors rights of audience by way of Committee Stage amendment. However, he understood that the LegCo President queried whether the relevant CSA was within the ambit of the Bill. He therefore invited members view on the matter for the Administration to decide on the way forward. At Miss Margaret NGs suggestion, members agreed that the matter should be discussed at a future meeting. Mrs Miriam LAU further suggested and Mr ALLCOCK agreed to provide a paper, setting out the Administrations view that the provisions for the solicitors rights of audience were within the ambit of the Bill, for the Bills Committee to consider.

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II. Dates of subsequent meetings

16. The chairman reminded members that the next meeting would be held on Thursday, 7 November 1996 at 4:30 p.m. to meet with deputations. Members also agreed that a meeting would be held on Tuesday, 19 November 1996 at 2:30 p.m. to meet with the Hong Kong Bar Association and the Law Society of Hong Kong to discuss (a) clauses 14 and 15 which added new sections 43B and 49A providing for notaries public and solicitors to enter into multi-disciplinary practices and (b) the Administrations proposal on the rights of audience.

(Post-meeting notes : At the instruction of the chairman, the Administrations proposal on the rights of audience would be deferred for discussion at a future meeting to be scheduled.)

17. The meeting ended at 6:35 p.m..

LegCo Secretariat
8 November 1996

* other commitments

Last Updated on 15 December 1998