The Law Society: on course for future breaches of UK competition law?

By Diana Johnson, Senior Lecturer, University of the West of England

Case 1249/5/7/16 Socrates Training Limited v The Law Society of England and Wales [2017] CAT 10, 26 May 2017

The Law Society of England and Wales has been successfully sued by a provider of online training, Socrates Training Limited for breach of both the Chapter I and II prohibitions of the Competition Act 1998.

BACKGROUND

The Law Society is an independent professional body which represents solicitors and promotes the highest professional standards. However on 26 May 2017 the Competition Appeals Tribunal (CAT) published a judgment which held that the Law Society had broken UK competition rules over a two year period from the end of April 2015 to date.

The case against the Law Society was brought by Socrates Training Limited (Socrates), who describe themselves on their website as ‘the UK’s leading provider of online compliance courses for law firms’. Socrates primarily provide courses to lawyers and accountants and its flagship course on anti-money laundering accounted for over half of its turnover as at July 2016.

Since early 2015 the Law Society made it compulsory for all residential conveyancing law firms who were part of its Conveyancing Quality Scheme (CQS) to buy the anti-money laundering and mortgage fraud training modules only from the Law Society. Both of these training courses are compulsory for law firms who provide legal services in relation to buying or selling property pursuant to reg 21 of the Money Laundering Regulations 2007 (n.b. these provisions remain in the new Money Laundering Regulations 2017, in reg 24).

In 2015 38% of mortgage lending was by lenders who required CQS accreditation from their panel firms – a significant increase from the 23% of lenders requiring the accreditation in the previous year (para 126 of the CAT judgment). This means that a large and rapidly increasing part of the market for the provision of training courses on anti-money laundering and mortgage fraud was tied up by the Law Society since the end of April 2015.

Socrates claimed that the Law Society’s actions in requiring all CQS accredited law firms to obtain training on these two modules exclusively from the Law Society were in breach of the Chapter I and II prohibitions of the Competition Act 1998. Socrates’ case focused on the Chapter II prohibition.

The prohibition in Chapter II of the Competition Act 1998, which was the main focus of this case, prohibits businesses which hold a dominant market position (normally over 45-50% of the relevant market) from abusing that position. As part of its judgment the CAT held that the Law Society held a dominant market position in the relevant market from April 2015 onwards. The relevant market was defined in the case as being the market for the supply of training courses in anti-money laundering, mortgage fraud and financial crime to law firms. The abusive behaviour that the Law Society was held to have carried out in this case was the tying or bundling of different products together without good reason in breach of section 18(2)(d) of the Competition Act 1998. In this case the Law Society was found to have tied/bundled the purchase of the anti-money laundering and mortgage fraud training courses from itself up with the CQS accreditation.

The Law Society’s defence that it was objectively justified in requiring that the relevant courses must be obtained exclusively from itself was rejected on the basis that (amongst other things) the Law Society’s training courses were prepared independently on behalf of the Law Society and/or commissioned from consultants, in the same way that Socrates might prepare its courses.

Following the judgment, the CAT published an order in which it ordered the Law Society not to oblige CQS accredited firms to purchase exclusively from the Law Society the mandatory training in mortgage fraud, anti-money laundering and financial crime required for CQS accreditation. The Law Society was also ordered to pay Socrates’ costs up to a maximum of £230,000 as well as their costs of mediation (up to £4,000).

ANALYSIS

This judgment against the Law Society is significant for a number of reasons. Most importantly, it has established that the Law Society currently holds a dominant market position in the market for the supply of training courses in anti-money laundering, mortgage fraud and financial crime to law firms. As a result the Law Society will have to be careful not to carry out any actions which could be considered to be an abuse (for the purposes of the Chapter II prohibition) in this market, such as stipulating that all training in this area must be purchased from the Law Society. This will potentially affect other instances of the provision of legal training by the Law Society to its members (i.e. all solicitors in England and Wales) if the Law Society specifies that it must be the sole provider of compulsory training, as this will risk the Law Society being found in breach of competition law again.

Further, this case has highlighted the conflict between the Law Society’s regulatory role and its revenue making activities. The provision by the Law Society of the CQS is in the public interest – the CQS is designed to ensure that residential conveyancing firms operate within the law and have up to date training in relevant areas, including those required by law (such as the anti-money laundering training). Acting in the public interest is part of the Law Society’s raison d’etre, as stated at the end of its press release for this case (see below). However, the Law Society’s commercial activities have been shown in this case to come into conflict with it acting in the public interest. The Law Society will have to keep any such areas of possible conflict under careful review in future, to avoid breaching competition law again.

In a press release about the case on 26 May the Law Society said that it will “look again at the training elements of its Conveyancing Quality Scheme (CQS) in response to a ruling by the Competition Appeal Tribunal”. The press release states that each of the training modules for the Law Society’s CQS that were considered by the Competition Appeal Tribunal have now been withdrawn by the Law Society. This exceeds the requirements of the CAT’s Order, which were simply that the Law Society must stop obliging the CQS accredited firms to purchase the mandatory courses exclusively from the Law Society.

Law Society President Robert Bourns said: “We are grateful to the tribunal for their guidance on changes to CQS that they make in their ruling and we will be looking at their comments as a matter of priority in the coming days.”

Bernard George, Director of Socrates said in a press release: “I hope this case will prompt some reflection at the Law Society, including a reappraisal of the structure and objectives of the CQS, and of the Society’s governance”.

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