MDPs suffer European setback

European Court of Justice grants Netherlands the right to refuse MDPs citing incompatibility of advisory and supervisory roles

In light of the Enron catastrophe, any decision from the European Court of Justice (ECJ) last week other than the one which put a mighty cloud over the multidisciplinary idyll would have seemed inappropriate.
The judgment backed a preliminary opinion last year by the advocate general of the court. The ECJ has now ruled that the Netherlands, and by precedent other member states, has the right to prevent lawyers entering into multidisciplinary partnerships (MDPs) with accountants, even though it accepts that this may restrict competition in legal services.
The case was sparked by a refusal by the Netherlands Bar (NOvA), which has responsibility for regulating the country's legal profession, to allow two Dutch lawyers permission to enter into partnership with big five accountants Arthur Andersen and PricewaterhouseCoopers. NOvA felt that accountants would threaten lawyers' duty “to act for clients in complete independence and in their sole interest, to avoid all risk of a conflict of interests and the duty to observe strict professional secrecy”.
The judges found that there was incompatibility between the advisory activities of lawyers and the supervisory activities of accountants, who are not subject to a duty of secrecy comparable to that of legal practitioners in the Netherlands.
Andersen Legal worldwide managing partner Tony Williams was keen to find a positive spin on what is a damning judgment for accountancy-tied practices. “The court has recognised the strength of our arguments in the area of competition law, rejecting the views of the Dutch Bar and individual member states which argued to the contrary. We won the argument, but the ECJ has granted the legal profession an exemption from competition law in the Netherlands. This will not stop us practising law in the Netherlands, or anywhere else around the world,” he said.
The decision was welcomed by the Council of the Bars and Law Societies of the European Union (CCBE) as the right one to protect both the public and good governance under the rule of law.
Jonathan Goldsmith, secretary-general, said: “We're not trying to get glory out of Enron and the poor people affected, but that is exactly what we were warning. The integrity of a service, whether auditing or legal, is undermined if you've got pressure from other professions selling services across yours.”
The CCBE does not oppose MDPs, but has long had a policy of cautioning against the difficulties they can cause. It has always emphasised the necessity of measures for safegaurding lawyer independence, professional secrecy and the avoidance of conflicts of interests.

“The integrity of a service, whether auditing or legal is undermined if you&#39ve got pressure from other professions selling services across yours”
Jonathan Goldsmith, CCBE secretary-general

A straw poll of its member societies throws up a wide range of positions on the ruling, reflecting the patchwork of regulatory systems across the EU (see box).
The Spanish Bar is extremely supportive of the decision. MDPs are permitted in Spain, but the Spanish Bar is lobbying for tighter restrictions, whether this means lawyers sharing a partnership, or just a corporate name. In the Spanish press, the president of the Spanish Bar Carlos Carnicer, said he was very happy with the ruling, as it highlighted the inherent incompatibilities between lawyers and auditors.
In Germany, MDPs have been one of the market's success stories. Tax advisers and auditors are regulated in the same way as lawyers, with client confidentiality for all three professions. “We can live with the ruling. We're not concerned by the question of MDPs. They've always been allowed in Germany,” said Heike Lorcher, international director of the German Federal Bar.
But the German government did make its own written submission to the court. It was keen to protect the German lawyers' parliament, to which it grants the power to draft a code of conduct, from competition law under Article 85 of the EC Treaty. In response, the judgment stated that provided a professional association granted regulatory powers “is careful to define the public interest criteria and the essential principles with which its rules must comply and also retains its power to adopt decisions in the last resort”, then the rules adopted remain state measures and are not covered by the treaty rules applicable to undertakings.
Lorcher said: “We were surprised and delighted that the court actually went so far as to take other models into consideration, instead of only looking at the Dutch model.”
By contrast, the Law Society of England and Wales was keen to stress that the NOvA case was all about the Netherlands and nothing to do with anyone else.
Janet Paraskeva, Law Society chief executive, said: “Their bar is not required by statute to take its decisions in the public interest. We support the principle of MDPs as part of our commitment to improve access to legal services and choice for consumers.”
For the Scottish Law Society, the decision was in line with the findings of a recent consultation on MDPs. The outcome of that consultation was to leave the Scottish ban on MDPs in place because of concerns about client confidentiality and interests.
Of course, the MDP debate is by no means over. Andersen is placing new hope on a drive by the Dutch association of notaries to change professional regulation.
On Friday (22 February), the Dutch association of notaries presented draft regulations to its regulatory committee on lifting its ban and permitting partnerships between notaries, auditors, lawyers and tax consultants. Interestingly, the revised regulation is the result of discussions under the supervision of the Dutch Ministry of Justice. Andersen and others will be hoping that political support for MDPs will work in its favour. A decision is expected in October 2002.

National situations regarding multidisciplinary partnerships
Country Without restriction Strict interdiction Limited cooperation
Austria All professions
Belgium All professions For the French-speaking bar of Brussels only: chartered accountants; réviseurs d'entreprise
Denmark Chartered accountants; tax advisers;auditors; patent agents; financial advisers
Finland Notaries; chartered accountants; tax advisers;auditors; patent agents; financial advisers
France Financial advisers Notaries; chartered accountants; tax dvisers;auditors; patent agents
Germany Chartered accountants; tax advisers; auditors; patent agents Financial advisers Notaries
Iceland Notaries; chartered accountants; tax advisers;auditors; patent agents; financial advisers
Italy Notaries; chartered accountants;tax advisers
Ireland Notaries (no separate profession) Chartered accountants; tax advisers;auditors; patent agents; financial advisers
Liechtenstein All professions
Luxembourg All professions (tacit prohibition)
Norway Chartered accountants; tax advisers; auditors;patent agents; financial advisers
Portugal Notaries; chartered accountants; tax advisers;auditors; patent agents; financial advisers
Spain Compatible liberal professions
Sweden All professions
The Netherlands Notaries; tax advisers; patent agents Chartered accountants; auditors; financial advisers; physicians; engineers; psychologists; mediators
England and Wales (solicitors) Notaries; chartered accountants; tax advisers; auditors; patent agents; financial advisers
England and Wales (barristers) Notaries; chartered accountants; tax advisers; auditors; patent agents; financial advisers
Northern Ireland (solicitors) All professions (except barristers and lawyers in other jurisdictions Barristers and lawyers in other jurisdictions)
Northern Ireland (barristers) All professions
Scotland advocates All professions
Scotland solicitors Notaries (no separate profession) For legal services, any business or profession other than a Scottish solicitor
 
Source: Council of the Bars and Law Societies of the European Union