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Pro bono, confusion and funding gaps – mixed messages as Gove meets City firms to discuss a law firm levy

Was it a progressive discussion about boosting pro bono and One Nation values, or an opportunistic attempt to tap the commercial legal profession to fill a funding gap? Or both?

That remains unclear to many of the participants in a packed meeting on Monday (26 October) morning at Clifford Chance’s (CC) Canary Wharf offices between justice secretary Michael Gove (pictured) and a group of leading commercial law firms amid plans floated by the Ministry of Justice (MoJ) to impose some form of levy on City law firms to fund the courts.

Scheduled from 9am to 11am, and hosted by CC senior partner Malcolm Sweeting, well over a dozen major firms were present, including all of the Magic Circle and a raft of US firms. The City of London Law Society (CLLS) chair Alasdair Douglas led several discussions, while Law Society vice president and TLT senior partner, Robert Bourns, was also present.

Documents seen by Legal Business show the meeting’s agenda listing as expected attendees parliamentary under-secretary for courts and legal aid, Shailesh Vara and Mr Justice Knowles.

The meeting comprised a mixture of senior management and pro bono specialists at major UK law firms, including the entire Magic Circle, as well as White & Case, Fieldfisher, Ropes & Gray, Reed Smith, Simmons & Simmons, Travers Smith, Shearman & Sterling, DAC Beachcroft, Stephenson Harwood, Herbert Smith Freehills, Hogan Lovells and Ashurst.

The meeting had been tabled for weeks in response to a speech in June by Gove that called for large law firms to commit more to the justice system, though the discussion was in theory positioned as a pro bono debate organised by the CLLS.

Douglas spoke on London as a leader for legal services, while Gove discussed ‘One Nation Justice’ and the ‘contribution of the legal profession’.

Rightly or not, it is generally believed by City law firms that the MoJ deliberately last week briefed The Times ahead of the meeting on the possibility that the MoJ would try to impose a 1% levy on the top 100 largest law firms as a means of generating funds to invest in the courts and replace a controversial criminal court charge on guilty defendants.

Legal Business has spoken to half a dozen of the participants in the meeting, in which Gove reportedly conveyed his concerns over the emergence of a two-tier justice system and the reality of a funding gap faced by the MoJ thanks to Treasury constraints.

A number of the City firms argued that a tax or levy would be unworkable and a highly unconventional attempt to impose an additional tax on one industry. Others in the meeting pointed out that only a relatively small part of City firms’ revenues were related to the courts, that large law firms are major tax contributors and that law firms already make significant and escalating contributions to pro bono. It was also pointed out that law firms play a major role in training junior lawyers, many of whom go on to work in other areas.

Other problems caused by such a levy include whether it was imposed on barristers, foreign law firms operating in the UK or the growing band of alternative service providers. A number of lawyers believe such a policy would be open to a legal challenge.

Critics of the move have already pointed out that the full distribution model means firms already make a larger contribution to taxes than most other industries.

Rough estimates as to what the top 100 firms already pay in total are between £3bn and £4bn, according to Colin Ives, a senior professional services tax partner at BDO. He says: ‘It’s a very big number. Where Gove is coming from, lawyers are in a privileged position in that they practise English law and therefore should pay for the less well-financed parts of English law. There’s hundreds of reasons to suggest that’s complete nonsense.’

The meeting was described as unclear about its purpose by a number of attendees, though several senior lawyers have indicated that they believe Gove is deploying the threat of a levy in a bid to press law firms to increase their pro bono commitments. The tax levy was not articulated clearly at the meeting, with the focus on pro bono work occupying most of the time allotted.

A senior partner who attended says: ‘We all knew about the levy as a result of the leak to The Times last week and that changed the tone of the meeting, as we originally thought the meeting was to discuss pro bono. The levy prospect coloured people’s thoughts. I get the impression there is going to be more thinking and dialogue before he does introduce anything.’

Commented another attending partner: ‘You could see the pro bono officers in the room were not happy. They know this isn’t the way to encourage the profession to do more.’

On Tuesday night (27 October) more than a dozen partners from City firms attended a private dinner hosted by Gove at Guildhall – an annual event hosted by the City of London Solicitors Company. According to one attendee, the event had been scheduled for months and wasn’t intended to be a re-run of Monday’s pro-bono meeting. However, the nearly-three-hour dinner saw conversation turn to the tax levy, where Gove is said to have made it clear the proposal is likely to happen.

Said one attendee: ‘The mood was similar to Monday – tense – but attempts were made to get closer to the issues on the tax levy and how the government can help City firms as they become more international. Gove is trying to learn his brief. It was straightforward, open and transparent.’

The MoJ said in a statement: ‘The Justice Secretary held useful meetings this week with representatives of the City of London Law Society and partners from various law firms.

‘As the Justice Secretary said in June, we have a two nation justice system at present. The wealthy, international class can access the gold standard of British justice, while everyone else has to put up with a creaking outdated system. Resources are rationed at one end while there are huge rewards at the other. Those who have benefited financially need to do more to protect access to justice for all and we are discussing with the profession how this can be taken forward.’

How this plays out is open to question, though the opinion of most of the City lawyers is that the profession will be viewed as an easy target politically. Nevertheless, there is no doubt that the issue has caused considerable anger and will be a test of whether the commercial legal profession, which has historically avoided conflict with the ministry, will take a tougher line in dealing with the government in future.,