BUSINESS OPINION:JUSTICE BRIAN McGovern struck a chord last week with his comments about certain professionals "feasting on the carcasses" of insolvent and semi-solvent companies.
He made his comments after approving a bill for €647,000 proffered by Luke Charleton of Ernst and Young for six months work as special manager to Newbridge Credit Union. He may have singled him out, but the point he was making was more general and related to the heads-I-win-tails-you-lose aspect of the accountancy and legal professions.
Without a doubt the same big accountancy and legal firms that did so well during the boom seem to be doing equally well on the way down as they do legal work for the bodies tasked with sorting out the mess. Nama alone paid €9.5 million in legal fees last year.
The counter argument is that once you look past these eye-catching headlines, the legal profession is struggling. Figuring out the truth is difficult in the absence of objective measures of legal cost inflation. Until now.
The National Competitiveness Council’s annual assessment of competitiveness (Ireland’s Competitiveness Scorecard 2012) published this month looked at the issue in some detail, using the Services Producer Price Index, an experimental survey by the Central Statistics Office to try and give greater clarity around prices in the service sector.
It found that professional fees had fallen in almost every sector except “legal, accounting, PR and business consultancy” since 2007.
They had risen by 1.5 per cent in this category while architecture, engineering and technical testing had fallen by 11.8 per cent and computer programming and consultancy prices were down 4.8 per cent. Advertising, media and market research rates fell 4.7 per cent.
But the really interesting bit was when the NCC got the CSO to drill down into legal and accountancy costs. “Whereas accountancy costs have fallen sharply over the course of the recession, legal costs remain more than 12 per cent higher than they were in 2006,” according to the NCC. That said, they seem to have stayed stable throughout 2010 and 2011.
The NCC also put the Irish legal costs in an international context. “Based on the costs of enforcing a contract, legal costs are shown as a percentage of the total claim and are broken down into attorney, court and enforcement fees. Legal costs in Ireland (25.8 per cent of the claim) are significantly more expensive than the overall OECD average cost (19.7 per cent), making it the fourth most expensive location benchmarked, unchanged from 2010. World Bank data suggests that this is driven by relatively high attorney fees.”
Justice McGovern would appear to have been on the right track but perhaps he should have concentrated his fire on the solicitors and barrister in the room as well as the hapless Mr Charleton
Each year the NCC publishes a follow-up to the score board with its recommendations called Ireland’s Competitiveness Challenge and not surprisingly legal costs feature every year.
Real progress had been anticipated last year, following the publication of the Legal Services Bill which introduced reforms effectively mandated by the EU-International Monetary Fund-European Central Bank troika in the 2010 bailout deal.
The bailout agreement called for “establishing an independent regulator for the profession and implementing the recommendations of the Legal Costs Working Group and outstanding Competition Authority recommendations to reduce legal costs”. The Government hit its target of having the Bill published by the third quarter of 2011, but progress has been slow ever since.
The Bill has been fought vigorously by the legal profession, but most of the fighting has been around the creation of the Legal Services Regulatory Authority, which will call time on self-regulation. There has been much debate around the proposals to end restrictive practices in how barristers do their work.
The Bill returns to the Oireachtas in the autumn and a clatter of amendments “perfecting” such things as who can be appointed to the regulatory authority are promised. The focus of the Bill is really about the regulation of the legal profession which, without a doubt, needs an overhaul.
The measures proposed should improve competition and bring down costs in the long term.
As a response to a profession that was able to drive up prices by 12 per cent, in the teeth of her worst economic crisis the country has ever seen, while at the same time offering some of the worst value for money in the OECD, it looks inadequate.
