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Does the nature of the entity matter – issues of cross-border entity recognition. Giuseppe Scassellati – Sforzolini. EU Single Market - Liberal Regime ... for Individual Lawyers.

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does the nature of the entity matter issues of cross border entity recognition

Does the nature of the entity matter – issues of cross-border entity recognition

Giuseppe Scassellati – Sforzolini

eu single market liberal regime for individual lawyers
EU Single Market - Liberal Regime ... for Individual Lawyers
  • EU approach is NOT harmonization of regulation, which remains at national level. Circulation is free in principle, giving credit to home country regulation. Restrictions admissible only if in the general interest and proportional. So, the nature of the entity matters and so does effectiveness of regulation applicable to it.
  • EU single market for legal services: has achieved full freedom to practice for individual lawyers (both cross-border and by physical establishment)
    • Directive 77/249 implements freedom to provide cross-border services right in Article 56 TFEU, as interpreted by the ECJ case law
    • Directive 98/5 implements freedom of establishment right in Artice 49 TFEU
      • Individuals who are citizens of an EU member state and hold a professional qualification in an EU member state may establish in any other member state to practice host country law under their home country title.Only requirement is registration with host country bar.
      • After 3 years of regular and effective practice in the host country the migrant lawyer may also obtain the host country professional title (waive-in)
eu single market limited rules for law firms
EU Single Market – LimitedRulesforLawFirms
  • TFEU Treaty freedoms apply also to partnerships and corporate entities. However, EU implementing rules are limited as regards law firms and largely defer to host country rules
  • Law Firms (so-called joint practice): Article 11 Directive 98/5 focuses less on law firms, than on the right of migrant lawyers (under certain conditions having regard to host country law) to (1) establish a branch of their home country law firm and (2) access a form of joint practice existing in the host country
    • (1) One or more lawyers who belong to the same grouping in their home Member State and who practise under their home-country professional title in a host Member State may pursue their professional activities in a branch or agency of their grouping in the host Member State. However, where the fundamental rules governing that grouping in the home Member State are incompatible with the fundamental rules … in the host Member State, the latter rules shall prevail insofar as compliance therewith is justified by the public interest in protecting clients and third parties.
  • However, in light of the EU case law (e.g., Centros)restrictionsbased on legalstructures are lesslikelytowithstandscrutiny
eu directive 98 5 permits membership based restrictions
EU Directive 98/5 Permits Membership Based Restrictions
  • Article 11(5) condones, on its face withoutlimitations, restrictions on firmsincludingnon-lawyers
    • (5) … a host Member State, insofar as it prohibits lawyers practising under its own relevant professional title from practising the profession of lawyer within a grouping in which some persons are not members of the profession, may refuse to allow a lawyer registered under his home-country professional title to practice in its territory in his capacity as a member of his grouping. The grouping is deemed to include persons who are not members of the profession if

- the capital of the grouping is held entirely or partly, or

- the name under which it practises is used, or

- the decision-making power in that grouping is exercised, de facto or de jure,

by persons who do not have the status of lawyer within the meaning of Article 1(2).

Where the fundamental rules governing a grouping of lawyers in the home Member State are incompatible with the rules in force in the host Member State or with the provisions of the first subparagraph, the host Member State may oppose the opening of a branch or agency within its territory without the restrictions laid down in point (1).

  • EU Commissionisconducting a reviewof the Directive. Comments are saidto focus mainly on Article 11
developments in other eu jurisdictions
Developments in Other EU Jurisdictions
  • The CCBE in responsetoan LSB consultationstatedthat a largemajority o memberStates are expectedtoapplyArticle 11(5) toABSs (withoutside capital)
  • French bar openlyopposes ABS and recentlystatedthat ABS do notenjoy the fundamentalfreedoms
    • AFFIRME que les Alternative Business Structures ne peuvent pas être considérées comme des cabinets d’avocats, notamment dans le cas où la majorité du capital est détenue par des non avocats, et, par conséquent, ne peuvent pas bénéficier des libertés d’établissement et de circulation pour s’inscrire à l’un des barreaux du pays d’accueil.
  • German bar (BRAK) opined to the Joint Committee on the Legal Services Bill that “German Rechtsanwälte as well as solicitors and barristers established in Germany would infringe German professional rules if they became a member of such type of an ABS”. (See also ABA’s 2012 reaffirmation of prohibition of sharing fees with non lawyers)
  • Italy hasintroduced ABS (withoutside capital butvotingrightslimitedtolessthanone-third) over the fierceoppositionof the local bar.
eu court has blessed certain membership based restrictions
EU Court hasBlessedCertainMembershipBasedRestrictions
  • According to EU case law, non-discriminatory restrictions to the fundamental freedoms, are subject to a proportionality test
    • “restrictions …. may be justified by overriding reasons relating to the general interest, provided that the restrictions are appropriate for securing attainment of the objective pursued and do not go beyond what is necessary for attaining that objective”
  • However, EU Court of Justice WoutersJudgment (2002) upheld ban on MDPS between lawyers and auditors (not accountants)
    • Dutch bar regulations “designed to ensure the proper practice of the profession …” identify ”the essential rules adopted for that purpose …” as “the duty to act for clients in complete independence and in their sole interest, the duty … to avoid all risk of conflict of interest and the duty to observe strict professional secrecy.” Court concludes that the ban is “… necessary in order to ensure the proper practice of the legal profession, as it is organised in the Member State”
  • ABS with outside capital may be harder still to defend, other than by application of proportionality test, based on rigorous entity level regulation and enforcement
  • Potentially helpful line of case law (e.g., Webb) looking at the extent to which home country regulation already protects the general interest at issue
  • Or possibly building general interest and proportionality into Article 11(5)