Turning point of Russian legal ‘business’
Russian legal professionals may be allowed to run business. It means that they would be enabled to provide services on a full-scale basis, whereas their clients will enjoy the rights of consumers. It is especially interesting taking into account that an estimated 72,700 professionals are employed in legal services in Russia, according to Justice Ministry Registry. The annual value of legal services to the economy is 96.5 billion rubles ($1.6 billion at the current exchange rate), according to the Russian Federal State Statistics Service (Rosstat).
At present the practice of law in Russia is limited to professional legal assistance services. Colleges, bureaus, law firms are established as not-for-profit organizations that have no right to distribute profit. Some legal professionals believe it is kind of a trick because professional services cannot be performed as a charity work whereas business and competitive market are major drivers for high-quality legal services.
Yury Pilipenko, the president of Russia’s Federal Chamber of Lawyers, said about prospects of turning the practice of law into a business addressing the 10th IBA Law Firm Management Conference held in Moscow on December 2, 2016.
“It is necessary to introduce a new form of organization of legal practice that would allow professionals providing advice to businesses to have successful practice, whereas those who enter the legal services sector might operate as they are accustomed to. It is quite clear that the forms of organization of legal practice set forth in the federal law do not quite meet market requirements. Nevertheless, the issue is discussed, including the possibility to establish limited liability companies on the legal market. From my point of view it is a serious breakthrough,” Pilipenko said.
He compared legal assistance with health care. A considerable amount of medical services is provided by commercial enterprises while medicine on a large scale is not deemed to be a pure business sphere, Pilipenko added. Law firms in Russia may be established as limited liability companies with certain restrictions, e.g. only specialists with a law degree may become stockholders, according to Pilipenko.
First of all, business models may be introduced in corporate law. The major issue here is that corporate law is currently not regulated by Russian legislation. Practically anyone can now provide legal advice or even act on behalf of a business entity in a commercial court. You will only need a law degree to participate in proceedings in administrative cases.
Those specializing in corporate law should have a choice whether to establish a law firm as a business entity (limited liability company, joint-stock company, etc.) or apply for a license to practice law. Licensed lawyers would have limited authority. For instance, a licensed lawyer would not be allowed to be involved in business operations, to provide legal services which are not covered by his/her license, etc. Finally, associations of lawyers would not be able to apply for a simplified taxation scheme.
Clients of licensed lawyers wouldn’t gain much as well except for qualified assistance. In fact they wouldn’t be considered to be clients because lawyers licensed to practice law would not be considered to provide services in the full sense.
Analysis of the court practice shows that clients of lawyers in Russia who complain of the quality of their assistance do not enjoy the rights guaranteed to consumers.
Monopoly for legal services
Meanwhile, there is a proposal in Russia to ban those who have not obtained a license to practice law from participating in court proceedings. At present lawyers without a license can participate in all proceedings, except those in criminal cases.
If this proposal is passed legal professionals would be stripped of an opportunity to run business. They would have nothing to do but apply for a license to practice law.
The issue of business and practice of law is rather controversial, Maxim Semenyako, a partner at Iusland Law Offices, says.
“On the one hand legal profession constitutes a social institute, it does not implicate business activities… On the other hand, developing business is an integral part of life. It would be unwise to refuse acknowledging this by saying that business is incompatible with our status... We should mind that the term “business lawyer” is now applicable to a lawyer who specializes in corporate law. I wouldn’t say we are talking about commercialization of legal services market,” Semenyako says.
“The forms of organization of legal practice that were set forth in a law adapted more than ten years ago are outdated. They do not fit the standards of competitive and comfortable work anymore,” Semenyako adds.
The greater part of Russian legal professionals side with the Federal Chamber of Lawyers, according to survey results.
It is rather difficult to find arguments based on legislative provisions against business models on the legal market, Tatyana Tereshchenko, who heads analytical department at Prime Advice Consulting Group, says. She adds that the federal law "On Legal Practice and Advocacy in the Russian Federation" and the The Code of Professional Ethics of the lawyers do not directly prohibit lawyers to engage in business.
Lawyers in Russia have to overcome legislative shortcomings at the moment, Vyacheslav Garlyupin from Pen&Paper says. It concerns especially big businesses when law offices are established as the branches of commercial entities, Garlyupin adds, pointing out the U.S. where a law firm can incorporate in different business forms.
Maria Mikheyenkova from Dentons law firm also says that regulation of the legal profession in Russia is outdated and does not meet the present-day requirements.
Mikheyenkova believes that legal services are provided to businesses mainly in the form of an expert advice. That’s the sphere in which commercial entities are generally involved, like joint stock companies and limited liability companies, as well as offices of foreign companies.
It appears that there is nothing “criminal” if performance of legal services is regarded as commercial activity, Mikheyenkova says. “We are just speaking about an adequate reflection in the legislation of something that has already happened.”