BY HERMAN OMITI
On February 20, 2015, the Law Society of Kenya indicated through a newspaper report (Daily Nation, P.15) that it had sought information from the Capital Markets Authority regarding undercutting by Advocates. The LSK reported that some of the areas majorly affected by undercutting included bonds, rights issues, IPOs, mergers, banks and also government offices. According to the LSK, the information sought should lead to the arrest and prosecution of the lawyers involved in the “malpractice.” The society indicated that there have been numerous complaints on the matter, prompting them to take action.
In what would be seen as a quick rejoinder to the LSK’s report, the Competition Authority of Kenya (CAK) put up a newspaper advert on the Standard (February 24, 2015) regarding professional rules of association. In its advert, the CAK indicated that pursuant to section 5(2) of the Competitions Act (hereafter referred to as the Act), its provisions take precedence over all other statutes in all matters concerning competition and consumer welfare.
The notice also indicated that the CAK is empowered under section 29 of the Act to exempt the rules of a professional association from the relevant provisions of the Act for a specific period of time, if having regard to internationally applied norms, any restrictions contained in those rules have the effect of preventing or potentially lessening competition indispensable to the maintenance of professional standards, or the ordinary function of the profession.
Obviously the LSK was aware of the above provisions of the Competition Act even before giving its report. This then raises the question whether the LSK chose to simply and conveniently ignore the law and purport to pursue and punish advocates for undercutting, or if it interpreted the law to mean that despite the provisions of the Act, the Remuneration Order is still enforceable with respect to undercutting.
A quick look at most professional bodies that regulate the manner in which its members conduct business, especially service providers like accountancy, medicine, audit, engineering, etc., it seems the legal profession stands out in terms of regulating what its members can charge for the services they render, particularly on putting a bench mark on the fees chargeable.
The Advocates Remuneration Order as amended by the Advocates Remuneration (Amendment) Order 2014 (hereafter referred to as the Order) stipulates the minimum fees that an advocate can charge for services rendered in a particular transaction. The amount charged varies depending on several factors, including but not limited to the nature and kind of service rendered, mainly the complexity of the matter, the value of the subject matter and even the period of time taken to complete the work. An advocate who charges fees below the minimum fees provided under the Order is guilty of professional misconduct and is liable for disciplinary action.
There have been protracted debates on whether or not this is good practice or whether the LSK should set both minimum and maximum fees chargeable, or, better still, whether the legal profession should do away with any regulations on fees and let market forces determine what advocates charge for their services. This debate went a notch higher with the enactment of the Competition Act, Cap 504 of the Laws of Kenya, which sought to regulate among other things, competition in trade both in good and provision of services.
Those opposed to putting a minimum threshold on the fees chargeable by legal practitioners have argued that this requirement and practice violate consumers’ rights under both the Constitution and Competition Act, since it does not promote competition at all. In their view, as things stand, those who cannot raise the minimum fees chargeable are automatically denied access to legal services and consequently denied access to justice. Some have also argued that placing a floor on the fees chargeable amounts to restrictive trade practice, which is oppressive.
The Competition Act is meant to, among other things, promote and safeguard competition in the national economy, protect consumers from unfair and misleading market conduct, and to provide for the establishment, powers and functions of the Competition Authority and the Competition Tribunal.
The object of the Act is to enhance the welfare of the people of Kenya by promoting and protecting effective competition in markets, and preventing unfair and misleading market conduct. This object is to ensure, inter alia, that there is increased efficiency in the production, distribution and supply of goods and services, promote innovation, maximise the efficient allocation of resources, protect consumers, bring national competition law, policy and practice in line with best international practices, and promote the competitiveness of national undertakings in world markets.
From the purpose and object of this statute, it is clear that it applies to all sectors provided that they deal with consumers. Section 5 is the application provision of the Act. Section 5 (1) provides that the Act applies to all persons, including government, state corporations and local authorities in so far as they engage in trade. Section 5 (2) declares the Act supreme over all other legislations on matters competition and consumer welfare. It provides that “Where there is a conflict between the provisions of this Act and the provisions of any other written law with regard to matters concerning competition, consumer welfare and the powers or functions of the Authority under this Act, the provisions of this Act shall prevail.” Thus, in view of this provision, the Act takes precedence over the Advocates Act and all the Regulations made under it in so far as competition and welfare of consumers of legal services are concerned. The LSK cannot therefore simply pretend to ignore this Act in its efforts to enforce the Advocates Act and the regulations made thereunder.
This does not mean however that there is still no need for the LSK to regulate fees chargeable by its members. Those opposed to the regulation of fees chargeable by legal practitioners make several assumptions, wrongfully so, in my view. On the issue of denial of access to legal services, the opponents of the regulation do not appreciate the flexibility of legal practice. Advocates are not prohibited from taking pauper briefs and offering pro bono services where necessary. In fact they are always encouraged to do so in deserving cases. An advocate, therefore, has an option to either charge fees as required by law or to provide pro bono services where necessary.
On the question of trade restriction, the argument put forward has been that this kind of regulation forces advocates who would otherwise charge lower fees in appropriate cases for the same service rendered to charge higher fees. As I have already pointed out above, legal practitioners have the option to either charge fees as required by the LSK regulations or to provide pro bono services in appropriate cases. The argument also assumes that it only takes the freedom to charge fees at the very minimum that would make legal practice competitive. This, in my view is not accurate; the legal profession is one of the most competitive service providers in this country, and the regulation of fees chargeable only balances between its competitive nature and the maintenance of professional standards within the profession.
As things stand now, the Advocates Remuneration Order violates consumers’ rights, but there is still need to regulate fees chargeable by legal practitioners. In view of the Competition Act, however, the Advocates Remuneration Order is obviously in violation of consumers’ rights. The LSK cannot therefore purport to enforce the Order by punishing its members for charging fees below what is provided for under the Order. As it is, there can be no professional misconduct called undercutting. Any advocate can charge any amount they wish and get away with it. This puts the profession in a very tricky situation. The legal profession thrives on the quality of services it offers to its clientele and therefore the need for very stringent regulations which are strictly enforced. Charging fees below the minimum has the likely effect of lowering the quality of services offered. This would have a great negative impact on professional standards.
Some have argued that advocates can charge less and still offer the same quality of services. While this may or may not be accurate, it is plausible that fees charged is most likely proportionate to the quality of service rendered so that those who are not ready or able to offer a certain standard services as required would be ready to take any mediocre offer placed on the table and offer mediocre services in return. I’m not sure if this is the direction the legal profession wants to take.
To remedy this situation, two avenues come to mind. First, the Act provides for exceptions in certain instances. Under section 29, the Act makes exemption in respect of professional rules made by professional associations/organisations. Subsection (1) provides that “A professional association whose rules contain a restriction that has the effect of preventing, distorting or lessening competition in a market may apply in writing or in the prescribed manner to the Authority for an exemption in terms of subsection (2).” Under Subsection (2), “The Authority may exempt all or part of the rules of a professional association from the provisions of Section A of this Part for a specified period if, having regard to internationally applied norms, any restriction contained in those rules that has the effect of preventing or substantially lessening competition in a market is reasonably required to maintain (a) professional standards or (b) the ordinary function of the profession.”
As I have argued in the foregoing, placing a benchmark on the fees chargeable by legal practitioners is one of the surest ways of ensuring that the professional standards within the profession are maintained. Thus the legal profession fits squarely in section 29 of the Act. Despite this window of opportunity, however small it might be, no professional organisation, including the LSK, has taken advantage of it. The CAK indicated in its advert, that no professional Association has so far applied for the exception of their rules and therefore no professional association should purport to enforce any rules which contain restrictions that have the effect of preventing, distorting or lessening competition in any market. This means that the LSK continues to enforce rules on undercharging by advocates in blatant violation of clear provisions of the law. As it stands, the LSK cannot purport to take disciplinary action against any advocate for “undercutting”.
Secondly, for a more permanent solution in my view, the LSK can push to have the Advocates Act amended so as to make it supreme over any other law in matters concerning legal education and the practice of law. This will be a long term solution to ensure that no other legislation purports to make provisions concerning legal practice and that no other body other than the LSK has a say in the regulation of the legal profession. As the law is currently, the CAK has power to exercise some authority and to participate directly in the regulation of the legal profession in the name of competition and consumer protection. It is important to note that under section 29 (4) of the Act, the CAK has discretion to either grant an exemption or reject the application. Subsection (5) provides that “If the Authority considers that any rules, either wholly or any part thereof, should no longer be exempt under this section, the Authority may revoke the exemption in respect of such rules or the relevant part of the rules, at any time.” This means that even if the LSK were to make an application for exemption, the CAK has a wider discretion to either allow or reject the application at the first instance or to later revoke the same.
Whereas I hold the view that one of the best ways of ensuring that professional standards of the legal profession are safeguarded is by regulating fees chargeable by legal practitioners for the services they render, as the law stands now, enforcing any such regulation is unlawful and violates consumers’ rights. The above suggestions would therefore be imperative in this respect. Applying to the CAK for exemption would, in my view be an interim measure for dealing with the situation. However, I believe that amending the Advocates Act to make it supreme in matters legal practice would be the long term solution.