Competition law issues for the professions

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There are at least two questions which that review of competition law and the professions in New Zealand and Australia throws up. There may be many more. But the two which provoke my interest are:

  1. whether there is anything inherent in the professions which has any particular significance to the application of competition law regulation to them;

  1. whether the application of competition law regulation to the professions has changed the nature (I hesitate to use the word “integrity” of the professions) in any significant way.

Among the other questions which might be asked is whether the application of competition law regulation to the professions has been in the public interest: that is the “net public benefit” of its application. In many respects, that is a multi-faceted question more for economists or other particular specialities. The intuitive answer is affirmative.

Let me list a few of the facets:

  • price fixing (to the extent the professions engaged in it) is clearly against the public interest;

  • barriers to entry may have been lowered, but is there any evidence that the lowered barriers to entry have reduced the quality of any professional services, or have so reduced them that acceptable outcomes to the community are not being met or are at issue?

  • have work performance restrictions been lifted to an extent that has exposed the community to unacceptable outcomes?

  • has the information to consumers been improved, so that more informed consumer choices can be made?

Whilst my intuitive answer to those questions is an affirmative one, I can at least add my experience in proffering a more positive answer to such questions in the case of the legal profession.

In Australia, the legal profession, either institutionally or as individuals, has not been the target of any proceedings under Pt IV of the TP Act. Nor has it sought authorisation in the public interest for any of its structures at an organisational level. The latter part may in fact be because it is regulated by separate State and Territory legislation. Following the Hillmer Report, each State agreed to implement the National Competition Principles. They have progressively implemented those principles through amendment to, or the enactment of fresh, Legal Practitioners Acts. Consequently, and not surprisingly, the organisational structure of the legal profession should not be, in competition terms, of serious concern to the regulator.
One feature of the legal profession is that it has supported the entitlement of any qualified secondary student to study and obtain a law degree. I suspect the same is true in New Zealand. The number of those with law degrees is limited only by the capacity of Universities to accept and teach the elements of such degrees. There are apparently reasons why Universities have been prepared to expand the intakes of their law schools, or to establish new law schools, but still the matriculation cut-off marks are high. Admission to University Law Schools is based on objective criteria.
A law degree, to be acceptable to an admitting authority, must have certain content. That is prescribed by the Law Admissions Consultative Committee. It is a body established by the Chief Justices of the High Court and of the State Supreme Courts (as they ultimately are the admitting authorities). Its views are then imposed by the State admitting authorities (SAA), constituted under the respective State enactments. In the case of overseas lawyers (putting aside New Zealand), their degrees and experience are assessed to determine if they meet the LACC conditions. Most often, in Australia, they do not satisfy the requirement of adequate knowledge of Australian Constitutional Law – part of our “elephantine” attributes.
The other requirement for admission is a satisfactory level of practical legal training. Those courses of PLT are accredited by the local SAA, on an objective assessment, and there are several competitive providers of PLT throughout Australia. To date, those providers have been able to accommodate all with appropriate law degrees who wish to undertake a PLT course.
So, to that point, despite the special skills and knowledge required (I mention that legal ethics is a mandatory LACC unit of a law degree), there are no possible contrived barriers to entry.
Generally, there are conditions upon practise of the law for a period of two years after admission. The admitted lawyer may not practice as a principal for that period. Such conditions are imposed by the SAAs under Rules made by delegated powers from the relevant State legislation. They have the support of the legal profession.
Upon admission, by prescription of the SAAs under delegated power, there is in most States a requirement for post-admission continuing legal education (CLE). It is not onerous. There are a range of providers of CLE.
If I were to “nitpick”, I would inquire further whether the requirements for PLT, and the short post-admission restrictions on practice, and mandatory CLE are each in the public interest. They have a clear purpose, and an obvious attractiveness. I am not aware of any qualitative assessment of the balancing between their benefit and any impact upon competition in a relevant market which they have. Importantly, from the point of view of the legal profession, those requirements are not self-generated or self-imposed. They are imposed through State legislation. And the legal profession, broadly speaking, regards itself as over-regulated rather than the reverse.
Lawyers admitted in any State of Australia may now practise in any other State of Australia – again, an observation which you no doubt find anachronistic.
The reservation of work to lawyers is perhaps more contentious. It is, as you would be aware, expressed in a traditional way. There is a range of traditional “legal work” which may be performed by others: licensed conveyancers is an obvious example, but so too (I am very quaint) is the tax advice provided by accountants. The intersection of the work of accountants and lawyers is increasing, apparently without the concern – other than in the competition for work – of either profession. Nevertheless, there are two questions which have been raised:

  1. Is it “necessary” (a compendious word to describe the balancing of interests to determine the public interest) for all lawyers to satisfy the LACC units for a law degree before admission, a matter of increasing significance in a time of more and more specialisation? That is a question which, in the future, I am sure will continue to be debated.

  1. Is there a shared characteristic of the legal profession to continue to justify the existence of rules which apply across the board? This is not simply a product of specialisation, but also – as both New Zealand and Australia have developed – because there may be two (or at least two) legal professions with different characteristics, and so different elements which might justify regulation in the public interest. The legal profession largely comprises “the big firms” and “the small firms” (or individual practitioners). (I shall refer to the barristers shortly.) They really now service different markets, because the larger firms are so structured that they cannot afford to, or cannot compete, in the “traditional” client market. They compete for work, both nationally and internationally (where the particular jurisdiction permits it), from government and large corporate or individual clients. Their competition for work is fierce – both on price and quality and service – and they deal with clients who are well-informed and well able to assess the value of the services rendered (often, partly, through in-house lawyers). They jointly tender for work with other professions on some occasions, and they work co-operatively with other professions because the market demands no less. The other part of the legal profession – servicing the “traditional” client (individuals and smaller businesses) is quite different. Clients are generally unable to be much informed about relative quality, comparative charging, expertise of the legal supplier or such matters. In such instances, however, there is little or no professional institutional structure which impedes the flow of information – it is inherent in the nature of the work, and so there are professional expectations imposed by professional bodies (and by regulation) to better inform consumers: fee disclosure, pre-engagement letters with cost estimates and the like. Advertising generally, including as to fees, is not prohibited (except in New South Wales, by statute). Different methods of charging are not generally prohibited (except that it may be unprofessional conduct to overcharge).

So, in that area, the legal profession also does not appear to be structured, or to impose rules, which might be of particular concern to regulators.

Longer term, the extent of exclusive reservation of work to lawyers may come under further scrutiny: it will only be able to be maintained to the extent to which it can be shown that there is no other group of providers of that service who can do so with equal skill (i.e. properly trained) and with equal quality in service and service assurance (i.e. insurance against error in performance). The legal profession has a mandatory level of insurance against claims, and to date has persuaded government that competitive providers should be equally insured. Maybe the question of compulsory insurance is one which might merit revisiting as an appropriate requirement of practice?
Within the legal profession, there was considerable debate in the 1990s about the institutional reservation of work for barristers in some of the States. That is no longer so. In my State (South Australia), and in Western Australia, that was never so: it was a “fused” profession. In reality market forces have produced the same outcome – the ratio of those choosing to practise solely as barristers to those practising as solicitors was (and remains) much the same in the “fused” and “non-fused” professions and despite the right of any solicitor in the “non-fused” States to appear as counsel, they rarely do. I do not think it is a competition issue.
Nor, now, is there a competition issue about the structure of legal practices, except in one regard. Legal practices may incorporate. They may be listed on the Stock Exchange (with some requirements that those making legal decisions are properly qualified and professionally accountable), at least in some of the States. If those structures are not widespread, it is because the State governments – rather than the profession – do not want them. The remaining issue is multi-disciplinary partnerships. There are issues in such circumstances about how client legal privilege should be preserved, and how the duty to the Court above the duty to the client, is to be preserved. That is an ongoing work in progress, both for commercial reasons and for competition reasons.
The legal professional associations act as lobby groups for collective legal interests, but not in areas that (so far as I am aware) are seen as sensitive by the ACCC. They provide educational services. They provide the opportunity for knowledge and experience sharing. They facilitate informed professional responses to proposed legislative reforms. And, to a diminishing extent they perform disciplinary investigative and prosecutorial functions.
All that indicates, in my view, is that the legal profession is not structured, or behaving, in such a way as to attract the interest of the competition regulator. Indeed, as the legal profession is in the vanguard of awareness of the provisions of the TPA – and its relevant practitioners deeply immersed in it – it would be surprising if it were otherwise. It is also, as a matter of practical reality, a highly competitive profession in the markets in which legal services are provided.
Those comments direct my focus back to the two questions I posed at the commencement of my observations. In the case of the legal profession, I think the answer to both those questions is “no”. If I am correct in my view that the legal profession is not only vigorously competitive among its members, but in the areas of overlap between legal services and other professional services, then it can be seen to have adapted effectively to the environment in which it has been exposed – the world of competition. There is nothing inherent in its nature tending to dictate that competition law regulation should not apply to it. Moreover, so far as I am aware, there is nothing in its “key ideas” of service and independence which the application of competition law regulation has altered. The “key ideas” remain. They may not necessarily be as vibrant as they once were. But we live in different times, with different or greater pressures. One needs only to look at the nature of the work the larger firms perform and how they are structured to perform it to make that point. The large firms, by and large, have preserved their legal integrity, some very deliberately so, and they engage in a range of community and other pro bono work reflective of their awareness of their obligation of service to the community. Individuals and smaller firms continue to work for their clients, again by and large, with integrity and the deep commitment which comes from the awareness of trust and responsibility they shoulder by reasons of the “information imbalance” their profession carries. And lawyers do legal aid work, duty solicitor work, and a host of other pro bono legal services.
Although I do not have anywhere near the same depth of knowledge of other professions, it seems clear enough that professions such as architecture, engineering, accounting and – if they are to be included – real estate agents have absorbed the impact of the application of competition law regulation. And they have done so without apparent difficulty, or without apparently impairing their status as professions. Indeed, the TPA reports on the accounting and architectural professions did not even in 1992157 identify matters of significant concern.
So what is it about the medical profession, and related disciplines. The earlier discussion in this paper did not focus on the interest of the competition regulators in the medical profession as my choice from available professions to discuss. It was a result of a fairly thorough review of the material available in New Zealand and Australia generally addressing the professions and competition law.
Why does the medical profession feature so prominently in the available material? Does it have special characteristics? What are they?
It is not apparently different because of information asymmetry. Its consumers are certainly disadvantaged in assessing the price for, or quality of, services to be provided. That is true of all professions. Indeed, of all, the legal profession is probably the one where the consumer is at most disadvantage in this respect because flawed outcomes are generally less obvious; the prospects of success in litigation is inherently difficult to assess as there are so many uncontrollable variables. Nor is medicine different because the element of trust and reliance by the consumer is exclusive to it. Perhaps there is a greater awareness of service than in other professions, because of the nature of the medical profession. It relates immediately and often critically to the health and personal integrity of the user/patient. But “service” is an individual response to a professional expectation. Some professionals (whether doctors or lawyers or others) are very conscious of that professional responsibility; their dedication and commitment is greatly to be admired. Some are less so, or indeed not so at all. A medical practitioner, like any other professional, seeks to provide services to the utmost of that professional’s ability, whether for altruistic or financial or reputational or personal reasons, and (I suspect) most often a combination of those things. And, like any profession, there are those who will lapse over the wrong side of the competition line to preserve their personal interests.
So, upon reflection, what I perceive to be the fundamentals of a profession are not peculiar in any relevant way to the medical profession and like disciplines. I do not place self-regulation in the basket of features necessary for the existence of a profession, for the reasons given, or at least not as a feature occupying much space in that basket.
The medical profession, perhaps unlike other professions, has a process of qualification – whether for a primary degree or for specialist qualifications – which restricts the supply of services. It is notorious how difficult it is to secure admission to a medical course in a University. There are probably a few reasons why the intakes are so low, relative to other professions. One may be the relative cost of education of a medical student. Another, and probably more importantly, is the limit upon the number of students who can be given the necessary practical training. That feature, at least anecdotally, applies also to the dental profession. The restricted number of training places is also a justification for the restricted number of specialist training positions available, although obviously that varies within each specialist discipline and the size of the community which it serves. It may be an entirely coincidental benefit that, the smaller the number of specialist practitioners, the greater the potential for increasing the returns to the practitioners.
A focus of regulators has been, and no doubt will continue to be, upon those structures to ensure that they are not used as a means of limiting competition in a market.
That observation is reinforced when it is appreciated that, unlike most professions in New Zealand and Australia, entry to the medical profession and to each of its specialities is by registration – controlled by the profession or the relevant sector of it (even if authorised to perform that role by statute) – based upon qualifications, training and experience (and assessment by a peer group). Generally, other professions have entry by licensing once specified training requirements are met. And there is no real issue about places being available for those seeking that training. The accounting profession has “entry” by certification, but that only operates as an assurance to consumers about the competency of the provider; it does not stop non-certified persons from providing accountancy services. And, finally, the medical profession clearly has a much more refined and elaborate system for specialisation. For obvious reasons, unlike any other profession, specialist services may only be provided by recognised specialists in the particular discipline. As I have observed, at least anecdotally, the opportunities to qualify for registration as a specialist provider are apparently limited for practical reasons. Other disciplines variously recognise specialists, but not so that they only can provide particular services. The demand for specialist accreditation by other professions is also more readily capable of being met, because the required training is more readily available.
I do not ascribe to the medical profession any base motives. Quite the contrary. But the reasons why it has been the focus of attention are clear enough: within its existing structures, it is the clash of the practically achievable (or perceived practically achievable) with the ideals of competition policy. I do not think there is any inherent quality of the medical profession which, in theory, renders it any less vulnerable to exposure to competition law regulation than any other profession. The regulators may be expected to continue to review the propriety of the structures of that profession, and if they are accepted, the balance now struck by those structures, with some care in the future.158
A concluding remark: The theme of my remarks about competition law and the legal profession does not lie easily with the views of Professor Hatfield. There are important differences in our views. I hope they are explained by understanding the different structure of the profession in New Zealand and Australia, including the relatively limited roles of the New Zealand Law Society and the Law Council of Australia compared to the American Bar Association. I have referred to that earlier in this paper. Apart from referring to certain “scathing” critiques of the organisation structure and rules of the legal profession in the US159, she identifies a straw man the “lawyer-statesman”160 as the justification for the professional rules in the US and then says that they are no longer justified because the “lawyer-statesman” is now a mythological being. There is no such person used by the legal profession in New Zealand or Australia to uphold the current structures and rules. Indeed, as I have identified above, there remain some areas of real interest to determine the extent to which competition law might further impact upon the practice of the law.
More importantly, and more directly relevantly, Hatfield rails against the “enormous complexity and quantity of legal effort” to achieve the “transactional and dispute resolution goals of business entities”.161 Rightly so. However, I do not agree that that is the consequence of the profession’s regulatory structure in New Zealand or Australia. I have not seen it suggested in our literature. I do not understand why it should be so here. There are alternative dispute resolution models already available in our jurisdiction. It is unclear whether other models provide cheaper or better dispute resolution processes or transactions. Personally, I hope the State-provided system continues to be used by the community. But we must be resourceful in revisiting our dispute resolution processes to ensure they are as efficient and as economic as can be consistent with the interests of justice. That is not the topic of this paper.162
Finally, I note that Hatfield regards the “legal products market” not simply as what lawyers supply, but also as what judges do.163 To a degree, that is correct because Courts make the Rules of Court and produce judgments construing contracts, determining facts and applying the law. This paper is not a critique of Professor Hatfield’s paper, although there is much of it with which I disagree or which I think is based upon structures not applicable in New Zealand or Australia. But, the suggestion that judges should be regarded as part of the legal professional market and so be “restructured” in some way is a little alarming.
Perhaps the concluding section of her paper gives me (and all of us) some comfort. She refers with explicit approval to the “sweeping reforms” adopted in the UK in 2007.164 Those reforms reflect very largely the reforms to the Australian (and I assume the New Zealand) legal profession since 1995. The fact of the earlier reforms in our jurisdictions has gone unremarked.

Other materials touching upon matters addressed in this paper which provided useful background include:

1. The Legal Profession

  • Barton B, “An Institutional Analysis of Lawyer Regulation: who should control lawyer regulation – courts, legislatures or the market?” (2003) 37 Georgia Law Review 1167

  • Burton M, Lawyers and Conveyancers Bill (Third Reading Speech, 14 March 2006) available at

  • Competition Bureau, Self-regulated professions - Balancing competition and regulation (Competition Bureau Study, Canada, 2007) at 61-79, available from

  • Council of Australian Governments Legal Profession Reform Working Group, Reform of the legal profession in Australia : report to the Council of Australian Governments (1996)

  • Fels A, Regulation, Competition and the Professions (Industry Economics Conference, Melbourne, 13 July 2001) at 15-19, available from

  • JS Douglas QC, Economic Reform of the Legal Profession (speech to the University of Queensland Economics Alumni and Law Graduates Association, 12 October 2000) available from

  • Law Council of Australia, 2010: Discussion Paper - Challenges for the Legal Profession (LCA, Canberra, September 2001) at ch 7, available from

  • Nguyen-Hong D, Restrictions in Trade on Professional Services (staff research paper, Productivity Commission, Melbourne, 2000) at 34-43 available from

  • Parker C, Competing Images of the Legal Profession: Competing Regulatory Strategies (1997) 25 (4) International Journal of the Sociology of Law 385

  • Rhode D, In the Interests of Justice: Reforming the Legal Profession (Oxford University Press, New York, 2000) at ch 6.

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