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On Christmas Eve, 24 December 2009, the Solicitors Regulation Authority (SRA), the body that regulates the conduct of solicitors in England and Wales, intervened in a law firm by the name of Wolstenholmes LLP, based in Cheadle, just outside Manchester, and with branches in Manchester, Birmingham and London.  Intervention means that the SRA effectively closed the firm down.

According to its website, Wolstenholmes was established in 1818.  It provides expert legal advice to both private and commercial customers.  Its team of solicitors specialised in Commercial Property Law, Litigation and Employment Law, Matrimonial and Family Law, Conveyancing and Remortgaging, Road Traffic Accidents, Wills, Trusts and Probate, Bank and Securities, and Personal Injury (on a “no win, no Fee” basis).  Wolstenholmes LLP also practised under the online trade name of “Best Conveyancing”.

The Law Society stated in its press release of 8 January 2010 that the SRA shut Wolstenholmes down “following suspicions of serious financial irregularities, a host of clients who exchanged contracts were unable to complete on the sale or purchase of their home.”  It described Wolstenholmes LLP as essentially a “bulk conveyancing firm”.  Wolstenholmes claimed to be dealing with the conveyancing of £175 million worth of property each month.  It is understood that the firm charged a low fixed-fee for conveyancing; clients spoke of paying £150 deposits.  [Note: there is no scale-fee for conveyancing in England and Wales.  Conveyancers can charge whatever they want.  Further, solicitors do not have the monopoly on conveyancing work.  Licensed conveyancers are also permitted to undertake conveyancing work.]  One of the possible reasons floated by commentators for its serious financial irregularities was the lack of viability of its bulk conveyancing business model.  It was just not sustainable in the long-term.

Another report stated that the Legal Complaints Service (the separate and distinct branch of The Law Society that deal with complaints against solicitors) was dealing with 116 complaints from clients who said that they had lost money.  "The grounds for the intervention were suspected dishonesty and breaches of the Solicitors Accounts and Practice Rules."  In addition, 5 solicitors had their licences suspended pending investigations.

The collapse of Wolstenholmes LLP should make us think more carefully about the freeing up of the conveyancing market in Malaysia, with particular reference to the abandoning of the scale fee and/or doing away with the “no discount” rule.  If we were to embark on that route, law firms in Malaysia will eventually be forced to reduce the fee for conveyancing work to very low rates, if they are not already doing so unofficially.

Proponents of the non-enforcement of the “no discount” rule (or its abandonment altogether) argue that market forces should be allowed to dictate conveyancing fees.  They speak positively of open competition.  However, free-market competition has to be balanced with consumer protection.  A conveyancing fee “free-for all” will ultimately lead to an increase in bulk conveyancing firms, because that is the only way that law firms that rely heavily on conveyancing work will be able to stay in business.  It is a “pile ‘em high, sell ‘em cheap” approach.  If the business fails, as has Wolstenholmes LLP, it is the client who suffers.  This is something that clients unfortunately may not fully appreciate.

An associated issue is insurance.  In England and Wales, the insurance market for solicitors’ professional indemnity insurance is also open.  It is done on a firm basis.  Insurance is therefore offered to solicitors based on their firm’s risk profile, which includes an assessment of their business model.  Risky business models will face increasingly higher insurance premiums to reflect the greater risk.  Under our current scheme in Malaysia, firms that undertake a significant conveyancing practice pay a standard percentage loading for the additional risk attached to conveyancing work.  But all conveyancing firms, regardless of business model, end up paying the same percentage.  The “pile ‘em high, sell ‘em cheap” firms will pay the same loading.  As such, the risk of them going under is in effect borne by the rest of the legal profession.  Firms which do not operate such a business model subsidise these riskier firms.

If market forces are to be unleashed, there has to be an overall consistency of approach.  It cannot be right that only fees are opened up to market forces, and not the insurance to reflect the commensurate risk.

And ultimately, the legal profession in Malaysia will need to take a view on the proper balance to be achieved between pressure emanating from clients for lower conveyancing fees on the one hand, with the potential harm to clients should a law firm fail because of a long-term unsustainable business model.  Competition and consumer protection must go hand in hand.

(Andrew Khoo has just completed an 8-week Commonwealth Professional Fellowship with The Law Society of England and Wales.)