The legal profession and the law of competition

Some Thoughts on the Interaction of Italian and European Law

Categories: Business Law
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1. Introduction. Two models for perceiving the legal profession

In the realm of free professions, two approaches have been opposed and conflicting for more than twenty years, and they can be seen clearly in the world of legal professions. Professional activity, and especially that of a Lawyer, can be seen as providing a service that is the result of intellectual activity (Services Directive,2006/123/EC).

Or, it can be seen as carrying out an independent working activity with intellectual content, aimed at protecting the rights of clients and facilitating access to justice (European Parliament, Resolution on Legal Services, P6_TA(2006)0108.

The first conception goes hand-in-hand with the approach that refers to itself as "liberal" and for that reason alone it claims to have a future, in order to renew and develop economic structures, make them competitive in Europe and promote legal forms of professions that adapt themselves to these aims, and do not constitute barriers or obstacles to the integration of internal market.

This approach relies on the economy to solve the most urgent problems of a social nature.  It is an approach, a way of thinking, a perception of social and political life in which come together  those who support competition without taking in account other  values or limits,  the supporters of direct contact between the citizen and the State without significance for intermediate communities, the supporters of a "society of individuals", and a society made up of monads without protection,  although Norbert Elias highlighted all the contradictions and dangers of this conception (The Society of Individuals, Basil Blackwell, Oxford, 1991).  In this context, all that is a right, a rule, a normative context, is seen from an exclusively functional point of view, as a mere superstructure. Obviously, those who represent the world of rights fit the same characteristics, serve the market and are seen as a mere appendix (if involved and not wanted) when it comes to solving conflicts.

This approach is to be found in many contexts: in the Competition Director General's Office in Brussels, in National Parliaments, in National Government halls, in Universities and public Institutions. It is supported by consumers' associations, and is promoted by associations for entrepreneurs, and is even to be found in some limited fringe groups among the Legal Professions.

When it comes to the legal profession, this approach is against setting obligatory tariffs, used to balance the interests of the lawyer and the client, ensuring due remuneration for the lawyer. It favours free negotiation of fees, without concerning itself with the disparity in the parties' bargaining powers. It is against the ban on commercial advertising and forms of communication that harm the dignity, decorum and image of the legal professions and the lawyer, and rather favours representation of professional services in the way that is most attractive for the market. This approach is against limits to the forms of organisation of professional activity, and favours the setting up of companies involving professionals and third parties, which also includes those that do not have a degree that makes it possible for them to exercise the profession, as these third parties are partners merely in terms of capital.  When the professional activity is seen as a service, the lawyers as a business, and the Bars as business associations, this view of the legal professions appears to be fully coherent and perfectly part of the competitive market.

This approach counterpoises another approach, which is aligned with an alternative (I should say, the “classic”) conception of the legal profession. It distinguishes between business activities and exercising a professional intellectual activity, stresses that a lawyer's performance cannot be reduced to that of a mere "service", as it aims to make clients aware of their rights (by way of consultancy), to safeguard those rights (by defence in lawsuits), and to facilitate access to justice for all (also with recourse to ADRs and forms of negotiation is settle disputes).  The right to access to justice is guaranteed by national Constitutions, by the European Charter of Fundamental Rights (art.15,47) and the European Convention for  Human Rights (art. 6,7,13,17).

This alternative approach relies on wide-ranging control of legal ethics, the pre-eminence of the quality of the performance provided by the lawyer, a dignified, sufficient commensuration for the activities carried out, a distinction between the interests of the professional and those of the client, and the affirmation of prestige as the sole, complete means of representing oneself, one's practice, and one's competence.

These two approaches, which are behind the various models of regulating the professions, spread to varying degrees throughout Europe, shown that different systems can co-exist and that organisation of professions is not uniform but adapts to local needs and traditions (Noel Semple, Legal Services Regulation at the Crossorads, Elgar,  Cheltenham,UK, 2015  ).
The two approaches - or, shall we say, two models - can co-exist in the European Union, provide each of them safeguards the basic rights.

All the other rights cannot be sacrificed in the altar of competition.  The reasons for competition are not sufficient to demonstrate that only the first approach, only the first model is allowed, as it conforms to European Union Law, as the other is a relic of the past, which must be removed, in order to achieve the setting up of a single, integrated, free and efficient market.  

The first approach is defended by the European Commission, the National Authorities that control the market to make competition more efficient, and by those - politicians, entrepreneurs, jurists - who think that the legal professions enjoy privileges that should be suppressed; lawyers hold a position of privilege within society by virtue of their knowledge about the law and they exploit this advantage (Jonathan Herring, Legal Ethics, O.U.P., Oxford,2014). At the end of the 1990s a process of "liberalisation" was launched, aimed at removing the "obstacles in the way of the market", which tried to overcome organisation of legal activities via the Bars, removing rules on fees, removing limitations  of commercial advertising, suppressing deontological codes, and any limitation to the setting up of companies involving professionals and third parties.

The second approach is defended by many National Bar Councils in Continental Europe ( see Guido Alpa e Alarico Mariani Marini, Professional ethics and the social responsibility of European Lawyers, Pisa University Press, Pisa, 2015).

2. Tempering of the two approaches

Tempering of the two approaches can clearly be seen in the decisions of the European Court of Justice, which allowed the legitimacy, that is conformity to European Union law, of professional fees - under certain conditions - and it has acknowledged that legal activity has a role that cannot be likened to those of other professions and that of enterprises.  One need simply recall sentences for Arduino (of 19.2.2002, case C-35/99; Cipolla (of 5.12.2006 C-94/04) along with Macrino  (C- 202/04) and the question referred to the Court by the Council of State in the Hospital Consulting case (c-386/07).
It is true that the ECJ has used the terminology and concepts of the rules on  competition to classify  lawyers and Bars as “enterprises”, but it is also true that it opposed the  EU Commission or private parties who wanted to overturn the entire system that supports organisation and discipline of the legalprofessions.

Even more explicitly, in its Recommendation of 23 March 2006, the European Parliament stressed the characteristics of the legal professions, and recommended that the EU Commission bear in mind the values on which the legal professions are founded, because they provide a safeguard for all citizens, and they are functional for the correct administration of justice.  In particular, the European Parliament:

<(...) Recognises fully the crucial role played by the legal professions in a democratic society to guarantee respect for fundamental rights, the rule of law and security in the application of the law, both when lawyers represent and defend clients in court and when they are giving their clients legal advice;

(...)Notes the high qualifications required for access to the legal professions, the need to protect those qualifications that characterise the legal professions, in the interests of European citizens, and the need to establish a specific relationship based on trust between members of the legal professions and their clients;

(...) Reaffirms the importance of rules which are necessary to ensure the independence, competence, integrity and responsibility of members of the legal professions so as to guarantee the quality of their services, to the benefit of their clients and society in general, and in order to safeguard the public interest;

Reminds the Commission that the aims of the rules governing legal services are the protection of the general public, the guaranteeing of the right of defence and access to justice, and security in the application of the law, and that for these reasons they cannot be tailored to the degree of sophistication of the client; (…)invites the Commission to take account of the specific role of the legal professions in a society governed by the rule of law, and to carry out a thorough analysis of how markets in legal services operate when the Commission promotes a "less regulation, better regulation" principle; (…) Invites the Commission to apply the competition rules, where applicable, in compliance with the case-law of the Court of Justice (. ..)>

The gradual destruction of the second conception of the Legal profession, which is also based on organisation of the free professions backed up by the system of Bars, the abolition of the fees system, the limitations of commercial advertising, and other "competitive restrictions", is justified not only for reasons of an economic nature, but also by argumentation based on the historical contiguity between Medieval corporations and the current professional Bars.

Bars were set up in response to market needs and to defend the interests of the group to which they belong, but they had (and have) to grant the quality of legal performances, through bar exams, through the observance of rules of ethics, through their individual and social responsibility, i.e. through a special regulation which is not similar to that preserved to enterprises, and it appears more stringent and rigid.

In Middle Ages accession to Bars was conceived as a privilege. Nowadays Bars having changed their role, nature and functions, one cannot deny that  they pursue safeguarding public interests, besides the clients’ interests.  
The philosophy behind the approach that calls itself liberal is exactly this: it claims to put the perspective and historical data on an equal footing, without thinking that at least eight centuries have passed since the medieval corporations, and that the regulation of the legal professions is based on values and principles contained in the Constitutions,  in statutes  that specifically regulate the lawyer's activities, and in code of ethics. Deontological professional codes integrate legal discipline with rules of an ethical nature, violation of which results in sanctions being imposed on the lawyer. Regulating fees means for lawyers from abuse of contractual power of clients, and a dignified retribution of lawyers’ performances, limitation of commercial advertising means preserving lawyers’ dignity, prohibition of creating commercial companies of lawyers means protecting the specific intellectual nature of lawyering.

3. The reform of the legal profession in Italy and the position of the Antitrust Authority

The situation that has come about in Italy nowadays must be set against this background. In order to understand it fully and to appreciate the tensions that exist between the first and second approaches, one needs to consider three phases into which the recent history of the legal profession in Italy can be broken down.

(i) The situation prior to the reform introduced by Law n° 247 of 31 December 2012

(ii) The reform of the legal profession and its implementation 

(iii) The prospects for further changes to the reform, along the lines of further "liberalisation" of the legal profession. This latter stage was opened by the Antitrust Authority, which opened discussion on the reform text again, issued proposed changes to the discipline, pointed out the need to act once again to defend competition, and led to a legal dispute - still in progress - based on a consequent procedure and (presumed) infringement of the competition discipline by the National Legal Professions Council.
 
Despite Court of Justice jurisprudence - and the cases then pending before it - and the Resolution of the European Parliament, a real "blitz" by the Italian Government in the form of the decree of 4.7.2006 converted into Law  n° 248 of 4.8.2006 suppressed the pre-existing discipline that considered the minimum fees applied by the Lawyers in terms of the Ministerial Decree of 2004 to be obligatory, and allowed the validity of quota litis pacts (see Bénédicte Fauvard-Cosson and Denis Mazeaud,eds, European Contract Law, Sellier Pubishers, Munich, 2008, p. 135 ff.) , as well as deeming advertising disseminated by lawyers to be licit.

The current civil code states that the fee is agreed on by the parties, but adds that "the extent of the fee must be adequate for the importance of the task and the decorum of the profession"(art.2233). This provision has been completely ignored by the Antitrust Authority.

Reformation of the legal profession in Italy has indeed a complicated history covering about ten years, if one takes into account successive actions by Governments from 2006 to date, the new bill approved by Parliament on 21 December 2012 and promulgated as Law n° 247 on 31 December 2012, the provision imposed in the so called competition law of 2015, and those announced for 2016. Merely reproducing normative texts, without going into the institutional, political and economic events that provide the scenario for it, is a very limited way of representing this experience, but describing it fully would take up too much space.  For our purposes, one need simply look at the players involved in these events, to understand the conflicts, clashes, and negotiations that have marked the long, irregular and complex process.

The law for reforming the legal profession opens by recognising the legal and social relevance of the defensive role played by the lawyers, and by stating the guarantees of independence and autonomy of lawyers, which are "essential conditions for effective defence and safeguarding of rights" (art. 1 c. 2). "The legal profession must be exercised with independence, loyalty, integrity, dignity, decorum, diligence and competence, taking the social significance of defence into account, and respecting the principles of correct, loyal competence" states art. 3, c. 3.

Freedom, autonomy and competence are also the pre-suppositions for out-of-court legal assistance, which is reserved to lawyers when connected with legal activity (art. 2 c. 6). Disputes can be avoided by consultancy, parties can be guided towards forms of settlement prior to a lawsuit or during it, provided the lawyer is able to freely and knowingly evaluate their client's legal position, and suggest solutions to them that conform to the law and are most suited to safeguarding their interests.
It is also clear that only a free, autonomous legal profession can set itself deontological rules and ensure observance of canons used to discipline correct exercising of the profession (art. 3 c. 2 and 3). In terms of organisation of practices, the purpose of professional associations is extended, making it possible to also involve professionals who belong to other professional categories. Association of lawyers in partnerships and in companies is allowed but without partners who merely provide capital. It also refers to the lawyers' specific activity, which musty guarantee an absence of conflicts of interest, transparency of the internal organisation and, above all, the freedom of choices made in connection to safeguarding rights (art. 4 & 5).

Professional secrecy, referred to as legal privilege, is further reinforced, which sets the legal profession apart from the others and gives it a greater dignity: the text talks about "rigorous observance" and the "maximum discretion in relation to facts and circumstances learned when providing representation and assistance in lawsuits, as well as providing legal counsel and out-of-court assistance" (art. 6).

Another important sign of the lofty status of the legal profession is the profession of the "solemn commitment" required for starting the activity,  using a formula that replaces the old form set by the Law of 1933. Yet again the values of dignity and the social function of the legal profession are underlined, as well as the duties of loyalty, honour and diligence, which must be observed in exercising the same (art 8).  The commitment is not made at a hearing, but before the Order's Council, during a public session.  Training courses are provided, organised by Bars and Law Schools. At the same time, specialization in particular fields of profession is supported (art 9, 12).

Also along this line, provision is made for continuous updating,  (art 11) and providing for obligatory insurance to cover professional civil responsibility (art 12).

The rules for relations with clients refer to the principles of the civil code and deal with freedom in determining fees, while reintroducing the prohibition of  quota litis pacts. The obligation of informing the client of the difficulties of the appointment and other useful information is stated. This obligation does not go as far as calling for a written quotation, if this is not specifically requested by the client.  When not established by an agreement, the fee is calculated according to ministerial parameters, which must be updated every two years, based on a proposal by the National Bar Council. Where there is no agreement, the lawyer and client may turn to the Bars for an attempt at settlement, and to obtain an opinion on the correctness of the fee claimed by the lawyer. Reimbursement of costs and contributions paid in advance, as well as lump-sum expenses is also provided for (art 13).
 
Provision is also made for the lawyer to provide information on exercising their profession (art 10), in relation to the activities, organisation of the practice, and qualifications held. This information could not be classified as advertisements but a correct representation of the way in which the lawyers is working on behalf of his or her clients.

A great deal of importance is given to the organisation of Bars, which distinguishes the intellectual profession of lawyers, from the entrepreneurial one.   

While the Institutions (Justice Ministry and National Bar Council) were intent on laying down rules for implementing the reform, complications arose.

The Antitrust Authority criticised the text, maintaining that the prohibition of quota litis pacts   should be deleted, that  commercial companies could be set up between lawyers,  with the entry of partners non-lawyers providing only capital, and that the remaining limitations on advertising of professional services should be removed.  

These proposals were addressed to the Ministry Economic Development - and not to the  Ministry of Justice, which is competent for legal and professional matters - in the name of freedom of competition.

A case then arose that involved the National Bar Council, and opened up the principles on which regulation of the profession is based, and the way of understanding the functions of the legal profession itself.

A lawyer published advertising on the website of a business that sells goods and services to the public at particular discounts (Amica Card). This lawyer was enrolled with the Bar of Verbania (a small town on Lago Maggiore)  that, deeming that the advertising was contrary to the  code of ethics, asked the National Bar Council for an opinion on the matter. The Council responded by stating that the lawyer's actions were contrary to the  code of ethics. The reply did not impose a sanction on the lawyer . Nevertheless, the latter sent a report to the Antitrust Authority stating that the National Bar Council (CNF) had violated the law of competition.   Amica Card also took action to criticise the actions of the CNF .
The Authority opened a proceeding against the CNF, stating that the CNF's code of ethics was contrary to the law of competition.

The proceeding also took another claim against the CNF into account. A database on the CNF website that contains the most significant documents concerning the legal profession , still contained the circular in which the CNF commented on the government decree which removed the rules on fees. The Authority maintained that the presence of this circular, which still indicated the old fees (as a historical document) , was an obstacle to free competition.
This resulted in a hearing before the Authority, concluding with heavy condemnation of the CNF. Since the Authority deems the CNF to be a business association, and the subscriptions of the lawyers, for it to operate, to be profits from a business's activity, the fine was calculated on the basis of the subscriptions, that is the "turnover" and  came to Euro 912,000.

The CNF appealed to the administrative judge to have the provision ruled illegitimate.

The decision by the T.A.R. Lazio (the Regional Administrative Court ), Sect. I, n° 8778 of 1.7. 2015, partially accepting the appeal made by the CNF, ordered annulment of the AGCM's ruling, for the part related to qualifying CNF's circular n° 22-C/2006 as an agreement, specifically not being able to "agree with the AGCM's assumption that by having re-published circular n° 22- C/2006 on the website and in its database, indicates the CNF's anti-competition intentions of reintroducing - by revising it - the obligatory nature of the minimum fees, on pain of being subject to disciplinary proceedings, and the application of sanctions for professionals who departed   from the minimum fees indicated in the (abrogated) ministerial tariffs", whereas it confirmed the finding of the Authority in relation to advertising.

This decision was appealed before the Consiglio di Stato ( State Council) , which has yet to rule.

Nowadays opinions are divided: some - and these are in the minority - maintain that the discipline must be liberalised even more. Others, the majority, maintain that the specific nature of the legal profession, its constitutional significance, and the guarantees of independence, dignity and decorum must be preserved, and so some restrictions (which are now very limited) are justified, when it comes to the freedom of conduct of the lawyer and in determining fees.

I wish to conclude these pages by reporting the words of a Master of Civil Law and great Lawyer, Francesco Galgano. His words are taken from one of the last papers he had the strength to write before departing, and destined to honour a Neapolitan colleague who celebrated a number of decades of prestigious professional activity (L'avvocato fra libera professione e impresa, Scritti in onore di Massimo di Lauro, Cedam, Padova, 2012, p.192) . It is a sort of spiritual testimony that sums up his way of seeing the legal profession, to which he dedicated his whole life: "(...) one must oppose merchandising of intellectual professions (and the Court of Justice is opposed to it in relation to lawyers), that is, putting them on a par with any activity related to producing services. The law profession relates to the higher interest of the administration of justice. It cannot be put on a par with any business. Particular provisions are provided   to enter the profession, it calls for respecting a rigorous Code of Ethics, and submission to a higher disciplinary power. Many things have changed in modern organisation of the legal profession, but other things, harking back to the past, must remain, to safeguard the correct administration of justice".

(Altalex, 3 November 2016. Article by Guido Alpa)

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