Chapter 9

A Survey of MDP in Selected Jurisdictions Abroad

1. Europe

2. France

3. United Kingdom

4. The Netherlands

5. Germany

6. Other European Jurisdictions--Austria, Belgium, Italy, Spain, Sweden, Switzerland

7. Ontario, Canada

8. New South Wales, Australia

9. Conclusions Regarding the Survey

Some advocates of MDP in the United States, in support of their advocacy, point to the existence of MDP abroad.[n1] In addition, some commentators have mentioned that positions taken in the United States will influence positions taken abroad on MDP.[n2] These two factors -- domestic U.S. advocacy based on, and domestic U.S. influence on, MDP abroad -- provide the backdrop for this survey of MDP in selected jurisdictions outside the United States, and are referred to again in the Conclusion at the end of the survey.

The objective in conducting the survey has been to obtain information. Although the survey itself is not intended to favor or disfavor MDP either generally or in some particular form, it necessarily will reflect views expressed concerning MDP, and these views are rarely neutral. To the extent feasible, the survey has been designed to present a balanced picture, but it seems unlikely that every reader will conclude that perfect balance has been achieved.

The survey begins in and focuses principally on Europe, because of Europe’s relative economic importance, because of its variety of on-going experiences with MDP, and because a discussion of Europe can add perspective to other jurisdictions. Another reason for focusing on Europe is that firms now known and sometimes referred to herein as the Big Five (Arthur Andersen, Deloitte Touche Tohmatsu, Ernst & Young, KPMG, PricewaterhouseCoopers) and their predecessors have themselves initially focused on certain European jurisdictions in their quest for MDP.

More particularly, after covering the European Bar Council (CCBE) and the European Commission to provide a Europe-wide perspective to the extent one seems to be available, the survey will turn to France. This country has been chosen as the first in the survey because the Big Five themselves seem to have chosen it as a field of experiment in their attempt to include legal practice in their MDPs.[n3] After France, the survey will turn to the United Kingdom. Although rules on MDP in the U.K. are very much in a state of evolution, the London legal market is undeniably the largest in Europe. The survey will then cover The Netherlands, because it has given rise to litigation over MDP which is now pending before the European Court of Justice. Germany will be covered next and, because it is the largest national economy in Europe and its professional rules are relatively unknown in the United States, it will be covered in some detail.

After Europe as such and the four countries of France, United Kingdom, Netherlands, Germany, the survey will touch briefly on six other European countries (Austria, Belgium, Italy, Spain, Sweden, Switzerland), as well as Ontario and New South Wales. Following the survey, an attempt will be made to set out the conclusions that it seems to support.

1. Europe

a. The European Bar Council (CCBE)

National delegations from the 18 European countries of the European Economic Area represent the legal professions of those countries in a common bar association called the Council of the Bars and Law Societies of the European Community, often referred to by the acronym of CCBE.[n4] For several years it has been considering MDP and taking positions thereon.[n5] On November 13, 1999, in a plenary session in Athens, the 18 delegations unanimously adopted a "Position of CCBE on integrated forms of co-operation between lawyers and persons outside the legal profession" (hereinafter the "CCBE Position on MDP"). The CCBE Position on MDP begins by mentioning competing interests: on the one hand, freedom of initiative, free competition, and social needs and preferences; on the other, the lawyer’s professional independence and duty of loyalty to clients, and the legal profession’s rules on conflicts of interest.[n6] The CCBE Position on MDP then states:

The duty to maintain their independence, to avoid conflicts of interests and to respect client confidentiality are particularly endangered when lawyers exercise their profession in an organisation which, factually or legally, allows non-lawyers a relevant degree of control over the affairs of the organisation. Interests conflicting with the stated duties of lawyers, arising from the concerns of the non-lawyers involved, may then directly influence the organisation’s aims and policies. . . . [T]he interests involved may, viewed by themselves, be legitimate and salutary, rendering their potential influence particularly insiduous.

The CCBE Position on MDP next restates "the legitimate interest in the free pursuit of economic activity," and then adds the following:

[I]t has been advanced that there is a relevant demand on the part of users of professional services, for the forms of service made possible by integrated professional organisations, and that this demand may not justifiably be denied. CCBE observes, however, that there is no actual evidence of the existence of any public consensus as to the desirability or the legitimacy of the forms of integrated co-operation examined here; whilst it is a matter of overriding public interest, that the negative aspects . . . be effectively dealt with.

In the context of "jurisdictions [where] forms of integrated co-operation between lawyers and non-lawyers are permitted," the CCBE Position on MDP addresses "rules on internal partitioning of the relevant organization (colloquially referred to as the use of ‘Chinese Walls’)." According to the Position, "CCBE does not accept that . . . the relevant problems can truly be adequately met . . . [by] the application of rules of the type indicated". The CCBE Position on MDP then concludes as follows:

The legal profession is a crucial and indispensable element in the administration of justice and in the protection available to citizens under the law. . . . . CCBE consequently advises that there are overriding reasons for not permitting forms of integrated co-operation between lawyers and non-lawyers with relevantly different professional duties and correspondingly different rules of conduct. In those countries where such forms of co-operation are nevertheless permitted, lawyer independence, client confidentiality and disciplinary supervision of conflicts-of-interests rules must be safeguarded.

It would seem fair to characterize the CCBE Position on MDP as strongly cautionary. It has been reported as presaging intervention by the CCBE on behalf of the Dutch Bar in the litigation on MDP now before the European Court of Justice (discussed below under The Netherlands).[n7]

On the other hand the CCBE Position on MDP should be considered in light of these three considerations:

b. The European Commission

At the level of the staff of the Commission of the European Union, work on MDP has apparently not progressed beyond a section of a 1992 document entitled "Consultation Paper on Joint Cross-Border Practice of Regulated Professions."[n9] The Consultation Paper calls a mixed practice involving more than one profession "problematic," but nonetheless "is inclined to support it [such a mixed practice]." The paper observes that "mixed practices do seem to meet the needs of business. Small firms in particular are often pleased to find a range of services under the same roof."

The paper next mentions problems that have been raised concerning mixed practices:

[In the case of combinations] within the same category of professions [and] especially in the case of broader combinations, the problem of incompatibility between professions will arise. The justification for prohibiting certain combinations is the need to protect the independence of the practitioner, in the interests of the consumer.

Finally, the paper next examines problems arising from differences in the rules as among the member states of the European Union. On the basis of this examination, the paper concludes, "it should not be expected that rules authorizing mixed practices will be easy to apply." As mentioned, this 1992 staff-level paper seems to be the most recent study of MDP that has been conducted within the European Commission.

2. France

a. Introduction

The topic of pluridisciplinarité[n10] (multidisciplinary practice) has been much debated in France, largely because of the prominent position of the Big Five within the legal market in that country. The French Government has been involved in the debate, and at its request Henri Nallet, a former Minister of Justice and a member of the French Parliament, prepared and, in July 1999, submitted a report entitled Les réseaux pluridisciplinaires et les professions du droit (multidisciplinary networks and the legal professions) (hereinafter the "Nallet Report"), which focuses in large part on the Big Five in France.[n11]

Even though the Big Five have established a strong presence in several European countries, they seem to have used the French legal market as a field of experiment in their attempt to include the practice of law in their multidisciplinary networks ("MDPs"). In France (as in certain other countries) the Big Five have included within their MDPs legal practices that remain nominally independent. The Big Five thus practice law in France through "associated law firms,"[n12] each of which is affiliated with one of the Big Five pursuant to arrangements creating the association. During the 1990s, these Big Five legal practices in France grew to the point that they were among the seven largest law firms in that country.[n13]

How did it happen and why did it happen in France? The answer lies in the historical background of the French legal professions and the related process whereby, it has been suggested, France in the 1990s became a "paradise" for the Big Five.[n14] Of particular importance in this connection were the mitigated results of the 1970 reform of the French legal professions -- an attempt by the French authorities to transform a group of legal professions into a larger and more homogenized profession -- which offered an important opportunity to the Big Eight (as they then were) to practice law in France.[n15]

Unlike the United States, where lawyers have essentially formed a single profession with geographical divisions, France has had for centuries (in addition to its geographical divisions) several distinct legal professions.[n16] Among them, the avocat resembles the U.S. attorney with a less extensive mission and reduced prerogatives. The avocats are organized in regional Bars (barreaux) of different size (the largest being in Paris) and follow the rules set by the Bar’s règlement intérieur, the equivalent of a code of professional responsibility. The other traditional legal professions are also organized in and regulated by professional bodies. In addition, statutes designed to facilitate the access of individuals to certain types of courts have generated non-lawyer practitioners in areas of the law covering labor disputes, commercial litigation, social security litigation, and administrative litigation. Before certain courts, individuals may be represented by non-lawyers of their choice who have been formally authorized to do so. Labor unions thus have entire legal departments with members specialized in the representation of employees before the French labor courts, many or all of whom are non-lawyers. Moreover, accountants and auditors also benefit from provisions of the 1970 and 1990 reforms, allowing them to provide their clients with legal advice so long as the advice follows naturally from their basic professional activities. In sum, neither the French avocats nor the traditional French legal professions taken as a whole enjoy a monopoly of the practice of law.

Not only do avocats belong to but one piece of a fragmented legal profession, but also it was not until the 1960s that avocats were permitted to form partnerships having more than five partners.[n17]Historically, therefore, avocats were almost exclusively focused on the traditional litigation-related aspects of legal practice (the judiciaire), and tended not to focus on advice and assistance involving tax, corporate, commercial, and general business law (the juridique).[n18] Prior to 1971, this vacuum was filled in part by a new, unofficial profession whose members were known as conseils juridiques et fiduciaires (legal and tax consultants).[n19]

Although the main legislative goal of the 1970 reform was to enlarge the domain of the avocats and to create a stronger legal profession, and although two secondary professions (avoués près les tribunaux, agréés au commerce) were integrated into the profession of avocat, the 1970 reform failed to integrate the legal and tax consultants into the profession of avocat. On the contrary, the new law created and thus legally recognized the profession of conseil juridique (legal consultant). Thenceforth, the conseils juridiques benefited from a protected title.[n20] They were not avocats and were not allowed to represent their clients before the principal French courts. Rather, they dedicated their practices mostly to business law matters and developed their legal counseling activities, in many cases quite successfully. Under the law, they were professionally organized,[n21] enrolled on a list established by the Procureur de la République (State Attorney), and subject to requirements similar to those required of avocats.

It has been argued that the 1970 reform did not strengthen the French legal profession but rather divided and weakened it to the disadvantage of both the avocats and the conseils juridiques; that the avocat retained the image of a litigator lacking competence in matters involving business and tax law, while the conseil juridique remained a purely French innovation not well recognized internationally and lacking the prestige that accompanies a long tradition and rigorous professional rules.[n22]

Whether or not the 1970 reform strengthened the French legal profession, it did a great deal to strengthen two other categories of legal practitioner in France. One group that benefited consisted of foreign lawyers who were allowed to practice in France as conseils juridiques.[n23] The other group benefiting from the 1970 reform was the Big Eight (as they then were). They started adding legal practice to their activities in France by employing or affiliating with conseils juridiques, who enjoyed complete autonomy from the French Bar. The areas of business and tax law being pursued by the conseils juridiques were those of interest to the Big Eight which, through the conseils juridiques, could develop their legal practices free of supervision by the Bar. At the time the Bar apparently did not react to the practice of law in France by the Big Eight, although (as will be seen) there was a premonition of potential conflict.

Following the 1970 reform, it became clear that further reform was necessary to try once again to strengthen the French legal profession and to adapt it to the challenges of the business-law market. Overall, the avocats had not managed to develop their activities in this market, and by the end of the 1980s only ten firms of avocats comprised at least 60 avocats per firm.[n24] The Paris Bar Association commissioned an inquiry into the situation by a member of its governing body. The resulting report[n25] included (among other proposals) the recommendation that the conseils juridiques and avocats should merge into a single legal profession, subject to a formal undertaking by the conseils juridiques that they would not be part of an accounting firm: "As to the issue of the accountants, the situation must not be left as is, especially considering that several of the accounting firms' principals would automatically become avocats upon completion of the merger of both professions."[n26]

The report and the proposals led to a second legislative reform in 1990. In supporting this second reform, the avocats requested a unified profession that would have a monopoly over the right to give legal advice, to draft legal documents, and to represent clients in court. They achieved only partial satisfaction. The French Parliament merged the professions of conseil juridique and avocat into a single profession which became known as the profession of avocat, but the avocats were not granted a monopoly over legal advice, drafting legal documents, or even representation before the courts. The périmètre du droit (area of professional activity reserved to avocats) was limited from its origin by the right granted to other professionals to give advice in areas regarded by them as ancillary to their principal activities. Banks, insurance companies, unions, and accountants took advantage of this right to handle legal matters that the avocats considered as part of their natural domain.

Furthermore, the French Parliament did not allow the avocats to form partnerships with the other legal professions (the notaires and the huissiers), nor did it merge the avoués or the avocats au conseils into the new profession of avocat, nor did it allow these three professions to form partnerships with each other.[n27] The legal profession thus remained divided despite the 1990 reform.

While the text of the 1990 reform was still being debated by the French Parliament, debates occurred within the National Association of Conseils Juridiques (the ANCJ)[n28] regarding the issue of MDP. The proponents of MDP among the conseils juridiques wanted to have the ANCJ support a text that would officially authorize MDP in France, but a majority of the ANCJ membership was opposed to this text and its objective. Realizing that they were in a minority, the supporters of MDP left the ANCJ and created their own professional association, which they called Juri-Avenir.[n29]

In an open letter to its members,[n30] the ANCJ opposed the Big Five and the creation of Juri-Avenir. It stated that the sole purpose of Juri-Avenir was to "support the right of law firms to be affiliated with accounting firms," and added that "the quasi-totality of the conseils juridiques oppose this right [because] it would be incompatible and inconsistent with the principle of separation between accounting activities and the legal profession as understood and supported by the ANCJ." Symbolic of this dispute was the issue of "branding" (the use of Big Five names by their affiliated law firms) that was to give rise to much discussion within the French Parliament and, following the 1990 reform, within the new profession of avocat.[n31]

By virtue of the 1990 reform, all persons who were conseils juridiques on December 31, 1991 became avocats on January 1, 1992. This occurred automatically, by operation of law. Therefore, as had been foreseen in 1988,[n32] all conseils juridiques (all partners and associates) working in the legal practices of the Big Six (as they then were) became avocats and members of the Bar (members of the respective Bars having jurisdiction over the geographical areas where they were practicing).

b. The Big Five in France

Subsequent to January 1, 1992, the legal practices of the Big Five in France have expanded at a substantial rate in terms of both revenues and numbers of legal professionals (avocats).[n33] The analysis found in the Contribution Intersyndicale[n34] suggests that the development of these legal practices, while subject to variations, has generally resulted in (1) low net income in terms of revenues, (2) substantial indebtedness, and (3) low net results per partner. Fidal (the legal practice of KPMG), which is the largest law firm in France, can be examined for information bearing on this analysis.

  1. Fidal, in September 1998, employed 1,099 avocats, reported gross annual revenues of 1,124,688,000 French francs ("FF"), and a net annual income (after tax) of 11,296,000 FF.[n35] The gross/net ratio thus shows a rather low profitability of 1% of revenues, or about one-tenth of the reported profitability of Clifford Chance in France.[n36]
  2. At the same time, Fidal had total indebtedness of 422,177,000 FF and an operating result of 28,509,000 FF in 1998.[n37] Thus, the debt was 37.53% of gross revenues. Since the debt was 14.8 times the amount of the operating result, were this relationship to remain unchanged it would take Fidal over 14 years to reimburse its debt.[n38]
  3. In 1997, Fidal had 308 partners and an operating result of 35,470,000 FF after all expenses. The operating result per partner thus amounted to 115,162 FF, as against 2,709,229.83 FF for Clifford Chance.[n39] If Fidal partners received remuneration significantly in excess of their salaries,[n40] the excess was presumably provided by non-Fidal sources in KPMG.[n41] In this event, Fidal partners may have benefited from financial support from the rest of the MDP, which may have been subsidizing Fidal's market share of legal practice.

Another issue that involves legal practice by the Big Five in France relates to "branding," that is, to the usage by a law firm affiliated with one of the Big Five of a name that includes or reflects the name of the Big Five entity itself. The 1990 reform contained two relevant statutory provisions whereby the Big Five (as they now are) officially entered the French legal profession. They are Article 67 of Law No. 90-1259 of December 31, 1990 ("Article 67"), and Article 2, paragraph 4 of Law No. 90-1258 of the same date ("Article 2"). The latter provides that an entity may add, before or after its name, the name or insignia of the association, the group or the professional network, be it national or international, of which that entity is a member, without prejudice to (i.e., subject to) the provisions of Article 67. Article 67 contains two relevant provisions, paragraphs 2 and 3. Paragraph 2 provides that "the companies or groups which existed [before January 1, 1992] may keep their names, even if the name is not constituted by the names of current or former partners." Paragraph 3 then provides that "if [at the time of the reform] these companies or groups of conseils juridiques were affiliated with a national or international network that included professions other than the legal professions, they could still mention their belonging to such a network during a period of five years [starting on January 1, 1992]." [n42]

There are two main interpretations of this provision. One reflects the position of the French National Bar Council and critics of the Big Five, while the other has been developed by the Big Five and to a certain extent by the Bar of Nanterre (Hauts-de-Seine). According to several syndicates of avocats and former conseils juridiques, the debates which took place in the French Parliament over the issue of the accounting firms' relationships with some firms of conseils juridiques show that Parliament had misgivings concerning those relationships. These syndicates consider that Article 67, paragraph 3 clearly represents a limitation on the provisions of Article 67, paragraph 2, as well as on Article 2, with respect to a legal practice affiliated with an MDP. They assert that to permit such a legal practice to continue using the same name (entirely or in part) as one of the Big Five would be completely inconsistent with the prohibition in Article 67, paragraph 3 and with the intent of the French Parliament.[n43] This interpretation finds support in an answer given by a parliamentary leader in the debate in the French National Assembly on December 10, 1990:

What is the situation today? Some firms [groups of conseils juridiques] may refer in their partnership name to the multidisciplinary practice they are part of, which includes that to which we are opposed, the accounting professions. The Government in Article 67, paragraph 3 has given a five-year period for these firms to comply with the law. . . . Within the coming years law firms [sociétés d'exercice libéral or associations] within the new structure set by the law must respect our laws. We have accepted multidisciplinary networks but only to the extent that it is between legal professions [judiciaire and juridique].[n44]

Later, based on this strict interpretation and on a resolution taken by the National Bar Council,[n45] the Paris Bar insisted that PricewaterhouseCoopers Juridique et Fiscal change its name. At various times beginning in 1996, several Bars including the Paris Bar had requested that the legal practices of the Big Five respect the provisions of Article 67, paragraph 3 and modify their respective names.[n46] PricewaterhouseCoopers Juridique et Fiscal, created by the merger of Price Waterhouse and Coopers & Lybrand,[n47] after being questioned by the Paris Bar on the issue of the name of its legal practice, finally announced its decision in October 1999 to change it to "Landwell & Associés"[n48] -- which might be regarded as an acknowledgment by one of the Big Five of the correctness of the strict interpretation of Article 67, paragraph 3.

This decision by PricewaterhouseCoopers was not copied by other Big Five accounting firms in France. Fidal, which is affiliated with KPMG, may not feel as much concerned as Deloitte & Touche, Archibald Andersen, or Ernst & Young, because, unlike these three firms, its name is distinct from that of its affiliated MDP.[n49] As for the remaining three of the Big Five, their legal practices in France are under the jurisdiction of the Bar of Nanterre (Hauts-de-Seine), where they and Fidal represent almost 70% of its individual members, and where members of Big Five legal practices are on the Bar’s governing body (Conseil de l'Ordre). The Bar of Nanterre has not taken action to prohibit a law firm affiliated with an MDP from using the name of the MDP.

Generally speaking, the Big Five consider that paragraph 2 of Article 67 allows their legal practices to retain the respective names of the MDPs with which they are affiliated, and paragraph 3 should not be read as an exception to that principle. The text of Article 67 as enacted was the result of an amendment presented by Jean-Pierre Philibert, who was in 1990 a member of both the National Assembly and of Fidal. Although the National Assembly rejected several of the amendments he presented because they openly would have allowed the Big Five legal practices to retain their names, he also drafted the final version of Article 67. The Big Five have consistently argued that paragraph 2 of Article 67 allows their legal practices to retain their names even when "not constituted by the names of current or former partners," and that the limitation in paragraph 3 applies only to references to the MDP but not to the name of a legal practice itself. In sum, the Big Five never interpreted Article 67, paragraph 3 as an obligation for their legal practices to dissolve any link they had with other Big Five activities (accounting, counseling, and auditing).[n50]

In March 1999, the French National Bar Council adopted a decision on MDPs (réseaux) which requires lawyers in an MDP to use a firm name distinct from the name of the MDP. The decision limits permissible MDPs to those comprising only members of regulated liberal professions; declares auditing and certifying the accounts of a client to be incompatible with the activities of an MDP in which lawyers are members; lays down stringent rules on transparency, setting out information about the structure and operation of each MDP comprising lawyers that must be disclosed to the National Bar Council; requires the MDP to comply with the rules of the legal profession on conflicts of interest; and forbids the MDP to compromise the independence of the lawyer. Reportedly, in April 2000, Fidal commenced litigation in an effort to set aside this decision by the National Bar Council.[n51]

A July 1996 document[n52] describes a common strategy of development by the Big Eight (as they then were). This 1996 plan of action was signed by representatives of each of the eight firms, and its purpose was to address the issue of the "expectation gap" that these firms considered to exist between the mission of accountants and auditors, and their actual performance as it was perceived by clients. Although much of this accountant-oriented document does not refer to legal practice, the document throughout presents the development of multidisciplinary forms of practice as a necessity in order to improve the service of the accountants and auditors and to reduce the "expectation gap." It comments at several places on the role of lawyers as part of an MDP. These comments are concerned with the non-accounting services which the Big Five deem it necessary to provide in addition to, and as a complement to, the classical accounting and audit functions.

The 1996 plan of action seems to be based on one key principle with regard to non-accounting activities, including legal services, within a Big Eight (now Big Five) MDP. Under this principle, the main activities of the MDP are to remain accounting and auditing, and it is to make them more effective that the services of specialists from other areas must be added. Thus, lawyers were regarded as accessories to accountants. The 1996 plan of action made it clear that the MDPs were to be controlled by accountants and auditors, and only by them -- that a given MDP must be majority-controlled, through voting rights and the composition of management, by persons qualified to practice the accounting profession.[n53] In this connection it might be mentioned that, within the Big Five in France, the legal practices are far from being the activity that is most productive of revenues.[n54]

Non-lawyer control of the MDPs has prompted avocats outside the Big Five to claim that avocats surrender their professional independence when entering the Big Five. Recruitment of avocats by the Big Five involves obtaining the views of non-legal professionals. Once inside a Big Five MDP, the avocat may be expected to provide the MDP’s auditors with information that an independent avocat would consider privileged. Portions of the 1996 plan of action suggest that the avocats within the Big Five will be expected to observe the standards of the auditors in supplying the latter with information relating to clients.[n55] The risk for the avocats under the 1996 plan of action is that, being considered as any other service providers and as accessories to the auditors and accountants in an MDP, they will lose their specificity and hence the professional basis in France for attorney-client privilege and for the confidentiality of communications between avocats in the representation of their clients.[n56]

The transformation of the Big Five conseils juridiques into avocats could imply that their legal practices are now being monitored as a result of their passing under the jurisdiction of the Bar. The Big Five are still criticized, however, for lack of transparency regarding the type of structural or contractual arrangements that exist among the members of an MDP, especially between avocats, on the one hand, and non-legal professions such as auditors and accountants, on the other. The Big Five claim that such agreements are confidential and do not fall under the jurisdiction of the National Bar Council; that they are only provided to a local Bar upon official request, provided that they remain confidential. Four of the Big Five[n57] assert that the Bar having jurisdiction over them is fully informed of all existing agreements regarding the structure of their MDPs. They are under the jurisdiction of the Bar of Nanterre (Hauts-de-Seine), which geographically encompasses La Défense, a large business center bordering Paris. Realistically, however, these four are in a position to dominate the Bar of Nanterre and to influence the professional body in charge of monitoring them. The Nallet Report refers to this fact and points out that over two thirds of the members of the Nanterre Bar are employed by the Big Five.[n58]

In managing their MDPs, the Big Five seem to be sensitive to the issue of conflict of interest. "We are being watched constantly by our critics and competitors and by the Bar regarding conflict of interests. More than anybody else we must be extremely cautious," says Gérard Nicolaÿ of Landwell & Associés. It seems that the Big Five attempt to avoid conflicts not only with existing clients but also with potential clients. On the other hand, avocats who criticize the Big Five say that avocats within the Big Five are not free to choose their clients on a traditional basis, and are subject to strategic constraints imposed by Big Five management based on MDP financial considerations. Moreover, it would seem that, even with the best of strategic planning, a Big Five MDP in France would from time to time face a genuine ethical conflict of interest; but no such situation has been documented.

The French National Bar Council, despite criticism of the Big Five among the avocats, must consider the position of the legal profession in France in light of the Bar’s severe economic difficulties.[n59] Many young lawyers, having passed the bar examination, have been forced to delay their entrance into the profession because they could not find law firms willing to hire them and train them during the compulsory first two years of practice as a stagiaire (legal intern).[n60] The Big Five hire many young associates and train them. According to Juri-Avenir, the Big Five from 1991 to 1998 devoted 473,706 hours to continuing legal education, and guaranteed to their associates decent and regular income.[n61] Furthermore, the 1990 reform had given rise to a dispute over the périmètre du droit (area of professional responsibility reserved to avocats). The Big Five distanced themselves from this dispute and presented their MDPs as acceptable and modern alternatives to other avenues of legal practice. The National Bar Council thus came to realize that it had to cope with MDPs rather than to fight them.

By its decision of March 14, 1998,[n62] the National Bar Council officially allowed all avocats to form associations and partnerships with members of other regulated professions including accountants and auditors. The National Bar Council thus officially recognized MDPs, but subject to certain principles, restrictions, and obligations, including the following:

  1. To avoid conflicts between the professional rules regulating avocats and auditors, an avocat affiliated with an MDP may not represent, or derive any revenue from, a client of an auditor of that MDP.
  2. The avocats affiliated with an MDP must practice under a name different from the name of the non-legal part of the MDP.
  3. The conflict-of-interest rules of the legal profession must be applied throughout the MDP, and an avocat may not represent a client if knowledge acquired about another client by anyone in any part of the MDP is likely to benefit unfairly, or to harm, either of the two clients.
  4. Most importantly, each MDP is obligated to disclose to its local Bar and to the National Bar Council substantial information concerning the structure of the MDP and relationships between the different bodies and professions within the MDP, their members, their composition, the rules governing their management, administration, and internal elections, their financial structure, the mode of remuneration of the partners, the type of computer system used, existing procedures to preserve attorney-client privilege, and the practices and rules applied within the MDP in order to respect ethical principles and rules of professional responsibility established by the Bar.

Although the March 1998 decision by the National Bar Council was an official acknowledgment by the avocats of the existence of MDPs as legal practitioners and members of the profession of avocat, the Big Five were reluctant to accept many provisions of this decision, in particular those having to do with the monitoring of their structures by a local Bar and especially by the National Bar Council. The Big Five’s professional association, Juri-Avenir, published a response in a document[n63] that was ultimately distributed to all members of the French Parliament. This document not only presents the arguments developed by the Big Five regarding the decision of the National Bar Council, but also attempts to position the Big Five within the French legal profession in a more favorable light than American or British law firms with offices in France.[n64] It quotes the following from a report delivered to the Conference of the Heads of the French Bars in April 1998: "It is the American and British firms established in France rather than the Big Six that promote the Anglo-Saxon legal system in France."[n65] It also states that the offices of American and British law firms in France are totally under non-French control, and that, in contrast, the Big Five's legal practices are French law firms with French assets that decided to join MDPs in order to enhance their development.[n66]

The Juri-Avenir document claims that the National Bar Council does not have jurisdiction to monitor or control any internal MDP agreement or regulation relating to rules of ethics and professional responsibility. It quotes the Minister of Justice during the debates over the 1990 reform to the effect that the National Bar Council was never meant to control the local bar associations. With respect to conflicts of interest, the Juri-Avenir document asserts that there is no example in France of a client's complaint based on a violation of professional secrecy by a member of the Big Five. It also asserts that the avocat within an MDP is not to be held responsible for actions by an auditor or an accountant, and that these professions are "distinct." Regarding the National Bar Council position on the strict incompatibility of the profession of avocat with the mandate of auditors, the Juri-Avenir document argues in favor of a less restrictive interpretation of applicable law. The appropriate test, it says, is whether another professional within the MDP has acted in a manner that would materially impair the objectivity of the auditor. Finally, the Juri-Avenir document asserts that the debate over MDP is misdirected and focuses unjustifiably on issues of ethics that are nothing but attempts to mask the avocats' fears for their future. The Juri-Avenir document blames the constraints imposed by the avocats' professional rules for the lack of progress by the avocats and their loss of business opportunities.[n67]

An overall objective of the Juri-Avenir document seems to be to improve the public image of the Big Five, and to moderate the effect of the term "Big Five" itself, which can seem threatening to small practices. The Juri-Avenir document thus focuses attention on small MDPs that are claimed to involve 800 law firms and 4,100 avocats.[n68] In terms of revenues, however, these small MDPs are in no way comparable to the Big Five, and the Nallet Report (discussed below) deals almost exclusively with the Big Five.

In the realm of professional politics, the Big Five, despite their undeniably strong presence within the French legal profession, have yet to emerge as a national force among the avocats. At the election of the National Bar Council in November 1999, Juri-Avenir obtained two seats[n69] out of eighty. For the time being, therefore, the Big Five may not be able to secure a position on the Board or on a major committee of the National Bar Council.

c. The Nallet Report

It was in the aftermath of the March 14, 1998 decision of the National Bar Council that the Prime Minister of France requested what became the Nallet Report on MDP in France. The context of the report is existing French legislation and professional rules, and policies in Europe. Its purpose is to study if and how considerations of legal ethics can be reconciled with the concentration of several distinct professions in a multidisciplinary practice providing among others legal services to clients. The report describes in some detail the presence in France of substantial law practices under the control of the Big Five. It states as a basic fact that prohibiting MPD in France is out of the question, and it sets forth recommendations for the regulation of MDP in France. In addition, the Nallet Report discusses ways in which French professional organizations and law firms in particular might be given improved access to capital resources.

The report's main recommendations concerning MDP are summarized below.[n70]

  1. The report calls for legislation that would define MDPs and authorize the free creation of MDPs so defined. The report would open MDPs to all professions and not just to those that are statutorily regulated. Even so, the report focuses almost exclusively on MDPs of the type created in France by the Big Five.
  2. The report calls for the creation of a national commission having jurisdiction over matters of professional ethics involving MPDs (a new Comité national de déontologie des réseaux). This commission would be authorized both to prescribe ethical rules where there were conflicts or gaps in the rules applicable to the professions in an MDP, and to resolve particular ethical cases where existing disciplinary bodies lacked jurisdiction. In principle, this new commission would when feasible apply pre-existing ethical rules and act through pre-existing disciplinary bodies. The report proposes that the new commission have eight members—three from bar organizations, two from audit/accounting organizations, and three from governmental agencies.[n71] (There would thus be one more bar than audit/accounting representative.) The report further proposes that standing to bring matters before the new commission would be limited to those organizations and agencies, other governmental bodies, and firms and entities within MDPs.
  3. The report would require that every MDP submit to the new commission, as well as to existing professional disciplinary bodies relevant to the MDP, all agreements and constitutive documents relating to the structure and operation of the MDP. According to the report, any such agreements and documents not so submitted would be void. The report would also give clients of the MDP access to such agreements and documents.
  4. With respect to the professions of avocat and auditor, the report calls for the "absolute independence" of each profession from the other. With respect to auditors and accountants, the report would leave it up to the two professions to work out their relationship and, failing that, to have them consult the new commission referred to above.
  5. The report endorses the principle of forbidding the sharing of fees between avocats and other professionals in an MDP. The report is unclear as to how, and how far, it would apply this principle, and recognizes that stating the principle does not answer questions relating to the sharing of expenses and the sharing of profits. Again, the report would turn these questions over to the new commission mentioned above.
  6. The report calls for the independence of each profession in an MDP with respect to its own professional strategy and management, and the admission of partners.
  7. The report touches on three specific questions of professional ethics.
    1. As to conflicts of interest, the report, without providing any factual data in support of its statement, says that existing MDPs claim to have adopted detailed and strict rules on the basis of recognized principles and norms, that no significant problems have arisen thereunder, and that it will suffice for these MDPs to make their rules public.
    2. As to advertising, the report calls for common rules for all professions in an MDP, including those professions that do not now have any rules, based on the relatively restrictive rules applicable to avocats.
    3. As to professional secrecy, the report states that the avocats in an MDP must remain absolutely bound by existing rules of the legal profession.
  8. The last eleven pages of the Nallet Report deal with improvements in capital-raising by law firms through passive investment. The Nallet Report thus seeks to further one of the goals of the 1990 reform by strengthening the entities[n72] in which avocats practice as law firms. One such entity, the société en participation (which is a form of partnership) is limited to partnerships between individual lawyers and has had very little success since the 1990 reform. The Nallet Report proposes that juridical persons be allowed to enter into such partnerships in order to help reinforce or create larger, more concentrated structures with greater financial means.

The report also proposes that French law firms be authorized to create holding companies. The purpose is to provide avocats with a structure designed to help them finance their development at the national, European and global levels. The holding company would lend funds to the law firm, and interest would be deducted from the dividends paid by the firm to the holding company. According to the report, this should facilitate the financing by banks and other financial institutions of law firms through such holding companies while preserving the avocats' independence.

The Nallet Report further suggests that French law firms be authorized to issue certificates of investment without voting rights that could constitute part of the firms' capital. The avocats of these firms would retain all voting rights, and their passive investors would collect dividends. Investors would undoubtedly be tempted to put pressure on the avocats in order to make their investment profitable, and this could raise questions under the avocats’ Code of Ethics.[n73]

The Nallet Report also makes significant recommendations for modifications of tax law as applied to law firms, along lines requested by the Paris Bar. The changes would permit the creation of tax-free reserves, and would facilitate a transition to lower levels of taxation. In addition, the report criticizes the existing system applied in most law firms in France whereby senior partners, upon retirement, treat their partnership shares as their own property which they sell to younger partners. The report calls for a different approach to retirement benefits, which would be less burdensome to French law firms and allow them significantly to increase their capital.

At this time, it is unclear whether and how any of these recommendations will be reflected in French legislation and professional rules. The Nallet Report sets out principles but does not provide any detailed guidance for applying those principles. Their implementation will depend on decisions by the French Government.

3. United Kingdom

The legal profession in the United Kingdom is divided functionally between solicitors and advocates/barristers, and geographically among England and Wales, Scotland, and Northern Ireland. Except for the solicitors in England and Wales, the position of the profession is, briefly, to view MDP as problematic -- as posing a serious potential threat to the core values of professional independence, loyalty to clients, and strict rules on conflicts of interest; and these branches of the profession (those other than the solicitors of England and Wales) supported the Position of the CCBE on MDP referred to above under Europe.[n74]

It is the solicitors of England and Wales, however, who, numerically and economically, comprise the most important branch of the U.K. legal profession. Their organization, The Law Society of England and Wales (the "Law Society"), has been recognized for certain purposes by Acts of Parliament, and its practice rules prohibiting MDP were adopted under statutory authority.[n75] Subsequent to the adoption of those rules, however, there has been a change of government in the U.K., and the Law Society may now be seeking to anticipate parliamentary action that would authorize MDP, lest the Law Society find itself with little or no role in handling the matter. In the words of the Council of the Law Society in October 1999,

if the Law Society was not prepared to be proactive in shaping suitable rules and regulations then it might be forced to be reactive. The [U.K.] Government generally took the view that, subject to suitable safeguards, MDPs should be permitted. The Office of Fair Trading was watching the debate with interest and it appeared that there would be new powers relating to MDPs in the Competition Act (in force March 2000).[n76]

A year earlier (October 1998), the Law Society had issued a consultation paper entitled "Multi-Disciplinary Practices, Why? . . . Why not?" This paper had provided solicitors with a 29-page discussion of the Law Society’s prohibition against MDPs, and had said that "central to the debate" was "the fear that MDPs would threaten the independence and separate identity of the profession, and might reduce public access to justice." It had then added that "traditional barriers have begun to break down. Those who oppose MDPs now tend to focus more on the practical problems MDPs may create. There is particular concern about how solicitors in MDPs should be regulated."[n77]

The 1998 consultation paper next set out a history of the debate within the Law Society over MDP, and of the practice rules forbidding it; and pointed out that a solicitor is permitted to provide "business adviser" services, but not legal services, through a separate business entered into with non-lawyers, and to engage in certain activities when acting in a capacity other than as a practicing solicitor. Thus, the consultation paper said, there is a distinction between a practicing solicitor, in respect of whom there are substantial "consumer protections," and the solicitor who is not practicing, in respect of whom "virtually none of the protections apply." The paper then observed: "If we permit MDPs, it may be harder to preserve this clear line between a practice offering full client protections, and a business offering none of the protections offered by a solicitor’s practice."[n78] The consultation paper also mentioned different models for MDPs, and arguments for and against them;[n79] and discussed particular problems such as the handling of conflicts of interest within an MDP,[n80] and whether MDPs might require a new regulatory structure.[n81]

Attached to the consultation paper were nine pages of questions, distributed to members of the Law Society "to obtain [on a confidential basis] the full range of views of solicitors and organisations representing solicitors and other bodies." Recipients were requested to read the consultation paper before responding, and to take into account the views of clients. Although there are about 80,000 solicitors practicing in England and Wales, and 12,000 questionnaires were distributed, the Law Society received only 272 responses to its 1998 questionnaire. The responses have been described as "divided on the subject" and as favoring MDP on the order of 70% to 80% of the respondents.[n82]

Following the issuance of the 1998 consultation paper and questionnaire, the Council of the Law Society created a Working Party on MDP, which met in 1999 on June 17, July 21, and September 9 with the following objective:

To take forward a review of MDPs to ensure that restrictions on the business vehicle/organisation through which solicitors practise, are the minimum necessary in the public interest and do not stand in the way of solicitors’ business development planning.[n83]

The Working Party considered in particular the responses to the Law Society questionnaire (discussed above), and "the conclusions drawn by the ABA Commission on MDPs".[n84]

At its first meeting, the Working Party decided that "the public interest required that the burden of proof [should] be on those who argued for the retention of the current restrictions [on MDP]."[n85] At its second meeting, the Working Party reached seven preliminary conclusions:

The Working Party next proposed that "immediate consideration should be given to developing two interim models [of MDP] . . . without the need for legislation." The two models were called (1) "legal practice plus" -- whereby a firm of solicitors would be permitted to have a minority of non-solicitor partners -- and (2) "linked partnerships" -- whereby an independent firm of solicitors "links with, for example, an accountancy practice" and the "linked partnerships" would be permitted to share fees.

As regards "legal practice plus," the Working Party was of the view that legislation would not be required if the solicitor partners bore "extra responsibilities" and the non-solicitors were required to enter into contracts with the Law Society.

As regards the interim solution of "linked partnerships" which, the Working Party said, "needs further work to see if the ban on fee sharing should only be relaxed in relation to certain specified alliances, or more generally," the Working Party noted that this solution would be used mainly by the Big Five but also might be used by others including, possibly, purely commercial companies. The Working Party then listed three further issues to be explored: (1) passive investment; (2) conflict of duties between lawyers and auditors; (3) legislation.[n87]

The Working Party’s report was taken up on October 13-14, 1999 by the Council of the Law Society which, by an overwhelming majority, substantially adopted the preliminary conclusions mentioned above. In support of so acting, the Council referred to the possibility of Government intervention if the Law Society failed to act on MDP (as discussed at note 76 supra). In addition,

several members [of the Council] made the point that in a developing legal market, it was up to the Law Society to seize the initiative and to formulate an appropriate regulatory framework within which firms could choose to operate within MDPs if they so wished. The introduction of MDPs did not necessarily equate with a loss of independence. Solicitors would still retain certain core values which would continue to identify them.

The Council formally resolved the first of the Working Party’s points -- "that the ultimate goal should be to allow solicitors who wish to do so to provide any legal service through any medium to anyone, while still providing the necessary safeguards to protect the public interest." The Council "noted" the Working Party’s other six conclusions (see above); and said that the interim solutions of "legal practice plus" and "linked partnerships," as described in the Working Party’s report, "should be considered".[n88]

Shortly after the October 1999 meeting of the Council, representatives of the leadership of the Law Society[n89] were of the view that adoption of the "legal practice plus" approach (that is, an approach permitting lawyer-controlled MDPs) should remove certain of the pressures from within the solicitors profession to capitalize on opportunities represented by MDP, pressures brought by solicitors who would like to be able to have partners who were, for example, human-resource practitioners, or environmental practitioners. Accommodating these needs and permitting such non-Big Five MDPs, they said, might also help to reduce pro-MDP pressure by the U.K. Government.

As regards "linked partnerships," they acknowledged that the key question is whether sufficient protections of consumers and professional values can be provided (as mentioned in the Working Party report), and added that the Big Five can be expected to "chip away" at whatever safeguards are adopted.[n90] Once "linked partnerships" are formed with the Big Five, why not with Boots [the drugstore chain], they asked? They foresaw risks involving passive investment in legal practices, and risks relating to conflicts of interest and professional integrity within MDPs. In response to a question, they reacted positively to the idea that a "linked partnership" could be for only a fixed term, subject to renewal with the assent of both parties.

The Law Society’s action regarding MDP has taken place against a background of commentary on the ambitions of the Big Five for legal practice in the U.K.[n91] A subtext, however, has been that, to date, this legal practice has not been of a "top tier" variety in London.[n92] Thus, in addition to the question of what rules will emerge in the U.K. to permit legal practice in the form of MDP, there seems to be a further question focused on the Big Five in particular: will their legal practices come to rival those of the leading London law firms?[n93]

4. The Netherlands

The Netherlands has given rise to the most significant litigation in Europe over MDP. The parties are, on the one hand, the General Council of the Netherlands Order of Advocates[n94] (the "Order") and, on the other hand, individuals and entities acting in connection with the international firms of Price Waterhouse and Arthur Andersen.[n95] At issue are the contemplated integration of a Dutch lawyer named J. W. Savelbergh into Price Waterhouse Nederland, which is a partnership of accountants, and the contemplated integration of a Dutch lawyer named J.C.J. Wouters into Arthur Andersen & Co. Accountants. In respect of Savelbergh/Price Waterhouse and Wouters/Arthur Andersen, the Order, acting through supervisory bodies in Amsterdam and Rotterdam, respectively, had found each contemplated integration to be incompatible with the Order’s rule known as the Cooperation Regulation 1993 (the "Regulation").[n96]

In November 1995, the Order upheld the decisions of the supervisory bodies. Price Waterhouse and Messrs. Wouters and Savelbergh appealed the action of the Order to the District Court at Amsterdam (Administrative Law Section). (The District Court did not accept the appeal by Arthur Andersen because it had not made an intermediate appeal of the supervisory body decision to the Order’s General Council.) In February 1997 the District Court dismissed the appeals,[n97] and the following month Price Waterhouse and Messrs. Savelbergh and Wouters appealed the District Court’s action to the Council of State[n98] (Administrative Division) of The Netherlands. It upheld the District Court on issues of Netherlands law, but referred to the European Court of Justice nine questions of European law, and suspended the appeal pending action by the European Court.[n99] The European Court is expected to issue a decision in late 2001.

Central to the dispute is the Regulation. It was adopted by the Order to govern a particular form of association called an "integrated cooperation" if entered into between lawyers, or between lawyers and persons engaged in professions other than that of law. The announced purpose of the Regulation is to safeguard independent practice by the legal profession, and (in Article 2) it forbids members of the legal profession from incurring obligations prejudicial to the independence of legal practice. It defines an "integrated cooperation"[n100] as

any cooperation in which the participants conduct their practice for their joint account and risk, or share with each other authority over such practice or ultimate responsibility therefor.

Members of the legal profession may enter into an "integrated cooperation" only if its primary purpose is the practice of law, and only if the non-lawyer members of the cooperation are members of a profession that has been recognized by the General Council of the Order pursuant to criteria found in the Regulation.[n101] Moreover, members of the legal profession must refrain from participating in a particular "integrated cooperation" until the General Council of the Order has determined that it complies with the Regulation.[n102]

The General Council of the Order had not recognized accountants as members of a profession with which members of the Bar in The Netherlands could enter into an "integrated cooperation." In contrast, it had recognized tax advisers, notaries, and patent agents as members of professions with which members of the bar could enter into an "integrated cooperation." The principal reasons given by the Order for forbidding an "integrated cooperation" between lawyers and accountants were the following:

The District Court had upheld the Order on all points of Netherlands and European Law raised by the plaintiffs, and the Council of State affirmed the District Court on points of Netherlands law. As regards European Law, however, the Council of State, as the highest administrative court in The Netherlands, felt constrained to refer to the European Court of Justice certain issues raised by plaintiffs, and to suspend the Dutch proceedings pending a decision by the European Court.[n103] The questions currently pending before the European Court relate to two areas of European law: competition law; and law on the right of establishment.

In the area of competition law, the European Court has been asked whether the Order has violated Article 81 (formerly 85) or 82 (formerly 86) of the Rome Treaty by adopting and applying the Regulation to forbid "integrated cooperations" between lawyers and accountants; that is, whether, in so doing, the Order has acted unlawfully to prevent, restrict or distort competition within the European Union in a manner affecting trade between its member states (Article 81), or to abuse a dominant position in the European Union (Article 82). Central to these issues is whether the Order can claim exemption from these Treaty provisions on the theory that it was created by national legislation to act in the public interest to safeguard the independence of the legal profession in The Netherlands and the duty of loyalty that its members owe to clients, and that the Regulation has been adopted and applied in conformity with this legislation. These issues may turn on the related issues under European competition law of how the Order should be characterized (should it be distinguished from an association of economic competitors?), and whether the scope of authority vested in it by Dutch legislation was appropriate.

The other area of European law raised by questions submitted by the Dutch Council of State to the European Court of Justice involves freedom of establishment and freedom to provide services within the European Union. A threshold issue may be jurisdictional: are the Treaty of Rome provisions in this area applicable to a prohibition found in the internal Dutch Regulation? Here, the plaintiffs will presumably argue that the Regulation has cross-border effects affecting freedom of establishment and freedom to provide services within the European Union. If the European Court accepts this argument, it may refer to its 1995 ruling in the Gebhard case, dealing with the right of establishment of a German lawyer in Italy.[n104] There, the Court made the following statement:

[N]ational measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must fulfil four conditions: they must be applied in a non-discriminatory manner; they must be justified by imperative requirements in the general interest; they must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain it[.]

In summary, the litigation that has arisen in The Netherlands and that has been suspended pending responses from the European Court of Justice[n105] turns on a narrow but crucial issue: is a national bar in the European Union (here, the Order) entitled to impose a rule (here, the Regulation) under which associations ("cooperations") between lawyers and accountants must stop short of an "integrated cooperation" -- meaning a form of association in which the lawyers and accountants share profits and losses, and in which the accountants share authority over or ultimate responsibility for the practice of law? The Court’s answer to that question should prove relevant to the ability of accounting firms fully to integrate legal practices within themselves, and to efforts by bar groups to place limits on lawyer-accountant associations -- here the effort being to limit them to side-by-side arrangements in which the legal practice is kept separate from the entity that includes the accountants.

5. Germany

a. Summary and List of Defined Terms

The historic background for MDP in Germany was a legal profession that, into the 1970s and to a certain extent thereafter, had been trained mainly in a tradition of preparing persons to become members of the judiciary and of the civil service. It was under-trained for non-forensic activities. As a consequence, some business lawyers also qualified as accountants, or as tax advisers, or as both. Lawyers with multiple professional qualifications traditionally observed formalities whereby they practiced each profession separately.

The German Bar was divided over permitting lawyers to qualify and practice as, or to act jointly with, accountants and tax advisers. The bar associations and practitioners with relatively modest litigation practices were often opposed to these developments, while larger firms in business centers tended to favor them.

The division within the Bar found its way into the courts which, in decisions handed down over the years beginning in 1961, resolved the dispute, on both statutory and constitutional grounds, in favor of lawyers who wanted also to qualify as accountants and tax advisers. Court decisions in the 1960s permitted lawyers to share offices with accountants and tax advisers, and a 1975 decision confirmed that lawyers could form partnerships with accountants and tax advisers. The German Bar changed its rules to conform with these decisions.

Court decisions in 1987, 1989 and 1994 required the rewriting of the German bar association rules governing the legal profession, authorized multi-city law firms, and permitted the practice of law by limited-liability professional corporations. As a result, both the basic German law governing the legal profession and the German bar rules were amended in the years 1994-98.

Under the law and rules as re-written, integrated MDPs are authorized in Germany among lawyers, accountants, tax advisers, and notaries. The law and rules do not authorize other professionals to enter into integrated MDPs with lawyers.

Under German law and professional rules governing the legal profession, an integrated MDP must be in the form of shared offices, or a partnership, or a limited-liability partnership, or a limited-liability professional corporation.

If the MDP is a limited-liability partnership or professional corporation, it must be controlled (owned and managed) by professionals from a given profession. Because an individual may qualify to practice in more than one profession, it is possible for the control requirement to be met in respect of more than one profession. If the MDP is in the form of shared offices or of a partnership, there is no control requirement. A decision on form of practice may turn on control, or on professional tradition, or on questions of management structure, taxation, or professional liability.

There is no compiled information on the make-up of German MDPs that are small in size and that include lawyers. Available information suggests that a high percentage of these small MDPs is controlled by lawyers. In many cases, lawyer control may have its origins in the efforts (mentioned above) by business-law practices to obtain the perceived advantages of also being qualified as accountants and tax advisers.

Of the fifty largest legal practices in Germany (the only practices as to which there is compiled information), forty-five (90%) are either lawyer-only firms or lawyer-controlled integrated MDPs. Four are law firms that have entered into non-integrated MDPs with members of the Big Five. One is a non-lawyer-controlled integrated MDP known as Rödl & Partner.

Each of the Big Five has formed a non-integrated MDP with a German entity in which the professionals are lawyers. The essence of such an MDP relationship consists of the links (contractual or otherwise) between the German legal practice and (1) other entities in that MDP in Germany and (2) certain legal practices and entities outside Germany which are affiliated with that member of the Big Five.

The partnership of Rödl & Partner has expanded rapidly since 1989, particularly in former East Germany which until then lacked a private legal profession. The partners in Rödl are accountants and tax advisers, who control it, and lawyers.


With respect to Germany, the following defined terms are found in the following footnotes.


BT-Drucks 119

Henssler III 222

PatAnwO 252

BayGVBI 120

BverfG 107

Henssler IV 234

Raupach I 108

BayObLG 208

BverfGE 201

Henssler V 256

Raupach II 219

BGBI 192

CCP 295

HHP 295

RBerG 138

BGH 106

DAV 111

Juve Ranking 176

RiLi 133

BnotO 157

Gehre 233

LLC 220

Römermann 265

BORA 215

GG 158

LLP 219

Rulemaking Aly 210

BOStB 272

Griffith & Schor. 170

Maxl 265

Schwedhelm&K. 142

BOWP 272

Hartung 267

Meurers 246

StBerG 140

BRAK 110

Hellwig Present. 325

NJW 135

StPO 229

Brangsch 181

Hengeler 293

O&R 298

WPO 150

BRAO 113

Henssler I 143

Oppenhoff 112

Zuck 127

Bruckhaus 292

Henssler II 222

PartGG 219

Zutt 109

b. Historic Background

The context of MDP in Germany has been the gradual evolution of the legal profession in which cases brought before the Federal Supreme Court[n106] and the Federal Constitutional Court[n107] have been the main causes of change.[n108] Until the 1960s, the legal profession seemed to have been nearly static since the beginning of the century.[n109] It was highly regulated and highly restrictive regarding growth and expansion. It enjoyed a nearly complete monopoly on rendering legal advice. For their part, the Federal Bar Association[n110] and the German Lawyers’ Association[n111] were not keen on change.[n112]

In Germany, the lawyer[n113] was and still is defined as an organ of the administration of justice.[n114] Administration of justice is defined as all the functions that are allocated to the judiciary,[n115] and lawyers have thus been viewed as a part of the judicial system.[n116] In a 1974 decision, the Federal Constitutional Court characterized lawyers as occupying a position similar to that occupied by public servants.[n117] That classification of lawyers left its mark on the training of lawyers and their attitude toward different areas of the law. The legal profession’s training was and still is based in large part on the outdated concept of lawyers working in the judiciary and in governmental administration.[n118] In 1975, the Federal Government said of this educational system that it "dates back to the 19th Century. It was molded by that period’s ideas of the sovereign state, its tasks, and the function of the law."[n119] Legal education was meant to provide "qualifications for becoming a judge or a government lawyer in the higher administrative service,"[n120] and it has focused until recently only on lawyers as judges and civil servants in the administration of the country. Contract drafting and negotiation techniques were not part of the curriculum,[n121] and preparation of the practicing attorney was limited to several months during the mandatory practical training following graduation from law school[n122] when the trainee was required to work at a law firm. This education overemphasized the forensic at the expense of the consultative aspects of the legal profession.[n123]

In addition, tax law was neglected by law school curricula and during the mandatory practical training, despite the fact that tax advice including tax-law advice was always an important subject for business students. Thus, tax advice was provided to a great extent not by the legal profession but by accountants and tax advisers.[n124] The implications of this were far-reaching. As one author put it: "[T]he inability [of lawyers] to tackle tax and accounting problems caused companies -- especially the small and medium-sized ones -- to turn more and more to tax advisers and accountants, even when legal questions were involved."[n125]

Structural deficiencies in the legal profession added to the problem. There was nearly no specialization. Parts of the legal profession were even hostile toward any specialization. An example of such hostility is an article published in 1956 under the heading, "Against the deadly sin of specialized attorneys."[n126] The author was of the view that specialized lawyers can only be amateurs. Most lawyers were single practitioners.[n127] Partnerships[n128] were rare and small. Characteristically, in the one place the German Lawyers’ Act mentioned partnership and cooperation, it was to prohibit certain forms of cooperation.[n129] One of the prevailing types was the two-person-partnership which was just an ersatz for an old-age pension scheme for the more senior of the two.[n130]

In economic centers like Frankfurt and Düsseldorf, the "big" business law firms had more than three partners but seldom more than ten.[n131] There were more partners than associates. These partnerships were often the creatures of individual partners and depended on them for their existence.[n132] A professional rule prevented lawyers from forming partnerships with lawyers in different cities[n133] or from opening branch offices.[n134] Other rules limited their ability to choose freely their residence and place of law office.[n135] The prevailing opinion within the profession was that the provision of legal services depended very much on the individual attorney and his or her personal relationship with the client.[n136]

A 1991 study of public opinion initiated by the German Ministry of Justice, in cooperation with the German Lawyers’ Association and the Federal Bar Association, found that lawyers were perceived mainly as litigators and not as legal advisers; that they were not considered to be sufficiently dedicated to the needs of clients; that they were considered to be lacking in understanding of economic and technical facts, especially with regard to certain industries; and that small and medium-sized companies perceived other consulting professions as being more service-oriented and more knowledgeable concerning certain sectors of the economy and also concerning certain issues affecting individuals.[n137]

Despite these perceived deficiencies, the legal profession has been well protected against competition. Under the Legal Advice Act,[n138] lawyers enjoy a nearly complete monopoly in rendering legal advice and conducting litigation. Although accountants are allowed to render legal advice that is incidental to their work,[n139] and tax advisers may give tax-law advice,[n140] beyond that they are barred from giving legal advice. This monopoly is enhanced by another provision which bars fully-qualified attorneys who are employees of accounting and tax-advisory firms from rendering general legal advice.[n141] This provision allows employees to give legal advice only to the extent that their employers are authorized to do so. Thus, a non-lawyer cannot circumvent the monopoly by employing lawyers.[n142]

The way around these restrictions in Germany has been for one person to combine the professions of lawyer, accountant, and tax adviser.[n143] According to a commentary on the professional rules, edited in 1956, a lawyer who simultaneously practices those three professions should be allowed to use all three professional titles.[n144] In a 1961 decision,[n145] the Federal Supreme Court concurred that "the traditional profile of the legal profession included attorneys who at the same time practiced as accountants and tax advisers."[n146]

In that case, the issue before the court was whether an accountant could be admitted to the Bar although he also wanted to continue practicing as an accountant. The court decided that the two professions were compatible under certain provisions of the German Lawyers’ Act.[n147] The court relied on of the Guidelines for Professional Conduct of Lawyers,[n148] which permit a lawyer to use the title of accountant when acting as an attorney.[n149] The court also relied on the then (1961) new Accountants’ Act and Tax Advisory Act. According to the Accountants’ Act, the practice of accounting is compatible with legal practice.[n150] The Federal Supreme Court concluded that the two professions are of a similar kind and can thus be engaged in concurrently.[n151]

The Tax Advisory Act includes a similar provision, which states that the profession of tax adviser is compatible with certain other professions.[n152] The Federal Supreme Court interpreted that provision to find the profession of tax adviser compatible with the legal profession.[n153] The court based this interpretation on the fact that both tax advisers and lawyers are allowed by law to give tax-law advice. A lawyer is the "competent adviser and representative in all legal matters"[n154] which includes matters of tax law.[n155] The court pointed to other similarities: Both professions are defined as not being a trade or business; both are liberal professions and require higher education at a university; both are governed by similarly strict professional rules and professional organizations.[n156] In a later decision the court also established the compatibility of the profession of tax adviser with that of Anwaltsnotar[n157] (hereinafter "lawyer/notary").[n158]

Based on the opinion that accountants/auditors, tax advisers and lawyers are similar professions, the Federal Supreme Court and Federal Constitutional Court in further decisions opened the rendering of legal advice more and more to forms of cooperation among lawyers, accountants and tax advisers. In these cases, a local bar association was regularly the opposing party. For its part, the Federal Bar Association amended its Guidelines in conformity with those decisions. The first form of cooperation allowed by the Federal Bar Association’s Guidelines was adopted in 1957, permitting lawyers to share offices with accountants.[n159] At that time, however, partnerships could only be formed with other lawyers.

Dual- or treble-qualified lawyers were allowed to cooperate as accountants or tax advisers with other accountants or tax advisers while simultaneously practicing as independent lawyers. In its 1961 decision, the Federal Supreme Court had established that a local bar association could not prevent a lawyer/accountant from practicing as a lawyer on the ground that he or she had formed an accounting firm with a non-lawyer accountant.[n160] The court based that decision mainly on the professional rules permitting simultaneous admissions as lawyer and accountant,[n161] and on the similarity of the two professions.[n162]

In 1968, the court went further, allowing lawyers to share offices with firms of tax advisers and accountants.[n163] A lawyer who was senior partner of a firm that also consisted of several non-lawyer tax advisers and accountants was permitted to practice as a lawyer and allowed to share offices with that firm. The Federal Supreme Court invalidated the provision in the Federal Bar Association’s Guidelines that prohibited office-sharing with tax advisers. The Guidelines were characterized not as legal norms but as principles derived from experience which can be superseded by new developments. Once-banned practices could become legal, especially if there was a change in the law. The judges left open the question whether the Guidelines provision banning partnerships with accountants and tax advisers and office-sharing with the latter still represented the common experience of the legal profession. The court expressed doubts, citing several representatives of the legal profession who were of the opinion that even partnerships between lawyers, accountants and tax advisers were legal. The court held that lawyers could not be banned from sharing offices with tax advisers, and that new clear legal norms would take precedence over the Guidelines in any case. The court observed that the new Tax Advisory Act had established that tax advisers are similar to lawyers.[n164] In the dicta of a 1975 decision, the Federal Supreme Court confirmed the 1968 ruling, especially with regard to the legality of partnerships between lawyers and both accountants and tax advisers.[n165]

Regarding lawyer/notaries, the prohibition of multidisciplinary combinations with tax advisers was not lifted until the late 1980s, with accountants until 1998.[n166] The prohibition on combinations between lawyer/notaries and tax advisers was found impermissible on the ground that a combination between a lawyer/notary and another lawyer who was simultaneously a tax adviser was generally permitted. The Federal Constitutional Court held that a different treatment of professionals who were only tax advisers would infringe upon their right to equal treatment under the German Constitution.[n167] The court said that the differences between tax advisers and lawyer/tax-advisers were not of a kind and significance that would render unequal treatment constitutional. Tax advisers giving tax-law advice were analogized to lawyers.[n168] In its 1998 decision, the Federal Constitutional Court overruled its earlier decisions[n169] banning combinations between lawyer/notaries and accountants.[n170] The court cited a change in the perception of the concept of basic rights, which would require, in the case of the severe restriction of basic constitutional rights and freedoms, Parliament itself to enact a prohibition. The court said that a prohibition against partnerships between lawyer/notaries and accountants would be such a restriction, and that it was no longer permissible to derive the prohibition from the context of the Notary Act and other laws.[n171]

In 1994 and 1998, the court’s rulings were incorporated in the German Lawyers’ Act and the Notary Act, which thenceforth included statutory provisions[n172] explicitly allowing the formation of partnerships and office-sharing as among lawyers, lawyer/notaries, accountants, tax advisers, and patent-attorneys.

The legalization of more and more opportunities to cooperate with other professions was closely followed by the legal profession. On different occasions, like the General Meeting of the German Lawyers’ Association[n173] in Bremen in 1967, the issue was discussed; bar association publications[n174] covered the subject intensively; and it was reviewed by the Professional Rules Committee of the Federal Bar Association.[n175] Comments favoring cooperation were invariably opposed by more cautious voices which in the beginning were against any form of cooperation and later only favored limited change. The main motivation of the pro-MDP advocates was fear of losing market share. Walter Oppenhoff, an influential lawyer from Cologne, voiced this fear when he stated during the main speech at the General Meeting in 1967 that business circles would be looking for reliable and conclusive advice and would not be interested in which title the adviser held. The adviser could be a lawyer, accountant, or anything else, Oppenhoff said. By 1999, Oppenhoff’s firm had become a lawyer -- controlled MDP in which almost 90% of the professionals were lawyers.[n176]

In the discussion following that speech, after stating that the problem was not that urgent for the accountants as they could employ lawyers, another speaker continued: "[T]he legal profession is losing more [market share] the longer it takes to solve the problem, as the client does not care about professional rules but turns to the accountants for advice. They even do that in matters that genuinely belong to the legal profession, like the execution of wills, and the drafting of corporate documents."[n177]

Those two statements evidence a conviction that clients would be interested in integrated services. It was also suggested that those within the legal profession who were against the legalization of MDP would be single practitioners, focusing on litigation, who would not be affected by losses of advisory business.[n178] The pro-MDP advocates belonged and still belong to firms performing mainly legal advisory services related to business law. For them,the MDP question was one of modernization and progress through lawyer-controlled MDPs.[n179] The division within the legal community over MDP was also visible in cases before the Federal Supreme Court and Federal Constitutional Court, in which representatives of different branches of the legal profession opposed each other.[n180]

The professional organizations adjusted their position. Revising his previous general rejection of MDP, the General Manager of the German Lawyers’ Association, Heinz Brangsch, welcomed the Federal Supreme Court decision that allowed office-sharing with tax advisers; stressed that the legal profession should be more proactive regarding reforms and not rely on the courts and legislature to act; and suggested that the profession of tax advisers should be included in the bar associations as this would facilitate the formation of partnerships and shared offices.[n181] The Journal of the German Lawyers’ Association implied as early as 1970 that it was generally acknowledged that a partnership between accountants and lawyers was legal.[n182] The article reported on a joint seminar of the German Lawyers’ Association and the Institute of Accountants[n183] on the legal problems involved in such a partnership.[n184] At a meeting in 1972, the board of the German Lawyers’ Association concluded that the Federal Bar Association should act on the issue of forming partnerships with tax advisers.[n185] In a 1969 amendment to the Federal Bar Association’s Guidelines, lawyers had been allowed to share offices with tax advisers.[n186] In 1970, this had been extended to patent attorneys.[n187] Since 1973, the professional rules have allowed lawyers to form partnerships with both those professions and with accountants.[n188] Regarding the lawyer/notaries, the Federal Bar Association had no jurisdiction over prohibitions derived from the laws regulating the notaries. In the late 1990s, the legislature wanted to reform those laws. At hearings held by the Legal Committee of the German Parliament[n189] on June 25, 1997, both the German Lawyers’ Association and the Federal Bar Association gave a favorable opinion on partnerships between lawyer/notaries and accountants, but the Federal Chamber of Notaries and the German Notaries’ Association were opposed.[n190]

The accountants had been authorized to perform legal services that were directly related to specific accounting assignments.[n191] In 1963, the Federal Supreme Court extended the competence of tax advisers who until then were only allowed to provide help in tax matters[n192]. Since then, tax advisers have also been allowed to provide legal advice as long as it is necessary for the performance of their profession under the particular circumstances. Although neither profession was ever allowed to provide general legal advice, they both were regularly accused of stepping over the line. The result was numerous publicized rulings of lower and higher courts.[n193] Tax advisers have been ordered to refrain from the drafting of contracts as diverse as certificates of incorporation, company purchase contracts, leases, and employment contracts; and there are also several decisions relating to the representation of clients with respect to third parties or in the courts.[n194] Accountants also have been frequently cited for breaches of the Legal Advice Act. In a decision against the Deutsche Treuhand-Gesellschaft ("DTG"), the predecessor of a KPMG entity, the German Lawyers’ Association was the plaintiff. The DTG was ordered to cease and desist from performing surveillance of contract compliance and from litigating in court for breach of contractual duties.[n195] The German Lawyers’ Association resisted the expansion of competing professions into the legal-service sector, seeking to cause the business community to be more thoughtful concerning the risks involved when legal work is assigned to accounting and tax-advisory firms.[n196]

Three further court decisions should be mentioned.

  1. A major 1987 decision by the Federal Constitutional Court invalidated the until-then basic regulations of the legal profession, necessitating revisions thereof.[n197] The Federal Bar Association’s Guidelines had been premised on the general duty under the Lawyers’ Act that every lawyer must act conscientiously and be of good moral character.[n198] Reversing earlier decisions, the Federal Constitutional Court held that this general statutory duty no longer sufficed to give legal effect to the Guidelines.[n199] The court said that a constitutional principle[n200] requires that any restriction of a basic constitutional right must be based on a formal legal norm, meaning an act of law adopted by the legislature or, depending on the restriction’s severity, on ordinances or administrative rules of other authorities like government agencies. The latter norms would be valid restrictions only if based on a limited and explicitly delegated rulemaking power.[n201] The court held that the Guidelines were not legal norms and thus could not be used to restrict rights granted by the Constitution -- here the freedom to pursue a profession -- mainly because the German Lawyers’ Act did not include a delegation of true rulemaking power to the Federal Bar Association.[n202] Nevertheless, the court provided for a phase-out period for the Guidelines.[n203]
  2. In a second case, in 1989, the Federal Supreme Court applied the 1987 decision by the Federal Constitutional Court. This case challenged the prohibition preventing a partnership from establishing offices in different cities.[n204] The court stated that the professional rule in question could no longer be used to specify the professional duties of lawyers and, furthermore, that the obligations established in the German Lawyers’ Act regarding residence and the location of offices and branches do not disallow multi-city partnerships.[n205] That decision brought about a dramatic change in the German legal profession. Leading German law firms in different cities merged with each other, creating even larger firms.[n206] The decision also made possible what was called the "attack on Frankfurt"[n207] -- the movement whereby foreign law firms started to open German offices, especially in Frankfurt, and to a lesser extent in other German cities. It also caused the emergence of law firms having close relationships with the Big Five accounting firms, which will be discussed later.
  3. A third judicial milestone in the development of the legal profession was the decision by the Highest Bavarian Civil Court,[n208] in 1994, allowing lawyers to form professional limited liability companies.[n209]

c. Current Law

In 1994, the German Parliament revised the German Lawyers’ Act pursuant to the court decisions mentioned above. Besides revising the rulemaking process of the German legal profession,[n210] the Parliament adopted new provisions to authorize lawyers to form (1) multi-city partnerships, and (2) multidisciplinary partnerships[n211] with auditors, tax advisers, and patent attorneys.[n212] In 1998, the legislature adopted laws regarding the Lawyers’ Limited Professional Liability Company,[n213] and the legality of multidisciplinary partnerships between lawyer/notaries and the other professions just mentioned.[n214] In 1996, the Rulemaking Assembly adopted new professional rules[n215] to replace the rules whose basis had been found unconstitutional. Ultimately, the rules governing MDPs derive from statutes based on judicial construction of the German Constitution.[n216]

The different statutes regulating the provision of legal services, accounting services, and tax advice not only permit but also contain restrictions on the formation of integrated MDPs. The legality of cooperation through an integrated MDP depends on the professions involved, and the form of the MDP; and in some cases there are requirements with respect to the holding of capital, voting rights, and managerial authority as between the different professions in the MDP. The different professional codes also contain certain restrictions relating to MDPs.

Members of each of the legal, accounting and tax advisory professions are permitted to share offices,[n217] or to form a partnership,[n218] limited-liability partnership,[n219] or professional limited-liability company,[n220] with members of the other two professions. (While accountants and tax advisers may be permitted to engage in group practice in additional ways,[n221] lawyers, by virtue of the German Lawyers’ Act, are limited to the four forms of group practice specified in the preceding sentence.)[n222] Furthermore, the professional codes include provisions which establish with whom members of the several professions may form integrated MDPs. The applicable provision in the German Lawyers’ Act lists the following as the only professionals with whom lawyers are entitled to enter into integrated MDPs: members of bar associations,[n223] members of the patent bar, certified bookkeepers,[n224] accountants, tax agents,[n225] and tax advisers.[n226] Members of the bar who are also notaries must limit their involvement in integrated MDPs to their lawyer function.[n227] The statutory list is exclusive, and other professionals (such as financial consultants, engineers, architects, environmental experts, insurance agents, real estate brokers) are not entitled to form integrated MDPs with members of the legal profession. In permitting integrated MDPs that include lawyers, the German Parliament limited such MDPs to those comprising the listed professionals (essentially, lawyers, accountants and tax advisers) in order to safeguard rules (such as the rules on confidentiality) designed to protect clients of the legal profession.[n228]

The statutes regulating accountants and tax advisers contain their own rules on the formation of a simple partnership[n229] or a certified firm of either accountants[n230] or tax advisers.[n231] In effect, the applicable statutes permit members of those two professions to form partnerships or certified firms of the respective professions to the same extent that lawyers are statutorily permitted to do so.[n232]

Besides fulfilling certain professional qualifications, the professionals in an integrated MDP must be actively involved in the performance of professional services.[n233] That follows from the underlying legal concept of entities of joint professional activity and the exclusive categories of potential shareholders/partners. Thus, only the statutorily listed professionals are authorized to have capital (equity) participations in integrated MDPs;[n234] moreover, these professionals are not permitted to hold their MDP participations on behalf of third persons.[n235]

MDPs may only be formed by natural persons. Although the rules regulating the accounting profession do not contain this restriction,[n236] such a restriction exists with respect to lawyers and tax advisers.[n237] Thus, MDP partnerships which include either of those professions may not include legal persons as partners.[n238] In addition, the rules on LLPs, as well as on lawyer LLCs and tax-adviser LLCs, state that they can only be formed by natural persons. The rules regulating accountants allows certified accounting firms to be owned by legal persons which are themselves such firms,[n239] but if an MDP is to be recognized as either a law firm or a certified firm of tax advisers, legal persons may not be shareholders therein.

For some forms of integrated MDP, certain requirements must be met as to the professionals holding capital, constituting management and exercising apparent authority. If the MDP is in partnership form and all the partners belong to listed professions, there are no such requirements.[n240] Bar members may thus constitute a minority in the integrated MDP in partnership form and still perform legal services. As discussed below, however, nearly all of the fifty largest German firms offering legal services are either lawyer-only or lawyer-controlled firms. Likewise, tax advisers or accountants may constitute a minority in an MDP in the form of a partnership. Similarly, for the simple limited-liability partnership (LLP), there is no mandatory majority requirement regarding lawyers or accountants or tax advisers.[n241] If, however, an LLP wants to qualify as a certified accounting firm[n242] or certified firm of tax advisers,[n243] certain ratio requirements must be met. A majority of the firm’s partners must be accountants in order for it to qualify as a certified accounting firm.[n244] (Parity is sufficient if the firm consists of two partners.) To be recognized as a certified firm of tax advisers, the firm must have at least as many partners who are tax advisers as it has partners from other permitted professions,[n245] and the tax advisers must retain control of management and authority to deal with third parties.[n246]

An MDP in the form of a limited-liability company (LLC) may act at the same time as a law firm, a certified accounting firm, and a firm of tax advisers, but only if it meets the professional-ratio requirements imposed by statute for each profession. Under the Lawyers’ Act, an LLC is recognized as a law firm only if lawyers hold a majority of the capital and have a majority of the votes and of the managing partners.[n247] For accountants, the LLC requirements are similar to those for the LLP. Thus, accountants must hold a majority of the capital, and have a majority of the votes and of the managing directors (although in the case of an LLC with only two managing directors parity would be sufficient).[n248] The combined effect of these statutory requirements for lawyers and accountants is that an MDP in LLC form can be recognized as both a law firm and a certified accounting firm if some of the shareholders and managing directors have qualified both as lawyers and as accountants.[n249] Put differently, equal numbers of persons qualified only as lawyers and only as accountants could not form an LLC that would be recognized as both a law firm and a qualified accounting firm. The Tax Advisory Act requires that, if tax advisers are in an LLC, they must exercise management authority and responsibility; as to vote, it only requires a majority vote comprising the votes, taken together, cast by qualifying professionals (namely, tax advisers, tax agents, lawyers, accountants, and certified bookkeepers); and it also provides that, under certain conditions, there need only be as many tax-adviser managing directors as there are managing directors from other professions.[n250]

Similar rules apply to multinational multidisciplinary partnerships.[n251] The above-named professionals with foreign qualifications and foreign professional residences can be members of cross-border multinational partnerships, if they meet certain requirements.[n252] Multinational multidisciplinary LLPs and LLCs cannot, however, be admitted as certified firms of tax advisers[n253] or as certified accounting firms.[n254]

The rules on the sharing of fees by lawyers are no obstacle to the formation of otherwise permissible multi-disciplinary entities in Germany. It has long been accepted that sharing fees with non-lawyer professionals (accountants; tax advisers) in such entities is allowed. The concepts of partnership and of LLC MDPs are deemed to imply that fees are susceptible of being shared with the non-lawyer partners or co-shareholders in the MDPs.[n255]

The rules regulating lawyers prohibit a lawyer from belonging, as a lawyer, to more than one entity of joint professional activity.[n256] These rules as they apply to both partnerships and LLCs are interpreted as dealing only with a lawyer’s role as a lawyer.[n257] Thus, a lawyer who had also qualified as an accountant and as a tax adviser could join multiple entities -- one as a lawyer, another as an accountant, a third as a tax adviser.[n258] Accountants and tax advisers may be less restricted than lawyers in this respect, for the extension of the one-entity prohibition to non-lawyer professionals who are associated with lawyers was overruled on constitutional grounds by the BGH.[n259]

In the MDP context, another issue of importance is which regulation of professional conduct applies and how is it enforced.[n260] Although the regulation of professional conduct is not completely uniform, in some respects the lawyers, accountants and tax advisers in an integrated MDP are regulated substantially the same. Lawyers, accountants and tax advisers are subject to similarly strict rules on the protection of client’s confidences. Under criminal law, it is an offence to reveal confidences that were entrusted to those professionals in their professional capacity.[n261] Furthermore, the codes of criminal and civil procedure recognize privileged communications by a client, and the professional’s right to refuse to testify about them.[n262] Unlike auditors in other countries, auditors in Germany are not required to disclose certain audit results to the authorities. All three professions are defined as non-commercial, liberal professions; and all three professional codes stress that professional independence is indispensable.[n263]

The codes differ in some respects, however, as to whether a rule protects the public interest or simply regulates the contractual relationship with the client. Thus, where the public interest is not involved, accounting and tax-advisory services rendered by an MDP may be subject to different rules than legal services rendered by the MDP.[n264] When, however, a rule is in the public interest for one profession in an MDP, that rule may be binding on all professions in the MDP, and the strictest rule may be applicable.[n265] This approach may apply to prohibitions on engaging in certain activities,[n266] and to conflict-of-interest rules.

Lawyers, accountants and tax advisers are subject to conflict-of-interest rules, but those rules for lawyers are stricter than for the other professions.[n267] The rules for lawyers are extended to all members of the same entity of joint professional activity.[n268] Upon becoming aware of a conflict of interest, a professional is required to withdraw from all the matters involved and to inform the client.[n269] That rule is reinforced by a provision in the criminal code if the breach of duty is committed purposefully.[n270] Clients cannot waive conflicts of interest, because they are designed to protect the public interest.[n271] This concept of protecting the public interest is in the rules for the legal profession, and is a major difference between those rules and the rules for the accounting and tax-advisory professions.[n272] Lawyers are also prohibited from accepting an assignment in the case of prior conflicting activity in the same matter whether acting as a lawyer or in a different capacity,[n273] and this rule is extended to all members of the same firm.[n274] There are no similarly strict rules for accountants or tax advisers.[n275]

Regarding restrictions on engaging in commercial activities as a second profession, the regulation of accountants and tax advisers is stricter than that of lawyers.[n276] Other divergences in public-interest regulation of the three professions concern the handling of files,[n277] mandatory professional liability insurance,[n278] and advertising.[n279]

On its face, the principle that, in an integrated MDP, the strictest professional rule should apply helps to ensure that the highest professional standards are maintained. The question of compliance with the highest professional standards also depends on enforcement, however. For constitutional reasons, criminal sanctions can only be imposed on members of those professions actually named in the criminal-code provisions in question.[n280] Under the professional codes, disciplinary sanctions are limited by each code to the members of the respective profession covered by that code.[n281] Thus, only a lawyer can be disciplined by a bar association, which has no jurisdiction over accountants and tax advisers. Similarly, a lawyer may not be disciplined by a chamber of auditors or a chamber of tax advisers.[n282]

In principle, a breach of a professional code by any one member of a profession in a firm is attributable to all members of that profession in the firm, and renders them open to possible discipline.[n283] In practice, however, because serious disciplinary measures are subject to constitutional safeguards, the consequences of attribution are also subject to those safeguards.[n284] Another possibility of rule enforcement is by the client through non-payment of fees or claims for damages on the ground of conduct by the firm inconsistent with its professional obligations; and agreements by clients to waive their rights in this respect are not enforceable.[n285]

Besides allowing those forms of integrated MDP mentioned above, the professional rules also allow non-integrated forms of cooperation. Contractual cooperative relationships are open not only to those professionals who are allowed to form partnerships or LLCs, but also to other professionals not entitled to participate therein. Contractual cooperative relationships are thus possible between, for example, lawyers and architects and engineers to provide advice on zoning and construction law, or lawyers and medical experts to cooperate in malpractice cases.[n286] Such an arrangement could include a referral agreement, or the obligation to provide certain services together. Lawyers entering into such arrangements are subject to regulation under their own professional rules, and must honor the duty to protect confidences and comply with requirements regarding their independence. The lawyer participants must enter into separate contracts with the clients. Thus, none of the cooperating parties may act as the only contracting partner toward a client and then let the other cooperating parties share in the overall profits of the service. This restriction is specifically covered by the lawyers’ professional code.[n287] The cooperation contract should include a provision on the protection of client confidences. Furthermore, lawyers’ files should be segregated, to ensure that the files are protected by the privilege and against seizure. Lawyers are permitted to advertise to a certain extent that they cooperate with other professionals, but only in the case of long-term contractual arrangements proven by actual joint activity.[n288]

d. MDP in Practice

As discussed above, MDPs in Germany that include legal practices may be in integrated form (in which case they are essentially limited to lawyers, accountants and tax advisers) or in non-integrated form. MDPs that include lawyers vary substantially in size and in composition. There are no compilations of MDPs comprising twenty or fewer professionals, but a sampling of available information suggests that lawyers in such MDPs are often in the majority or on an equal footing with the other professionals in those MDPs.[n289]

The 50 largest legal practices in Germany break down as follows:[n290]

The line between the 15 lawyer-only firms and the 30 lawyer-controlled MDPs is rather arbitrary, for the latter category includes MDPs which offer a broad range of business-law services and in which the lawyers greatly outnumber the non-lawyer professionals.[n292] The four firms said to have the highest reputation in business law, while technically lawyer-controlled MDPs, might be classified as lawyer-only firms.[n293] Other lawyer-controlled MDPs may not themselves offer a full range of services implicit in the concept of MDP.[n294]

Of the ten largest German law firms, at least four fashion themselves as MDPs. In each, lawyers constitute a majority of the professionals.[n295] They are organized as partnerships.[n296] (The German limited liability corporation (LLC) has not been used by them and is viewed as a non-traditional form for practicing law.[n297]) The percentage of lawyers in terms of total professionals is on the order of 86% to 97% for three of these four firms. One of these three firms is also affiliated with a firm that performs audits and renders tax advice, and with another firm that establishes annual accounts and prepares tax returns.[n298] This firm started off mainly as separate traditional law firms specializing in business law which later merged. At least one of the original firms, however, began as a multidisciplinary partnership focused on tax law.[n299]

In another large law firm fashioning itself as an MDP,[n300] only 63% of the professionals are lawyers. This firm was founded in 1987 as an MDP by former members of the accounting firm of Peat Marwick & Mitchell. The MDP comprises a law firm, a parallel accounting and tax advisory firm, which does audit and compliance work, and a parallel consulting firm.[n301] The separation of the different entities is designed to respect professional regulations.[n302] The firm considers itself, functionally, to be a combined virtual partnership of all of the entities and, in effect, a single MDP.

The foregoing focus on large, lawyer-controlled MDPs for which data are available tends to obscure the fact that there have been and are a great many small entities for which compiled data are not available. They may, however, constitute the typical German MDPs in which, as mentioned, lawyer-control may be a common feature.

A different category of MDP in Germany comprises non-integrated affiliations between Big Five firms and law firms. Each of the Big Five has created such an MDP with a law firm.[n303] The emergence of those MDPs began shortly after the Federal Supreme Court decision in 1989 that allowed multi-city partnerships. Prior to that decision, there were employees of the Big Five who were mainly working in the tax departments and who also engaged in a quasi-independent legal practice. Although trained lawyers, they are not allowed under the Legal Advice Act[n304] to perform legal services when employed by an accounting firm. Their legal practices were nevertheless affiliated with the Big Five accounting firms, either formally or informally, and the relationship was largely based on the referral of business. Big Five firms also cooperated with local law practices. With the liberalization of the rules on multi-city partnerships, the Big Five began consolidating their various forms of internal and affiliated legal practice in different cities.[n305]

Another approach has been to attract top lawyers who would leave their traditional law firms to help set up Big-Five-affiliated multi-city firms by bringing the lawyers’ clients and reputation from the traditional firms to the law firms affiliated with the Big Five.[n306] One such lawyer has said that the main reason for affiliating legal services with the Big Five was growing concentration in the accounting profession which put downward pressure on fees and caused the Big Five to seek the higher fees obtainable for advisory services.[n307] Another lawyer who joined a Big-Five-affiliated law firm has said that more and more legal work involving cross-border mergers and acquisitions will be channeled through the accounting firms.[n308] Also, according to lawyers in German law firms affiliated with the Big-Five, a major aspect of such affiliation involves cooperation between law firms, including non-German firms, forming an international network of affiliation with a particular member of the Big Five.[n309]

Common to all the Big Five affiliated law firms in Germany is that they are stand-alone operations in non-integrated MDPs. Conceivably, the Big Five find it advantageous to recruit German lawyers into stand-alone legal practices. Whether or not this is the case, there are legal constraints to incorporating these practices in integrated MDPs. First, the Legal Advice Act prevents accounting firms from giving legal advice. Second (as discussed below), four of the Big Five affiliated legal practices have been established as limited liability corporations (LLCs) in each of which lawyers must constitute a majority.[n310]

Furthermore, rules of the U.S. Securities and Exchange Commission (the "SEC") may affect the affiliation of law firms with the Big Five in Germany. Under those rules, auditing and legal advice are not permitted by the same firm if the SEC’s materiality threshold is met. On the assumption that, regarding matters over which the SEC has jurisdiction, its rules are applicable to law firms affiliated with the Big Five in Germany, such a law firm may do a kind of conflict check using publicly available data on auditing assignments of the affiliated auditing firm.[n311] The applicability of SEC rules has been criticized as effecting a near-total exclusion of the Big Five’s affiliated law firms in Germany from the market for legal services in the field of international mergers and acquisitions.[n312]

Of the five law firms affiliated with the Big Five, only one is a partnership,[n313] which is the traditional form of practice in Germany; and the other four are LLCs.[n314] There are some tax advantages provided by the LLC form (it permits the deduction of payments into retirement funds). The LLC has a line-managed, hierarchic corporate structure similar to the organizational form of the Big Five themselves, and an LLC may designate positions in the same way as the Big Five do (thus, the LLC may call associates managers or assistants). In the Big Five affiliated law firms, there tend to be more associates per partner than in traditional German law firms,[n315] only the worldwide partners, but not the national partners, may be full equity partners, and service lines and standardized service products may be developed.

One of the Big Five affiliated law firms (the only one in traditional partnership form) seeks to maintain the image of an independent law firm.[n316] It has only limited contractual obligations toward the accounting firm, no exclusivity agreement, and no interlocking personnel. The other four of the Big Five affiliated law firms tend to work closely with their respective accounting firms. They include the Big Five name in the law-firm name. There may be interlocking personnel and cost-sharing. They may rent their offices from and be located near the accounting firms. "The offices are separate to the extent required by the professional rules and are otherwise as close as possible."[n317]

A different, and potentially more important, level of cooperation is the international network of law firms affiliated with a given Big Five firm. Within that global network, training may be organized for all the network law firms, network-wide procedures may be developed, risks and profits may be shared, client referrals may take place, and legal services may be coordinated in respect of cross-border transactions. Generally, such a law firm leaves tax advice to the affiliated accounting firm[n318] in order to avoid intra-group competition.[n319]

The German law firms affiliated with the Big Five describe themselves as full-service, business-oriented firms. One ranks among the top ten German law firms.[n320] One has merged with a leading construction-law practice and a labor-law practice and has offices in eight German cities.[n321] Some are active in handling mergers and acquisitions ("M&A"),[n322] and some have developed expertise in information technology.[n323]

Criticisms have been voiced concerning the Big Five and their affiliated law firms. In a statement regarding the merger between Price Waterhouse and Coopers & Lybrand, the German Lawyers’ Association made the following observations: The affiliated law firms would not safeguard confidences of clients but would share them with the accounting firms (and vice versa) in order to improve market position. Client letters would not always be answered by the addressee, and the accounting firm might answer a letter even if it was addressed to the law firm. The use of "Chinese walls" would be introduced into legal-advisory activities although they would not comply with the stricter conflict-of-interest rules of the legal profession. The independence of the legal profession would be compromised given the economic imbalance between Big Five accounting firms and their affiliated law firms (the lawyers are greatly outnumbered and are dependent economically on the accounting firms which manage the international networks and own their logos and good will).[n324]

An officer of the German Lawyers’ Association subsequently amplified these concerns. He observed that lawyers’ independence in the affiliated law firms could also be restricted by contractual arrangements with the Big Five; and he offered examples from his own experience of conflicts-of-interest problems arising in the context of the affiliated firms using "Chinese walls" in order to represent different bidders in an M&A or privatization context.[n325]

For its part, the Rulemaking Assembly reacted to the Big Five affiliated law firms and other MDPs by adopting a rule that forbids fee-sharing between an ostensibly independent legal practice and non-legal activities in an MDP. The Rulemaking Assembly wanted specifically to prevent the establishment of an earnings pool by an accounting firm and its sponsored, affiliated law firm that would enable the former financially to subsidize the latter.[n326]

Among the fifty largest legal practices in Germany -- in addition to lawyer-only firms, lawyer-controlled integrated MDPs, and law firms affiliated with accounting firms in non-integrated MDPs, discussed above -- there is, exceptionally, the integrated MDP controlled by non-lawyers, the single exception to date being Rödl & Partner GbR Wirtschaftsprüfer Steuerberater Rechtsanwälte ("Rödl").[n327] It is an integrated MDP controlled by non-lawyers (by accountants and tax advisers).[n328] It is a partnership (Sozietät) as to which there is no requirement that members of a given profession constitute a majority of the partners.[n329]

Founded in 1977, Rödl developed rapidly beginning in 1989, especially in East Germany at a time when it lacked (among other things) a private legal profession. The firm benefited from the collapse of East Germany, from German reunification, and from the 1989 Federal Supreme Court decision permitting multi-city partnerships. Specialized in accounting, tax-advisory and legal work for small and medium-sized (often, family-owned) businesses, Rödl developed clients that were establishing new companies in Eastern Germany, and added consulting to audit-related and tax-compliance work. It has grown and has offices in a number of cities within and outside Germany. It views itself as competing more with accounting firms than with traditional law firms, and a team of Rödl professionals handling a particular assignment is usually headed by an accountant or a tax adviser, although where legal services predominate a lawyer might be in charge.[n330]

6. Other European Jurisdictions--Austria, Belgium, Italy, Spain, Sweden, Switzerland

a. Austria

In April 1999, the Austrian Parliament authorized members of the accounting profession to enter into MDPs with other professionals, provided the accountants had the same status in the MDPs as the other professionals.[n331] While the possibility of similar legislation relating to lawyers has been discussed in committee in the Austrian Parliament,[n332] information supplied by members of the Bar in Vienna and in Salzburg indicates that lawyers in Austria are not authorized to participate in MDPs, and that the proposed legislation relating to lawyers is being reviewed in light of the Position of the CCBE on MDP (discussed above under Europe) and pending action by the American Bar Association with respect to MDP.

It has been possible in Austria for the same person to qualify as both an accountant and a lawyer.[n333] In the few cases of dual qualification (a process taking ten years or more), such a person would belong to two separate professional companies, one a legal practice and the other an accounting practice, and would keep separate the activities devoted to each of the two companies. In effect, this means that a lawyer can be affiliated with both a law firm and an accounting firm, provided there is a formal separation of professional conduct in each firm. Recently, Big Five accounting firms[n334] have reportedly contacted Austrian law firms with a view to establishing contractual referral relationships.

b. Belgium

On January 6, 2000, the French section of the Brussels Bar entered into an agreement (the "January 2000 Agreement")[n335] with the profession of auditors (reviseurs) that will permit one or more auditors and one or more lawyers (avocats) to share expenses through the creation of a common service organization -- called a société de moyens. The common service organization, at the election of the professionals creating it, may or may not be in corporate form. Each professional service organization must be the subject of a written contract between the parties creating the organization; this contract must list the facilities to be used in common, and must specify how expenses will be shared.

Under the January 2000 Agreement, each contract creating a professional service organization must "forbid any sharing of fees or of any remuneration provided by clients" (and must also expressly incorporate by reference certain provisions of the January 2000 Agreement).[n336] The Agreement thus expressly forbids an integrated professional practice, and is limited to the sharing of expenses. It refers to statutory provisions whereby only lawyers may enter into partnership with lawyers, and only auditors may enter into partnership with auditors.

According to an announcement by the two professions:[n337]

As regards the last point, the announcement mentions that what is envisaged is "a small building in which will be brought together a lawyer, an auditor, an accountant, a tax adviser, a notaire, and a huissier de justice (process-server)."

c. Italy

In Italy, there is no prohibition against MDP, and it has been argued that partnerships (associazioni) between lawyers and members of other regulated professions are and should be legal.[n338] Thus, according to this argument, so long as the MDP comprises only regulated professionals such as that of lawyer (avvocato) and public accountant (dottore commercialista) and is in the form of a partnership, it should be permitted. Two problems have been noted, however.

The first is a perceived European bias against MDP, especially at the level of the European Bar Council (CCBE), discussed above under Europe. It would seem that, in Italy, pending resolution of the litigation brought by the Netherlands Bar against two of the Big Five firms (discussed above under The Netherlands), this perceived European bias may act to some extent as an informal brake on MDP in Italy.

The other problem is that the feasibility of MDP in Italy is thought to depend on legislation that will permit lawyers to practice in corporate form (as distinguished from partnership form), and that will expressly authorize MDP. Legislation to permit legal practice in corporate form has been proposed but has not yet been adopted.

For the moment, there seem to be two forms of MDP in Italy. One involves legal practitioners, known as commerzialisti, who are not members of the Bar and who have freely entered into certain types of MDP. The other involves the Big Five, which in some cases (e.g., Ernst & Young) have established relationships with members of the Bar or firms of lawyers comprising members of the Bar. These relationships seem to be non-structural in nature and to depend on ad hoc contractual understandings.

d. Spain

Perhaps the best-known development in the area of MDP was the merger in April 1997 of the Madrid-based law firm of J.&A. Garrigues with Arthur Andersen’s Spanish tax and law network to form Garrigues & Andersen.[n339] More recently, effective January 1, 1999, the Spanish law firm of PricewaterhouseCoopers Juridico y Fiscal merged with two other Madrid firms, Estudio Legal and the Madrid operations of Mullerat & Roca. Thus, MDP clearly exists in Spain.

In 1997, the Spanish National Bar Council (Consejo General de la Abogacía Española) drafted a Decree that, if adopted in its present (October 1999) form, would include provisions affecting MDP in Spain. This draft Decree -- entitled Estatuto General de la Abogacía Española -- contains three relevant provisions -- Articles 21, 22 and 29. They declare certain activities and behavior to be incompatible with the legal profession. In particular, Article 22(2)(b) states that auditing is incompatible with the practice of law. It would seem, therefore, that, if this Decree were to be adopted, it could have an impact on the MDPs that have been established by Arthur Andersen and PricewaterhouseCoopers in Spain, and any similar MDPs. The proposed Decree is reportedly in the final stage of the approval procedure by the Spanish Government.

e. Sweden

In Sweden, the title of "Advokat" is protected, but the scope of professional activity reserved to an Advokat is quite limited. Thus, anyone can give legal advice, and a person who has been trained in the law but who has not qualified as an Advokat may act as or find employment as a legal professional. In theory, therefore, MDP is quite feasible in Sweden, and the Big Five in particular should find Sweden a favorable venue for their legal practices. Another factor favoring the Big Five is that qualification as an Advokat involves passing a bar examination and an apprenticeship of five years, and there are only a limited number of independent law firms that can provide five years of training to a prospective Advokat.[n340]

Notwithstanding these handicaps, the Swedish Bar --Sveriges advokatsamfund -- has been able, to a certain extent, to maintain the superior professional value of the title of Advokat and to resist the participation in MDPs (including Big Five MDPs) of persons using that title. The Big Five, particularly Arthur Andersen, Ernst & Young, and KPMG, have established associated legal practices in Sweden, but thus far the lawyers in those legal practices have not been permitted by the Sveriges advokatsamfund to use the title of Advokat. The Big Five have attracted young lawyers by offering them compensation and training, but have not yet been able to offer them the professional status of Advokat. In addition, the Sveriges advokatsamfund has to a certain extent successfully policed the agreements entered into and the names used by Big Five legal practices in Sweden. Thus, in 1998 it reportedly reviewed the agreements between KPMG and its associated Swedish law firm and caused the latter to put an end to the agreements and to change the name under which it was practicing; and in 1999 it took similar action with respect to Arthur Andersen and its associated Swedish law firm.

Reportedly, there is dissent within the Swedish legal profession concerning the policy of the Sveriges advokatsamfund and its Disciplinary Committee toward lawyers in Big Five legal practices, and the Sveriges advokatsamfund is under pressure to reconsider this policy. Even so, it seems to remain a powerful and well-regarded professional association with close ties to the Swedish Government for which it handles substantial legislative work. In addition, three of the eleven members of the Disciplinary Committee of the Swedish Bar are representatives of the Swedish Government. The Bar, by largely maintaining its unity and by remaining on excellent terms with the Government, to date seems to have been able to provide a degree of resistance to legal practice in Sweden by the Big Five.

Another source of resistance to the Big Five in Sweden has been the local accounting profession. Through litigation, it has successfully refused to allow accountants in Sweden to engage in activities unrelated to accounting. In October 1997, the local administrative court in Stockholm prohibited cross-ownership between Price Waterhouse accounting activities and Price Waterhouse consulting activities ("the accounting firm must be independent in fact as well as in form, and must conduct itself in such a way that third parties will perceive it to be independent").

Notwithstanding developments to date that somewhat limit MDP in Sweden, there is proposed legislation before Parliament that, if enacted, would remove certain of the present barriers that inhibit Advokat and accountants seeking to form an MDP.

f. Switzerland

In Switzerland, the legal profession does not have a general monopoly of legal practice. In some cantons, lawyers have been granted the exclusive right to handle certain types of litigation (which may not include landlord-tenant cases, labor law cases, and tax cases, with respect to which non-lawyers may also represent clients).[n341] Outside the area of litigation, professionals other than lawyers are permitted to provide legal services in most parts of the country. Historically, the Swiss legal profession has been regulated only by the cantons and by cantonal bar associations. Federal legislation (discussed in the last three paragraphs below) that would affect the legal profession was pending before the Swiss Parliament in early 2000.

In general, lawyers in Switzerland can be divided into (1) those who only graduated from law school; (2) those who are not registered as lawyers but who fulfilled all necessary requirements for registration and have been awarded a special certificate (Anwaltspatent or brevet d’avocat );[n342] and (3) those who are registered members of the independent legal profession.[n343] Not all three groups exist in each canton. The classification of lawyers is mainly relevant with regard to the competence to litigate and the applicability of professional rules.[n344] Some cantons, like Geneva, afford the third group (registered lawyers) a monopoly on litigation.[n345] These lawyers are not allowed to form partnerships except with other registered lawyers,[n346] and similar restrictions are also applicable in other cantons in Western Switzerland. Thus, in these cantons, registered lawyers may not enter into multidisciplinary partnerships (MDPs).

In other cantons, the rules are less strict. In at least one canton, Solothurn, not even litigation is subject to a monopoly of the legal profession, and anyone may represent litigants for remuneration in court.[n347] While Zurich and other cantons reserve representation in court to members of the legal profession, the holder of a Zurich Anwaltspatent who is not a registered lawyer is allowed to litigate.[n348]

The rules on association in cantons like Zurich, St. Gallen and Thurgau are also less restrictive than in Geneva, and lawyers in those cantons are permitted to form partnerships with persons who are not admitted to the bar and even with limited liability companies.[n349] Thus, lawyers in those cantons are allowed to enter into MDPs and, therein, to work for non-lawyers, to represent clients, and to engage in litigation. Under local bar association rules, lawyers in a Zurich MDP are required to safeguard their professional independence and to ensure that the non-lawyers therein comply with the law and legal professional rules.

Outside the area of litigation, legal work in Switzerland may be performed not only by independent lawyers but also by professionals with legal qualifications who are employed by banks or accounting firms or certain other entities. These professionals are not registered as lawyers, but increasingly they hold the Anwaltspatent or brevet d’avocat, in which case, in some cantons, they are subject to the professional rules of, and to supervision by, the local bar associations. In some cantons, banks, accounting firms, insurance companies, and even industrial companies employ lawyers in internal MDPs. In certain cases, these internal MDPs, individually, employ more lawyers than the largest law firm in the region.[n350] MDPs in Swiss banks have focused on legal and other services related to estate planning. As regards insurance companies, on the other hand, the Swiss courts, on grounds of conflicts of interest, have attempted to put an end to the practice whereby legal employees of insurers handle claims on behalf of insureds.

Each of the Big Five MDPs in Switzerland provides a range of legal consulting services for corporate clients, and general legal advice for private clients. Both their legal departments and their tax departments employ lawyers. They incorporate new companies, advise on mergers, draft and adapt articles of incorporation and by-laws; they advise on inheritance law, spousal-support law, and immigration law. KPMG engages in services relating to litigation.

In addition, there are stand-alone Swiss law firms that are affiliated with the Big Five.[n351] One of them is Andersen Legal, Lichtsteiner & Sauber, Rechtsanwälte, Zurich, which was founded in May 1999. It has a contractual relationship with Andersen Legal Network C.V., a Dutch entity, regarding name use and services. Within this Network, continuing legal education is organized, service line products are developed, and expansion is coordinated. The law firm concentrates on corporate work, and tax advice is left to Arthur Andersen with which the law firm cooperates but has no contractual relationship. The law and non-legal offices are separate but physically close. When Andersen Legal works on referral from the Andersen accounting firm, it usually has a separate relationship with the client. In some cases it acts as a sub-contractor and bills its services to Arthur Andersen.

It is expected that a new Federal law, applicable throughout Switzerland, will give registered lawyers the exclusive right to handle litigation. The two chambers of the Swiss parliament have before them drafts of a statute[n352] necessitated by treaties with the European Union and its member states which require Switzerland to allow lawyers admitted in those states to represent their clients in Swiss courts and to establish their practices in Switzerland, subject to compliance with professional rules. Furthermore, the statute is needed to implement, with regard to the legal profession, the constitutional provision that obligates the Confederation to ensure the recognition in all cantons of a professional certificate acquired in any canton.[n353]

Although the bills in the two chambers differ in some minor respects, under both only registered lawyers would be allowed to represent clients in court. In addition to other requirements, lawyers would have to establish that they were independent in order to be registered. The definition of independence is somewhat different in the two bills, however. Under both bills, a lawyer who was employed by an accounting firm, bank or insurance company would not be independent and, accordingly, would not be entitled to represent clients in court. That interpretation seems clear in the lower chamber (Nationalrat) bill and almost as clear in the upper chamber (Ständerat) bill. In the latter bill, it remains uncertain whether a contractual obligation between a law firm and another entity whose members were not registered in a Swiss canton would be sufficient grounds for concluding that the lawyers working in that firm were not independent. If that were to be the case, lawyers whose firms belonged to, or had referral agreements with, international networks might not be deemed independent for purposes of the statute. In any event, Article 1 of the proposed new statute does not include legal consulting services, which lie outside the scope of the statute. Thus, the MDP legal consulting services of banks, the Big Five and others in Switzerland should not be affected by this statute.

7. Ontario, Canada

The Canadian literature on MDP is voluminous, reflecting extensive study of the subject both as it has been analyzed and debated outside Canada and as to its actual and potential consequences inside Canada.[n354] Most of this literature post-dates the creation in 1996 of an affiliation between Ernst & Young and the Toronto law firm of Donahue & Partners. The latter is commonly referred to as the "captive law firm" of the former, is understood to pay the former both rent and a fee for management services, and is held out as "a member of Ernst & Young International." The creation of this "captive law firm" has been described as a "wake-up call" for the Ontario law society -- the Law Society of Upper Canada ("LSUC") -- which shortly thereafter undertook studies of MDP and the then-existing LSUC rules that forbade MDPs in Ontario. (The LSUC is the rule-making body for all lawyers in Ontario.)

The result of these studies has been two-fold. The first result occurred in 1999 and consisted of the adoption by the LSUC of its By-Law 25 entitled "Multi-Discipline Practices" and the subsequent issuance by the LSUC of rules for entering into a "multi-discipline partnership."[n357] The second result, still in progress, is the in-depth examination, by an LSUC task force, of "captive law firms" and their affiliated sponsors outside the legal profession. The affiliations under study would be based on cost-sharing (but not fee-sharing) and mutual-referral arrangements between such law firms and their non-law-firm sponsors.

It should be noted that, at the federal bar level in Canada, views have been expressed to the effect that the LSUC has been too restrictive in its approach to MDP.[n358] It has also been recommended that the issue of MDP in Canada should be the subject of a "national approach,"[n359] but for the moment By-Law 25 of the LSUC is the relevant regulatory document in respect of Ontario, and a "national approach" seems unlikely in the foreseeable future.

By-Law 25 prohibits a member of the LSUC from engaging in the practice of law except in accordance with its terms,[n360] and permits a member of the LSUC

in connection with the member’s practice of law, [to] provide to a client only the services of an individual who is not a member who practises a profession . . . that supports or supplements the practice of law.[n361]

Subject to these requirements, as well as to licensing requirements (mentioned below), By-Law 25 authorizes an LSUC member

[to] enter into a partnership or association that is not a corporation with an individual who is not a member [of the LSUC] who practises a profession, trade or occupation that supports or supplements the practice of law for the purpose of permitting the member [of the LSUC] to provide to clients the services of the individual.[n362]

Under By-Law 25, the "individual" (that is, the non-lawyer participant in the partnership) must meet certain requirements and must agree with the LSUC member (the lawyer in the partnership) that the LSUC member will have "effective control" of the partnership, and that the non-lawyer individual will comply with the Rules of Professional Conduct and the policies and guidelines of the LSUC.[n363] In summary, then, MDPs are permitted in Ontario only if they are controlled by lawyers, render only legal services and services ancillary thereto, and are subject to the professional rules of the legal profession.

In addition, an MDP may not be formed in Ontario except pursuant to license by the LSUC. To this end, the lawyer proposing to form an MDP must apply in writing to the LSUC for approval, and must submit with the application (among other things) the relevant agreement(s) that will govern the MDP.[n364]

8. New South Wales, Australia

In New South Wales, Australia ["NSW"], lawyers are under the jurisdiction of the Law Society of NSW. At the request of the Attorney General of NSW, the Law Society’s rules affecting MDP were reviewed by the Legal Profession Advisory Council, which, in November 1998, issued a "Report and Recommendation ... in respect of Multidisciplinary Partnerships and Solicitors’ Professional Code of Conduct."[n365] The Recommendation found that certain provisions of the Solicitors Professional Conduct and Practice Rules were not in the public interest

in that such rules adversely discriminate against non-solicitor partners in a multidisciplinary partnership and would effectively act as a bar to the formation of such partnerships . . . .[n366]

As a result of this Recommendation, the Law Society of NSW, in December 1999, amended its MDP rules, which theretofore had required that solicitor partners in an MDP must have majority voting rights and must be entitled to receive not less than 51% of the net receipts earned by the MDP. As a result of the action taken in 1999, the applicable provisions of the NSW Solicitors’ Rules became Rule 40, which no longer contains the contested provisions on voting rights and on net receipts. Thus, non-solicitor participants in an MDP in NSW are no longer restricted as to voting rights or as to allocable net receipts.

To ensure the retention of the ethical and professional duties of solicitors in an MDP, revised Rule 40 now contains provisions to the following effect:[n367]

While the Solicitors’ Rules were under review, a bill was introduced in the Legislature of NSW which, if enacted, would permit legal practices in corporate form (1) to be owned in part by non-lawyer professionals, and (2) to raise outside capital from the public. Under the proposal, law firms that incorporate would be required to publish their financial accounts, and there would be strict rules applicable to the directors of such a corporation. It is not certain that this proposed NSW legislation will be viewed favorably in all respects at the federal level by the Australian Securities and Investments Commission.[n368]

9. Conclusions Regarding the Survey

In a number of jurisdictions outside the United States, developments and rules relating to MDP are in a state of flux. In some (and perhaps many) of these jurisdictions, official and professional attitudes toward MDP are likely to be influenced by action taken in respect of MDP in the United States -- a point that seems inherent in the comparative size and vitality of the U.S. legal profession and its worldwide influence on the practice of law, and a point that has been expressly made by a number of lawyers and bar leaders abroad who have commented on MDP.

Reciprocally, decision-makers in the United States can look abroad to see how MDP has worked there, and to gain an understanding of concerns and regulatory issues that may be of general relevance both here and abroad. Any reciprocal analysis should, however, take account of the distinguishing characteristics of the U.S. profession set out above in Chapters 5 and 6. These distinguishing characteristics suggest that the proper study of matters affecting the U.S. profession must begin with the U.S. profession itself -- its history, training and organization, the development of its standards and values, the debate and interplay that have produced its professional rules, in sum, its identity and vigor that give it specificity, substance, and singularity. Although (not surprisingly) many aspects of the U.S. legal profession have been imitated abroad, it cannot be adequately evaluated, especially in the context of MDP, if it is viewed as a mere replication of the profession in one or more foreign countries.

MDP abroad is not a uniform phenomenon. It has been shaped by the history and circumstances -- by the relative strengths and weaknesses -- of individual legal professions in individual countries. The reason for the U.S. legal profession to look to certain other jurisdictions is that they already have MDP and, perforce, the concerns and issues that come with it, and that a study of their experience with MDP may therefore yield relevant information and analysis.

A simplified distillation of overseas experience suggests that MDPs controlled by lawyers, when compared with MDPs controlled by non-lawyers, may be relatively lacking in problems; and that MDPs controlled by non-lawyers can be put into two categories: integrated MDPs and non-integrated MDPs. In the former, lawyers constitute a non-controlling part of an entity in which the performance of legal services may only be an ancillary activity. In the latter (the non-integrated MDP), the legal practice retains its own identity, and is linked to other parts of the MDP which are controlled by non-lawyers. Although (at one extreme) the separate identity of the legal practice may be largely a matter of form, the separate legal practice can (in varying degrees in various cases) embody considerable ethical and professional substance.

The Netherlands Bar has attempted to draw a line between integrated and non-integrated MDPs, permitting the latter but not the former. Two (but not all) of the Big Five have challenged the drawing of this line, and have caused questions involving European law on competition and on the right of establishment to be brought before the European Court of Justice. Its decision, expected in late 2001, may address efforts to distinguish between integrated and non-integrated MDPs controlled by non-lawyers, and thus may have considerable impact on European disputes over MDP.

A similar line of demarcation may be emerging in England and in Ontario, where there are proposals to permit non-integrated but not integrated MDPs controlled by non-lawyers. In France and in Germany, it can be noted that none of the Big Five MDPs is an integrated MDP. They all take the form of affiliated law firms. It can also be noted that, while the relationships between these affiliated law firms and the respective Big Five entities are often so close as to suggest the functional equivalent of integrated MDPs, there is no single model of affiliation. Attitudes toward the value of separateness seem to vary among the affiliated law firms, and in one case in Germany the affiliated Big Five legal practice overtly seeks to operate as a traditional, stand-alone law firm. Moreover, where separateness is preserved even if only as a matter of organizational form, the importance attached to that separateness may change over time.

Were non-integrated MDPs abroad to become a paradigm where non-lawyers control the MDP, acceptance of this concept would be but a point of departure for dealing with such matters as assuring lawyer independence and applying the legal profession’s rules on conflicts of interest in the context of a legal practice affiliated with entities, particularly entities of greater economic strength, that, by contract or otherwise, are in a position to control the legal practice. The Nallet Report in France calls for (among other things) requiring transparency as regards the nature of the relationship between the legal practice and such other entities, and creating a special commission that would have jurisdiction over MDPs. It seems far from certain, however, that such steps will in fact be undertaken or, if attempted, will prove susceptible of effective implementation.

Another approach, implicit in some pending studies abroad, would be to adopt rules applicable to the legal profession setting forth permissible and impermissible contractual and operational arrangements that a law firm could enter into in creating a non-integrated MDP. While the possibility of establishing such rules for the legal profession has been suggested, the search for workable and enforceable rules is at best an on-going challenge. This approach would have to be forcefully pursued with considerable analytical skill before it could be expected to provide rules for permitting MDP in a manner that would safeguard the legitimacy of legal practice.

The principal focus abroad has been on MDPs involving the Big Five. Whether other (non-Big Five) MDPs controlled by non-lawyers should be permitted in integrated or non-integrated form has on occasion been discussed abroad as well. In Germany, by legislation, lawyers may not enter into an integrated MDP with another profession unless that profession is deemed to have adequate rules for the protection of client confidences. Accordingly, lawyers may only enter into non-integrated MDPs with most professions, since most professionals other than lawyers, accountants and tax advisers are not deemed to be subject to such rules.

The financial resources of the Big Five, their major presence as providers of legal services in Europe, and the resulting competitive position of traditional law firms, have given rise to the question of whether a traditional law firm should be granted access to equity capital provided by investors other than professionals active in the firm. The Nallet Report strongly recommends that such investors should be allowed to acquire equity in traditional law firms or in holding companies owning the firms. This approach would be an understandable response to the relative economic power of the Big Five in a country like France, where certain of their affiliated law firms may have sought market share for legal services on the basis of low levels of profitability for those services.

On the other hand, permitting outside equity investment in law firms raises ethical concerns for the professional independence of lawyers. These concerns might have the effect not of persuading the legal profession actually to endorse outside equity investment in otherwise independent law firms, but to focus ever more carefully on non-integrated MDPs, that is, on appropriate professional rules to govern legal practices that enter into MDPs resting on contractual links and constitutive relationships with entities controlled by non-lawyers.

The reality, however, is that no legal profession abroad has yet developed, much less applied, special rules for legal practices participating in non-integrated MDPs. At this juncture, it can only be said that experience abroad suggests the possibility of such rules, but gives no assurance that they will be developed in a manner that would permit law firms to enter into MDP affiliations and at the same time retain their essential professional vitality.