Chapter 9

A Survey of MDP in Selected Jurisdictions Abroad

1. Europe

2. France

3. United Kingdom

4. The Netherlands

5. Germany

6. Other European Jurisdictions--Austria, Belgium, Italy, Spain, Sweden, Switzerland

7. Ontario, Canada

8. New South Wales, Australia

9. Conclusions Regarding the Survey

Some advocates of MDP in the United States, in support of their advocacy, point to the existence of MDP abroad.[n1] In addition, some commentators have mentioned that positions taken in the United States will influence positions taken abroad on MDP.[n2] These two factors -- domestic U.S. advocacy based on, and domestic U.S. influence on, MDP abroad -- provide the backdrop for this survey of MDP in selected jurisdictions outside the United States, and are referred to again in the Conclusion at the end of the survey.

The objective in conducting the survey has been to obtain information. Although the survey itself is not intended to favor or disfavor MDP either generally or in some particular form, it necessarily will reflect views expressed concerning MDP, and these views are rarely neutral. To the extent feasible, the survey has been designed to present a balanced picture, but it seems unlikely that every reader will conclude that perfect balance has been achieved.

The survey begins in and focuses principally on Europe, because of Europe’s relative economic importance, because of its variety of on-going experiences with MDP, and because a discussion of Europe can add perspective to other jurisdictions. Another reason for focusing on Europe is that firms now known and sometimes referred to herein as the Big Five (Arthur Andersen, Deloitte Touche Tohmatsu, Ernst & Young, KPMG, PricewaterhouseCoopers) and their predecessors have themselves initially focused on certain European jurisdictions in their quest for MDP.

More particularly, after covering the European Bar Council (CCBE) and the European Commission to provide a Europe-wide perspective to the extent one seems to be available, the survey will turn to France. This country has been chosen as the first in the survey because the Big Five themselves seem to have chosen it as a field of experiment in their attempt to include legal practice in their MDPs.[n3] After France, the survey will turn to the United Kingdom. Although rules on MDP in the U.K. are very much in a state of evolution, the London legal market is undeniably the largest in Europe. The survey will then cover The Netherlands, because it has given rise to litigation over MDP which is now pending before the European Court of Justice. Germany will be covered next and, because it is the largest national economy in Europe and its professional rules are relatively unknown in the United States, it will be covered in some detail.

After Europe as such and the four countries of France, United Kingdom, Netherlands, Germany, the survey will touch briefly on six other European countries (Austria, Belgium, Italy, Spain, Sweden, Switzerland), as well as Ontario and New South Wales. Following the survey, an attempt will be made to set out the conclusions that it seems to support.

1. Europe

a. The European Bar Council (CCBE)

National delegations from the 18 European countries of the European Economic Area represent the legal professions of those countries in a common bar association called the Council of the Bars and Law Societies of the European Community, often referred to by the acronym of CCBE.[n4] For several years it has been considering MDP and taking positions thereon.[n5] On November 13, 1999, in a plenary session in Athens, the 18 delegations unanimously adopted a "Position of CCBE on integrated forms of co-operation between lawyers and persons outside the legal profession" (hereinafter the "CCBE Position on MDP"). The CCBE Position on MDP begins by mentioning competing interests: on the one hand, freedom of initiative, free competition, and social needs and preferences; on the other, the lawyer’s professional independence and duty of loyalty to clients, and the legal profession’s rules on conflicts of interest.[n6] The CCBE Position on MDP then states:

The duty to maintain their independence, to avoid conflicts of interests and to respect client confidentiality are particularly endangered when lawyers exercise their profession in an organisation which, factually or legally, allows non-lawyers a relevant degree of control over the affairs of the organisation. Interests conflicting with the stated duties of lawyers, arising from the concerns of the non-lawyers involved, may then directly influence the organisation’s aims and policies. . . . [T]he interests involved may, viewed by themselves, be legitimate and salutary, rendering their potential influence particularly insiduous.

The CCBE Position on MDP next restates "the legitimate interest in the free pursuit of economic activity," and then adds the following:

[I]t has been advanced that there is a relevant demand on the part of users of professional services, for the forms of service made possible by integrated professional organisations, and that this demand may not justifiably be denied. CCBE observes, however, that there is no actual evidence of the existence of any public consensus as to the desirability or the legitimacy of the forms of integrated co-operation examined here; whilst it is a matter of overriding public interest, that the negative aspects . . . be effectively dealt with.

In the context of "jurisdictions [where] forms of integrated co-operation between lawyers and non-lawyers are permitted," the CCBE Position on MDP addresses "rules on internal partitioning of the relevant organization (colloquially referred to as the use of ‘Chinese Walls’)." According to the Position, "CCBE does not accept that . . . the relevant problems can truly be adequately met . . . [by] the application of rules of the type indicated". The CCBE Position on MDP then concludes as follows:

The legal profession is a crucial and indispensable element in the administration of justice and in the protection available to citizens under the law. . . . . CCBE consequently advises that there are overriding reasons for not permitting forms of integrated co-operation between lawyers and non-lawyers with relevantly different professional duties and correspondingly different rules of conduct. In those countries where such forms of co-operation are nevertheless permitted, lawyer independence, client confidentiality and disciplinary supervision of conflicts-of-interests rules must be safeguarded.

It would seem fair to characterize the CCBE Position on MDP as strongly cautionary. It has been reported as presaging intervention by the CCBE on behalf of the Dutch Bar in the litigation on MDP now before the European Court of Justice (discussed below under The Netherlands).[n7]

On the other hand the CCBE Position on MDP should be considered in light of these three considerations:

• The CCBE neither licenses nor disciplines lawyers. These functions are carried out by national authorities who will have the final word on matters relating to MDP. (In this respect, the CCBE is roughly analogous to the American Bar Association.).
• As expressly recognized in the CCBE Position on MDP (and as will be seen below), various forms of MDP are already permitted in certain European countries.
• Although the United Kingdom delegation to the CCBE (like the 17 other national delegations) voted in favor of the CCBE Position on MDP, the Law Society of England and Wales "reserved its position on the resolution." The U.K. vote for the CCBE Position on MDP was made possible by the other U.K. professional organizations (bars and law societies).[n8] Thus, the position of the English Law Society must be considered separately (see below under United Kingdom).

b. The European Commission

At the level of the staff of the Commission of the European Union, work on MDP has apparently not progressed beyond a section of a 1992 document entitled "Consultation Paper on Joint Cross-Border Practice of Regulated Professions."[n9] The Consultation Paper calls a mixed practice involving more than one profession "problematic," but nonetheless "is inclined to support it [such a mixed practice]." The paper observes that "mixed practices do seem to meet the needs of business. Small firms in particular are often pleased to find a range of services under the same roof."

The paper next mentions problems that have been raised concerning mixed practices:

[In the case of combinations] within the same category of professions [and] especially in the case of broader combinations, the problem of incompatibility between professions will arise. The justification for prohibiting certain combinations is the need to protect the independence of the practitioner, in the interests of the consumer.

Finally, the paper next examines problems arising from differences in the rules as among the member states of the European Union. On the basis of this examination, the paper concludes, "it should not be expected that rules authorizing mixed practices will be easy to apply." As mentioned, this 1992 staff-level paper seems to be the most recent study of MDP that has been conducted within the European Commission.

2. France

a. Introduction

The topic of pluridisciplinarité[n10] (multidisciplinary practice) has been much debated in France, largely because of the prominent position of the Big Five within the legal market in that country. The French Government has been involved in the debate, and at its request Henri Nallet, a former Minister of Justice and a member of the French Parliament, prepared and, in July 1999, submitted a report entitled Les réseaux pluridisciplinaires et les professions du droit (multidisciplinary networks and the legal professions) (hereinafter the "Nallet Report"), which focuses in large part on the Big Five in France.[n11]

Even though the Big Five have established a strong presence in several European countries, they seem to have used the French legal market as a field of experiment in their attempt to include the practice of law in their multidisciplinary networks ("MDPs"). In France (as in certain other countries) the Big Five have included within their MDPs legal practices that remain nominally independent. The Big Five thus practice law in France through "associated law firms,"[n12] each of which is affiliated with one of the Big Five pursuant to arrangements creating the association. During the 1990s, these Big Five legal practices in France grew to the point that they were among the seven largest law firms in that country.[n13]

How did it happen and why did it happen in France? The answer lies in the historical background of the French legal professions and the related process whereby, it has been suggested, France in the 1990s became a "paradise" for the Big Five.[n14] Of particular importance in this connection were the mitigated results of the 1970 reform of the French legal professions -- an attempt by the French authorities to transform a group of legal professions into a larger and more homogenized profession -- which offered an important opportunity to the Big Eight (as they then were) to practice law in France.[n15]

Unlike the United States, where lawyers have essentially formed a single profession with geographical divisions, France has had for centuries (in addition to its geographical divisions) several distinct legal professions.[n16] Among them, the avocat resembles the U.S. attorney with a less extensive mission and reduced prerogatives. The avocats are organized in regional Bars (barreaux) of different size (the largest being in Paris) and follow the rules set by the Bar’s règlement intérieur, the equivalent of a code of professional responsibility. The other traditional legal professions are also organized in and regulated by professional bodies. In addition, statutes designed to facilitate the access of individuals to certain types of courts have generated non-lawyer practitioners in areas of the law covering labor disputes, commercial litigation, social security litigation, and administrative litigation. Before certain courts, individuals may be represented by non-lawyers of their choice who have been formally authorized to do so. Labor unions thus have entire legal departments with members specialized in the representation of employees before the French labor courts, many or all of whom are non-lawyers. Moreover, accountants and auditors also benefit from provisions of the 1970 and 1990 reforms, allowing them to provide their clients with legal advice so long as the advice follows naturally from their basic professional activities. In sum, neither the French avocats nor the traditional French legal professions taken as a whole enjoy a monopoly of the practice of law.

Not only do avocats belong to but one piece of a fragmented legal profession, but also it was not until the 1960s that avocats were permitted to form partnerships having more than five partners.[n17]Historically, therefore, avocats were almost exclusively focused on the traditional litigation-related aspects of legal practice (the judiciaire), and tended not to focus on advice and assistance involving tax, corporate, commercial, and general business law (the juridique).[n18] Prior to 1971, this vacuum was filled in part by a new, unofficial profession whose members were known as conseils juridiques et fiduciaires (legal and tax consultants).[n19]

Although the main legislative goal of the 1970 reform was to enlarge the domain of the avocats and to create a stronger legal profession, and although two secondary professions (avoués près les tribunaux, agréés au commerce) were integrated into the profession of avocat, the 1970 reform failed to integrate the legal and tax consultants into the profession of avocat. On the contrary, the new law created and thus legally recognized the profession of conseil juridique (legal consultant). Thenceforth, the conseils juridiques benefited from a protected title.[n20] They were not avocats and were not allowed to represent their clients before the principal French courts. Rather, they dedicated their practices mostly to business law matters and developed their legal counseling activities, in many cases quite successfully. Under the law, they were professionally organized,[n21] enrolled on a list established by the Procureur de la République (State Attorney), and subject to requirements similar to those required of avocats.

It has been argued that the 1970 reform did not strengthen the French legal profession but rather divided and weakened it to the disadvantage of both the avocats and the conseils juridiques; that the avocat retained the image of a litigator lacking competence in matters involving business and tax law, while the conseil juridique remained a purely French innovation not well recognized internationally and lacking the prestige that accompanies a long tradition and rigorous professional rules.[n22]

Whether or not the 1970 reform strengthened the French legal profession, it did a great deal to strengthen two other categories of legal practitioner in France. One group that benefited consisted of foreign lawyers who were allowed to practice in France as conseils juridiques.[n23] The other group benefiting from the 1970 reform was the Big Eight (as they then were). They started adding legal practice to their activities in France by employing or affiliating with conseils juridiques, who enjoyed complete autonomy from the French Bar. The areas of business and tax law being pursued by the conseils juridiques were those of interest to the Big Eight which, through the conseils juridiques, could develop their legal practices free of supervision by the Bar. At the time the Bar apparently did not react to the practice of law in France by the Big Eight, although (as will be seen) there was a premonition of potential conflict.

Following the 1970 reform, it became clear that further reform was necessary to try once again to strengthen the French legal profession and to adapt it to the challenges of the business-law market. Overall, the avocats had not managed to develop their activities in this market, and by the end of the 1980s only ten firms of avocats comprised at least 60 avocats per firm.[n24] The Paris Bar Association commissioned an inquiry into the situation by a member of its governing body. The resulting report[n25] included (among other proposals) the recommendation that the conseils juridiques and avocats should merge into a single legal profession, subject to a formal undertaking by the conseils juridiques that they would not be part of an accounting firm: "As to the issue of the accountants, the situation must not be left as is, especially considering that several of the accounting firms' principals would automatically become avocats upon completion of the merger of both professions."[n26]

The report and the proposals led to a second legislative reform in 1990. In supporting this second reform, the avocats requested a unified profession that would have a monopoly over the right to give legal advice, to draft legal documents, and to represent clients in court. They achieved only partial satisfaction. The French Parliament merged the professions of conseil juridique and avocat into a single profession which became known as the profession of avocat, but the avocats were not granted a monopoly over legal advice, drafting legal documents, or even representation before the courts. The périmètre du droit (area of professional activity reserved to avocats) was limited from its origin by the right granted to other professionals to give advice in areas regarded by them as ancillary to their principal activities. Banks, insurance companies, unions, and accountants took advantage of this right to handle legal matters that the avocats considered as part of their natural domain.

Furthermore, the French Parliament did not allow the avocats to form partnerships with the other legal professions (the notaires and the huissiers), nor did it merge the avoués or the avocats au conseils into the new profession of avocat, nor did it allow these three professions to form partnerships with each other.^[n27] The legal profession thus remained divided despite the 1990 reform.

While the text of the 1990 reform was still being debated by the French Parliament, debates occurred within the National Association of Conseils Juridiques (the ANCJ)[n28] regarding the issue of MDP. The proponents of MDP among the conseils juridiques wanted to have the ANCJ support a text that would officially authorize MDP in France, but a majority of the ANCJ membership was opposed to this text and its objective. Realizing that they were in a minority, the supporters of MDP left the ANCJ and created their own professional association, which they called Juri-Avenir.[n29]

In an open letter to its members,[n30] the ANCJ opposed the Big Five and the creation of Juri-Avenir. It stated that the sole purpose of Juri-Avenir was to "support the right of law firms to be affiliated with accounting firms," and added that "the quasi-totality of the conseils juridiques oppose this right [because] it would be incompatible and inconsistent with the principle of separation between accounting activities and the legal profession as understood and supported by the ANCJ." Symbolic of this dispute was the issue of "branding" (the use of Big Five names by their affiliated law firms) that was to give rise to much discussion within the French Parliament and, following the 1990 reform, within the new profession of avocat.[n31]

By virtue of the 1990 reform, all persons who were conseils juridiques on December 31, 1991 became avocats on January 1, 1992. This occurred automatically, by operation of law. Therefore, as had been foreseen in 1988,[n32] all conseils juridiques (all partners and associates) working in the legal practices of the Big Six (as they then were) became avocats and members of the Bar (members of the respective Bars having jurisdiction over the geographical areas where they were practicing).

b. The Big Five in France

Subsequent to January 1, 1992, the legal practices of the Big Five in France have expanded at a substantial rate in terms of both revenues and numbers of legal professionals (avocats).[n33] The analysis found in the Contribution Intersyndicale[n34] suggests that the development of these legal practices, while subject to variations, has generally resulted in (1) low net income in terms of revenues, (2) substantial indebtedness, and (3) low net results per partner. Fidal (the legal practice of KPMG), which is the largest law firm in France, can be examined for information bearing on this analysis.

1. Fidal, in September 1998, employed 1,099 avocats, reported gross annual revenues of 1,124,688,000 French francs ("FF"), and a net annual income (after tax) of 11,296,000 FF.[n35] The gross/net ratio thus shows a rather low profitability of 1% of revenues, or about one-tenth of the reported profitability of Clifford Chance in France.[n36]
2. At the same time, Fidal had total indebtedness of 422,177,000 FF and an operating result of 28,509,000 FF in 1998.[n37] Thus, the debt was 37.53% of gross revenues. Since the debt was 14.8 times the amount of the operating result, were this relationship to remain unchanged it would take Fidal over 14 years to reimburse its debt.[n38]
3. In 1997, Fidal had 308 partners and an operating result of 35,470,000 FF after all expenses. The operating result per partner thus amounted to 115,162 FF, as against 2,709,229.83 FF for Clifford Chance.[n39] If Fidal partners received remuneration significantly in excess of their salaries,[n40] the excess was presumably provided by non-Fidal sources in KPMG.[n41] In this event, Fidal partners may have benefited from financial support from the rest of the MDP, which may have been subsidizing Fidal's market share of legal practice.

Another issue that involves legal practice by the Big Five in France relates to "branding," that is, to the usage by a law firm affiliated with one of the Big Five of a name that includes or reflects the name of the Big Five entity itself. The 1990 reform contained two relevant statutory provisions whereby the Big Five (as they now are) officially entered the French legal profession. They are Article 67 of Law No. 90-1259 of December 31, 1990 ("Article 67"), and Article 2, paragraph 4 of Law No. 90-1258 of the same date ("Article 2"). The latter provides that an entity may add, before or after its name, the name or insignia of the association, the group or the professional network, be it national or international, of which that entity is a member, without prejudice to (i.e., subject to) the provisions of Article 67. Article 67 contains two relevant provisions, paragraphs 2 and 3. Paragraph 2 provides that "the companies or groups which existed [before January 1, 1992] may keep their names, even if the name is not constituted by the names of current or former partners." Paragraph 3 then provides that "if [at the time of the reform] these companies or groups of conseils juridiques were affiliated with a national or international network that included professions other than the legal professions, they could still mention their belonging to such a network during a period of five years [starting on January 1, 1992]." [n42]

There are two main interpretations of this provision. One reflects the position of the French National Bar Council and critics of the Big Five, while the other has been developed by the Big Five and to a certain extent by the Bar of Nanterre (Hauts-de-Seine). According to several syndicates of avocats and former conseils juridiques, the debates which took place in the French Parliament over the issue of the accounting firms' relationships with some firms of conseils juridiques show that Parliament had misgivings concerning those relationships. These syndicates consider that Article 67, paragraph 3 clearly represents a limitation on the provisions of Article 67, paragraph 2, as well as on Article 2, with respect to a legal practice affiliated with an MDP. They assert that to permit such a legal practice to continue using the same name (entirely or in part) as one of the Big Five would be completely inconsistent with the prohibition in Article 67, paragraph 3 and with the intent of the French Parliament.[n43] This interpretation finds support in an answer given by a parliamentary leader in the debate in the French National Assembly on December 10, 1990:

What is the situation today? Some firms [groups of conseils juridiques] may refer in their partnership name to the multidisciplinary practice they are part of, which includes that to which we are opposed, the accounting professions. The Government in Article 67, paragraph 3 has given a five-year period for these firms to comply with the law. . . . Within the coming years law firms [sociétés d'exercice libéral or associations] within the new structure set by the law must respect our laws. We have accepted multidisciplinary networks but only to the extent that it is between legal professions [judiciaire and juridique].[n44]

Later, based on this strict interpretation and on a resolution taken by the National Bar Council,[n45] the Paris Bar insisted that PricewaterhouseCoopers Juridique et Fiscal change its name. At various times beginning in 1996, several Bars including the Paris Bar had requested that the legal practices of the Big Five respect the provisions of Article 67, paragraph 3 and modify their respective names.[n46] PricewaterhouseCoopers Juridique et Fiscal, created by the merger of Price Waterhouse and Coopers & Lybrand,[n47] after being questioned by the Paris Bar on the issue of the name of its legal practice, finally announced its decision in October 1999 to change it to "Landwell & Associés"[n48] -- which might be regarded as an acknowledgment by one of the Big Five of the correctness of the strict interpretation of Article 67, paragraph 3.

This decision by PricewaterhouseCoopers was not copied by other Big Five accounting firms in France. Fidal, which is affiliated with KPMG, may not feel as much concerned as Deloitte & Touche, Archibald Andersen, or Ernst & Young, because, unlike these three firms, its name is distinct from that of its affiliated MDP.[n49] As for the remaining three of the Big Five, their legal practices in France are under the jurisdiction of the Bar of Nanterre (Hauts-de-Seine), where they and Fidal represent almost 70% of its individual members, and where members of Big Five legal practices are on the Bar’s governing body (Conseil de l'Ordre). The Bar of Nanterre has not taken action to prohibit a law firm affiliated with an MDP from using the name of the MDP.

Generally speaking, the Big Five consider that paragraph 2 of Article 67 allows their legal practices to retain the respective names of the MDPs with which they are affiliated, and paragraph 3 should not be read as an exception to that principle. The text of Article 67 as enacted was the result of an amendment presented by Jean-Pierre Philibert, who was in 1990 a member of both the National Assembly and of Fidal. Although the National Assembly rejected several of the amendments he presented because they openly would have allowed the Big Five legal practices to retain their names, he also drafted the final version of Article 67. The Big Five have consistently argued that paragraph 2 of Article 67 allows their legal practices to retain their names even when "not constituted by the names of current or former partners," and that the limitation in paragraph 3 applies only to references to the MDP but not to the name of a legal practice itself. In sum, the Big Five never interpreted Article 67, paragraph 3 as an obligation for their legal practices to dissolve any link they had with other Big Five activities (accounting, counseling, and auditing).[n50]

In March 1999, the French National Bar Council adopted a decision on MDPs (réseaux) which requires lawyers in an MDP to use a firm name distinct from the name of the MDP. The decision limits permissible MDPs to those comprising only members of regulated liberal professions; declares auditing and certifying the accounts of a client to be incompatible with the activities of an MDP in which lawyers are members; lays down stringent rules on transparency, setting out information about the structure and operation of each MDP comprising lawyers that must be disclosed to the National Bar Council; requires the MDP to comply with the rules of the legal profession on conflicts of interest; and forbids the MDP to compromise the independence of the lawyer. Reportedly, in April 2000, Fidal commenced litigation in an effort to set aside this decision by the National Bar Council.[n51]

A July 1996 document[n52] describes a common strategy of development by the Big Eight (as they then were). This 1996 plan of action was signed by representatives of each of the eight firms, and its purpose was to address the issue of the "expectation gap" that these firms considered to exist between the mission of accountants and auditors, and their actual performance as it was perceived by clients. Although much of this accountant-oriented document does not refer to legal practice, the document throughout presents the development of multidisciplinary forms of practice as a necessity in order to improve the service of the accountants and auditors and to reduce the "expectation gap." It comments at several places on the role of lawyers as part of an MDP. These comments are concerned with the non-accounting services which the Big Five deem it necessary to provide in addition to, and as a complement to, the classical accounting and audit functions.

The 1996 plan of action seems to be based on one key principle with regard to non-accounting activities, including legal services, within a Big Eight (now Big Five) MDP. Under this principle, the main activities of the MDP are to remain accounting and auditing, and it is to make them more effective that the services of specialists from other areas must be added. Thus, lawyers were regarded as accessories to accountants. The 1996 plan of action made it clear that the MDPs were to be controlled by accountants and auditors, and only by them -- that a given MDP must be majority-controlled, through voting rights and the composition of management, by persons qualified to practice the accounting profession.[n53] In this connection it might be mentioned that, within the Big Five in France, the legal practices are far from being the activity that is most productive of revenues.[n54]

Non-lawyer control of the MDPs has prompted avocats outside the Big Five to claim that avocats surrender their professional independence when entering the Big Five. Recruitment of avocats by the Big Five involves obtaining the views of non-legal professionals. Once inside a Big Five MDP, the avocat may be expected to provide the MDP’s auditors with information that an independent avocat would consider privileged. Portions of the 1996 plan of action suggest that the avocats within the Big Five will be expected to observe the standards of the auditors in supplying the latter with information relating to clients.[n55] The risk for the avocats under the 1996 plan of action is that, being considered as any other service providers and as accessories to the auditors and accountants in an MDP, they will lose their specificity and hence the professional basis in France for attorney-client privilege and for the confidentiality of communications between avocats in the representation of their clients.[n56]

The transformation of the Big Five conseils juridiques into avocats could imply that their legal practices are now being monitored as a result of their passing under the jurisdiction of the Bar. The Big Five are still criticized, however, for lack of transparency regarding the type of structural or contractual arrangements that exist among the members of an MDP, especially between avocats, on the one hand, and non-legal professions such as auditors and accountants, on the other. The Big Five claim that such agreements are confidential and do not fall under the jurisdiction of the National Bar Council; that they are only provided to a local Bar upon official request, provided that they remain confidential. Four of the Big Five[n57] assert that the Bar having jurisdiction over them is fully informed of all existing agreements regarding the structure of their MDPs. They are under the jurisdiction of the Bar of Nanterre (Hauts-de-Seine), which geographically encompasses La Défense, a large business center bordering Paris. Realistically, however, these four are in a position to dominate the Bar of Nanterre and to influence the professional body in charge of monitoring them. The Nallet Report refers to this fact and points out that over two thirds of the members of the Nanterre Bar are employed by the Big Five.[n58]

In managing their MDPs, the Big Five seem to be sensitive to the issue of conflict of interest. "We are being watched constantly by our critics and competitors and by the Bar regarding conflict of interests. More than anybody else we must be extremely cautious," says Gérard Nicolaÿ of Landwell & Associés. It seems that the Big Five attempt to avoid conflicts not only with existing clients but also with potential clients. On the other hand, avocats who criticize the Big Five say that avocats within the Big Five are not free to choose their clients on a traditional basis, and are subject to strategic constraints imposed by Big Five management based on MDP financial considerations. Moreover, it would seem that, even with the best of strategic planning, a Big Five MDP in France would from time to time face a genuine ethical conflict of interest; but no such situation has been documented.

The French National Bar Council, despite criticism of the Big Five among the avocats, must consider the position of the legal profession in France in light of the Bar’s severe economic difficulties.[n59] Many young lawyers, having passed the bar examination, have been forced to delay their entrance into the profession because they could not find law firms willing to hire them and train them during the compulsory first two years of practice as a stagiaire (legal intern).[n60] The Big Five hire many young associates and train them. According to Juri-Avenir, the Big Five from 1991 to 1998 devoted 473,706 hours to continuing legal education, and guaranteed to their associates decent and regular income.[n61] Furthermore, the 1990 reform had given rise to a dispute over the périmètre du droit (area of professional responsibility reserved to avocats). The Big Five distanced themselves from this dispute and presented their MDPs as acceptable and modern alternatives to other avenues of legal practice. The National Bar Council thus came to realize that it had to cope with MDPs rather than to fight them.

By its decision of March 14, 1998,[n62] the National Bar Council officially allowed all avocats to form associations and partnerships with members of other regulated professions including accountants and auditors. The National Bar Council thus officially recognized MDPs, but subject to certain principles, restrictions, and obligations, including the following:

1. To avoid conflicts between the professional rules regulating avocats and auditors, an avocat affiliated with an MDP may not represent, or derive any revenue from, a client of an auditor of that MDP.
2. The avocats affiliated with an MDP must practice under a name different from the name of the non-legal part of the MDP.
3. The conflict-of-interest rules of the legal profession must be applied throughout the MDP, and an avocat may not represent a client if knowledge acquired about another client by anyone in any part of the MDP is likely to benefit unfairly, or to harm, either of the two clients.
4. Most importantly, each MDP is obligated to disclose to its local Bar and to the National Bar Council substantial information concerning the structure of the MDP and relationships between the different bodies and professions within the MDP, their members, their composition, the rules governing their management, administration, and internal elections, their financial structure, the mode of remuneration of the partners, the type of computer system used, existing procedures to preserve attorney-client privilege, and the practices and rules applied within the MDP in order to respect ethical principles and rules of professional responsibility established by the Bar.

Although the March 1998 decision by the National Bar Council was an official acknowledgment by the avocats of the existence of MDPs as legal practitioners and members of the profession of avocat, the Big Five were reluctant to accept many provisions of this decision, in particular those having to do with the monitoring of their structures by a local Bar and especially by the National Bar Council. The Big Five’s professional association, Juri-Avenir, published a response in a document[n63] that was ultimately distributed to all members of the French Parliament. This document not only presents the arguments developed by the Big Five regarding the decision of the National Bar Council, but also attempts to position the Big Five within the French legal profession in a more favorable light than American or British law firms with offices in France.[n64] It quotes the following from a report delivered to the Conference of the Heads of the French Bars in April 1998: "It is the American and British firms established in France rather than the Big Six that promote the Anglo-Saxon legal system in France."[n65] It also states that the offices of American and British law firms in France are totally under non-French control, and that, in contrast, the Big Five's legal practices are French law firms with French assets that decided to join MDPs in order to enhance their development.[n66]

The Juri-Avenir document claims that the National Bar Council does not have jurisdiction to monitor or control any internal MDP agreement or regulation relating to rules of ethics and professional responsibility. It quotes the Minister of Justice during the debates over the 1990 reform to the effect that the National Bar Council was never meant to control the local bar associations. With respect to conflicts of interest, the Juri-Avenir document asserts that there is no example in France of a client's complaint based on a violation of professional secrecy by a member of the Big Five. It also asserts that the avocat within an MDP is not to be held responsible for actions by an auditor or an accountant, and that these professions are "distinct." Regarding the National Bar Council position on the strict incompatibility of the profession of avocat with the mandate of auditors, the Juri-Avenir document argues in favor of a less restrictive interpretation of applicable law. The appropriate test, it says, is whether another professional within the MDP has acted in a manner that would materially impair the objectivity of the auditor. Finally, the Juri-Avenir document asserts that the debate over MDP is misdirected and focuses unjustifiably on issues of ethics that are nothing but attempts to mask the avocats' fears for their future. The Juri-Avenir document blames the constraints imposed by the avocats' professional rules for the lack of progress by the avocats and their loss of business opportunities.[n67]

An overall objective of the Juri-Avenir document seems to be to improve the public image of the Big Five, and to moderate the effect of the term "Big Five" itself, which can seem threatening to small practices. The Juri-Avenir document thus focuses attention on small MDPs that are claimed to involve 800 law firms and 4,100 avocats.[n68] In terms of revenues, however, these small MDPs are in no way comparable to the Big Five, and the Nallet Report (discussed below) deals almost exclusively with the Big Five.

In the realm of professional politics, the Big Five, despite their undeniably strong presence within the French legal profession, have yet to emerge as a national force among the avocats. At the election of the National Bar Council in November 1999, Juri-Avenir obtained two seats[n69] out of eighty. For the time being, therefore, the Big Five may not be able to secure a position on the Board or on a major committee of the National Bar Council.

c. The Nallet Report

It was in the aftermath of the March 14, 1998 decision of the National Bar Council that the Prime Minister of France requested what became the Nallet Report on MDP in France. The context of the report is existing French legislation and professional rules, and policies in Europe. Its purpose is to study if and how considerations of legal ethics can be reconciled with the concentration of several distinct professions in a multidisciplinary practice providing among others legal services to clients. The report describes in some detail the presence in France of substantial law practices under the control of the Big Five. It states as a basic fact that prohibiting MPD in France is out of the question, and it sets forth recommendations for the regulation of MDP in France. In addition, the Nallet Report discusses ways in which French professional organizations and law firms in particular might be given improved access to capital resources.

The report's main recommendations concerning MDP are summarized below.[n70]

1. The report calls for legislation that would define MDPs and authorize the free creation of MDPs so defined. The report would open MDPs to all professions and not just to those that are statutorily regulated. Even so, the report focuses almost exclusively on MDPs of the type created in France by the Big Five.
2. The report calls for the creation of a national commission having jurisdiction over matters of professional ethics involving MPDs (a new Comité national de déontologie des réseaux). This commission would be authorized both to prescribe ethical rules where there were conflicts or gaps in the rules applicable to the professions in an MDP, and to resolve particular ethical cases where existing disciplinary bodies lacked jurisdiction. In principle, this new commission would when feasible apply pre-existing ethical rules and act through pre-existing disciplinary bodies. The report proposes that the new commission have eight members—three from bar organizations, two from audit/accounting organizations, and three from governmental agencies.[n71] (There would thus be one more bar than audit/accounting representative.) The report further proposes that standing to bring matters before the new commission would be limited to those organizations and agencies, other governmental bodies, and firms and entities within MDPs.
3. The report would require that every MDP submit to the new commission, as well as to existing professional disciplinary bodies relevant to the MDP, all agreements and constitutive documents relating to the structure and operation of the MDP. According to the report, any such agreements and documents not so submitted would be void. The report would also give clients of the MDP access to such agreements and documents.
4. With respect to the professions of avocat and auditor, the report calls for the "absolute independence" of each profession from the other. With respect to auditors and accountants, the report would leave it up to the two professions to work out their relationship and, failing that, to have them consult the new commission referred to above.
5. The report endorses the principle of forbidding the sharing of fees between avocats and other professionals in an MDP. The report is unclear as to how, and how far, it would apply this principle, and recognizes that stating the principle does not answer questions relating to the sharing of expenses and the sharing of profits. Again, the report would turn these questions over to the new commission mentioned above.
6. The report calls for the independence of each profession in an MDP with respect to its own professional strategy and management, and the admission of partners.
7. The report touches on three specific questions of professional ethics.
1. As to conflicts of interest, the report, without providing any factual data in support of its statement, says that existing MDPs claim to have adopted detailed and strict rules on the basis of recognized principles and norms, that no significant problems have arisen thereunder, and that it will suffice for these MDPs to make their rules public.
2. As to advertising, the report calls for common rules for all professions in an MDP, including those professions that do not now have any rules, based on the relatively restrictive rules applicable to avocats.
3. As to professional secrecy, the report states that the avocats in an MDP must remain absolutely bound by existing rules of the legal profession.
8. The last eleven pages of the Nallet Report deal with improvements in capital-raising by law firms through passive investment. The Nallet Report thus seeks to further one of the goals of the 1990 reform by strengthening the entities[n72] in which avocats practice as law firms. One such entity, the société en participation (which is a form of partnership) is limited to partnerships between individual lawyers and has had very little success since the 1990 reform. The Nallet Report proposes that juridical persons be allowed to enter into such partnerships in order to help reinforce or create larger, more concentrated structures with greater financial means.

The report also proposes that French law firms be authorized to create holding companies. The purpose is to provide avocats with a structure designed to help them finance their development at the national, European and global levels. The holding company would lend funds to the law firm, and interest would be deducted from the dividends paid by the firm to the holding company. According to the report, this should facilitate the financing by banks and other financial institutions of law firms through such holding companies while preserving the avocats' independence.

The Nallet Report further suggests that French law firms be authorized to issue certificates of investment without voting rights that could constitute part of the firms' capital. The avocats of these firms would retain all voting rights, and their passive investors would collect dividends. Investors would undoubtedly be tempted to put pressure on the avocats in order to make their investment profitable, and this could raise questions under the avocats’ Code of Ethics.[n73]

The Nallet Report also makes significant recommendations for modifications of tax law as applied to law firms, along lines requested by the Paris Bar. The changes would permit the creation of tax-free reserves, and would facilitate a transition to lower levels of taxation. In addition, the report criticizes the existing system applied in most law firms in France whereby senior partners, upon retirement, treat their partnership shares as their own property which they sell to younger partners. The report calls for a different approach to retirement benefits, which would be less burdensome to French law firms and allow them significantly to increase their capital.

At this time, it is unclear whether and how any of these recommendations will be reflected in French legislation and professional rules. The Nallet Report sets out principles but does not provide any detailed guidance for applying those principles. Their implementation will depend on decisions by the French Government.

3. United Kingdom

The legal profession in the United Kingdom is divided functionally between solicitors and advocates/barristers, and geographically among England and Wales, Scotland, and Northern Ireland. Except for the solicitors in England and Wales, the position of the profession is, briefly, to view MDP as problematic -- as posing a serious potential threat to the core values of professional independence, loyalty to clients, and strict rules on conflicts of interest; and these branches of the profession (those other than the solicitors of England and Wales) supported the Position of the CCBE on MDP referred to above under Europe.[n74]

It is the solicitors of England and Wales, however, who, numerically and economically, comprise the most important branch of the U.K. legal profession. Their organization, The Law Society of England and Wales (the "Law Society"), has been recognized for certain purposes by Acts of Parliament, and its practice rules prohibiting MDP were adopted under statutory authority.[n75] Subsequent to the adoption of those rules, however, there has been a change of government in the U.K., and the Law Society may now be seeking to anticipate parliamentary action that would authorize MDP, lest the Law Society find itself with little or no role in handling the matter. In the words of the Council of the Law Society in October 1999,

if the Law Society was not prepared to be proactive in shaping suitable rules and regulations then it might be forced to be reactive. The [U.K.] Government generally took the view that, subject to suitable safeguards, MDPs should be permitted. The Office of Fair Trading was watching the debate with interest and it appeared that there would be new powers relating to MDPs in the Competition Act (in force March 2000).[n76]

A year earlier (October 1998), the Law Society had issued a consultation paper entitled "Multi-Disciplinary Practices, Why? . . . Why not?" This paper had provided solicitors with a 29-page discussion of the Law Society’s prohibition against MDPs, and had said that "central to the debate" was "the fear that MDPs would threaten the independence and separate identity of the profession, and might reduce public access to justice." It had then added that "traditional barriers have begun to break down. Those who oppose MDPs now tend to focus more on the practical problems MDPs may create. There is particular concern about how solicitors in MDPs should be regulated."[n77]

The 1998 consultation paper next set out a history of the debate within the Law Society over MDP, and of the practice rules forbidding it; and pointed out that a solicitor is permitted to provide "business adviser" services, but not legal services, through a separate business entered into with non-lawyers, and to engage in certain activities when acting in a capacity other than as a practicing solicitor. Thus, the consultation paper said, there is a distinction between a practicing solicitor, in respect of whom there are substantial "consumer protections," and the solicitor who is not practicing, in respect of whom "virtually none of the protections apply." The paper then observed: "If we permit MDPs, it may be harder to preserve this clear line between a practice offering full client protections, and a business offering none of the protections offered by a solicitor’s practice."[n78] The consultation paper also mentioned different models for MDPs, and arguments for and against them;[n79] and discussed particular problems such as the handling of conflicts of interest within an MDP,[n80] and whether MDPs might require a new regulatory structure.[n81]

Attached to the consultation paper were nine pages of questions, distributed to members of the Law Society "to obtain [on a confidential basis] the full range of views of solicitors and organisations representing solicitors and other bodies." Recipients were requested to read the consultation paper before responding, and to take into account the views of clients. Although there are about 80,000 solicitors practicing in England and Wales, and 12,000 questionnaires were distributed, the Law Society received only 272 responses to its 1998 questionnaire. The responses have been described as "divided on the subject" and as favoring MDP on the order of 70% to 80% of the respondents.[n82]

Following the issuance of the 1998 consultation paper and questionnaire, the Council of the Law Society created a Working Party on MDP, which met in 1999 on June 17, July 21, and September 9 with the following objective:

To take forward a review of MDPs to ensure that restrictions on the business vehicle/organisation through which solicitors practise, are the minimum necessary in the public interest and do not stand in the way of solicitors’ business development planning.[n83]

The Working Party considered in particular the responses to the Law Society questionnaire (discussed above), and "the conclusions drawn by the ABA Commission on MDPs".[n84]

At its first meeting, the Working Party decided that "the public interest required that the burden of proof [should] be on those who argued for the retention of the current restrictions [on MDP]."[n85] At its second meeting, the Working Party reached seven preliminary conclusions:

• "the ultimate goal should be to allow solicitors who wish to do so to provide any legal service through any medium to anyone, while still providing the necessary safeguards to protect the public interest;
• "the necessary protections fall into two broad groups: core principles of professional practice and key client protections;
• "the core principles are independence, freedom of choice, conflict of interest, confidentiality;
• "the key client protections relate to privilege, indemnity cover, dishonesty cover and complaints systems;
• "the long term goal is likely to require concentration on those public interest protections which can be provided by regulating the individual rather than the organisation, but recognizing that some safeguards may be required from the organisation itself;
• "new client protection issues arise in MDPs, in particular, transparency will be important—the client must know what services have been provided and by whom;
• "achievement of this goal is likely to need legislative change, following consultation with various government departments and other professions."[n86]

The Working Party next proposed that "immediate consideration should be given to developing two interim models [of MDP] . . . without the need for legislation." The two models were called (1) "legal practice plus" -- whereby a firm of solicitors would be permitted to have a minority of non-solicitor partners -- and (2) "linked partnerships" -- whereby an independent firm of solicitors "links with, for example, an accountancy practice" and the "linked partnerships" would be permitted to share fees.

As regards "legal practice plus," the Working Party was of the view that legislation would not be required if the solicitor partners bore "extra responsibilities" and the non-solicitors were required to enter into contracts with the Law Society.

As regards the interim solution of "linked partnerships" which, the Working Party said, "needs further work to see if the ban on fee sharing should only be relaxed in relation to certain specified alliances, or more generally," the Working Party noted that this solution would be used mainly by the Big Five but also might be used by others including, possibly, purely commercial companies. The Working Party then listed three further issues to be explored: (1) passive investment; (2) conflict of duties between lawyers and auditors; (3) legislation.[n87]

The Working Party’s report was taken up on October 13-14, 1999 by the Council of the Law Society which, by an overwhelming majority, substantially adopted the preliminary conclusions mentioned above. In support of so acting, the Council referred to the possibility of Government intervention if the Law Society failed to act on MDP (as discussed at note 76 supra). In addition,

several members [of the Council] made the point that in a developing legal market, it was up to the Law Society to seize the initiative and to formulate an appropriate regulatory framework within which firms could choose to operate within MDPs if they so wished. The introduction of MDPs did not necessarily equate with a loss of independence. Solicitors would still retain certain core values which would continue to identify them.

The Council formally resolved the first of the Working Party’s points -- "that the ultimate goal should be to allow solicitors who wish to do so to provide any legal service through any medium to anyone, while still providing the necessary safeguards to protect the public interest." The Council "noted" the Working Party’s other six conclusions (see above); and said that the interim solutions of "legal practice plus" and "linked partnerships," as described in the Working Party’s report, "should be considered".[n88]

Shortly after the October 1999 meeting of the Council, representatives of the leadership of the Law Society[n89] were of the view that adoption of the "legal practice plus" approach (that is, an approach permitting lawyer-controlled MDPs) should remove certain of the pressures from within the solicitors profession to capitalize on opportunities represented by MDP, pressures brought by solicitors who would like to be able to have partners who were, for example, human-resource practitioners, or environmental practitioners. Accommodating these needs and permitting such non-Big Five MDPs, they said, might also help to reduce pro-MDP pressure by the U.K. Government.

As regards "linked partnerships," they acknowledged that the key question is whether sufficient protections of consumers and professional values can be provided (as mentioned in the Working Party report), and added that the Big Five can be expected to "chip away" at whatever safeguards are adopted.[n90] Once "linked partnerships" are formed with the Big Five, why not with Boots [the drugstore chain], they asked? They foresaw risks involving passive investment in legal practices, and risks relating to conflicts of interest and professional integrity within MDPs. In response to a question, they reacted positively to the idea that a "linked partnership" could be for only a fixed term, subject to renewal with the assent of both parties.

The Law Society’s action regarding MDP has taken place against a background of commentary on the ambitions of the Big Five for legal practice in the U.K.[n91] A subtext, however, has been that, to date, this legal practice has not been of a "top tier" variety in London.[n92] Thus, in addition to the question of what rules will emerge in the U.K. to permit legal practice in the form of MDP, there seems to be a further question focused on the Big Five in particular: will their legal practices come to rival those of the leading London law firms?[n93]

4. The Netherlands

The Netherlands has given rise to the most significant litigation in Europe over MDP. The parties are, on the one hand, the General Council of the Netherlands Order of Advocates[n94] (the "Order") and, on the other hand, individuals and entities acting in connection with the international firms of Price Waterhouse and Arthur Andersen.[n95] At issue are the contemplated integration of a Dutch lawyer named J. W. Savelbergh into Price Waterhouse Nederland, which is a partnership of accountants, and the contemplated integration of a Dutch lawyer named J.C.J. Wouters into Arthur Andersen & Co. Accountants. In respect of Savelbergh/Price Waterhouse and Wouters/Arthur Andersen, the Order, acting through supervisory bodies in Amsterdam and Rotterdam, respectively, had found each contemplated integration to be incompatible with the Order’s rule known as the Cooperation Regulation 1993 (the "Regulation").[n96]

In November 1995, the Order upheld the decisions of the supervisory bodies. Price Waterhouse and Messrs. Wouters and Savelbergh appealed the action of the Order to the District Court at Amsterdam (Administrative Law Section). (The District Court did not accept the appeal by Arthur Andersen because it had not made an intermediate appeal of the supervisory body decision to the Order’s General Council.) In February 1997 the District Court dismissed the appeals,[n97] and the following month Price Waterhouse and Messrs. Savelbergh and Wouters appealed the District Court’s action to the Council of State[n98] (Administrative Division) of The Netherlands. It upheld the District Court on issues of Netherlands law, but referred to the European Court of Justice nine questions of European law, and suspended the appeal pending action by the European Court.[n99] The European Court is expected to issue a decision in late 2001.

Central to the dispute is the Regulation. It was adopted by the Order to govern a particular form of association called an "integrated cooperation" if entered into between lawyers, or between lawyers and persons engaged in professions other than that of law. The announced purpose of the Regulation is to safeguard independent practice by the legal profession, and (in Article 2) it forbids members of the legal profession from incurring obligations prejudicial to the independence of legal practice. It defines an "integrated cooperation"[n100] as

any cooperation in which the participants conduct their practice for their joint account and risk, or share with each other authority over such practice or ultimate responsibility therefor.

Members of the legal profession may enter into an "integrated cooperation" only if its primary purpose is the practice of law, and only if the non-lawyer members of the cooperation are members of a profession that has been recognized by the General Council of the Order pursuant to criteria found in the Regulation.[n101] Moreover, members of the legal profession must refrain from participating in a particular "integrated cooperation" until the General Council of the Order has determined that it complies with the Regulation.[n102]

The General Council of the Order had not recognized accountants as members of a profession with which members of the Bar in The Netherlands could enter into an "integrated cooperation." In contrast, it had recognized tax advisers, notaries, and patent agents as members of professions with which members of the bar could enter into an "integrated cooperation." The principal reasons given by the Order for forbidding an "integrated cooperation" between lawyers and accountants were the following:

• The auditing function of the accountant is a public function calling for an objective assessment of the financial situation of the client, made in the interest of third parties other than the client, and does not involve the right of confidentiality. It is fundamentally different from the function of the lawyer in representing the partisan interests of the client, which does involve the right of confidentiality and places the lawyer in a position of trust independent from third parties. It is likewise fundamentally different from the functions of tax adviser, notary, and patent agent.
• The Regulation (as applied by the Order) does not prohibit lawyers from cooperating with accountants. The sole prohibition is cooperation in the form of an "integrated cooperation" where lawyers and accountants practice for their joint account and risk, and where they share authority over or ultimate responsibility for legal practice.
• The Order was created by statute to act in the public interest. In adopting and applying the Regulation, it has acted in the public interest to assure the independence of members of the legal profession in The Netherlands.

The District Court had upheld the Order on all points of Netherlands and European Law raised by the plaintiffs, and the Council of State affirmed the District Court on points of Netherlands law. As regards European Law, however, the Council of State, as the highest administrative court in The Netherlands, felt constrained to refer to the European Court of Justice certain issues raised by plaintiffs, and to suspend the Dutch proceedings pending a decision by the European Court.[n103] The questions currently pending before the European Court relate to two areas of European law: competition law; and law on the right of establishment.

In the area of competition law, the European Court has been asked whether the Order has violated Article 81 (formerly 85) or 82 (formerly 86) of the Rome Treaty by adopting and applying the Regulation to forbid "integrated cooperations" between lawyers and accountants; that is, whether, in so doing, the Order has acted unlawfully to prevent, restrict or distort competition within the European Union in a manner affecting trade between its member states (Article 81), or to abuse a dominant position in the European Union (Article 82). Central to these issues is whether the Order can claim exemption from these Treaty provisions on the theory that it was created by national legislation to act in the public interest to safeguard the independence of the legal profession in The Netherlands and the duty of loyalty that its members owe to clients, and that the Regulation has been adopted and applied in conformity with this legislation. These issues may turn on the related issues under European competition law of how the Order should be characterized (should it be distinguished from an association of economic competitors?), and whether the scope of authority vested in it by Dutch legislation was appropriate.

The other area of European law raised by questions submitted by the Dutch Council of State to the European Court of Justice involves freedom of establishment and freedom to provide services within the European Union. A threshold issue may be jurisdictional: are the Treaty of Rome provisions in this area applicable to a prohibition found in the internal Dutch Regulation? Here, the plaintiffs will presumably argue that the Regulation has cross-border effects affecting freedom of establishment and freedom to provide services within the European Union. If the European Court accepts this argument, it may refer to its 1995 ruling in the Gebhard case, dealing with the right of establishment of a German lawyer in Italy.[n104] There, the Court made the following statement:

[N]ational measures liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty must fulfil four conditions: they must be applied in a non-discriminatory manner; they must be justified by imperative requirements in the general interest; they must be suitable for securing the attainment of the objective which they pursue; and they must not go beyond what is necessary in order to attain it[.]

In summary, the litigation that has arisen in The Netherlands and that has been suspended pending responses from the European Court of Justice[n105] turns on a narrow but crucial issue: is a national bar in the European Union (here, the Order) entitled to impose a rule (here, the Regulation) under which associations ("cooperations") between lawyers and accountants must stop short of an "integrated cooperation" -- meaning a form of association in which the lawyers and accountants share profits and losses, and in which the accountants share authority over or ultimate responsibility for the practice of law? The Court’s answer to that question should prove relevant to the ability of accounting firms fully to integrate legal practices within themselves, and to efforts by bar groups to place limits on lawyer-accountant associations -- here the effort being to limit them to side-by-side arrangements in which the legal practice is kept separate from the entity that includes the accountants.

5. Germany

a. Summary and List of Defined Terms

The historic background for MDP in Germany was a legal profession that, into the 1970s and to a certain extent thereafter, had been trained mainly in a tradition of preparing persons to become members of the judiciary and of the civil service. It was under-trained for non-forensic activities. As a consequence, some business lawyers also qualified as accountants, or as tax advisers, or as both. Lawyers with multiple professional qualifications traditionally observed formalities whereby they practiced each profession separately.

The German Bar was divided over permitting lawyers to qualify and practice as, or to act jointly with, accountants and tax advisers. The bar associations and practitioners with relatively modest litigation practices were often opposed to these developments, while larger firms in business centers tended to favor them.

The division within the Bar found its way into the courts which, in decisions handed down over the years beginning in 1961, resolved the dispute, on both statutory and constitutional grounds, in favor of lawyers who wanted also to qualify as accountants and tax advisers. Court decisions in the 1960s permitted lawyers to share offices with accountants and tax advisers, and a 1975 decision confirmed that lawyers could form partnerships with accountants and tax advisers. The German Bar changed its rules to conform with these decisions.

Court decisions in 1987, 1989 and 1994 required the rewriting of the German bar association rules governing the legal profession, authorized multi-city law firms, and permitted the practice of law by limited-liability professional corporations. As a result, both the basic German law governing the legal profession and the German bar rules were amended in the years 1994-98.

Under the law and rules as re-written, integrated MDPs are authorized in Germany among lawyers, accountants, tax advisers, and notaries. The law and rules do not authorize other professionals to enter into integrated MDPs with lawyers.

Under German law and professional rules governing the legal profession, an integrated MDP must be in the form of shared offices, or a partnership, or a limited-liability partnership, or a limited-liability professional corporation.

If the MDP is a limited-liability partnership or professional corporation, it must be controlled (owned and managed) by professionals from a given profession. Because an individual may qualify to practice in more than one profession, it is possible for the control requirement to be met in respect of more than one profession. If the MDP is in the form of shared offices or of a partnership, there is no control requirement. A decision on form of practice may turn on control, or on professional tradition, or on questions of management structure, taxation, or professional liability.

There is no compiled information on the make-up of German MDPs that are small in size and that include lawyers. Available information suggests that a high percentage of these small MDPs is controlled by lawyers. In many cases, lawyer control may have its origins in the efforts (mentioned above) by business-law practices to obtain the perceived advantages of also being qualified as accountants and tax advisers.

Of the fifty largest legal practices in Germany (the only practices as to which there is compiled information), forty-five (90%) are either lawyer-only firms or lawyer-controlled integrated MDPs. Four are law firms that have entered into non-integrated MDPs with members of the Big Five. One is a non-lawyer-controlled integrated MDP known as Rödl & Partner.

Each of the Big Five has formed a non-integrated MDP with a German entity in which the professionals are lawyers. The essence of such an MDP relationship consists of the links (contractual or otherwise) between the German legal practice and (1) other entities in that MDP in Germany and (2) certain legal practices and entities outside Germany which are affiliated with that member of the Big Five.

The partnership of Rödl & Partner has expanded rapidly since 1989, particularly in former East Germany which until then lacked a private legal profession. The partners in Rödl are accountants and tax advisers, who control it, and lawyers.

___________________

With respect to Germany, the following defined terms are found in the following footnotes.

b. Historic Background

The context of MDP in Germany has been the gradual evolution of the legal profession in which cases brought before the Federal Supreme Court[n106] and the Federal Constitutional Court[n107] have been the main causes of change.[n108] Until the 1960s, the legal profession seemed to have been nearly static since the beginning of the century.[n109] It was highly regulated and highly restrictive regarding growth and expansion. It enjoyed a nearly complete monopoly on rendering legal advice. For their part, the Federal Bar Association[n110] and the German Lawyers’ Association[n111] were not keen on change.[n112]

In Germany, the lawyer[n113] was and still is defined as an organ of the administration of justice.[n114] Administration of justice is defined as all the functions that are allocated to the judiciary,[n115] and lawyers have thus been viewed as a part of the judicial system.[n116] In a 1974 decision, the Federal Constitutional Court characterized lawyers as occupying a position similar to that occupied by public servants.[n117] That classification of lawyers left its mark on the training of lawyers and their attitude toward different areas of the law. The legal profession’s training was and still is based in large part on the outdated concept of lawyers working in the judiciary and in governmental administration.[n118] In 1975, the Federal Government said of this educational system that it "dates back to the 19^th Century. It was molded by that period’s ideas of the sovereign state, its tasks, and the function of the law."[n119] Legal education was meant to provide "qualifications for becoming a judge or a government lawyer in the higher administrative service,"[n120] and it has focused until recently only on lawyers as judges and civil servants in the administration of the country. Contract drafting and negotiation techniques were not part of the curriculum,[n121] and preparation of the practicing attorney was limited to several months during the mandatory practical training following graduation from law school[n122] when the trainee was required to work at a law firm. This education overemphasized the forensic at the expense of the consultative aspects of the legal profession.[n123]

In addition, tax law was neglected by law school curricula and during the mandatory practical training, despite the fact that tax advice including tax-law advice was always an important subject for business students. Thus, tax advice was provided to a great extent not by the legal profession but by accountants and tax advisers.[n124] The implications of this were far-reaching. As one author put it: "[T]he inability [of lawyers] to tackle tax and accounting problems caused companies -- especially the small and medium-sized ones -- to turn more and more to tax advisers and accountants, even when legal questions were involved."[n125]

Structural deficiencies in the legal profession added to the problem. There was nearly no specialization. Parts of the legal profession were even hostile toward any specialization. An example of such hostility is an article published in 1956 under the heading, "Against the deadly sin of specialized attorneys."[n126] The author was of the view that specialized lawyers can only be amateurs. Most lawyers were single practitioners.[n127] Partnerships[n128] were rare and small. Characteristically, in the one place the German Lawyers’ Act mentioned partnership and cooperation, it was to prohibit certain forms of cooperation.[n129] One of the prevailing types was the two-person-partnership which was just an ersatz for an old-age pension scheme for the more senior of the two.[n130]

In economic centers like Frankfurt and Düsseldorf, the "big" business law firms had more than three partners but seldom more than ten.[n131] There were more partners than associates. These partnerships were often the creatures of individual partners and depended on them for their existence.[n132] A professional rule prevented lawyers from forming partnerships with lawyers in different cities[n133] or from opening branch offices.[n134] Other rules limited their ability to choose freely their residence and place of law office.[n135] The prevailing opinion within the profession was that the provision of legal services depended very much on the individual attorney and his or her personal relationship with the client.[n136]

A 1991 study of public opinion initiated by the German Ministry of Justice, in cooperation with the German Lawyers’ Association and the Federal Bar Association, found that lawyers were perceived mainly as litigators and not as legal advisers; that they were not considered to be sufficiently dedicated to the needs of clients; that they were considered to be lacking in understanding of economic and technical facts, especially with regard to certain industries; and that small and medium-sized companies perceived other consulting professions as being more service-oriented and more knowledgeable concerning certain sectors of the economy and also concerning certain issues affecting individuals.[n137]

Despite these perceived deficiencies, the legal profession has been well protected against competition. Under the Legal Advice Act,[n138] lawyers enjoy a nearly complete monopoly in rendering legal advice and conducting litigation. Although accountants are allowed to render legal advice that is incidental to their work,[n139] and tax advisers may give tax-law advice,[n140] beyond that they are barred from giving legal advice. This monopoly is enhanced by another provision which bars fully-qualified attorneys who are employees of accounting and tax-advisory firms from rendering general legal advice.[n141] This provision allows employees to give legal advice only to the extent that their employers are authorized to do so. Thus, a non-lawyer cannot circumvent the monopoly by employing lawyers.[n142]

The way around these restrictions in Germany has been for one person to combine the professions of lawyer, accountant, and tax adviser.[n143] According to a commentary on the professional rules, edited in 1956, a lawyer who simultaneously practices those three professions should be allowed to use all three professional titles.[n144] In a 1961 decision,[n145] the Federal Supreme Court concurred that "the traditional profile of the legal profession included attorneys who at the same time practiced as accountants and tax advisers."[n146]

In that case, the issue before the court was whether an accountant could be admitted to the Bar although he also wanted to continue practicing as an accountant. The court decided that the two professions were compatible under certain provisions of the German Lawyers’ Act.[n147] The court relied on of the Guidelines for Professional Conduct of Lawyers,[n148] which permit a lawyer to use the title of accountant when acting as an attorney.[n149] The court also relied on the then (1961) new Accountants’ Act and Tax Advisory Act. According to the Accountants’ Act, the practice of accounting is compatible with legal practice.[n150] The Federal Supreme Court concluded that the two professions are of a similar kind and can thus be engaged in concurrently.[n151]

The Tax Advisory Act includes a similar provision, which states that the profession of tax adviser is compatible with certain other professions.[n152] The Federal Supreme Court interpreted that provision to find the profession of tax adviser compatible with the legal profession.[n153] The court based this interpretation on the fact that both tax advisers and lawyers are allowed by law to give tax-law advice. A lawyer is the "competent adviser and representative in all legal matters"[n154] which includes matters of tax law.[n155] The court pointed to other similarities: Both professions are defined as not being a trade or business; both are liberal professions and require higher education at a university; both are governed by similarly strict professional rules and professional organizations.[n156] In a later decision the court also established the compatibility of the profession of tax adviser with that of Anwaltsnotar[n157] (hereinafter "lawyer/notary").[n158]

Based on the opinion that accountants/auditors, tax advisers and lawyers are similar professions, the Federal Supreme Court and Federal Constitutional Court in further decisions opened the rendering of legal advice more and more to forms of cooperation among lawyers, accountants and tax advisers. In these cases, a local bar association was regularly the opposing party. For its part, the Federal Bar Association amended its Guidelines in conformity with those decisions. The first form of cooperation allowed by the Federal Bar Association’s Guidelines was adopted in 1957, permitting lawyers to share offices with accountants.[n159] At that time, however, partnerships could only be formed with other lawyers.

Dual- or treble-qualified lawyers were allowed to cooperate as accountants or tax advisers with other accountants or tax advisers while simultaneously practicing as independent lawyers. In its 1961 decision, the Federal Supreme Court had established that a local bar association could not prevent a lawyer/accountant from practicing as a lawyer on the ground that he or she had formed an accounting firm with a non-lawyer accountant.[n160] The court based that decision mainly on the professional rules permitting simultaneous admissions as lawyer and accountant,[n161] and on the similarity of the two professions.[n162]

In 1968, the court went further, allowing lawyers to share offices with firms of tax advisers and accountants.[n163] A lawyer who was senior partner of a firm that also consisted of several non-lawyer tax advisers and accountants was permitted to practice as a lawyer and allowed to share offices with that firm. The Federal Supreme Court invalidated the provision in the Federal Bar Association’s Guidelines that prohibited office-sharing with tax advisers. The Guidelines were characterized not as legal norms but as principles derived from experience which can be superseded by new developments. Once-banned practices could become legal, especially if there was a change in the law. The judges left open the question whether the Guidelines provision banning partnerships with accountants and tax advisers and office-sharing with the latter still represented the common experience of the legal profession. The court expressed doubts, citing several representatives of the legal profession who were of the opinion that even partnerships between lawyers, accountants and tax advisers were legal. The court held that lawyers could not be banned from sharing offices with tax advisers, and that new clear legal norms would take precedence over the Guidelines in any case. The court observed that the new Tax Advisory Act had established that tax advisers are similar to lawyers.[n164] In the dicta of a 1975 decision, the Federal Supreme Court confirmed the 1968 ruling, especially with regard to the legality of partnerships between lawyers and both accountants and tax advisers.[n165]

Regarding lawyer/notaries, the prohibition of multidisciplinary combinations with tax advisers was not lifted until the late 1980s, with accountants until 1998.[n166] The prohibition on combinations between lawyer/notaries and tax advisers was found impermissible on the ground that a combination between a lawyer/notary and another lawyer who was simultaneously a tax adviser was generally permitted. The Federal Constitutional Court held that a different treatment of professionals who were only tax advisers would infringe upon their right to equal treatment under the German Constitution.[n167] The court said that the differences between tax advisers and lawyer/tax-advisers were not of a kind and significance that would render unequal treatment constitutional. Tax advisers giving tax-law advice were analogized to lawyers.[n168] In its 1998 decision, the Federal Constitutional Court overruled its earlier decisions[n169] banning combinations between lawyer/notaries and accountants.[n170] The court cited a change in the perception of the concept of basic rights, which would require, in the case of the severe restriction of basic constitutional rights and freedoms, Parliament itself to enact a prohibition. The court said that a prohibition against partnerships between lawyer/notaries and accountants would be such a restriction, and that it was no longer permissible to derive the prohibition from the context of the Notary Act and other laws.[n171]

In 1994 and 1998, the court’s rulings were incorporated in the German Lawyers’ Act and the Notary Act, which thenceforth included statutory provisions[n172] explicitly allowing the formation of partnerships and office-sharing as among lawyers, lawyer/notaries, accountants, tax advisers, and patent-attorneys.

The legalization of more and more opportunities to cooperate with other professions was closely followed by the legal profession. On different occasions, like the General Meeting of the German Lawyers’ Association[n173] in Bremen in 1967, the issue was discussed; bar association publications[n174] covered the subject intensively; and it was reviewed by the Professional Rules Committee of the Federal Bar Association.[n175] Comments favoring cooperation were invariably opposed by more cautious voices which in the beginning were against any form of cooperation and later only favored limited change. The main motivation of the pro-MDP advocates was fear of losing market share. Walter Oppenhoff, an influential lawyer from Cologne, voiced this fear when he stated during the main speech at the General Meeting in 1967 that business circles would be looking for reliable and conclusive advice and would not be interested in which title the adviser held. The adviser could be a lawyer, accountant, or anything else, Oppenhoff said. By 1999, Oppenhoff’s firm had become a lawyer -- controlled MDP in which almost 90% of the professionals were lawyers.[n176]

In the discussion following that speech, after stating that the problem was not that urgent for the accountants as they could employ lawyers, another speaker continued: "[T]he legal profession is losing more [market share] the longer it takes to solve the problem, as the client does not care about professional rules but turns to the accountants for advice. They even do that in matters that genuinely belong to the legal profession, like the execution of wills, and the drafting of corporate documents."[n177]

Those two statements evidence a conviction that clients would be interested in integrated services. It was also suggested that those within the legal profession who were against the legalization of MDP would be single practitioners, focusing on litigation, who would not be affected by losses of advisory business.[n178] The pro-MDP advocates belonged and still belong to firms performing mainly legal advisory services related to business law. For them,the MDP question was one of modernization and progress through lawyer-controlled MDPs.[n179] The division within the legal community over MDP was also visible in cases before the Federal Supreme Court and Federal Constitutional Court, in which representatives of different branches of the legal profession opposed each other.[n180]

The professional organizations adjusted their position. Revising his previous general rejection of MDP, the General Manager of the German Lawyers’ Association, Heinz Brangsch, welcomed the Federal Supreme Court decision that allowed office-sharing with tax advisers; stressed that the legal profession should be more proactive regarding reforms and not rely on the courts and legislature to act; and suggested that the profession of tax advisers should be included in the bar associations as this would facilitate the formation of partnerships and shared offices.[n181] The Journal of the German Lawyers’ Association implied as early as 1970 that it was generally acknowledged that a partnership between accountants and lawyers was legal.[n182] The article reported on a joint seminar of the German Lawyers’ Association and the Institute of Accountants[n183] on the legal problems involved in such a partnership.[n184] At a meeting in 1972, the board of the German Lawyers’ Association concluded that the Federal Bar Association should act on the issue of forming partnerships with tax advisers.[n185] In a 1969 amendment to the Federal Bar Association’s Guidelines, lawyers had been allowed to share offices with tax advisers.[n186] In 1970, this had been extended to patent attorneys.[n187] Since 1973, the professional rules have allowed lawyers to form partnerships with both those professions and with accountants.[n188] Regarding the lawyer/notaries, the Federal Bar Association had no jurisdiction over prohibitions derived from the laws regulating the notaries. In the late 1990s, the legislature wanted to reform those laws. At hearings held by the Legal Committee of the German Parliament[n189] on June 25, 1997, both the German Lawyers’ Association and the Federal Bar Association gave a favorable opinion on partnerships between lawyer/notaries and accountants, but the Federal Chamber of Notaries and the German Notaries’ Association were opposed.[n190]

The accountants had been authorized to perform legal services that were directly related to specific accounting assignments.[n191] In 1963, the Federal Supreme Court extended the competence of tax advisers who until then were only allowed to provide help in tax matters[n192]. Since then, tax advisers have also been allowed to provide legal advice as long as it is necessary for the performance of their profession under the particular circumstances. Although neither profession was ever allowed to provide general legal advice, they both were regularly accused of stepping over the line. The result was numerous publicized rulings of lower and higher courts.[n193] Tax advisers have been ordered to refrain from the drafting of contracts as diverse as certificates of incorporation, company purchase contracts, leases, and employment contracts; and there are also several decisions relating to the representation of clients with respect to third parties or in the courts.[n194] Accountants also have been frequently cited for breaches of the Legal Advice Act. In a decision against the Deutsche Treuhand-Gesellschaft ("DTG"), the predecessor of a KPMG entity, the German Lawyers’ Association was the plaintiff. The DTG was ordered to cease and desist from performing surveillance of contract compliance and from litigating in court for breach of contractual duties.[n195] The German Lawyers’ Association resisted the expansion of competing professions into the legal-service sector, seeking to cause the business community to be more thoughtful concerning the risks involved when legal work is assigned to accounting and tax-advisory firms.[n196]

Three further court decisions should be mentioned.

1. A major 1987 decision by the Federal Constitutional Court invalidated the until-then basic regulations of the legal profession, necessitating revisions thereof.[n197] The Federal Bar Association’s Guidelines had been premised on the general duty under the Lawyers’ Act that every lawyer must act conscientiously and be of good moral character.[n198] Reversing earlier decisions, the Federal Constitutional Court held that this general statutory duty no longer sufficed to give legal effect to the Guidelines.[n199] The court said that a constitutional principle[n200] requires that any restriction of a basic constitutional right must be based on a formal legal norm, meaning an act of law adopted by the legislature or, depending on the restriction’s severity, on ordinances or administrative rules of other authorities like government agencies. The latter norms would be valid restrictions only if based on a limited and explicitly delegated rulemaking power.[n201] The court held that the Guidelines were not legal norms and thus could not be used to restrict rights granted by the Constitution -- here the freedom to pursue a profession -- mainly because the German Lawyers’ Act did not include a delegation of true rulemaking power to the Federal Bar Association.[n202] Nevertheless, the court provided for a phase-out period for the Guidelines.[n203]
2. In a second case, in 1989, the Federal Supreme Court applied the 1987 decision by the Federal Constitutional Court. This case challenged the prohibition preventing a partnership from establishing offices in different cities.[n204] The court stated that the professional rule in question could no longer be used to specify the professional duties of lawyers and, furthermore, that the obligations established in the German Lawyers’ Act regarding residence and the location of offices and branches do not disallow multi-city partnerships.[n205] That decision brought about a dramatic change in the German legal profession. Leading German law firms in different cities merged with each other, creating even larger firms.[n206] The decision also made possible what was called the "attack on Frankfurt"[n207] -- the movement whereby foreign law firms started to open German offices, especially in Frankfurt, and to a lesser extent in other German cities. It also caused the emergence of law firms having close relationships with the Big Five accounting firms, which will be discussed later.
3. A third judicial milestone in the development of the legal profession was the decision by the Highest Bavarian Civil Court,^[n208] in 1994, allowing lawyers to form professional limited liability companies.[n209]

c. Current Law

In 1994, the German Parliament revised the German Lawyers’ Act pursuant to the court decisions mentioned above. Besides revising the rulemaking process of the German legal profession,[n210] the Parliament adopted new provisions to authorize lawyers to form (1) multi-city partnerships, and (2) multidisciplinary partnerships[n211] with auditors, tax advisers, and patent attorneys.[n212] In 1998, the legislature adopted laws regarding the Lawyers’ Limited Professional Liability Company,[n213] and the legality of multidisciplinary partnerships between lawyer/notaries and the other professions just mentioned.[n214] In 1996, the Rulemaking Assembly adopted new professional rules[n215] to replace the rules whose basis had been found unconstitutional. Ultimately, the rules governing MDPs derive from statutes based on judicial construction of the German Constitution.[n216]

The different statutes regulating the provision of legal services, accounting services, and tax advice not only permit but also contain restrictions on the formation of integrated MDPs. The legality of cooperation through an integrated MDP depends on the professions involved, and the form of the MDP; and in some cases there are requirements with respect to the holding of capital, voting rights, and managerial authority as between the different professions in the MDP. The different professional codes also contain certain restrictions relating to MDPs.

Members of each of the legal, accounting and tax advisory professions are permitted to share offices,[n217] or to form a partnership,[n218] limited-liability partnership,[n219] or professional limited-liability company,[n220] with members of the other two professions. (While accountants and tax advisers may be permitted to engage in group practice in additional ways,[n221] lawyers, by virtue of the German Lawyers’ Act, are limited to the four forms of group practice specified in the preceding sentence.)[n222] Furthermore, the professional codes include provisions which establish with whom members of the several professions may form integrated MDPs. The applicable provision in the German Lawyers’ Act lists the following as the only professionals with whom lawyers are entitled to enter into integrated MDPs: members of bar associations,[n223] members of the patent bar, certified bookkeepers,[n224] accountants, tax agents,[n225] and tax advisers.[n226] Members of the bar who are also notaries must limit their involvement in integrated MDPs to their lawyer function.[n227] The statutory list is exclusive, and other professionals (such as financial consultants, engineers, architects, environmental experts, insurance agents, real estate brokers) are not entitled to form integrated MDPs with members of the legal profession. In permitting integrated MDPs that include lawyers, the German Parliament limited such MDPs to those comprising the listed professionals (essentially, lawyers, accountants and tax advisers) in order to safeguard rules (such as the rules on confidentiality) designed to protect clients of the legal profession.[n228]

The statutes regulating accountants and tax advisers contain their own rules on the formation of a simple partnership[n229] or a certified firm of either accountants[n230] or tax advisers.[n231] In effect, the applicable statutes permit members of those two professions to form partnerships or certified firms of the respective professions to the same extent that lawyers are statutorily permitted to do so.[n232]

Besides fulfilling certain professional qualifications, the professionals in an integrated MDP must be actively involved in the performance of professional services.[n233] That follows from the underlying legal concept of entities of joint professional activity and the exclusive categories of potential shareholders/partners. Thus, only the statutorily listed professionals are authorized to have capital (equity) participations in integrated MDPs;[n234] moreover, these professionals are not permitted to hold their MDP participations on behalf of third persons.[n235]

MDPs may only be formed by natural persons. Although the rules regulating the accounting profession do not contain this restriction,[n236] such a restriction exists with respect to lawyers and tax advisers.[n237] Thus, MDP partnerships which include either of those professions may not include legal persons as partners.[n238] In addition, the rules on LLPs, as well as on lawyer LLCs and tax-adviser LLCs, state that they can only be formed by natural persons. The rules regulating accountants allows certified accounting firms to be owned by legal persons which are themselves such firms,[n239] but if an MDP is to be recognized as either a law firm or a certified firm of tax advisers, legal persons may not be shareholders therein.

For some forms of integrated MDP, certain requirements must be met as to the professionals holding capital, constituting management and exercising apparent authority. If the MDP is in partnership form and all the partners belong to listed professions, there are no such requirements.[n240] Bar members may thus constitute a minority in the integrated MDP in partnership form and still perform legal services. As discussed below, however, nearly all of the fifty largest German firms offering legal services are either lawyer-only or lawyer-controlled firms. Likewise, tax advisers or accountants may constitute a minority in an MDP in the form of a partnership. Similarly, for the simple limited-liability partnership (LLP), there is no mandatory majority requirement regarding lawyers or accountants or tax advisers.[n241] If, however, an LLP wants to qualify as a certified accounting firm[n242] or certified firm of tax advisers,[n243] certain ratio requirements must be met. A majority of the firm’s partners must be accountants in order for it to qualify as a certified accounting firm.[n244] (Parity is sufficient if the firm consists of two partners.) To be recognized as a certified firm of tax advisers, the firm must have at least as many partners who are tax advisers as it has partners from other permitted professions,[n245] and the tax advisers must retain control of management and authority to deal with third parties.[n246]

An MDP in the form of a limited-liability company (LLC) may act at the same time as a law firm, a certified accounting firm, and a firm of tax advisers, but only if it meets the professional-ratio requirements imposed by statute for each profession. Under the Lawyers’ Act, an LLC is recognized as a law firm only if lawyers hold a majority of the capital and have a majority of the votes and of the managing partners.[n247] For accountants, the LLC requirements are similar to those for the LLP. Thus, accountants must hold a majority of the capital, and have a majority of the votes and of the managing directors (although in the case of an LLC with only two managing directors parity would be sufficient).[n248] The combined effect of these statutory requirements for lawyers and accountants is that an MDP in LLC form can be recognized as both a law firm and a certified accounting firm if some of the shareholders and managing directors have qualified both as lawyers and as accountants.[n249] Put differently, equal numbers of persons qualified only as lawyers and only as accountants could not form an LLC that would be recognized as both a law firm and a qualified accounting firm. The Tax Advisory Act requires that, if tax advisers are in an LLC, they must exercise management authority and responsibility; as to vote, it only requires a majority vote comprising the votes, taken together, cast by qualifying professionals (namely, tax advisers, tax agents, lawyers, accountants, and certified bookkeepers); and it also provides that, under certain conditions, there need only be as many tax-adviser managing directors as there are managing directors from other professions.[n250]

Similar rules apply to multinational multidisciplinary partnerships.[n251] The above-named professionals with foreign qualifications and foreign professional residences can be members of cross-border multinational partnerships, if they meet certain requirements.[n252] Multinational multidisciplinary LLPs and LLCs cannot, however, be admitted as certified firms of tax advisers[n253] or as certified accounting firms.[n254]

The rules on the sharing of fees by lawyers are no obstacle to the formation of otherwise permissible multi-disciplinary entities in Germany. It has long been accepted that sharing fees with non-lawyer professionals (accountants; tax advisers) in such entities is allowed. The concepts of partnership and of LLC MDPs are deemed to imply that fees are susceptible of being shared with the non-lawyer partners or co-shareholders in the MDPs.[n255]

The rules regulating lawyers prohibit a lawyer from belonging, as a lawyer, to more than one entity of joint professional activity.[n256] These rules as they apply to both partnerships and LLCs are interpreted as dealing only with a lawyer’s role as a lawyer.[n257] Thus, a lawyer who had also qualified as an accountant and as a tax adviser could join multiple entities -- one as a lawyer, another as an accountant, a third as a tax adviser.[n258] Accountants and tax advisers may be less restricted than lawyers in this respect, for the extension of the one-entity prohibition to non-lawyer professionals who are associated with lawyers was overruled on constitutional grounds by the BGH.[n259]

In the MDP context, another issue of importance is which regulation of professional conduct applies and how is it enforced.[n260] Although the regulation of professional conduct is not completely uniform, in some respects the lawyers, accountants and tax advisers in an integrated MDP are regulated substantially the same. Lawyers, accountants and tax advisers are subject to similarly strict rules on the protection of client’s confidences. Under criminal law, it is an offence to reveal confidences that were entrusted to those professionals in their professional capacity.[n261] Furthermore, the codes of criminal and civil procedure recognize privileged communications by a client, and the professional’s right to refuse to testify about them.[n262] Unlike auditors in other countries, auditors in Germany are not required to disclose certain audit results to the authorities. All three professions are defined as non-commercial, liberal professions; and all three professional codes stress that professional independ