The tensions between EC Competition Law and regulations governing liberal professions
Rüdiger Dohms, Deputy Head of Unit, Dir. D, DG Competition of the European Commission, gave a slide presentation (attached) of better regulation in the field of the liberal professions. He indicated that the Commission’s approach was not to aim for a big bang, but to have a gradual, incremental process of change. Most of the work was to happen at the national level. He decried the false dichotomies between economic and legal criteria and values, or economic and non-economic features. He said the Commission’s analyses were not either/or in respect of these different elements, but rather they took everything into account together with the law of competition.
He referred to the Lisbon agenda, and said that professional services were 2.6% of the EU’s GDP, rising to 9% in a single Member State like Germany. He said that better regulation was an important part of the Lisbon agenda. Although critics had said that there was not enough economic evidence to support DG Competition’s activities, he asserted that a low level of regulation enhances the business sector, and gave as an example the experience of Member States with low regulation of their services sector as well as changes which had taken place in the conveyancing sector of some countries. He conceded that naturally some regulation was required for professional services, but better regulation was key, and there needed to be a search for what was an adequate level. The core methodology was proportionality, meaning that regulation took account of defined public interest objectives, was objectively suitable and was the least restrictive of open markets and competition.
There were two tracks to the Commission’s approach:
(1)Advocacy for voluntary change – the Commission has been calling on national regulators and professional bodies to review their rules in the light of the principle of proportionality. There will be no legislation at EU level from DG Competition like the draft Services Directive from DG Internal Market. There has been some progress in this track, as witnessed by the Commission’s report of September 2005. All competent authorities now are advocates for such change, and have a growing tendency to include professional services in their activities.
(2)Enforcement – this is undertaken sometimes by the Commission, sometimes by the national competition authority or national courts.
Mr Dohms stressed that there was no bias in his directorate against self-regulation or for state regulation in this sector. It was up to the Member States to decide this issue, but they must adequately supervise self-regulation so as to avoid results that do not comply with EC law. He also stressed that his directorate saw an important role for the professional bodies, although they should avoid conflicts of interest (by separating their representative and regulatory roles). He also recognised the core values of the regulated professions, and rehearsed the three principal reasons for regulation: asymmetry of information, externalities i.e. impact on third parties, and public goods i.e. value for society in general.
He then devoted time to discussing fixed prices. He saw fixed prices as a severe restriction. They certainly cannot be a core value of any profession, and they are generally not justifiable – taking the legal profession as an example – by considerations of access to justice, the proper operation of the legal profession or foreseeability of costs to be reimbursed. The Wouters case made clear that there was no leeway to the professions for not adopting the least restrictive rule available. He made a possible exception in the case of fixed prices for legal aid. He pointed out that the vast majority of Member States do not have fixed price systems, and fare well without them. Finally, he rehearsed the jurisprudence of the European Court of Justice on the subject.
Fritz-Eckehard Kempter, an assessor with the Bundesverband der Freien Berufe and a lawyer from Germany, spoke from the point of view of a member of the legal profession. A copy of his speech was available in advance (and is attached). He disagreed with Mr Dohms about the issue of proportionality. He said that proportionality had to be weighed against the common good, which had not so far been taken into account.
He noted that there was a need for regulation of the professions in other countries, and there were often stricter rules relating to lawyers there, for instance in the USA and Canada. He said that the professions contributed to the democratic order, and he described the core values of the legal profession as: confidentiality, integrity, independence, and a high level of qualifications. He said that these core values were hardly taken into account in the mainly economic analysis undertaken by the Commission. Of course, economic analysis was important, but professional regulations ensured a minimum standard for consumer confidence.
He spoke specifically about fee tariffs as they apply to lawyers. He said that lawyers run specific risks in the free market which others do not run. For instance, lawyers have personal obligations and liabilities through their ethical rules. With tariffs, larger cases can subsidise smaller ones which might otherwise be uneconomic to take on. A minimum tariff ensures the survival of the lawyer, and compensated the lawyer for the risk taken in relation to personal liability. Another risk is that the amount of personal liability is not dependent on the fee, so that a lawyer could be liable for a huge amount for a case where the fee was very low. Finally, fee tariffs provide certainty in advance of litigation, which helps access to justice, and helps insurance companies in settling cases.
In any case, he said that price regulation was only part of a much larger regulatory structure. Changing pricing structures would have an impact on the whole regulatory framework.
He denied that that there was no competition among the legal profession. There was great interest in entering the liberal professions, and there was strong competition among them to get the best candidates. He said that Germany was at the cutting edge of change in the delivery of services, for instance in incorporation of practices. There were many examples of change.
There was limitation on access to the profession, but it was to ensure that the qualifications and training of lawyers served the highest standards in the interests of consumers.
Self-regulation – meaning being subject to certain obligations and facing expulsion from the profession if they were not met – was an important part of the framework within which the liberal professions operated.
He concluded by saying that the liberal professions should be subject to competition rules, but that not only economic values should be taken into account, but also the ethical aspect of the common good. The competition authorities needed to tread carefully so as not to spoil the good aspects of the current system.
Arno Metzler had two questions: what was the evidence that further competition could help to solve problems of unemployment? and could the deregulation of services lead to serious disruption of current structures and markets?
Suzanne Metzler asked for the delineation of the boundary between regulation and over-regulation.
Gerhard Ben-Ibler complained that the IHS study was too superficial, and that its conclusions should not form the basis for economic measures. He claimed that regulated states were working well, and wanted to know when the Commission would admit to the flaws of the IHS study.
There was another question about fees. If the Commission were genuinely interested in the common good, why would it not be possible to have a minimum fee?
Alain Sagne underscored the unreliability and weak methodology of the IHS study. He said that nevertheless several DGs in the Commission had used its results. He doubted whether the Lisbon agenda was a panacea, and drew attention to the Göteborg objective of sustainable development in growth. Proportionality should incorporate sustainability and measures relating to the quality of life.
Klaus Woschnak wondered whether competition was the only policy of the Commission. He asked about the relationship between competition and, say, the policies of Justice, Freedom and Security. He wondered about consistency of policy-making, and whether account was taken by DG Competition of other policy areas.
Filip Van Depoele, an official from DG Competition in the audience asked Fritz-Eckehard Kempter how fixed tariffs for lawyers in Germany could be justified given that the judicial systems in 21 out of 25 EU Member States were functioning well without fixed tariffs. Were there fixed prices in any country outside the EU?
Fritz-Eckehard Kempter repeated that a change in fee rules would require a change in the whole regulatory system, for instance in relation to loser-pays-all for lawyers, or in relation to the correct amount to be paid to a lawyer from a low-earning client who wins a substantial sum of money through the lawyer’s actions. He also repeated that fixed fees helped access to justice and transparency. He felt that access to justice might not be so easy in those Member States without fixed fees.
Rüdiger Dohms replied that it was very difficult to answer the question concerning quantification and predictions about growth from re-regulation of liberal professions; there were limits to connecting ex ante precise figures of economic growth and employment effects with specific re-regulation measures. The Commission certainly believed that clients should be able freely to choose a member of the liberal professions. Regarding lawyers, justice is not just about access to lawyers enrolled in the bar but also about access to professionals with other types of legal qualification depending on the nature and complexity of the legal issue to be tackled. The Commission was not advocating that legal advice should be available from unqualified people, and accepted that sometimes only lawyers, say, should be able to give advice or assistance. He accepted that a certain degree of regulation was always necessary, however, in compliance with competition rules and internal market rules. As to the question of distinguishing overregulation and underregulation, he believed that precisely the principle of proportionality was the best way of measuring the adequacy of regulation.
Regarding the IHS study, he said that it was a broad-ranging European study, and showed two things: what can positively be done with such studies; and also the limits of such studies in comparison with more specific instruments.
He stressed again that prices should not be kept artificially high through minimum tariffs.
He encouraged the professions to speak to their national competition authorities and national regulators about better regulation.
Regarding the consistency of competition policy within the Commission, he emphasised that the reports of 2004 and 2005 were Commission documents, resulting from inter-service consultations across the Commission and adopted by the Commission as a collegiate body. He did not see DG Competition as a separate entity.
He replied to some of the points in Mr Kempter’s speech. He said that people should not assume that the Commission simply wanted to lower standards, for instance on access to the profession. The Commission was concerned only where access standards were excessive. He thought the professions should ask themselves whether certain services could be out-sourced, for instance whether legal advice could be provided in certain circumstances by professionals not enrolled in the bar. The professions should also ask themselves what regulation was appropriate in relation to consumer protection, free choice of professional, and the maintenance of high standards.
Finally, in relation to fixed prices and the argument that they were necessary to run a cross-subsidisation scheme, he asked whether a German law office was obliged to take on all cases regardless of their profitability.
Fritz-Eckehard Kempter said that there was no reason to refuse cases. In some cases, nothing at all was earned by the lawyer, and there was a maximum cap on highest earnings. The ethic among lawyers was that, if someone needed help and verifiably had no money, that person would be helped, even if the amount being pursued was very small.
Rüdiger Dohms doubted nevertheless whether this background was sufficient to justify strong price regulation, such as fixed minimum tariffs.
Anne-Marie Sigmund began to wind up the session. She said that it did not appear that the IHS study should become a reference point, although it seemed that that had happened. Nevertheless, out of the interesting discussion, it was clear that there were some further points to be explored, maybe in a smaller setting.
Gerhard Ben-Ibler stressed again that in Germany and Austria there were no grounds to turn down clients on grounds of financial resources, if the case was worthy to be pursued. He did not want this ethical practice to be eliminated because of commercial considerations.
Rüdiger Dohms repeated that excessive restrictions like price systems needed to be examined critically also because of their tendency to impact on access to justice. Deregulation in this instance might lead to lower prices. He wanted stronger proof of the obligation on lawyers to take on all cases regardless of the resources of the client or the value of the subject matter of the litigation.
Fritz-Eckehard Kempter pointed out that, when fee scales for notaries in the Netherlands were removed, their prices rose by 30%.
Ulrich Oesingmann asked whether quality was important to the Commission.
Rüdiger Dohms said that it very much was. But the question here was whether fixed minimum prices guaranteed quality. He cited the Advocate General in Macrino and Cipolla who had made perfectly clear that fixed minimum prices were wholly unsuitable to guarantee quality, access to justice or the observance of deontological rules. Quality and compliance with deontological rules were rather guaranteed by supervision by the State and professional bodies, and effective complaint procedures for clients who had been the victims of malpractice.
Anne-Marie Sigmund said that the interesting issues raised could not be solved today, and there should be a discussion about how to take them forward in the future.
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