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Victorian Legal Services Board + Commissioner – Submission in response to Review of Law-

yers Practising Certificate Fees – Discussion Paper

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Review of Lawyers’ Practising Certificate Fees SUBMISSION

In response to

THE VICTORIAN LEGAL SERVICES BOARD + COMMISSIONER DISCUSSION PAPER

Date: 31 March

Contact:

Gemma Hazmi Acting Principal Lawyer, Legal Policy T: (03) 9607 9374 E: [email protected]

W: www.liv.asn.auwww.liv.asn.au

© Law Institute of Victoria (LIV).

No part of this submission may be reproduced for any purpose without the prior permission of the LIV.

http://www.liv.asn.au/





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ABOUT THIS SUBMISSION

The Law Institute of Victoria

The Law Institute of Victoria (LIV) is Victoria’s peak body for lawyers and represents more than 19,500

people working and studying in the legal sector in Victoria, interstate and overseas. The fundamental

purpose of the LIV is to foster the rule of law and to promote improvements and developments in the law as

it affects the public of Victoria. Accordingly, the LIV has a long history of contributing to, shaping and

developing effective state and federal legislation, and has undertaken extensive advocacy and education of

the public and of lawyers on various law reform and policy issues. The LIV also assures the standards and

professionalism of lawyers, including accreditation and specialisation in contemporary legal disciplines.

The LIV welcomes the opportunity to provide its submission on the Victorian Legal Services Board +

Commissioner’s (VLSB+C) Review of Lawyers’ Practising Certificate Fees Discussion Paper (Discussion

Paper). The setting of practising certificate fees (PC fees) is an issue which has a direct impact on the legal

profession, members of the community in Victoria who come in contact with the legal system, those who rely

on the services provided by lawyers and Victoria’s economy more broadly.

The Review

A significant increase in practising certificate fees is being considered by the VLSB+C. The fee increase

options are being reviewed through a Regulatory Impact Statement (RIS) process as part of the impact

assessment of the sunsetting Legal Profession (Practising Certificate Fees) Regulations 2012.

A standard RIS process involves two key stages:

Stage 1: initial consultation

This is being undertaken by the VLSB+C through the release of the Discussion Paper; and

Stage 2: the RIS

The RIS will be prepared by the VLSB+C after consideration of submissions responding to the

Discussion Paper. The Commissioner for Better Regulation will then assess its adequacy with

reference to further submissions.

To date, the LIV has:

1. written to the VLSB+C in 2016 to influence more effective consultation (which has led to the release

of the Discussion Paper), and called for more appropriate lead times for the RIS process;

2. written to the VLSB+C in February 2017 to provide an Initial Report, outlining deficiencies with the

RIS process, the limited scope of the Discussion Paper and requesting a supplementary discussion

paper be provided to address these issues. The LIV also maintained the call for more appropriate

lead times so that both proper consultation and implementation can be undertaken; and

3. undertaken a survey of LIV members seeking information about how the proposed changes would

affect the legal profession. The survey received 769 responses, constituting effective consultation

with PC holders. Analysis of this data has been provided as part of this Submission.

LAW INSTITUTE OF VICTORIA 31 MARCH 2017



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This Submission

This Submission constitutes the LIV’s formal response to the Discussion Paper (Stage 1) and addresses the

questions, and the issues underpinning those questions, in its body. It is based on independent economic

advice, assessment of the proposals against principles of good regulation and member feedback obtained

through consultation with LIV members via the LIV Survey.

The LIV Survey was open to all members who currently hold a PC. This ensured that members were

provided with an opportunity to directly contribute to the discussion of this topic which has significant impact

on their practise of law. The results and individual responses from the LIV Survey, as well as its analysis, are

used throughout the Submission. Comments from members provide useful examples and anecdotal

evidence of the significant issues that would arise, should any of the proposed options to increase PC fees

be implemented. These have been highlighted in the Submission as blue quotations.

As survey respondents provided almost 200 individual comments, not all of them have been included in this

Submission. For completeness and transparency, all verbatim comments are available to view at

https://www.liv.asn.au/Professional-Practice/Compliance/PC-Fee-Increase/Survey-Results.aspx. In some

cases, comments in the report have been edited for typographical corrections.

https://www.liv.asn.au/Professional-Practice/Compliance/PC-Fee-Increase/Survey-Results.aspx




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TABLE OF CONTENTS

About this Submission ......................................................................................................... 2

Executive Summary ............................................................................................................. 6

Glossary of Key Terms ...................................................................................................... 14

1 Introduction ..................................................................................................................... 16

1.1 The 10 principles of good regulation ............................................................................ 16

2 Who Benefits and Who Pays .......................................................................................... 19

3 Whole of System Context ............................................................................................... 21

3.1 History of the PPF and legal regulation ........................................................................ 21

3.2 Total regulatory revenue .............................................................................................. 22

3.3 Cumulative impacts on industry and the economy ....................................................... 22

3.4 Revenue cross-subsidisation ....................................................................................... 23

4 Achieving Genuine Regulatory Efficiency ....................................................................... 25

4.1 Good governance and independent reviews ................................................................ 26

4.2 Value for money ........................................................................................................... 27

4.3 Benchmarking against NSW ........................................................................................ 33

5 VLSB+C Position on Fee Increases ................................................................................ 35

6 Ensuring Effective Processes and Timing ....................................................................... 42

6.1 Full consultation on likely impacts ................................................................................ 42

6.2 Timing .......................................................................................................................... 42

6.3 Implementation ............................................................................................................ 42

6.4 Adopting a risk-based approach .................................................................................. 43

7 LIV Survey Results and Analysis of PC Fee Increase Impacts ....................................... 44

7.1 LIV Survey of Members and Analysis Framework ....................................................... 44

7.2 The Extent of PC Fee Increases .................................................................................. 44

7.3 Flat vs Tiered System .................................................................................................. 46

7.4 What Benefits and Costs need to be Considered? ...................................................... 47

7.5 Why Significant Negative Impacts Occur Regardless of Capacity to Pass on Costs ... 63




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Summary of Findings ......................................................................................................... 65

Recommendations ............................................................................................................. 66

APPENDIX A Survey Methodology and Analysis .............................................................. 67

APPENDIX B LIV Survey ................................................................................................... 69




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EXECUTIVE SUMMARY

The Victorian Legal Services Board + Commissioner (VLSB+C) are proposing significant increases in

Practising Certificate (PC) fees for Victorian lawyers. A Regulatory Impact Statement (RIS) process

pursuant to sun-setting regulations offers several options all of which involve substantive increases.

This Submission by the Law Institute of Victoria (LIV) is in response to the accompanying Review of

Lawyers’ Practising Certificate Fees Discussion Paper (Discussion Paper) released by the VLSB+C and

representing the first stage of the a consultation process under the Subordinate Legislation Act, Rules and

Guidelines (SLA). It includes findings and recommendations.

The LIV has obtained independent economic advice (LIV Initial Report) and undertaken extensive research,

canvassing legal practitioner views on both the likely impacts of the VLSB+C’s proposals and its processes

in assessing those impacts. In particular the LIV has examined threshold requirements under the SLA to

establish both effectiveness of the regulation to be paid for and the efficiency of that regulation. The LIV

contends that:

1. the current legal profession regulatory model in Victoria is not best practice and is measurably

inefficient. Victoria’s regulatory costs are estimated to be 60% more expensive than the costs per

practitioner in New South Wales (NSW);

2. there has been no compelling justification provided for why PC fees should increase;

3. the proposals put forward by the VLSB+C, and the scope of its assessment, are limited to

consideration of the current, inefficient regulatory model with an increased regulatory burden through

substantially higher fees;

4. the size of proposed fee increases are unprecedented. If implemented, they detrimental impacts to

the legal industry and for clients are expected, with measurable negative flow on impacts for the

Victorian economy and key government policies.

5. the current RIS process is deficient. An effective RIS would:

a. be informed by the consultation process (Stage1) and should not be drafted prior to its

completion; and importantly should include representations raised during any consultation

by the LIV as a designated local authority, which has not been evident to date1;

b. ensure relevant information is available to enable informed decision making, including

relevant context such as history, all appropriate revenue sources available for regulation and

current cross-subsidisation;

c. undertake benchmarking to ensure that the optimum level of regulation and regulatory

efficiency is established, and review the current system against this;

d. consider and assess other relevant models of regulation (Australian and international) to

ensure regulatory efficiency is optimised with industry and society, and that economic

burdens are kept to a minimum for a given regulatory outcome;

1 See Section 156 of the Legal Profession Uniform Law Application Act (Vic) and LSB+C correspondence 7 March 2017




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e. provide a full assessment of the likely costs against regulatory benefits;

f. ensure all relevant government departments and agencies are consulted, given the costs to

key government policies; and

g. provide a clear implementation plan for the proposed options ensuring that business

certainty, including financial year budgeting and reducing bill shock impacts, are fully

established. The current process and timing fails to take into account the realities of

conducting business;

Importance of a genuine, comprehensive and balanced RIS process

“Efficient regulation ensures efficient government with a flow on effect to productivity and general

community wellbeing.”2 – Tim Pallas, Victorian Treasurer

Good regulation can provide the framework for a highly efficient and equitable economy, reducing market

failure while allowing both government and the private sector to operate effectively. The RIS process is vital

in ensuring regulation is equitable and efficient, and that overregulation and poor regulatory practices do not

slow the economy or cause significant detriment to specific sectors or industries. As such, a RIS needs to be

undertaken in a comprehensive manner in order to provide evidence-based information for decision-makers

to arrive at well-informed conclusions. The Victorian Guide to Regulation (Guide to Regulation) notes that

the RIS should be a:

“…credible, evidence-based advice that facilitates consultation with the community and helps the

Government determine the best approach for achieving better community outcomes as well as

broader growth and productivity objectives.”3

It is crucial for Victoria’s productivity that a RIS not be used as a vehicle to advance a particular view, but

instead forms the framework for balanced, evidenced-based decision-making. A RIS should not be used as

the basis for increasing the government’s footprint unless there are significant and very clearly delineated

reasons for doing so, due to substantial changes in the environment.

Expectations of RIS decision-makers

The processes and issues raised in the VLSB+C’s Discussion Paper, the LIV’s Initial Report and this

Submission are in some respects unique to the legal industry and bring their own complexities. Those who

lead a RIS process, however are tasked with assessing the adequacy of the RIS in order to make final

decisions on the appropriate level and type of regulation. They need to remain cognisant of the overarching

purpose of regulation which is to increase overall community wellbeing. In doing so, they must consider the

following three core policy considerations:

1. It is expensive for government, and costly for the economy, for government to be where it

does not need to operate

Economic efficiency is enhanced where governments limit their role to where they are genuinely

needed. Attention is required when reviewing regulations to ensure that government regulatory

bodies regulate only to the extent of mitigating market failure4 and that government is not protected

in ways that enable it to unfairly compete or take over beyond the market failure. Any review should

2 Tim Pallas Victorian Treasurer, Victorian Guide to Regulation, Commissioner for Better regulation Victorian Government 2016 pg 3.

3 Commissioner for Better Regulation, above n 1, 3.

4 Market failure can include for example: inequality, productive and allocative inefficiency, monopoly power, missing, incomplete or

unstable markets, de-merit goods, information asymmetries and externalities.




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also examine whether a private sector body could be used as an effective part of the regulatory

system.

2. The review of regulation must continually strive for efficiency gains (not decrease efficiency)

Government legislation, regulation, policy and guidelines must always aim to achieve what is best for

Victoria as a whole, including the efficient operation of government that supports (or, at a minimum,

does not detract from) employment and growth. There must be proper consideration of the cost to

wealth-creation in Victoria through overreach by government departments or other government

bodies. Given increasing budget pressures, decision-makers must guard against the pressure to

misapply government policy to achieve short term budget gains at the cost of good governance,

economic principles and long-term prosperity.

3. The review of regulation should protect against the incentives to overregulate

Government must constantly protect against incentives to overregulate, including vested interests

within the government itself. For example, those that stand to gain from an increased regulatory

burden should not be the ones undertaking a regulatory review. Without this continuous vigilance,

Victoria’s economic growth will slow.

The LIV is dedicated to 10 fundamental principles for good governance and regulation based on Victorian

government policies and international best practice. (See 1.1) The three considerations outlined above are

central to the concerns held by the LIV regarding the analysis and processes behind the current Review.

These may lead to an unsatisfactory RIS and potential detrimental outcomes for the legal profession and the

Victorian economy.

Limitations of the Discussion Paper

The LIV supports a genuine and effective RIS process that delivers relevant information to decision-makers

and stakeholders, as well as achieving optimal outcomes for Victoria. The Review to date overlooks analysis

of several key issues, summarised below. It is essential that the forthcoming RIS addresses the following

issues raised in this Submission in a comprehensive and balanced way:

1. Measuring the true economic benefits of a well-regulated legal system

The Discussion Paper does not give full consideration to the wider benefits of a resilient, robust and

well-regulated legal profession in which all Victorians can have confidence. See, for example, page 5

of the Discussion Paper which limits consideration of the beneficiaries of legal practice regulation to

legal practitioners and their clients. The LIV calls for a comprehensive analysis of benefits, including

the economic and social benefit to all Victorians. Effective analysis of this is crucial in a genuine RIS

process, because it is central to an assessment of ‘who should pay’.

2. Consider whole of system context

An effective RIS process needs to provide all information that decision-makers would require in

order to make an informed decision. To do this, the whole of system context, including fees, all

revenue sources and financial impacts need to be comprehensively assessed. The Legal Services

Commissioner, in his letter to the LIV dated 13 September 2016, refers to achieving “complete

recovery of costs of legal regulation in Victoria” and states that the current system only provides

“[p]artial cost recovery” at 33%. This fails to take into consideration the Trust Account Income as an

appropriate source of revenue to cover the costs of regulation. The Discussion Paper also uses ‘cost

recovery’ as part of its rationale for emphasising PC fees as the most relevant source of regulatory

income. The limitations in this argument are carefully examined in this Submission. The RIS process

should provide clarity regarding how the current system works, the extent of cross-subsidisation

between different revenue sources, including beneficiaries and context, and thorough consideration




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of who currently benefits and pays. For example, the interaction between the Fidelity Fund and PC

fees in Victoria should be clarified and compared with other relevant jurisdictions.

3. Target genuine regulatory efficiency

The Discussion Paper limits the scope of options considered to those resulting in significant fee

increases. Limiting the scope in this way does not support the government’s policy objective of

cutting red tape by using sun-setting regulations as periodic opportunities to identify and achieve

improvements in regulatory efficiency. Page 15 of the Discussion Paper, for example, concludes that

the current regulatory model is ‘efficient’ without consideration of alternative models (implemented

both internationally and in Australia) or undertaking regulatory burden benchmarking with relevant

jurisdictions.

4. VLSB+C’s misconceptions supporting assertion that a fee increase is required

The Discussion Paper’s limited scope does not engender confidence that the VLSB+C have

considered all relevant aspects or other less expensive options prior to commencing the RIS

process. The LIV is concerned that the rationale for fee increases is predicated on a number of

misconceptions by the VLSB+C (listed below), which are explored in greater detail in this

Submission.

a. A fee increase is supported by the Cost Recovery Guidelines (CRG)

This represents a fundamental misconception of the core objective of the CRG and how they

should be applied.

b. Funding stability will be achieved only through additional fee income

The Discussion Paper does not properly consider the actual strength and stability of the

VLSB+C's financial position, as well as those of its administered funds. The LIV analysis

demonstrates, in this Submission, that this argument does not provide a justification for a

significant and detrimental increase in PC fees.

c. Allocative efficiency is achieved and no flow-on impacts will occur

The LIV in concerned that the VLSB+C’s suggestion as to allocative efficiency do not

properly consider actual flow on effects that would occur.

d. Cross-subsidisation of legal aid is required through fee income

The VLSB+C argue that increasing PC fees would leave the Trust Account Income to fund

other areas (potentially Legal Aid, for example). The LIV believes that some cross-

subsidisation can be justified on economic and equity grounds to the extent that it supports

areas that strengthen the social fabric of the legal system. However, full or significant cross-

subsidisation funded from a PC fee increase would be detrimental to the legal system as a

whole.

e. New costs have been incurred by the VLSB+C

Although not discussed in the Discussion Paper, the RIS may suggest that there are now

new costs for the VLSB+C including, for example, trust account compliance audits (see

Discussion Paper page 21). However, these new costs have been relatively minor. Given

the scope for operating efficiencies driven by adoption of new technologies and automated

business processes, it could be argued that reductions in PC fees might be warranted in the

near future.




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5. Full analysis of the negative impacts of fee increases

Negative impacts of price increases on the legal industry will undermine growth and the achievement

of key government policies. The LIV calls for the RIS process to comprehensively consider the

potential and significant detriments to:

a. Victoria’s growth and productivity, including impacts on key productivity drivers such as the

small business sector;

b. Victoria as the preferred place to do business;

c. growing Victoria’s regional economy, centres and suburbs;

d. employment, workplace flexibility, as well as age and gender diversity and other aspects of

diversity of the legal profession; and

e. access to justice and vertical equity (the notion that people with less capacity to pay, should

pay less).

6. Ensuring effective process and timing

The timing of any potential PC fee changes requires careful deliberation and should be

communicated well in advance to enable law practices and sole practitioners to account for any

increase within their financial year budgetary cycle. This is an essential part of providing regulatory

certainty for businesses. Given the proposals for unprecedented increases to PC fees, the increases

could result in ‘Bill Shock’ if implemented without appropriate planning.

Size of proposed increases

The extent of the proposed PC fee increases is unprecedented. Further, the VLSB+C have not outlined the

size of the proposed increases in a clear way. Sub-sections 10(1)(ba) and 12H(1)(c) of the Subordinate

Legislation Act 1994 (SLA) require a comparison of existing and proposed fees, including the percentage

change. In order to provide clarity and ensure the proposals can be considered fully by decision makers,

stakeholders and the community, the LIV has prepared Table 1 below, which underlines the unprecedented

size of the proposed fee increases and a description of the options suggested by the VLSB+C.

This increase is well above any CPI or other related increases, particularly in the absence of information

justifying a need for greater regulation expenditure as detailed in this submission.

In addition, previous increases have not reached close to comparative levels.




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Table 1 – Size of proposed fee increases

PC type

Current fees

(2016-17) $/PC

Option 1

$/PC

%

increase

Option 2

$/PC

%

increase

Option 3

$/PC

%

increase

Option 4

$/PC

%

increase

Without trust

authorisation 344 913 165.4 1033 200.3 456 32.6 517 50.3

With trust

authorisation 509 1,623 218.9 1033 102.9 811 59.3 517 1.6

Total revenue

$million 7.6 21 176.3 21 176.3 10.5 38.2 10.5 38.2

The Discussion Paper effectively only provides two fee increase options on the existing regulatory model. These options involve a total increase in revenue, for the VLSB+C, from PC fees of either 38.2% or 176.3%. Option 1 The $21 million cost of regulation solely recovered from PC fees, using a tiered structure. A tiered structure would mean that those with PCs with trust authorisation would pay more for their PCs than practitioners without trust authorisation, with a proposed fee increase of 165.4% without trust authorisation and 218.9% with trust authorisation. Option 2 The $21 million cost of regulation only recovered from PC fees using a single fee structure. This would mean that all practitioners (regardless of whether or not they have trust authorisation) would pay the same fee, with a proposed fee increase of 200.3% for without trust authorisation PCs and 102.9% for PCs with trust authorisation. Option 3 Recovery of the $21 million cost of regulation 50% from PC fees and 50% from interest generated from solicitors’ and barrister’s clerks trusts accounts paid into the PPF, using a tiered structure. This would mean lower PC fees than the 100% recovery from PC fees option 1. The tiered structure, again, would mean that those with PCs with trust authorisation would pay more for their PCs than practitioners without trust authorisation, with a proposed fee increase of 32.6% without trust authorisation and 59.3% with trust authorisation. Option 4 Recovery of the $21 million cost of regulation 50% from PC fees and 50% from interest generated from solicitors’ and barrister’s clerks trust accounts paid into the PPF, using a single fee structure. This would mean lower PC fees than the 100% recovery from PC fees option 2. This would also mean that all practitioners (regardless of whether or not they have trust authorisation) would pay the same fee, with a proposed fee increase of 50.3% without trust authorisation and 1.6% with trust authorisation.




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Key findings

Based on the Victorian Government’s Guide to Regulation and Cost Recovery Guidelines , survey data and

individual responses provided by LIV members, independent economic advice and assessing the issues

against standard principles of good regulatory practice, the significant PC fee increases outlined in the

Discussion Paper would likely result in:

1 Unacceptable increases in regulatory burden.

2 Negative impacts on Victoria’s productivity, innovation and growth.

3

Reduced competition within the industry, with flow on effects from the reduction in competition among the lower charging (often smaller suburban and regional) law practices to larger practices and businesses.

4 Increased costs for small businesses and individuals seeking legal services.

5

Reduced competitive standing of Victoria as a cost-efficient place to do business (both within and beyond the legal sector).

6 Higher costs for hiring an additional worker in small to medium-sized law practices.

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Reduced legal profession diversity and workplace flexibility, including

a. higher relative costs for self-employed legal practitioners, or those undertaking part-time or casual work at less than full-time hours with consequent impacts on diversity in the legal profession including reduced age, gender and other diversity; and

b. higher relative costs for employers in potentially hiring part-time or casual workers at hours less than full-time, with consequent reduced availability of flexible work arrangements;

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Reduced diversity of legal service provision in the sector, including government, in-house and not-for-profit lawyers unable to pass on the increase in fees to clients or absorb it into department/organisation budgets.

9 Reduced growth potential for Victoria’s regional economy and centres.

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Reduced resilience of a well-regulated legal sector with price pressures providing growth incentives for other areas such as less accountable offshore internet services.

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Reduced financial resilience of regulatory income resulting from a reduction in the number of PCs with (reduced use of Trust Authorisation) or without trust authorisation (reduced number of lawyers overall) depending on which option is adopted.

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Reduced access to justice with fewer lawyers available in certain locations (including suburban and regional), reduced competition at the lower charge end resulting in higher fees for those already struggling to afford legal services, and PC fees passed on to clients as higher legal fees where feasible.




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Recommendations

1 The review process should be undertaken by an independent body

The LIV considers that the VLSB+C is not an appropriate body to undertake this RIS process

because it is arguably conflicted. Notwithstanding the VLSB+C’s role in making recommendations for

the setting of fees under the legislation, it stands to gain directly from increased PC fees. The use of

a conflicted body (who stands to gain from increased regulatory burden) to undertake this RIS

process is inappropriate, against the basic principles of good governance, counter to the Victorian

Public Sector Values5 and does not support government policy to pursue continuous improvement in

regulation.

2 Changes to the regulatory model, or the mix between the Trust Account Income and the PC

fees income, should be revenue neutral

The VLSB+C has not adequately justified the need for a significant increase in revenue. Any valid

justifications presented for future proposals to increase fees would need to be balanced against the

economic and social costs of increased regulatory burden.

3 Current fee units and tiered fees should remain

Unless, as part of a broader review of legal profession regulation in Victoria, there is sufficient

demonstration of efficiency gains under alternative arrangements, there should be no change to the

existing arrangements. Any change in the mix between reliance on Trust Account income and PC

fees should only be as a result of detailed analysis of economic efficiencies and price responses and

should not be used to drive increased revenue for the VLSB+C.

4 A full review of the Victorian legal profession regulatory framework is required

The current regulatory framework for the legal profession in Victoria is not based on international

best practice (or best practice in Australia). A broad review is needed to consider the best regulatory

models for delivering the most satisfactory regulatory outcomes in the most efficient and effective

way. It needs to be adequately resourced, with appropriate lead times.

5 See, for example, Victorian Public Sector Commission, Public Sector Values (1 March 2015) <http://vpsc.vic.gov.au/ethics-behaviours-

culture/public-sector-values/>; Victorian Public Sector Commission, Public Sector Values (22 August 2016)

<http://vpsc.vic.gov.au/resources/conflict-of-interest-and-duty-guidance-for-directors/>.

http://vpsc.vic.gov.au/ethics-behaviours-culture/public-sector-values/


http://vpsc.vic.gov.au/resources/conflict-of-interest-and-duty-guidance-for-directors/




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GLOSSARY OF KEY TERMS

CRG Department of Treasury and Finance (Vic), Cost Recovery

Guidelines (2013)

Discussion Paper Victorian Legal Services Board + Commissioner, Review of Lawyers’

Practising Certificate Fees Discussion Paper(2017)

Fidelity Fund A fund comprising annual monetary contributions from lawyers to

compensate clients for defalcation by solicitors

Guide to Regulation Commissioner for Better Regulation (Vic), Victorian Guide to

Regulation (2016)

General Rules Legal Profession Uniform Law General Rules 2015 (NSW), adopted

in Victoria pursuant to the Legal Profession Uniform Law Application

Act 2013 (Vic)

LawNews Daily online bulletin operated by the Law Institute of Victoria

LIV Law Institute of Victoria

LIV Initial Report The Law Institute of Victoria’s initial response, comprising a letter and

independent economic report, to the Victorian Legal Services Board

+ Commissioner’s Review of Lawyers’ Practising Certificate Fees

Discussion Paper (2017)

LIV Survey The Law Institute of Victoria’s online survey of members in relation to

practising certificate fees issues

LPA1996 Legal Practice Act 1996 (Vic)

LPA2004 Legal Profession Act 2004 (Vic)

LPLC Legal Practitioners’ Liability Committee

LPUL Legal Profession Uniform Law (NSW), adopted in Victoria pursuant

to the Legal Profession Uniform Law Application Act 2013 (Vic)

LPULA Legal Profession Uniform Law Application Act 2013 (Vic)

NSW New South Wales

OECD Organisation for Economic Co-Operation and Development




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PC Practising Certificate

PC Fees Regulations Legal Profession (Practising Certificate Fees) Regulations 2012 (Vic)

PI Insurance Professional Indemnity Insurance

PPF The Public Purpose Fund, which is funded by practitioners’ practising

certificate fees and trust account income. The Public Purpose Fund

is used to cover the cost of regulating the legal industry and funding

public interest entities such as Victoria Legal Aid, the Victoria Law

Foundation and the Victorian Law Reform Commission

RIS Regulatory Impact Statement

SLA Subordinate Legislation Act 1994 (Vic)

Trust Authorisation A class of practising certificate which authorises a practitioner to

receive trust money

Trust Account Income Interest from client money held on trust by lawyers which is donated

to the Public Purpose Fund

Uniform Law Legal Profession Uniform Law Application Act 2013 (Vic)

VLA Victoria Legal Aid

VLF Victoria Law Foundation

VLRC Victorian Law Reform Commission

VLSB+C Victorian Legal Services Board + Commissioner




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1 INTRODUCTION

The Victorian Legal Services Practice Board + Commissioner (VLSB+C) have proposed an increase in

Practising Certificate (PC) fees. The proposed fee increases are substantial. The fee increase options are

being reviewed through a Regulatory Impact Statement (RIS) process as part of the impact assessment of

the sunsetting Legal Profession (Practising Certificate Fees) Regulations 2012 (Regulations). This

Submission has been prepared in response to the VLSB+C’s Review of Lawyers’ Practising Certificate Fees

Discussion Paper (Discussion Paper) and constitutes the first stage in the consultation process.

The Law Institute of Victoria’s (LIV) comprehensive review of the Discussion Paper has raised fundamental

concerns with VLSB+C’s processes and arguments for the introduction of significant increases in PC fees.

The concerns with the Discussion Paper are based on an assessment against key principles of good

regulation as well as regulatory behaviour. This Submission expands on the concerns raised in the LIV’s

Initial Report, including further analysis of likely economic and policy initiative costs.

The costs of inappropriate regulation of the legal profession are likely to be substantial for the profession

itself and, more importantly, the Victorian economy. Following extensive consultation with LIV members,

independent economists and other relevant stakeholders, and after weighing the VLSB+C’s proposed

options against the 10 principles of good regulation (see below), the LIV has formed the view that the extent

of the proposed increases will be detrimental to the legal industry and the Victorian economy. If adopted, the

proposals will also have negative implications for key government policies.

Given the extent of direct and indirect negative impacts, the LIV calls for the VLSB+C to follow best practice

in undertaking its Review of PC fees.

1.1 The 10 principles of good regulation

The following principles of good regulation draw from international best practice, as well as the Victorian

Government’s own policies and guidelines.6

1. Makers of regulation and regulators need to strive for the optimum level of efficiency in making

and administering regulation. The overarching requirement is that regulation should pose minimum

detriment to any one group or the economy more broadly, for a given regulatory outcome.

2. Government should only intervene where there is a market failure, including equity issues, and only

to the extent of that market failure.

3. Regulation should be proportionate to the issue at hand. Market failure should not become an

excuse for excessive regulation.

6 See, f for example, OECD, OECD Guiding Principles for Regulatory Quality and Performance (2005)

<https://www.oecd.org/fr/reformereg/34976533.pdf>; Scottish Government, Five Principles of Better Regulation (6 May 2016) <http://www.gov.scot/Topics/Business-Industry/support/better-regulation/5principlesofBetterRegulation>; Department of Treasury and Finance (Vic), above n 4; Commissioner for Better Regulation, above n 1. or example, OECD Guiding Principles for Regulatory Quality and Performance https://www.oecd.org/fr/reformereg/34976533.pdf; the Scottish Government’s five Principles of Better Regulation May 6, 2016 http://www.gov.scot/Topics/Business-Industry/support/better-regulation/5principlesofBetterRegulation; the Victorian Government’s Cost Recovery Guidelines 2013 and Victorian Guide to Regulation, Commissioner for Better Regulation Victorian Government 2016

https://www.oecd.org/fr/reformereg/34976533.pdf

http://www.gov.scot/Topics/Business-Industry/support/better-regulation/5principlesofBetterRegulation




17

4. Regulation should be simple. It should be simple to understand, simple to administer and simple to

comply with.

5. Regulation should be logical. A layperson should be able to understand why the regulation exists

and why it is administered in a particular way.

6. Regulation should not be used in a way that protects or secures a government body’s position

against a private sector competitor where the role could be undertaken more effectively and

efficiently by the private sector.

7. Frequent reviews of regulation should be undertaken to ensure that regulators are working with up-

to-date information, policies and practices. For example, regulation to mediate a market failure of

asymmetrical information may no longer be relevant where the internet or applications make

information readily available. New and more efficient methods of regulating should be regularly

considered.

8. The review of regulation should be independent. Those that stand to gain from an increased

regulatory burden should not be the ones undertaking a regulatory review.

9. Regulation must be just and equitable (including consideration of both vertical and horizontal

equity).

10. The benefits of regulation must outweigh the costs. Both immediate and indirect (but very real)

costs of regulation must be carefully considered. In particular, this should include costs to basic

human rights such as access to justice, costs to the key drivers of growth, employment and

innovation including, importantly, the small business sector. Flow on impacts across other areas,

such as the social fabric of a regional centre or areas where a proposal could undermine the

outcomes of a key government policy or measure, must be carefully considered. Where possible,

these costs should be avoided.

Continuous improvement and innovation in regulation is vital for Victoria’s economy. The Victorian

Government’s Guide to Regulation summarises the key reasons why RIS processes exist for sunsetting

regulations as follows:

“A RIS for sunsetting regulations needs to analyse the problem as if the existing regulations did not

apply. This enables significant changes in technology, community expectations and business

practices to be considered so that the basis for analysis is the nature of the problem today, and not

10 years ago.”7

The purpose of the RIS process and consultation is to ensure that the decision-makers have all the relevant

facts they need to make the right decision. A thorough evaluation of regulatory arrangements will facilitate

“…continuous improvement in regulatory design and practice over time”8. A whole of system view needs to

be undertaken to ensure that all relevant information is clearly understood and presented, and the best

alternatives are assessed using evidence-based analysis.

7 Commissioner for Better Regulation, above n 1, 19.missioner for Better Regulation (Vic), Victorian Guide to Regulation (2016) 19.

8 Ibid 1.




18

Measured against the Government’s Guide to Regulation, the Cost Recovery Guidelines and principles of

good regulation, the LIV has concerns that key aspects of the RIS process will not be undertaken or will be

undertaken inadequately including:

identifying who benefits the extent of benefits of the regulation;

providing the full context and all relevant information for regulators to make appropriate decisions;

and

using the RIS process to achieve genuine regulatory efficiency.

Each of these is discussed in greater detail in Chapters 2 to 4 below.




19

2 WHO BENEFITS AND WHO PAYS

“The need to regulate is a benefit to the whole community who use legal services and the cost

should not be borne by lawyers alone. The burdens around regulation are becoming too great.”

To comprehensively assess the benefits and costs of potential regulatory options, it is essential to determine

who benefits from the regulation.

There are significant social benefits from a strong, resilient and well-regulated legal profession, in which all

Victorians can have confidence. In all jurisdictions, appropriate legal profession regulation ensures the

integrity and robustness of the legal system and the broader social framework. There are significant and

highly deliberate positive externalities for the whole of Victoria from a strong and well-regulated legal

profession.

Economic literature consistently suggests that the health and wealth of a society is fundamentally dependent

on how far the rule of law is maintained. The World Bank and United Nations, for example, provide the

following summaries:

“It is widely believed that well-functioning law and justice institutions and a government bound by the

rule of law are important to economic, political and social development. As a result, practitioners in

the development field have turned increasing attention to reforms intended to improve law and

justice institutions.”9

“Promoting the rule of law at the national and international levels is at the heart of the United

Nations’ mission. Establishing respect for the rule of law is fundamental to achieving a durable

peace in the aftermath of conflict, to the effective protection of human rights, and to sustained

economic progress and development.”10

A robust legal system is underpinned by society’s confidence that rules will be applied consistently and that

the custodians of those rules uphold the basic principles of law (rule of law). Without appropriate regulation,

the integrity and reputation of the legal system can be undermined by the actions of a few individuals. The

benefits of good regulation, and the costs of poor or no regulation, have significant implications not only for

practitioners and clients, but also for the rest of society. Loss of confidence and uncertainty in elements of

the legal system (such as the legal profession) and, as a consequence rule of law, access to justice and the

security of private property rights will, as a minimum, have serious consequences for the economy and the

speed with which we can do business, innovate or invest. Society and the economy as a whole clearly

benefit from a well-regulated legal profession.

9 World Bank, Rule of Law and Development (2016) <http://go.worldbank.org/8LNEUA7E60>.Bank

http://web.worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTLAWJUSTINST 10

United Nations, Justice and International Law (2017) <http://www.un.org/en/sections/priorities/justice-and-international-law>.ted Nations http://www.un.org/en/sections/priorities/justice-and-international-law/




20

The ‘who benefits’ question is central to the issues addressed under the CRG11

. As outlined in Chapter 5

below, these issues need to be carefully considered against the CRG during the RIS process. This includes

consideration of whether full cost recovery is appropriate. In cases where the good is non-rivalrous, non-

excludable and there are significant positive externalities, on pure economic grounds, there is a strong case

for the use of consolidated revenue, and full cost recovery should not be used.

In the current circumstances, given the strength of the Public Purpose Fund (PPF), the LIV does not believe

that use of consolidated revenue is necessary. However, this is on the basis that income from foregone

interest on client trust accounts (Trust Account Income) continues to be allocated (as demonstrated in Box

C) on an effective, efficient and equitable basis to cover the cost of regulation for the use of trust accounts,

rather than being substantially diverted to other causes. Costly PC fee increases should not be introduced to

augment the overall revenue.

11 Department of Treasury and Finance (Vic), above n 4, Ch 2.




21

3 WHOLE OF SYSTEM CONTEXT

In order to make informed decisions, decision-makers need to be able to consider the context of the

regulation in question. In the case of present proposals, regulatory change should involve consideration of:

historical and contemporary context, including: fees; total regulatory revenue; financial, including cumulative,

impacts; and cross-subsidies. The Discussion Paper’s scope of analysis limits capacity for informed

decision-making and does not provide a comprehensive background for an appropriate consultation process.

Therefore, it is inconsistent with the CRG and proper RIS processes. The RIS should provide a

comprehensive analysis, including all revenue sources currently used in regulation.

3.1 History of the PPF and legal regulation

Historically, the legal profession in Victoria has been substantially self-regulated through the LIV. Later, it

moved to a co-regulatory model where the LIV regulated the profession in conjunction with various

independent government bodies. Later still, with the establishment of the VLSB+C, the legal profession in

Victoria became entirely government-regulated (the LIV maintains limited delegated functions).

The regulatory functions of the LIV were originally codified under the Legal Profession Practice (Amendment)

Act 1946 (Vic). This Act provided the LIV with broad powers to regulate the conduct of solicitors, and also

established the Solicitors’ Guarantee Fund (SGF) which was managed and administered by the LIV. The

SGF was the precursor to the PPF. It was initially set up by industry – through the LIV with contributions from

the legal profession – with the sole purpose of providing fidelity compensation to clients who were defrauded

by lawyers misappropriating trust money.

In the 1960’s, the purpose of the SGF evolved to include funding of the regulation and education of the legal

profession. In addition, further surpluses at this time allowed the SGF to contribute funds towards relevant

and desirable public purposes, including legal aid. Bodies such as Victoria Legal Aid (VLA; then known as

the Legal Aid Commission of Victoria), the Victoria Law Foundation (VLF) and the Victorian Law Reform

Commission (VLRC) were eventually established to fulfil these public purpose needs, and drew funding from

the SGF.

The 1990’s saw a series of government-led reviews into the legal profession, culminating in the Legal

Practice Act 1996 (LPA96). LPA96 introduced a range of changes to the regulation of the legal profession,

including the establishment of a Legal Ombudsman, an independent Legal Practice Board and a Legal

Profession Tribunal. The changes meant that, for the first time in Victoria’s history, its legal profession

operated under what was essentially a co-regulatory model, where practitioners would be answerable to the

above independent bodies when complaints arose. Section 372 of LPA96 also established the PPF, and,

while its nomenclature changed, its primary purpose of fidelity compensation remained.




22

In 2004, the Legal Profession Act 2004(Vic (LPA04) introduced further, extensive changes to the regulatory

framework of the legal profession in Victoria. In essentially moving away entirely from a self-regulatory or co-

regulatory model, LPA04 abolished the Legal Ombudsman, Legal Practice Board and the Legal Profession

Tribunal and established, in their places, the Legal Services Board (LSB) and the Legal Services

Commissioner. Since the establishment of the LSB – which was to be the peak regulatory body of the legal

profession in Victoria – its key functions have included the management of the PPF and the administration of

PCs. As a result, the cost of regulating the profession became primarily funded through PC fees and the

Trust Account Income, which remain to this day as two major sources of income for the PPF.

In FY2016, the VLSB+C had revenues of $93.802 million, consisting of PPF revenues of $79.850 million,

Fidelity Fund revenues of $3.761 million, and other income (including PC fees) of $10.191 million. This was a

25% increase over FY2015 revenues of $74.691 million.

3.2 Total regulatory revenue

The Discussion Paper fails to provide any analysis of the economic impacts of the continued use of the Trust

Account Income at its current level, or the benefits this has as an efficient source of regulatory income. All

sources of revenue appropriate for use in regulation of the legal sector should be considered. Although the

sunsetting Regulations only relate to PCs, other significant sources of revenue for regulating the legal

profession (including Trust Account Income, investment returns, fines from disciplinary action, and so forth),

and their viability as appropriate sources of regulatory income under the CRG (see Box B) should be

considered under a full RIS. Box B outlines the beneficial elements of the Trust Account Income with respect

to equity and efficiency.

3.3 Cumulative impacts on industry and the economy

“...our PI [Professional Indemnity Insurance] fees, the cost of practising certificates for our

employees, the Limitation of Liability Scheme, paying our employees’ LIV membership etc, it all adds

up to an enormous amount of money currently and it all needs to be paid roughly at the same time

each year and has a huge impact on our cash flow as we are a small law firm (4 lawyers including

the directors) and 2 other staff. The additional cost for fees for practising certificates is in my opinion

unfair and unnecessary…”

The full and cumulative impacts of all regulations and fee costs on the industry must be assessed and

analysed when gauging the overall potential detriment to the legal industry. The Discussion Paper only

considers the burden and financial costs from the PC fees perspective. However, the issues are much

broader and potential increases in PC fees must be reviewed as the combined impact on the industry (see

Table 2 below):

“As a practitioner of 15 years who runs my own small suburban practice, with 2 - 3 lawyers at any

given time, a significant increase to PC fees will only add more burdens to my already stretched

capacity to financially run this practice. In addition to PC fees, CPD [Continued Professional

Development] costs and LPLC [Legal Professional Liability Committee] fees, as a migration lawyer I

am also required to pay an additional $1595 for each lawyer as a result of dual regulation with the

MARA [Migration Agents Registration Authority]. When all these ‘costs' add up, it is an incredible

burden on a small 1 partner practice.”

The LIV has undertaken an analysis, as set out in Table 2 below, in relation to some of the upfront costs that

the industry currently faces and what those costs are projected to move to in the near future. The table

shows both the size of the proposed impact compared to other movements within the industry and the

layering impact within the industry of these fees.




23

As can be seen from the table, PC fees comprise a major part of the upfront costs for community legal

service lawyers due to the fact that their insurance premiums and Fidelity Fund contributions are

comparatively low or NIL, reflecting vertical equity and access to justice issues in the setting of those fees.

The proposed increases in PC fees will have the most impact on these lawyers (compounding the fact that

they will already be impacted most because they cannot pass on costs). As PC fees are fixed regardless of

practice size or income produced, they will have the most significant impact on the small business sector as

well.

Table 2 – Current and expected future upfront costs for legal practitioners

LIV

m

em

be

rsh

ip

fee

Inc

rease

aL

PL

C

pre

miu

ms

Inc

rease

bP

C f

ees

Inc

rease

cF

ide

lity

Fu

nd

Co

ntr

ibu

tio

n

Inc

rease

TO

TA

L

Inc

rease

Cu

rren

t fe

es

Employee soli. (community legal) 480.00 176.66 344.00 - 1,000.66

Employee soli. (no trust) 480.00 1,807.80 344.00 124.00 2,755.80 Principal (with trust,

<$500k) 480.00 7,232.69 509.00 248.00 8,469.69 Principal (with trust,

>$500k) 480.00 7,232.69 509.00 496.00 8,717.69

E

mp

.

so

li.

CL

S

PC fees option 3 505.00 5.21% 181.08 2.50% 456.00 32.56% - 0.00% 1,142.08 14.13%

4 505.00 5.21% 181.08 2.50% 517.00 50.29% - 0.00% 1,203.08 20.23%

Pro

po

sed

fees

Em

p.

so

li.

no

tru

st

3 505.00 5.21% 1,853.00 2.50% 456.00 32.56% 129.00 4.03% 2,943.00 6.79%

4 505.00 5.21% 1,853.00 2.50% 517.00 50.29% 129.00 4.03% 3,004.00 9.01%

Pri

n.

tru

st

<$500k

3 505.00 5.21% 7,413.51 2.50% 811.00 59.33% 258.00 4.03% 8,987.51 6.11%

4 505.00 5.21% 7,413.51 2.50% 517.00 1.57% 258.00 4.03% 8,693.51 2.64%

Pri

n.

tru

st

>$500k

3 505.00 5.21% 7,413.51 2.50% 811.00 59.33% 516.00 4.03% 9,245.51 6.05%

4 505.00 5.21% 7,413.51 2.50% 517.00 1.57% 516.00 4.03% 8,951.51 2.68% aLPLC premiums:

Premiums include GST and stamp duty.

Estimated future premiums are based on the assumption that premiums will continue to rise by 2.5% per annum in approximate accordance with wage growth.

Premiums are subject to adjustment based on risk rating.

Practices with more than $5 million in gross fee income (GFI) may be subject to higher premiums.

Sole practitioners with a GFI of less than $125,000 and no employee solicitors are entitled to reduced premiums; see table here: https://lplc.com.au/policies-premiums/solicitor/premiums.

Practices in which all practitioners practise exclusively in the area of criminal advocacy or exclusively as mediators or cost consultants are eligible to pay the minimum contribution.

bPC fees based on data provided by the VLSB+C.

cFidelity Fund Contributions based on data provided by the VLSB+C. The full table of Contributions, which is subject to the status of a legal practice’s trust account (ie. whether or not

the practice holds a trust account, whether total trust money exceeds $500,000 and whether the practice is an exempt entity).

3.4 Revenue cross-subsidisation

As part of providing the whole of system context and understanding who currently benefits and who currently

pays (see the discussion in Chapter 2 above), the full RIS should provide discussion on how the current

regulatory system operates and the extent of cross-subsidisation between different revenue sources and

their beneficiaries. It is highly appropriate for the Trust Account Income to be used to regulate the use of trust

accounts. A combination of PPF revenue streams, including the Trust Account Income, is used to fund other

important initiatives such as VLA, the VLF, the VLRC, and other recipients of grants for law-related services

and activities. While these are important initiatives, there is only a tenuous link between them and the Trust

Account Income, unlike the regulation of trust accounts themselves. To ensure clarity and transparency, the

RIS process should clearly establish the size and extent of the cross-subsidisation of revenue across these

different beneficiaries.

https://lplc.com.au/policies-premiums/solicitor/premiums

https://lplc.com.au/policies-premiums/solicitor/premiums




24

Another area of cross-subsidisation that must be addressed is the availability of the Fidelity Fund to

subsidise or supplement PPF revenue. In 2015-16, $3.2 million was transferred from the Fidelity Fund to the

PPF. This is permitted by section 127 of the Legal Profession Uniform Law Application Act 2014 (LPULA)

under certain circumstances. However, if the Fidelity Fund has become a regular source of income which is

being used for other purposes, further scrutiny would be warranted.

Additionally, it is worth noting that the Fidelity Fund contributions made by legal practitioners when renewing

their PCs are substantially higher in Victoria than in the other jurisdictions. Depending on their trust account

situations, Victorian practitioners are currently required to contribute up to $496 to the Fidelity Fund upon

renewal of PCs. By comparison, in other Australian States and Territories these contributions are typically

much lower. See Table 3 below for a comparison of Victoria’s PC fees and Fidelity Fund contributions with

other jurisdictions in Australia.

Table 3 – Comparison of current PC fees and Fidelity Fund contributions (or equivalent)

State PC fee Fidelity Fund contribution (or equivalent) Contribution separate to

PC fee Vic. Trust-authorised: $509

Not trust-authorised: $344 Volunteer/pro bono: nil

Australian legal practitioner/approved clerk Trust-authorised; practice received trust money >$500,000: $496 Australian legal practitioner Principal without trust authorisation; practice received trust money >$500,000: $496 Australian legal practitioner/approved clerk Trust-authorised; practice received trust money <$500,000: $248 Australian legal practitioner Principal without trust authorisation; practice received trust money <$500,000: $248 Employee without trust authorisation: $124 Exempt entities Corporate and sole practitioners without trust authorisation, employees employed by practice without trust authorisation, community legal services: nil Foreign lawyer Trust-authorised; practice received trust money >$500,000: $496 Foreign lawyer No trust authorisation; practice received trust money <$500,000: $248

Yes

ACT Restricted Private/in-house: $798 Government: $556 Non-ACT: $426 Volunteer: nil Unrestricted Private: $1,247 In house: $1,101 Government: $785 Non-ACT: $773 Volunteer: nil

$146 (only payable by unrestricted private practitioners – the base unrestricted private practice PC fee is $1,101, equivalent to the in-house PC fee, but this does not include the $146 levy)

No

NSW $370 $70 (only payable by law firm principals or employees) Yes NT Unrestricted: $1610

Restricted: $1449 Community legal centre (unrestricted): $115

$280 (only payable by unrestricted practitioners)

Yes

Qld. Principal: $458.00 Non-principal: $229.00

$50 Yes

SA $595 $265.60 (included in PC fee) No Tas. Principal: $1,153.62

Employee: $861.39 Corporate: $442.17 Locum: $300 Community Legal Centre: $119.34

There is no Fidelity Fund in Tasmania

-

WA $1250 $20 (only payable by practitioners who have been practising >2 years but <7 years) Yes




25

4 ACHIEVING GENUINE REGULATORY EFFICIENCY

Sunsetting regulations provide opportunities to achieve step-change improvements vital for the growth of

Victoria’s economy. Poor regulation, excessive fees and red tape result in decreased productivity with fewer

jobs, less growth and lower income12

. The Victorian Guide to Regulation notes that the RIS process can

facilitate continuous improvement in regulatory design and practice over time13

, and highlights that “[t]he

impact assessment represents an important stage in the life of regulation, to identify opportunities to review

current practices”14

.

Sunsetting regulations provide opportunities to reconsider best practice regulation and strive for the

minimum regulatory burden that is feasible.

“…best practice cost recovery arrangements require that charges are set at a level that recover the

‘efficient’ (i.e. minimum) costs of providing the good/service at the required quality, or of undertaking

the necessary regulatory activity…”15

The Organisation for Economic Co-operation and Development (OECD) notes the importance of

systematically assessing impacts and reviewing regulations to ensure that they meet their intended

objectives efficiently and effectively in a changing and complex economic and social environment. The

OECD also recommends the periodic review of regulation to ensure that the benefits of the regulation

outweigh the costs, and to test whether alternative arrangements can equally meet the objectives of the

regulation but with fewer negative impacts.16

A genuine and effective RIS process will ensure that the government activity creates benefits rather than

burdens for the community. To review and assess the benefits and costs effectively requires context (see

Chapter 3 above). The analysis should consider all potential unintended consequences, and should result in

options that minimise the costs, inconvenience and likely burdens of regulation. In assessing those options,

the process needs to take into account the preferences, views and expertise of the community and all

relevant stakeholders17

. Sunsetting of regulations should not be used to undertake a quantum increase in the

burden of the replacement regulation. Regulatory efficiency in the legal sector, in particular, is vital for the

economy as a whole. As demonstrated in Chapter 7 below, there will be negative flow on impacts through a

range of economic and social areas where regulatory burdens are increased.

12 Regulatory cost awareness has led to a focus by organisations such as the OEDC and World Bank on countries successful in

reducing regulatory burdens and ‘red tape’. See for example, David Parker and Colin Kirkpatrick, “Measuring Regulatory Performance - The Economic Impact Of Regulatory Policy: A Literature Review oOf Quantitative Evidence ” Expert Paper No. 3, August 2012 (2012) pg 99 <https://www.oecd.org/gov/regulatory-policy/3_Kirkpatrick%20Parker%20web.pdf>. 13

Commissioner for Better Regulation, above n 1, 1.Gtbr Pg 1 14

GTBR pg 13Ibid 13. 15

Department of Treasury and Finance (Vic), above n 4, 8CRG January 2013 pg 8 16

OECD, OECD Guiding Principles for Regulatory Quality and Performance (2005) <https://www.oecd.org/fr/reformereg/34976533.pdf>.OECD Guiding Principles for Regulatory Quality and Performance Pg 8 https://www.oecd.org/fr/reformereg/34976533.pdf 17

Commissioner for Better Regulation, above n 1, 2.GTBR Pg 2




26

4.1 Good governance and independent reviews

A core principle in good regulation is that it is not appropriate for those who are set to benefit most from an

increase in fees or regulatory burden to set or review the fees or level of regulation.

The LIV believes that it is arguably a conflict of interest, and inconsistent with the Victorian Government’s

Public Sector Values, for a government body to review the regulation which determines the appropriate level

of fees from which it draws a significant portion of its revenue18

. That is, notwithstanding the fact that PC fees

are set on the recommendation of the VLSB+C under current legislation, having the VLSB+C undertake the

review of the Regulations constitutes a conflict of interest and is contrary to the Public Sector Values. The

unprecedented extent of the fee increases proposed by the VLSB+C underline the flaw in this governance

model. Given the importance of minimising the regulatory burden, the LIV would welcome a full and

independent review of legal profession regulation in Victoria. Such a broad review would necessarily include

consideration of the current regulatory model, its impacts and avenues for efficiency improvements.

A recent report by the Victorian Auditor General noted that excessive or poor regulation can take a wide

variety of forms including: slowing down approvals; duplicated reporting and compliance requirements;

outdated rules as a result of technological advancements; barriers to new ideas and opportunities; increased

intrusion into businesses; lack of understanding of the costs imposed on businesses; lack of concern about

delays and their impacts on business, especially projects; and excessive time wasted not working on the

business. The costs are insidious and highly detrimental for the economy, productivity, growth, innovation

and, crucially, employment.19

Without appropriate governance such as arm’s length reviews, there is a very real threat that the RIS

process could be used to increase regulation, fees and the overall burden and footprint of government. The

costs of overregulation, including ‘gold plating’, ‘cost padding’ and ‘regulatory creep’, can be significant. The

CGR outlines some of these risks, shown in Box A below.

Box A – Cost Recovery Guidelines, page 17

Before considering cost recovery arrangements, it is important to ensure that the level and standard of

provision of government goods and services, and the nature of any regulation imposed by government, are

the minimum necessary to meet the needs of the community and achieve the government’s objectives.

Without this discipline, the ability to cost recover may create incentives that can result in unnecessarily high

cost recovery charges. This may be due to factors known as:

‘Gold plating’: where unnecessarily high standards or facilities are adopted in the provision of goods and

services – with government agencies imposing their own preferred levels of service, rather than the lower

levels that would be sufficient to meet client needs or achieve government objectives;

‘Cost padding’: where costs are inflated above efficient levels, motivated by the knowledge that all costs

can be recovered; and

18 See for example,; Victorian Public Sector Commission, Public Sector Values (1 March 2015)

<http://vpsc.vic.gov.au/ethics-behaviours-culture/public-sector-values/>; or the Victorian Public Sector Commission, Public Sector Values (22 August 2016) <http://vpsc.vic.gov.au/resources/conflict-of-interest-and-duty-guidance-for-directors/>.example, the Victorian Public Sector Commissions (VPSC) Public Sector Values http://vpsc.vic.gov.au/ethics-behaviours-culture/public-sector-values/ Or the VPSC’s guidance on conflict of interest for directors of government organsiations http://vpsc.vic.gov.au/resources/conflict-of-interest-and-duty-guidance-for-directors/ 19

See generally, Victorian Auditor General, Reducing the Burden of Red Tape (May 2016) <http://www.audit.vic.gov.au/publications/20160525-Red-Tape/20160525-Red-Tape.pdf>.







27

‘Regulatory creep’ or overregulation: where additional or unnecessary regulation is imposed without

adequate scrutiny. Regulatory creep or overregulation can impose significant additional costs that are

recovered from affected parties.

Valuable information about the appropriate standards and level of provision of goods and services can be

obtained through consultation with the community, and through benchmarking (i.e. comparing) with similar

goods and services provided in other jurisdictions. Consultation and benchmarking are also among the

strategies that can be adopted to address cost padding by assisting efforts to keep costs at ‘efficient’ levels.

4.2 Value for money

A key policy of the Victorian Government is to reduce overregulation and ‘red tape’ with the aim of presenting

Victoria as the state with the most efficient and effective regulatory frameworks. This is done in order to

support businesses, investment, innovation and employment in the state.

A sunsetting regulation RIS is an important review stage to consider both the life of the regulation, how

regulation occurs, and the role of the regulator. There is limited consideration in the Discussion Paper as to

the current regulatory practices and potential for increased efficiencies within the VLSB+C’s own regulatory

framework. Crucially, the RIS process for sunsetting regulations requires the policy maker to analyse the

problem “as if the existing regulations did not apply”20

. This step is crucial in reducing the burden of

regulation across government as it enables major changes to be considered, including: efficiencies; new

circumstances such as technological advancements, information and community expectations; as well as

more effective models and methods.

Options for regulatory models

The RIS process requires the VLSB+C to consider their own regulatory practices through the lens of optimal

service for minimum regulatory burden and financial cost. While this is briefly discussed in the Discussion

Paper (see, for example, page 15), it is not undertaken in a way where more efficient models are considered,

or through conducting benchmarking with relevant jurisdictions. Maintaining the previous regulatory model

and increasing PC fees, as a result, is contrary to expectations that government will strive for better practices

and reduce costs to society due to its regulatory activities wherever feasible.

“I understand that with the trust authorisation comes additional risks and therefore an increase in

insurances. So, I understand why the fee for such a practising certificate might need to be higher

than an ordinary practising certificate. However, I do not see the need for fees to rise, if the

profession gets no additional benefit from the rise.”

Not only has this important broader review not been undertaken, but the Discussion Paper has not provided

the basis for seeking a fee increase against what additional services and benefits would be provided as a

result. There is no demonstration of efficiency benefits from the options proposed, and the concept that the

regulator is accountable is not outlined effectively in the Discussion Paper.

“The issue is not so much an increase, per se, but whether there is a better performing regulatory

system if the fees are increased.”

In order to provide the appropriate information and analysis for our regulatory decision-makers, consideration

of a range of models and benchmarking should be undertaken to assist with areas such as the appropriate:

20 CoVmmissioner for Better Regulation, above n 1, 19ictorian Guide to Regulation, Commissioner for Better regulation Victorian

Government 2016 pg 19




28

form that regulation should take (including self-regulation);

type of collection model; and

level of fees.

The RIS should not be limited to a narrow set of options which are apparently based solely on extending the

status quo. As the Office of the Commissioner for Better Regulation (OCBR) notes:

“…a broad range of options are worth considering when you are approaching a policy problem...”21

To date, the Discussion Paper only examines the status quo fee structure with various degrees of fee

increases within that structure. Under a genuine RIS process, the analysis would strive to examine options

which would increase regulatory efficiency and minimise negative regulatory impacts. This is consistent not

only with government policy but also with community expectations. The comment below is typical of a

number of LIV member responses on this issue:

“…[a]re there ways to make regulation of the profession more efficient and thereby avoid a PC fee

hike?”

Further, as noted in the Victorian Government’s Guide to Regulation, sub-sections 10(1)(c)and 12H(1)(d) of

the Subordinate Legislation Act 1994 (SLA) require a RIS for a proposed regulation or legislative instrument

to describe other practicable means of achieving the objectives, including ‘non-regulatory’ options22

. There

are many examples that can be taken from international (and domestic) best practice when looking to

improve regulatory efficiency23

and the Guide to Regulation also notes a number of these24

. Non-regulatory

or non-legislative measures are often less costly for government and the individuals and/or groups being

regulated. Such options could include the following measures:

Performance-based regulations, where the required outcome is specified as leaving regulated

individuals or groups to choose the processes by which they will comply with the regulation. They

will, naturally, choose the least costly way to comply;

Self or co-regulation, where the regulatory role is either undertaken significantly by the industry

itself, through an industry body, or shared between government and industry. Often this is achieved

through legislative reference or endorsement of a code of practice. The extent to which the industry

self regulates should be examined through both a governance (for example, government

undertaking regular audits of compliance) and efficiency framework (industry is often in a stronger

position to undertake the regulatory role in a more efficient way). Box B below outlines some of the

many benefits for government of a self or co-regulatory model;

Information and education campaigns, to raise awareness, address information asymmetries and

empower individuals to reduce their own and collective industry risks. These campaigns can be

provided by either government or industry. However, it is often more effective, and better value for

money, for these to be provided through industry;

Funding or delivery of grants or support services, these programs can be used to support or

incentivise the market to develop cost-efficient solutions; and

Market-based approaches, such as the use of tradeable permits.

21 Ibid 1.Victorian Guide to Regulation, Commissioner for Better regulation Victorian Government 2016 pg 1.

22 Commissioner for Better Regulation, above n 1, 28.Gtbr pg 28

23 See for example, OECD, OECD Reviews of Regulatory Reform: Regulatory Policies in OECD Countries (2002)

<http://regulatoryreform.com/wp-content/uploads/2015/02/OECD-Regulatory-Policies-in-OECD-Countries-2002.pdf>.or example the OECD review of a range of countries http://www.oecd.org/gov/regulatory-policy/35260489.pdf 24

Commissioner for Better Regulation, above n 1, 28.GTBR pg 28




29

The right balance needs to be assessed and achieved on the most appropriate regulatory model. That is, the

model which can remove market failure with least disruption to the efficient operation of the market. There

are a large number of efficiency and regulatory burden issues that could be considered as part of a broader

review. However, as a bare minimum, this RIS process needs to consider more than the status quo with

increased fees.

Box B – Benefits for government of a self or co-regulatory model

To get the best result out of the RIS process, policy makers are encouraged to “keep opportunities open

for identifying new and different options for addressing the problem”25

. The full continuum of options

for regulation should be considered and discussed. This includes options such as self-regulation26

. Such

arrangements can have optimal impacts with significantly lower regulatory burden costs including

administrative costs for government.

Internationally, there is significant economic policy agreement that in general, self-regulation models deliver

cost efficiencies, market independence and an alignment of knowledge and oversight27

. Rather than exclude

consideration of options such as self-regulation, the RIS process is designed so that all options that will

achieve the best outcomes for regulation at the least cost to the economy and society more broadly will be

considered. It is also worth considering that the current regulation consists of many different components.

Some of these components could arguably have government involvement but most of these could be

provided very effectively by the private sector.

The benefits of self-regulation are numerous, but include:

1. a reduced role for government at a time where government skills and resources are required elsewhere;

2. reduced overall administrative and compliance costs for government;

3. increased flexibility and innovation provided by the private sector in achieving the optimum outcome, with

the least regulatory burden and cost to members, though a range of self-regulation, accreditation and

education methods;

4. the industry association has better capacity to recognise and address emerging regulatory and efficiency

challenges within the industry;

5. the industry association has better capacity to influence culture and bring about cultural change within the

industry28

6. a significant reduction in information asymmetries – it is generally the industry association that will know

where most of the areas of risk are. Information asymmetries can cost the government, particularly

through compliance and monitoring;

25 Commissioner for Better Regulation, above n 1, 28.Victorian Guide to Regulation, Commissioner for Better regulation Victorian

Government 2016 pg 13 26

Victorian Guide to Regulation, Commissioner for Better regulation Victorian Government 2016 pg 1.Ibid 13. 27

PLaw Institute of Victoria, ‘Regulatory Role & Charitable Status: Discussion Paper’ (September 2016) 17.resentation to the Taskforce by the Professional Standards Council cited in LIV’S REGULATORY ROLE AND CHARITABLE STATUS: DISCUSSION PAPER pg 17 September 2016 28

Post the Global Financial Crisis the culture of an industry has been increasingly recongised by governments as a crucial element in successful regulation, see Law Institute of Victoria, ‘Regulatory Role & Charitable Status: Discussion Paper’ (September 2016) 20.Liv’s Regulatory Role And Charitable Status: Discussion Paper September 2016 pg 20 for further discussion on reducing conduct risk.




30

7. provision of targeted education programs around key regulatory issues by the body that has the greatest

expertise and role in educating its members and understands both the information gaps and the best

methods of providing information; and

8. ownership by the industry of the issues, including greater recognition by individuals of their roles in self-

monitoring (and monitoring of their colleagues). Greater ownership of issues by the industry reduces

costs for government in administration, monitoring and compliance29

.

Self-regulation and independence of the legal profession

The LIV has undertaken extensive work to research the various legal profession regulatory models across

Australia and internationally. Through this, it has found that Victoria is one of only a few jurisdictions where

the profession itself little to no role in its own regulation (notwithstanding that the LIV retains limited

delegated regulatory functions).

There is a wide range of successful self or co-regulatory models for the legal profession internationally where

the right balance between the protection of public interest, direct consumers of legal services and legal

practitioners; efficiency gains; and appropriate levels of regulatory independence have been achieved (see,

for example, Table 4 below). In contrast to this, there has been a gradual erosion of the self-regulatory

functions of the LIV, as a key legal profession industry body, through legislative amendments spanning over

two decades30

.

Internationally, an important role of a law society is to promote, protect and enforce the role of an

independent legal profession. It is a vital part of the societal framework that the independence legal

profession is upheld, and a co-regulation model supports this independence. This view is upheld by the

United Nations’ work on Basic Principles on the Role of Lawyers:

“Lawyers shall be entitled to form and join self-governing professional associations to

represent their interests, promote their continuing education and training and protect their

professional integrity. The executive body of the professional associations shall be elected

by its members and shall exercise its functions without external interference.”31

Law societies play a vital role in professional discipline and the admission process for lawyers and this

aspect is usually controlled by law societies or bar associations (or their equivalent industry bodies) not by

the government. Internationally, it is the legal profession that generally determines who is competent to

practice law and for discipline within the profession. These are key issue if there is to be an ‘independent’

profession as it is this feature that creates the independence from government. So that while, generally,

governments pass laws, and appoint judges and prosecutors, the one area in the prosecution chain that is

not controlled directly by the government is the legal profession.

Table 4 – Comparison of legal profession regulatory models

Jurisdiction Self-regulatory Law Association (or

29 See, for example, the Professional Standards Council, Annual Report 2014-2015, (2015) 27: “There is interest from governments in

reforming law in the professional/trade regulatory area to secure greater individual and association commitment to improving professional standards.” page 27 30

Liv’s Regulatory Role & Charitable Status Discussion Paper September 2016 pg 5-7Law Institute of Victoria, above n 31, 5. 31

United Nations, Basic Principles on the Role of Lawyers (7 September 1990) <http://www.refworld.org/docid/3ddb9f034.html>.ted Nations, Basic Principles on the Role of Lawyers, 7 September 1990, available at: http://www.refworld.org/docid/3ddb9f034.html [accessed 21 March 2017]




31

equiv.) issues PCs

Victoria No No

New South Wales Yes Yes

Queensland Yes Yes

Western Australia No No

Australian Capital Territory Yes Yes

Northern Territory Yes Yes

Tasmania Yes Yes

England & Wales No No

American Bar Association Yes No

US State Bars Unified (32 states) Yes Yes

Canada Yes Yes

Singapore Yes Yes

Hong Kong Yes Yes

Germany No No

France No No

South Africa Yes Yes




32

Assessment of key fee options

If, through an assessment of a full range of potential effective models and systems which could be used, the

current model is considered the most optimal, then this analysis needs to draw evidence-based conclusions

regarding minimum costs and what the optimal fee burden should be within that model.

The Guide to Regulation requires the base case to be considered32

. That is, the case if no government

action was taken. This helps decision makers, and the community through consultation, understand why

regulations are required in the first place. While the Discussion Paper very effectively outlines why there

should be regulation (as opposed to the base case of no regulation), it does not address issues needed to

comprehensively asses what the optimal level or type of regulation should be.

As part of this, consistent with best practice and the government’s aim of continuous improvement, all

significant fee options for regulation should be considered. This should include:

retaining the current system; and

reducing the overall fee and regulatory impact.

The Discussion Paper automatically rules out consideration of no fees or a reduction in fees before

commencing consultation and well ahead of the RIS process being undertaken. The RIS must cover these

two options thoroughly as part of its full analysis.

“Where is the discussion about what can be done to lower our fees? They are already too high – and

prohibitive of a small suburban firm being able to hire more staff (in conjunction with the insurance

costs).”

Current system as an alternate base case

The Discussion Paper proposes a reinstatement of the existing regulations plus a significant fee increase.

Were these regulations not sunsetting and the VLSB+C wanted to increase the fees by the unprecedented

amounts proposed in the Discussion Paper, a review would need to be undertaken with a full RIS analysis

including the base case of the current system. Increases of this magnitude would need to be thoroughly

justified. This has not occurred to date in the Discussion Paper, and the LIV is concerned that it may not be

included in an already substantially drafted RIS.

It is crucial to outline the change in the overall burden for the industry, taking into account other factors,

including price increases or additional layers of regulation through other areas. A comprehensive RIS in this

unusual case of both sunsetting regulations combined with significant proposed fee increases should

extensively examine the changes against two alternative base cases: no regulation and the existing model.

Providing regulatory efficiency through reduced fees

The RIS process is designed to ensure that the most efficient cost of delivering government processes and

programs is considered33

. Under the RIS process, any fees and any fee increases must be clearly

demonstrated to be warranted34

. A key fee option that meets the principles of good regulation but was not

discussed or assessed in the Discussion Paper is reduced fees.

32 Commissioner for Better Regulation, above n 1.

33 Law Institute of Victoria, above n 31, Adapted from Table Liv’s Regulatory Role & Charitable Status Discussion Paper September

2016 pg 19. 34

Commissioner for Better Regulation, above n 1, 2.GTBR Pg 2




33

Regulatory efficiency through a fee reduction could be provided through a range of options including co-

regulation with industry, finding efficiency measures through better targeting of regulation (including through

a risk-based model) and more effective use of new technology. As discussed above, the self or co-regulation

option incentivises efficiency gains. Unlike a government regulator, industry does not have the same

incentives to overregulate. The members of member-based organisations paying the fees understandably

want to keep costs to a minimum. Given the collective benefits of a well-regulated industry and the

substantial costs of poor regulation, member associations have significant incentives to achieve the right

balance, including losing their social licence to operate if under-regulation were to occur.

4.3 Benchmarking against NSW

“I doubt that my practice would see any benefit in the increase...”

The RIS process requires that appropriate benchmarking be undertaken to inform the optimal level, and

type, of regulation with minimal burden, and as part of understanding what is ‘good value for money’.

The LIV submits that the RIS should include a comparison between Victoria and New South Wales (NSW),

as the legal professions in both jurisdictions are regulated under the Legal Profession Uniform Law (LPUL).

As the two largest jurisdictions in Australia, practices in NSW and Victoria are also affected by cross-border

competition. This has increased, with the introduction of LPUL effectively lowering the regulatory barriers for

practices between these two states. This not only applies to larger, national law firms, but also small firms

and sole practitioners as cross-border transactions and legal matters involving interstate parties continue to

increase in number.

From an analysis of the cost of regulation of the legal profession on a per practitioner basis, it becomes

apparent that NSW uses a comparatively efficient and effective regulatory model. Under the Victorian

regulatory model, the cost of regulation on a per practitioner basis is more than 60% higher than NSW (see

Table 5 below).

In addition to the higher regulatory cost per practitioner in Victoria, once Fidelity Fund contributions are taken

into account, it is also outright cheaper to renew a PC in NSW compared to Victoria. In NSW, principals or

employees of law practices pay a flat fee of $440 to renew their practising certificates, which includes the

$70 Fidelity Fund fee. This is in contrast with Victoria, where a renewal of a practising certificate itself would

cost a practitioner either $344 or $509 depending on authorisation to receive trust money, and a further

Fidelity Fund contribution of up to $496 depending on the status of a practitioner or their practice’s trust

account35

.

“It seems that the costs of regulation in Victoria are significantly higher than other comparable states,

from what I have read NSW seem to be far more efficient. I often wonder whether [why] there is both

a legal services board and commissioner. I cannot see why the job of regulation could not be

incorporated into the role of the LIV and utilise the existing infrastructure within the LIV.”

An investigation of how to extract efficiencies within the Victorian regulatory model is vital when considering

the arguments for fee increases. The LIV recognises that, in some circumstances, a fee increase can be

justified. However, this should only occur following full and proper consideration of how to deliver the most

effective and efficient methods of regulation.

35 Victorian Legal Services Board and Commissioner, Fidelity Fund Contributions (14 March 2017)

<http://lsbc.vic.gov.au/?page_id=279>.




34

Table 5 – Breakdown of comparative costs of regulation: Victorian and NSW legal profession

regulation costs per practitioner (note that slight discrepancies in the data may occur due to the

availability of collated information)

Cost of regulation ($m) Vic. NSW %

Services and professional discipline# 13.01 16.70

Investigations and interventions 4.30 4.00

Indirect costs^ 3.45 N/A

Total 20.76 20.70

Number of practitioners 20,593 32,976 -37.55%

Cost per practitioner ($) 1,008.11 627.73 60.60% #

Services and professional discipline costs include licensing, legal practice services, CPD compliance, professional discipline and

associated legal expenses, civil and administrative tribunal and compliance audits.

^ Indirect costs include staff costs associated with regulation and the costs of occupancy, IT, administration, depreciation, Board and

Committee member fees, consultants, investment advice and auditing. However, these costs are already included in the Law Society

of NSW’s activity costs through its shared costs model.




35

5 VLSB+C POSITION ON FEE INCREASES

Much of the Discussion Paper is built around the suggestion that there should be a substantial fee increase.

As outlined in Chapter 4 above, the RIS process plays an important role in ensuring that the most effective

and efficient regulatory options are adopted and that these are then reviewed, as part of efforts to increase

efficiency, on a regular basis. The aim is to ensure an effectively regulated society and economy without

accumulation of unnecessary regulation. Naturally, an effective RIS process provides a framework through

which decision makers can consider relevant options and work towards the most efficient and effective

model, form and structure of regulation to achieve a desired regulatory outcome. As such, the regulatory

review process should not be used to justify a position that is already held. However, it is clear that the

VLSB+C’s position is to increase PC fees significantly. It is, therefore, important to analyse each of the

arguments advanced for this significant increase in fees and consequent regulatory burden.

A fee increase is supported by the Cost Recovery Guidelines As currently drafted, the Discussion Paper appears to be based on an apparent misconception of the core

objective of the CRG. It is general government policy that regulatory fees and user charges should be set on

a full cost recovery basis because it ensures that both efficiency and equity objectives are met. Full cost

represents the value of all the resources used or consumed in the provision of an output or activity36

. The LIV

supports this principle as providing an effective way of government to ensure, where feasible, that those who

benefit from regulation are those who pay for it. Consistent with the CRG, the LIV also notes that:

who is benefiting from the regulation needs to be clearly assessed; and

the CRG principles need to take into account impacts on disadvantaged groups, competition and

any adverse impacts on government policy.

Importantly, the CRG do not dictate where the ‘recovery’ (revenue) must come from and, indeed, the CRG

fully acknowledge that a range of measures should be considered. Nor do the CRG dictate how it is to be

collected. Provided those who benefit from the regulation (or give rise to the need for government regulation)

pay for it, and that those parties who do not benefit or take part in a regulated activity do not have to bear the

costs, the core objective of the CRG are satisfied. In the case of the current system, the PC fees are only

one source of this revenue for the VLSB+C.

“Having a trust account is a service to the client as it assists matters to resolve.”

Trust accounts benefit both lawyers, but also more importantly, clients. Clients benefit from the use of trusts

as it mitigates information asymmetries (including who will pay when payment is committed to) and provides

greater business certainty. Clients currently ‘donate’ interest from their money held in trust to the PPF. A

proportion of this Trust Account Income is then used in regulating trust accounts, ensuring business certainty

and the protection of client money37

.

36 Department of Treasury and Finance, above n 4, 7.Cost Recovery Guidelines January 2013 pg7

37 64% of the total regulation revenue comes from trust account income. The cost of Trust Account regulation is $2.479m as a delegated

function to the LIV: Victorian Legal Services Board and Commissioner, Annual Report 20016 (2016) <http://lsbc.vic.gov.au/documents/Report-Victorian Legal_Services_Board_and_Commissioner_annual_report_2016.PDF>. (VLSB+C Annual Report 2015-16 page 25)

http://lsbc.vic.gov.au/documents/Report-Victorian




36

Lawyers also pay for the use and the benefit of trust accounts. Lawyers’ costs in doing so are quite

substantial, as outlined in Table 6 below. Under the current system, the practice or individual lawyer acts as

the government’s (highly efficient) administrator and tax collector. This is a far superior system, with fewer

deadweight costs, than having government charge and then deliver that tax collection and administration

service themselves.

“…[t]he cost of having a trust account is already high as the audit costs and time away from the

practice in admin is significant...”

The users and beneficiaries of trust accounts are already paying for the regulation of trust accounts through

Fidelity Fund contributions, PC fees and foregone interest. Therefore, cost recovery is already reflected in

the regulation of trust accounts.

“I do not operate a trust account as it is not worth my while for what is then involved in administering

a trust account…”

Table 6 – Costs per year in maintaining trust accounts

Practice type Sole-prac. (suburban)

Small firm (regional)

a PI firm (nat.)

d

Comm. firm (int.)

e

Bookkeeping $7,000 $45,000b

$75,000 $40,000

External examiner $3,000 $5,000 $14,000 $11,000

Sundries (software, stationery, bank fees) $3,000 $4,000c

$5,000 $6,000

Training (including internal training and CPD costs) $5,000 $5,000 $2,000 $1,000

TOTAL $18,000 $59,000 $96,000 $58,000 a Law practice in major regional centre with <20 practitioners b Internal accounting staff dedicate approximately 50% of their time to managing the practice’s trust account; cost is equivalent to 1.5FTE salaries pro rated for time taken to

manage trust accounts. c Law practice provided a figure which included the total cost of all sundries. This figure is estimated based on how much sundry costs are dedicated to the maintenance of the trust

account. d Large personal injury practice with multiple offices in Victoria. e Large commercial law firm with one Victorian office.

100% cost recovery

In his letter to the LIV of 13 September 2016 the Commissioner refers to achieving “complete recovery of

costs of legal regulation in Victoria” and states that the current system only provides “[p]artial cost recovery”

at 33%. The LIV believes that these assessments require further consideration.

Two sources of income are currently used to fund the regulation of legal practitioners: PC fees; and Trust

Account Income. Cost recovery from the industry is currently already at 100% of the $21 million cost of

regulation, with $13.4 million or 64% coming from the Trust Account Income and $7.6 million or 36% funded

by PC fees. As outlined in the Discussion Paper (page 5) there are two38

beneficiaries from regulation of the

legal sector and two sources of cost recovery income.

The CRG note that the nature of government regulation is diverse and that no single cost recovery

charging mechanism will be appropriate in every case and, further, that analysis may not suggest a

single charging approach. To achieve optimal efficiency and balance, the approach will require careful

consideration against criteria such as efficiency and equity39

. Using the Trust Account Income as the key

source of income for the purposes of regulation is appropriate and consistent with the CRG. This must be

given full consideration in the full RIS process.

38 LIV disagree that it is limited to only two noting the significant benefits for the community and economy more broadly from a well-

regulated legal system see Chapter 2 39

Department of Treasury and Finance, above n 4, 2.Cost Recovery Guidelines January 2013 pg 2.




37

Full cost recovery solely from PCs is not appropriate

In addition to the above, there are other fundamental justifications why cost recovery based solely on PC

fees is inappropriate. Consistent with the CRG, we encourage the RIS to explore the range of policy

implications, including:

positive externalities that may be removed (see Chapter 2 above);

impacts on government policy and objectives, including access to justice (see Chapter 7 below); and

competition impacts and preventing introduction of further barriers to lawyers practising (see Chapter

7 below).

This is an essential part of providing comprehensive and clear information for decision-makers, and a full

consultation process. According to the CRG:

“While general policy is for costs to be recovered on a full cost basis, there are nevertheless situations

where it may be desirable to recover at less than full cost, or not to recover costs at all. Examples of

such situations are discussed in more detail in Chapter 4, and include circumstances where:

practical implementation issues make cost recovery infeasible;

there are benefits to unrelated third parties (sometimes referred to as ‘positive externalities’);

social policy or vertical equity considerations are considered to outweigh the efficiency

objectives associated with full cost recovery; and/or

full cost recovery might adversely affect the achievement of other government policy

objectives.”40

The last three points of this excerpt from the CRG are highly relevant when considering the options proposed

by the VLSB+C as outlined in greater detail in Chapter 7 below.

Box C – Sourcing regulation revenue from Trust Account Income41

The trusts are used as an insurance mechanism by both clients and practitioners. Both sides benefit from the

effective regulation of these accounts. The continued use of the Trust Account Income for the purpose of

covering the costs of regulation is consistent with the CRG for the following reasons:

● Consistent with, and supportive of, the policy objectives of cost recovery advancing:

○ efficiency: the capture of trust income is highly efficient. There are significant administrative costs

for individual practitioners involved in keeping trust accounts and ‘skimming’ for the purpose of the

PPF. However, this method of revenue collection has significantly greater efficiencies for the

economy as a whole than using a centralised collection. The individual practitioner acts as tax

collector, administration officer and auditor. In each case, the practitioner effectively ‘self-selects’ to

take on these charges weighing up their own benefits and costs. The trust accounts are used by the

practitioners who have the most need for them due to the type of work they undertake or clients that

they have, so these collection costs go to those who use and benefit from the trust accounts and can

see value in paying for them;

○ equity: in using the Trust Account Income to pay for regulation, only those who benefit from the use

and regulation of trust pay for them. In addition, as noted in the Discussion Paper, those clients with

significantly greater amounts held in trust (and, therefore, the highest risks or those who have the

40 Cost Recovery Guidelines January 2013 pg 7Ibid 7.

41 Ibid.




38

most to lose) benefit the most from effective and robust regulation of trust and also pay the most;

and

○ fiscal sustainability: the Trust Account Income has grown well ahead of CPI despite interest rates

being at historical lows (see discussion on financial stability below);

● Imposed directly – use of the Trust Account Income recovers costs directly from those that benefit

from, and whose actions give rise to, the need for the regulation of trusts;

● Cost effective and practical – as outlined above, the cost of administering the cost recovery

arrangements through the trust, is a cost to each individual. This is achieved without the administrative

expenses or deadweight costs of a tax. To the extent that it is the practitioner’s choice whether to use

trust accounts, the system is self-selecting and therefore undertaken through the market. Appropriately,

the regulatory costs that ensure the effective regulation of trusts are covered by the Trust Account

Income;

● Feasible and legal – there have been no insurmountable policy, legal or other impediments to the

implementation of cost recovery arrangements through the Trust Account Income to date; and

● Consistent with other policy objectives – the use of the Trust Account Income for the regulation of

trusts provides individual users with the comfort that they are secure without negatively impacting any

other government policy or objective. Further, to the extent that there is income remaining post

regulatory costs, this can be used to promote other government objectives within the legal sector. For

example, the Trust Account Income is also currently used to finance other initiatives such as legal aid.

The VLSB+C needs improved funding stability

What is the optimal balance?

The second argument provided in the Discussion Paper for significant PC fee increases is the VLSB+C’s

need for income stability. The CRG recommend seeking stability in funding, as this helps organisations to

budget and operate effectively.

There is no evidence to suggest that the existing combination of revenue sources is insufficient or

suboptimal. The existing revenue mix of 36% reliance on PC fees and 64% on Trust Account Income

provides a balanced and growing portfolio of revenues. Given the efficiencies of using the Trust Account

Income (as outlined above) and the very real economic and social costs of relying on PC fees more than

they already are (see Chapter 7 below), it is highly likely that, when weighing these costs and benefits

against the cost of a more variable income stream, the existing balance is already the most optimal. It is also

feasible, once societal benefits and costs are weighed up on balance that, in fact, a greater reliance should

be given to the Trust Account Income with a reduction in PC fees.

What has caused the recent fall in revenue?

The VLSB+C surpluses decreased from $25.305 million in 2014-15 to $3.568 million in 2015-16. The

suggestion in the Discussion Paper that the reduction in the 2015-16 surplus is a result of declining interest

rates is inaccurate and is undermined by comments in the 2015-16 VLSB+C Annual Report that show that

revenues have in fact been increasing. The 2015-16 VLSB+C Annual Report clearly states that the

“increase in revenue to $83.611 million from $65.280 million in the prior year was primarily driven by

the increase in interest and investment distributions revenue of $18.331 million. Despite the

continuing fall in interest rates, interest income increased due to higher Statutory Deposit Account

and residual trust balances”.




39

Table 7 – Financial performance of the VLSB+C

Detailed analysis of the VLSB+C’s financial performance from its 2015-16 Annual Report indicates that the

decline in surplus to $3.568 million from $25.305 million in the previous year can be explained by losses of

$28.384 million on financial instruments that are unrelated to falls in interest rates. Notwithstanding these

financial losses, the VLSB+C’s operating results are at a 5-year high and demonstrate significant and

improving income stability.

The VLSB+C’s proposals could undermine revenue stability

The proposals outlined in the Discussion Paper could impact on revenue stability in a negative way.

Significantly increasing costs to business could have a number of unintended and negative consequences.

For example, the increased costs may push more practitioners to provide services without a PC, or employ

those who do not have PCs, or result in businesses holding PCs simply failing to compete with those taking

the more cost effective path:

“Charge out rates in country Vic[toria] are lower than city and such substantial increases on the cost

of opening the doors will jeopardize legal practice and lead to increase in use of unqualified clerks

for legal services which results in lower standard of legal practice.”

In addition, as noted in the Discussion Paper, adding pressure on PCs with trust account authorisation could

encourage some practitioners to use trusts without the appropriate regulation (and not pass on the interest).

“The costs of insurance and compliance to small practices of 5 or less employed solicitors is a huge

barrier for growth. The second I hired a second employee my insurance alone increased 7-fold! To

now increase practi[s]ing certificate costs, particularly when there are so many shonky businesses

out there providing pseudo-legal advice is really infuriating. What's the point in being a lawyer

anymore?”

2011-2012 2012-2013 2013-2014 2014-2015 2015-2016

Net operating result $10,539 $4,224 $3,954 $11,200 $30,399

Net gain/(loss) on financialinstruments

-$6,184 $16,275 $16,915 $14,105 -$26,831

Net results from continuingoperations

$4,355 $20,499 $20,869 $25,305 $3,568

-$30,000

-$20,000

-$10,000

$-

$10,000

$20,000

$30,000

$40,000

(th

ou

san

ds)




40

As discussed in more detail in Chapter 7 below, increasing PC fees in what is an increasingly competitive

environment including under the LPUL (which also operates in NSW) could result in relocations from one

state to another.

There could also be an increased push towards the use of the PEXA Source Account, which operates to

facilitate electronic conveyancing transactions. Interest is not earned on the PEXA Source Account does not

benefit the PPF, and encouraging greater use of these accounts through high and uncompetitive fees will

undermine the stability of the Trust Account Income.

“Smaller (part time) practices will already be impacted by outside drivers, e.g. to engage in PEXA

and therefore open a trust bank account – all these additional imposts will be unsustainable for small

part-time practices…”

Given neither income stability nor the CRG assertions can be reasonably used to support a significant and

costly increase in PC fees, the LIV recommends that the proposed options detailed in the Discussion

Paper be reconsidered in the RIS.

A significant increase in fees will improve allocative efficiency

The Discussion Paper also argues that significant PC fee increases would provide an ‘appropriate price

signal’ and improve allocative efficiency. Regulatory fees in the shape of either PC fees or the significant

administration burden of being a tax collector and administrator (see Table 6) for the Trust Account Income

currently provide a signal that there are costs involved in regulating the system.

Given that the positive externalities of having a resilient legal system are so significant, it does not

automatically follow that a consequential allocative efficiency, or market-correcting behaviour changes,

would result from a fee increase. Significant negative externalities and vertical equity issues arise in

increasing barriers to entry through price increases and reduced resilience and competition within the

industry overall. Negative impacts are likely to include reduced access to legal representation where the

‘price signal’ precludes individuals due to affordability (see the discussion on access to justice in Chapter 7

below).

“Fee increases will cause financial strain on small regional practices which provide, of necessity, a

significant pro bono and community service to small communities in regional areas. It's the

community that is ultimately disadvantaged.”

In order to have a robust legal system which represents broader society, there needs to be diversity of

practitioners, ranging from solicitors in large firms to sole practitioners who service regional centres, through

to practitioners who engage in casual work. As discussed in more detail in Chapter 7, access to legal

representation and the robustness of the industry more broadly will be impacted if sole practitioners or those

who choose to do fewer or more flexible hours are forced out of practising law. If this were to occur there

would be a withdrawal of the number of providers and a reduction in the range of legal fees offered.

“I think I practice in the very low fee area of the industry. These kinds of practices play quite an

important role in servicing clients who would otherwise, just not access a lawyer or who would just

ignore the law. The burden of these higher fees may materialise in the community in other forms,

which may be more costly in the end result.”

The Discussion Paper does not provide any evidence to support the notion that the proposed significant

increases in PC fees will be balanced by commensurate allocative efficiency benefits.




41

In theory, adding the cost of regulating an industry to that industry could provide a price signal and,

therefore, an appropriate adjustment in the marketplace. For example a high licence fee on the property right

to fish a rare type of crab can be expected to impact on the final restaurant price, providing an automatic

adjustment in the market as fewer people order the expensive crustacean and, therefore, ultimately leading

to reduction of the crab-catch (as producers move to stronger demand, higher margin products). However, in

the case of an increase in PC fees, the price signals are unlikely to act as deterrence to poor behaviour

(unlike fines or, say, higher insurance premiums). Higher PC fees will deter practitioners from operating,

regardless of the standard of their practice42

.

Because of the significant vertical equity issues with the proposed options, the proposals could have the

reverse effect

“I have retired from income earning practice. All the work I do is now pro bono. I maintain a full

practising certificate to enable me to provide a complete and independent service to vulnerable

clients on a pro bono basis. I urge that any proposed fee increase take account of a person who

works solely in a pro bono capacity and who bears all their own expenses and costs, including the

practising certificate fee and PI insurance cost.”

There also appears to be an apparent misperception in the Discussion Paper regarding the appropriateness

of creating barriers to operation, as indicated by the phrase “there may be an oversupply of legal services”

on page 33. The only barrier to entry the legal sector should pursue is with regard to quality. If an

experienced, semi-retired, sole practitioner wants to average only four clients a year, then the PC fees

should not be used to discourage that.

The Trust Account Income should be used to fully cross-

subsidise other legal initiatives

The Discussion Paper suggests that PC fees should be increased, leaving the Trust Account Income pool of

funds for bodies such as VLA, the VLF and the VLRC. The LIV considers that some cross-subsidisation is

justified in order to support areas that bolster the whole social fabric of the legal system, but that there is no

viable argument to support full cross-subsidisation with large PC fee increases to the detriment of the legal

system framework itself.

The fee increase is needed to cover new costs

The Discussion Paper briefly considers that there could be a need for a fee increase due to new costs.

Although not clearly outlined out in the Discussion Paper, there could be an argument that there are now

‘new costs’ for the VLSB+C including, for example compliance audits (see Discussion Paper, page 21).

However, technological advancements and automation of business processes are likely to enable significant

efficiency gains, potentially even justifying PC fee reductions in the future. Notwithstanding any efficiency

gains, the LIV understands these ‘new costs’ to be minor and certainly not sufficient to justify the

unprecedented PC fee increases proposed in the Discussion Paper.

42 Ideally, depending on other costs, pricing would accurately reflect risk. However the Discussion Paper does not suggest a tiered

approach based on risk and while work on risk profiling is underway the results of this will be more than a year too late for this review’s current proposed timing.




42

6 ENSURING EFFECTIVE PROCESSES

AND TIMING

The timing of the RIS process, consultation and any regulatory changes needs to be more effectively

deliberated on in order to minimise disruption to business practices and provide business certainty, as well

as to incorporate new information from work currently being undertaken.

6.1 Full consultation on likely impacts

Given the above issues and the expected impacts within the economy, including on key government policy

objectives, it is vital that a full consultation process include all relevant government departments. At a

minimum, the Department of Economic Development, Jobs, Transport and Resources needs to be consulted

in relation to the expected impacts on: small businesses, Victoria’s competitive environment, jobs,

investment and innovation. The Department of Justice and Regulation will also need to be consulted, given

the expected costs to access to justice, particularly for the ‘missing middle’. It is also advisable that the

Department of Premier and Cabinet be consulted about the impacts on a range of government policies,

including impacts on gender diversity and workplace flexibility.

6.2 Timing

Under existing timing, submissions to the Discussion Paper are due at the end of March 2017. It is proposed

that a full RIS then be undertaken with a subsequent further consultation.

Under this scenario, given the magnitude of the RIS required and the extent of consultation, the full RIS

process is likely to be completed in the latter stages of 2017. However, as part of standard financial year

budgetary processes, all law practices, including sole practitioners, ought know what the fees will be when

setting their FY2017 budget.

Regulatory certainty is a crucial part of an effective economic framework for encouraging business growth. It

follows that sudden changes to the business operating environment should be avoided, particularly within a

budget period, which can create barriers to investment or innovation due to uncertainty. Implementation of

replacement regulations in March 2018 falls within the July 2017 to June 2018 budget cycle. As this process

is well short of having a final outcome before the commencement of FY2017, it is not recommended for

these changes to be implemented in March 2018.

6.3 Implementation

Were any of the current options outlined in the Discussion Paper enacted, a measured and comprehensive

implementation plan would need to be prepared and executed in order to avoid bill shock within the legal

industry. To be compliant, the RIS process would need to include a full implementation plan and consider

and mitigate the impacts of increases to PC fees, an upfront one-off annual cost, of potentially 32% to 218%.




43

6.4 Adopting a risk-based approach

The VLSB+C and the LIV are currently collaborating on a project regarding regulatory risk which may be

used to inform an appropriate regulatory framework through a risk-based analysis. The results of this project

may be used to better inform the current RIS process and provide strong a dataset to underpin the

sophisticated analysis and consideration of options required for this RIS, potentially reducing the costs of

regulation without sacrificing the benefits. However, the data and analysis are not likely to be available within

the next twelve months.

The need for regulation of practitioners with access to trust accounts is reasonably understood and

established. Moreover, the regulatory costs of regulating trusts are substantial, including:

significantly higher risks from the category of practitioners who hold trust-authorised PCs from either

deliberate or accidental misuse of trust money; and

additional auditing, education and certification.

Despite the above, there remain significant gaps in data and analysis. The risks and regulatory costs in

relation to practitioners without trust account authorisation are less well-established. The Discussion Paper

lacks sufficient data to effectively outline or analyse the regulatory risks regarding lawyers who do not have

access to trust money and, therefore, makes it more difficult to substantiate imposing additional fees on this

segment of the profession.

Given the need for an appropriate lead time for any changes to PC fees (assuming that is considered to be

the optimal outcome), to maximise industry certainty (and minimise the costs of change and uncertainty),

have effective and full consultation, and incorporate updated information which is not available in the existing

timelines, a further extension of the current regulations is recommended. On this basis, any change should

be adopted well in advance of the July 2018 budget-setting process, with changes to be implemented

in March 2019.




44

7 LIV SURVEY RESULTS AND ANALYSIS

OF PC FEE INCREASE IMPACTS

7.1 LIV Survey of Members and Analysis Framework

The LIV has undertaken a comprehensive survey (LIV Survey) of its members, with 769 responses on the

likely impacts of the significant fee increases proposed in the Discussion Paper. Some of the 215 written

survey responses received through the LIV Survey are shown in blue and provide ‘coal face’ perspectives to

the issues and economic discussion of unintended and negative consequences of the proposed PC fee

increases.

Survey methodology and respondent demographics is provided in Appendix A. A list of the questions asked

in is provided in Appendix B.

This chapter provides economic and policy analysis of the impacts of the proposed fee increases based on:

data obtained from the LIV Survey;

additional feedback and information obtained from LIV members outside of the LIV Survey;

the Victorian Government’s Guide to Regulation;

the CRG;

independent economic advice; and

an assessment of the proposals and process against the principles of good regulation (outlined in

Chapter 1 above).

7.2 The Extent of PC Fee Increases

As discussed in Chapter 4, sunsetting regulations and corresponding RIS processes often present

opportunities to consider improvements in regulatory efficiency. However, the scope of the Discussion Paper

is limited to the consideration of proposed options which represent significant PC fees increases and do not

take advantage of an opportunity to improve regulatory design and practice.

“The cost of regulation is not funded in any way by the public purse or the Government, nor by the

Legal Services Board: it is funded by the legal profession and our clients. Rather than bumping up

PC fees by rates far in excess of CPI, the Commissioner and the Board should be reviewing red

tape in the regulation of the profession and striving for efficiencies to actually reduce expenditure on

regulation...”

Sub-sections 10(1)(ba) and 12H(1)(c) of the SLA provide that a RIS must include a comparison of existing

and proposed fees, including the percentage change. Notwithstanding that it is not subject to the SLA, the

Discussion Paper fails to set out the percentage change between the current and proposed fees.

Consequently, it lacks the level of transparency regarding the scale of the proposed increases, necessary to

consider and assess the impact on industry and the broader economy. To provide clarity regarding the size

of the increases proposed the LIV has provided Table 1 below (reproduced from the Executive Summary to

this Submission) which illustrates the unprecedented size of fee increases suggested.




45

Sudden, substantial fee increases are discouraged within government due to the significant, detrimental

impact they can have on a specific sector and the broader economy. To provide context, Victorian

government policy requires that any fee increase above 2.5% a year cannot be undertaken without a RIS.

“I am strongly opposed to the proposed fee increases. They are dramatically higher than CPI. In my

view they are unjustifiable. I am staggered by the assertion that it costs in excess of $21 million per

year to regulate the legal profession in Victoria.”

Table 1 – Size of proposed PC fee increases

PC type

Current fees

(2016-17)

$/PC

Option 1

$/PC

%

increase

Option 2

$/PC

%

increase

Option 3

$/PC

%

increase

Option 4

$/PC

%

increase

Without trust

authorisation 344 913 165.4 1033 200.3 456 32.6 517 50.3

With trust

authorisation 509 1,623 218.9 1033 102.9 811 59.3 517 1.6

Total revenue

$million 7.6 21 176.3 21 176.3 10.5 38.2 10.5 38.2

The Discussion Paper effectively only provides two fee increase options on the existing regulatory model.

These options involve a total increase in revenue for the VLSB+C from PC fees of either 38.2% or 176.3%.

Option 1

The $21 million cost of regulation solely recovered from PC fees, using a tiered structure. A tiered structure

would mean that those with PCs with trust authorisation would pay more for their PCs than practitioners

without trust authorisation, with a proposed fee increase of 165.4% without trust authorisation and

218.9% with trust authorisation.

Option 2

The $21 million cost of regulation only recovered from PC fees using a single fee structure. This would mean

that all practitioners (regardless of whether or not they have trust authorisation) would pay the same fee,

with a proposed fee increase of 200.3% for PCs without trust authorisation and 102.9% for PCs with

trust authorisation.

Option 3

Recovery of the $21 million cost of regulation 50% from PC fees and 50% from interest generated from

solicitors’ and barrister’s clerks trusts accounts paid into the PPF, using a tiered structure. This would mean

lower PC fees than the 100% recovery from PC fees option 1. The tiered structure would again mean that

those with PCs with trust authorisation would pay more for their PCs than practitioners without trust

authorisation, with a proposed fee increase of 32.6% without trust authorisation and 59.3% with trust

authorisation.

Option 4

Recovery of the $21 million cost of regulation 50% from PC fees and 50% from interest generated from

solicitors’ and barrister’s clerks trust accounts paid into the PPF, using a single fee structure. This would

mean lower PC fees than the 100% recovery from PC fees option 2. This would also mean that all

practitioners (regardless of whether or not they have trust authorisation) would pay the same fee, with a

proposed fee increase of 50.3% without trust authorisation and 1.6% with trust authorisation.




46

Alternative options

As outlined in Chapter 4 the Discussion Paper focuses on increasing PC fees and, other than as a base

case, does not assess either the status quo (fees and current funding structure remaining as is) or reduced

regulatory burden (including consideration of best practice and benchmarking against relevant jurisdictions

as relevant options). The LIV submits that there are more effective models with reduced regulatory costs and

equal, or superior, regulatory outcomes that could be explored, were government to commit to a full and

independent review of how the legal profession is regulated. Further, should the charging of PC fees remain

a regulatory option, consideration should be given to the full range of fees options as indicated above.

7.3 Flat vs Tiered System

PC fees are currently tiered according to whether or not a practitioner is authorised to receive trust money. In

addition to options which maintain the tiered structure, the Discussion Paper also proposes options where

flat fees will apply to all practitioners irrespective of the type and conditions of their PCs.

When asked whether PC fees should remain tiered or a flat fee should be applied, over two-thirds of the

survey respondents considered that fees for PCs with trust authorisation should be set higher than those

without trust authorisation. The comment below is typical of a number of comments provided by respondents

to the LIV Survey:

“The idea of charging the same PC fee, whether or not you have trust authorisation, is unreasonable

and unfair to those who do not need trust authorisation. It imposes unjustified costs on practitioners

without trust authorisation. It is contrary to the ‘user pays’ principle, as those who hold trust

authorisation should bear the cost of regulation of trust accounts. It cross-subsidises the cost of

regulating trust accounts by imposing those costs on practitioners who do not hold trust accounts.”

PCs with trust authorisation

While the comment above (and other similar comments) indicates that the current tiered structure achieves

regulatory objectives, it should not be considered as justification to further increase fees for PCs with trust

authorisation. The costs of maintaining and auditing trust accounts are borne directly by law practices, so

government is absolved of its tax collector and administrator functions. It is recognised that this is still the

most efficient system, as otherwise government would be required to charge the private sector for the

performance of such functions. However, as outlined in detail in Chapter 5 and Box C above, the costs

associated with maintaining trust accounts are considerable.

Beyond the benefits to government of reduced administrative costs, and the direct allocative efficiency price

signals for practitioners who receive trust money, there are a number of positive externalities from having

well-regulated trusts. These include:

increased business certainty for all parties involved;

reduced information asymmetries; and

greater confidence in the system and capacity to conduct business fairly.

Given these positive externalities and efficiency benefits of the client trust accoutns for government,

government should be careful not to incentivise practitioners moving away from holding PCs with trust

authorisation. When respondents were presented with Option 3 from the Discussion Paper and asked to

what extent would a fee increase of 59% or greater for PCs with trust authorisation influence their decision to

hold this authorisation, more than 76% of respondents indicated that it would have either a noticeable or

significant impact which would prevent them from holding a PC with trust authorisation.




47

PCs without trust authorisation

Proposals for flat fees should not be considered as justification for unprecedented increases in fees for PCs

without trust authorisation. Given the vast majority of practitioners are not authorised to receive trust money;

the impacts of such increases could be detrimental to the legal system as shown later in this chapter.

Similar to the example above, respondents were also presented with Option 3 and asked how much an

increase in fees of 32% or greater for PCs without trust authorisation would influence their decision to retain

a PC and continue practise. 62% of respondents indicated that such an increase would have a significant or

noticeable impact, which suggested that this would have a significant impact and could compromise ongoing

practise.

Given that the flat fee proposal under Option 4 would in fact increase fees for PCs without trust authorisation

by more than 50%, the negative impacts would be even greater than what is already suggested by the data

above.

7.4 What Benefits and Costs need to be Considered?

“...law firms cannot pass the cost of those fee increases onto their clients. Law firms are operating in

a saturated and highly competitive market. Firms are all experiencing significant downward pressure

on fees…[m]ost law firms in Victoria are small practices of less than 10 lawyers. I expect that in

many cases the proposed increase in fees will be the tipping point…”

A significant increase in PC fees can be expected to have wide-ranging negative flow on effects. The

Discussion Paper accurately identifies three key potential effects of the proposed fee increases. These are:

creating an incentive for practitioners to practise law in other jurisdictions where practising

certificates are cheaper;

increasing the cost of legal services for users of those services and so deterring some people from

using legal services; and

increasing the cost of legal services for the ‘missing middle’ – the majority of low and middle-income

earners who would not otherwise qualify for legal aid.

The LIV supports the full and transparent assessment of these impacts and likely productivity, employment

and equity outcomes, in the RIS.

However, the extensive negative impacts can be expected to be more far-reaching than those listed above.

Given the importance of the legal sector as a fundamental component of the economy43

, adverse impacts

within the legal sector can be expected to have a range of disadvantageous flow on effects through other

parts of the economy. Notably, a significant PC fee increase could undermine productivity, economic growth,

employment and the achievement of other key government policies.

43See Chapter 2 of this Submission for a broader discussion.




48

Negative impacts on the economy and government policy objectives

There are a broad range of adverse impacts that need to be fully assessed and outlined as part of a

comprehensive RIS process and consultation, many of which have not been considered in the Discussion

Paper. A number of the negative impacts from the proposed fee increases will directly undermine key

Victorian government policy objectives. In brief, these include:

detriment to Victoria’s growth and productivity;

detriment to Victoria as the preferred place to do business;

detriment to growing Victoria’s regional economy, suburbs and National Employment Clusters;

reduced employment, workplace flexibility and age and gender diversity; and

detriment to access to justice and vertical equity.

Each of the above will be discussed in greater detail in this chapter.

Detriment to growth and productivity

“I…feel that the profession is over-regulated and does not allow practitioners sufficient flexibility to

respond innovatively or dynamically to doing business in the modern day.”

The impact on growth and productivity of increased costs of doing business and costs of increasing the

regulatory burden are well-documented. Direct and indirect costs of regulation can place a substantial impost

on the ability of businesses to employ and retain employees, start new businesses, innovate and take on

more risk (including growth opportunities), or respond with agility to market opportunities and threats.

Increased costs must either be absorbed through cost reductions in other areas, such as employment costs

or passed on to customers or owners. Increasing the cost of doing business increases barriers to entry,

thereby reducing competition and other potential benefits44

.

“The higher…fees…operates as an effective barrier to entry for many smaller firms.”

These fixed costs and negative flow on impacts hit hardest where there are a larger proportion of the overall

costs and revenue-base of an organisation. This makes the fee increases particularly detrimental for

Victoria’s small and medium law practices, community legal services and sole practitioners. The vast

majority of legal practitioners are either sole practitioners or part of a small business (less than 20

practitioners), as also demonstrated in our survey data see Chart 1 below.

44 See, for example, for example, Nicoletti and Stefano, ‘Regulation, Productivity, and Growth: OECD Evidence’ (2003) The World Bank,

where the authors looked at differences in the scope and depth of pro-competitive regulatory reforms and privatisation policies as a possible source of cross-country dispersion in growth outcomes and, in addition to recognising the benefits of lower costs to entry, also found that regulations that limit entry may hinder the adoption of existing technologies.




49

Chart 1 –

The detrimental impact to competition will be most evident in suburban and regional areas, where

geographic accessibility to legal services is most limited and local competition scarce.

Chart 2 –

However, costs to productivity and growth from poor or overly burdensome regulation even form one specific

sector are insidious across the board as can be shown from productivity gains when that burden is lifted.




50

Access Economics (now Deloitte Access Economics) notes that it is the efficiency losses, including through

increased costs to business, that are likely to be the largest of the productivity burdens.

“An indirect yardstick of the current burden of regulation on prosperity comes from estimates of the

efficiency gains from two decades of deregulation and reform. Access Economics has estimated

these at 10.8% of GDP, while the Productivity Commission, the Melbourne Institute and others have

estimated smaller efficiency gains from individual reforms (such as national competition policy or tax

reform).”45

The costs from overzealous regulatory burdens can be significant for Victoria’s economy:

In Australia the Productivity Commission estimated that improvements in productivity flowing from

microeconomic reforms, such as the deregulating reforms of National Competition Policy, have

benefited the average Australian household by $7,000. Productivity improvements and price

changes in infrastructure sectors have created a permanent increase of 2.5 per cent in Australia’s

GDP, equivalent to around $20 billion.46

The OECD has estimated that the direct compliance costs of regulation for small and medium-sized

Australian businesses in 1998 was more than $17 billion.47

Expected results:

Increased costs of doing business reduces the productivity drivers within Victoria including:

direct and disproportionate negative impacts on small business;

“We are a small country practice that has only been around for less than 3 years. We are struggling

to make this practice work…”

“The current regulation is onerous. Any increase in regulation and compliance adds to the cost of

operating a practice.”

“The proposed fee increase will not affect my decision to renew my practicing certificate and

continue to practice but it has huge implications for me as the director of a firm in terms of

dramatically increased business expenses.”

jeopardising the viability of small business;

“I run a small firm in [redacted] where I employ myself and 3 paralegals. 2 of my paralegals will be

admitted to the legal profession this year, and I have been training them with a view to having them

admitted and to hit the ground running when they are. The increases in fees would have a huge

impact on my cash flow and overall staffing costs. As a small business, these kinds of changes have

a significant effect on my ability to do business and pay my bills.”

“As a practitioner of 15 years who runs my own small suburban practice, with 2-3 lawyers at any

given time, a significant increase to PC fees will only add more burden to my already stretched

capacity to financially run this practice. In addition to PC fees, CPD [continued professional

45“Access Economics, Benefits and Costs of Regulation (2005) 13.

46Productivity Commission, Review of National Competition Policy Reforms (2005) 17

<http://www.pc.gov.au/inquiries/completed/national-competition-policy/report/ncp.pdf>. 47

OECD, Businesses’ Views on Red Tape – Administrative and Regulatory Burdens on Small and Medium Sized Enterprises (OECD, 2001).




51

development] costs and LPLC [Legal Practitioners’ Liability Committee] fees, as a migration lawyer

[I] am also required to pay an additional $1595 for each lawyer as a result of dual regulation with the

MARA [Migration Agents Registration Authority]. When all these ‘costs’ add up, it is an incredible

burden on a small 1 partner practice.”

discouraging innovation, risk-taking and pursuit of growth opportunities;

“As a sole practitioner with two employee solicitors, the impact of a fee increases makes it less

attractive to employ qualified professionals. Many non-qualified paralegal/assistants are able to

conduct work under supervision. Taking into account the professional indemnity insurance and the

fees for practising certificates it would make me less likely to grow the practice and more likely to

scale down.”

“The costs of insurance and compliance to small practices of 5 or less employed solicitors is a huge

barrier for growth.”

“Suburban and country practitioners are a dying part of the profession yet we are at the coal face

providing a vital service to normal people who are not part of the big end of town but who,

nevertheless require basic legal services. Don't expense us out of the system! Such a big increase

would impact on our discussion to grow our firm so please don't increase it.”

discouraging promotion, employment and training opportunities;

“The regulation costs and insurance costs of a law practice are already extremely high. In particular,

the practising certificate and Law Institute membership, and LPLC premium for a junior practitioner is

up to 10% of the total costs associated with our office employing a junior practitioner. If practising

certificates rise by the amount proposed by the LSC I would expect that this would:

impact our preparedness to employ and train junior solicitors

impact any wage review of junior solicitors as they become more senior. Ie, create a de

facto pay rise freeze

create a shift in our business from employing more solicitors to employing more support staff

to generate more work from solicitors already employed

create a disincentive for providing young practitioners with 1-2 years initial training in our

firm. I am happy to discuss these”

“As a small business owner, the proposed increase in fees are substantial and would most definitely

stop me from employing more lawyers.”

“I work for a CLC [community legal centre] that is struggling to maintain the current number of

lawyers we have due to funding constraints and at least 2 positions will go in July unless we are

successful in obtaining further grants we are currently applying for so a big increase in fees will have

a major impact on our CLC and all others who would be in the same situation as ours.”




52

Detriment to Victoria as the Preferred Place to Do Business

“The regulatory model is far too complicated and should be simplified and made more cost efficient.”

Victoria’s rapid population growth48

is a key driver in fuelling the state’s property sales, finance growth and

consumer demand. Despite this, Victoria is ranked fourth in Australia behind NSW, Northern Territory and

ACT in terms of overall growth. Competitive pressures continue to be significant, and Victoria remains

second to NSW for business investment49

.

Competition between states for businesses is real and has been increasing in the legal sector. From 1 July

2015, the LPUL was introduced by the Victorian and NSW governments through new legislation. As part of

the suite of legislative changes, the Legal Profession Uniform General Rules 2015 (LPUR) were also

introduced. The LPUR provide a consistent set of requirements for all aspects of legal practice, including

admission and registration, continuing professional development and professional conduct standards. LPUL

has further exposed the pricing of PC fees to competition. While this is subject to the two rules outlined

below, neither of these would prevent a practitioner from reconsidering where their ‘principal place of

practice’ should be due to the higher costs of doing business in one state compared with another:

Section 46 of LPUL requires a lawyer to inform the local regulatory authority (in Victoria, the

VLSB+C), when applying for a PC, if Victoria will be the principal place of practice, and to notify the

VSLB+C if the principal place of practice changes; and

Rule 12(1) of LPUR requires a lawyer, when applying for a PC, to state the participating jurisdiction

(Victoria or NSW) that the lawyer reasonably intends will be the lawyer’s principal place of legal

practice in Australia.

Were Victoria to charge significantly higher PC fees, not only would this incentivise lawyers to apply for their

PCs in the less costly state, but the principal place of practice rule could have the additional adverse

incentive of encouraging sole practitioners or large firms (where they are paying for multiple PCs) to move

states on a permanent basis.

“It seems that the costs of regulation in Victoria are significantly higher than other comparable states,

from what I have read NSW seem to be far more efficient. I often wonder whether there is both a

legal services board and commissioner. I cannot see why the job of regulation could not be

incorporated into the role of the LIV and utilise the existing infrastructure within the LIV.”

It is already significantly cheaper to renew a practising certificate in NSW compared to Victoria, when taking

into account contributions to the legal practitioners’ fidelity funds in each jurisdiction. In NSW the $70 Fidelity

Fund fee is included within the $440 flat fee to renew PCs. This is in contrast with Victoria, where a further

Fidelity Fund contribution of up to $496, depending on the status of a practitioner or practice’s trust account

must be paid on top of PC fees. A significant increase in PC fees would further exacerbate Victoria’s

competitive disadvantage compared with NSW.

From the LIV’s analysis of the cost of regulation of the legal profession, it is apparent that NSW uses a highly

efficient and effective regulatory model (under the same Uniform Law) with a cost of regulation per

practitioner which is more than 60% cheaper than Victoria (see Section 4.3 for further discussion).

48 Victoria grew by 127,498 people in the year to September 30 2016 to a new record total of 6,100,877, an astounding 2.13% pa growth

rate (just below the record was set in June 2009 of 2.29%. 49

ComSec State of the States - State & territory economic performance report January 2017




53

Expected Results:

Undermining Victoria’s reputation as a low-cost and low-regulatory burden state in which to do

business.

Businesses of all sizes considering whether, given fee changes, they should operate wholly or

predominantly from NSW rather than Victoria.

Decreased employment.

Decreased investment.

Decreased availability of lawyers and reduced competition in some geographic areas (potentially

decreasing downward competitive pressures on fees).

A shift from Victoria to NSW as the ‘legal hub’ of Australia.

Detriment to growing Victoria’s regional economy, suburbs and National

Employment Clusters

The legal community plays an important role in regional centres, and ensures access to justice not only for

individuals but for the many small to medium businesses that operate in that centre. But as a number of

studies indicate there is a level of fragility in the resilience of a number of regional (and suburban)

practices50

:

“The continuing provision of effective legal services to regional Victoria is of strategic importance to

the future of these communities and the State and National economies. Yet, recent studies point

towards a growing gap in the local availability of legal services for regional communities and

commerce.”51

This fragility and the importance of legal practices in regional and suburban areas is apparent from

comments provided by LIV members. It is clear that significant fee increases would have major ramifications

for small practices in regional and suburban centres from loss of employment and decreased access to

justice, through to more insidious damage to the social framework of an area.

“There are only [redacted] firms in [redacted]. We are independent and small and need a trust

account to operate. Our presence is like the banks in the towns- they are disappearing in the non

lucrative areas and providing call centre advice. Why do you want to further destroy our viability?”

“I do not feel that I can just shut down my practice because of the social obligation I have to the

community, so I continue to practice, increasingly unprofitably. Access to the legal system is hard

enough for country people and if I do make the decision to close my business (because I can

certainly be better rewarded financially doing something other than practice law in the country) my

client base will have no choice other than to travel.”

50 See , for example, the submissions of the Deakin Law School’s Centre for Rural and Regional Law and Justice:

https://www.deakin.edu.au/__data/assets/pdf_file/0010/258553/inquiry-5.pdf;

https://www.parliament.vic.gov.au/images/stories/committees/fcdc/inquiries/57th/Disability/Submissions/13_Centre_for_Rural_Regional

_Law_and_Justice.pdf;

http://www.pc.gov.au/inquiries/completed/access-justice/submissions/submissions-test/submission-counter/sub020-access-justice.pdf; and http://www.lawreform.vic.gov.au/sites/default/files/Submission_CP_5_Centre_for_Rural_Regional_Law_and_Justice_28-09-15.pdf 51

Deakin University, Providing Legal Services to Small Business in Regional Victoria (2012)

<https://www.deakin.edu.au/__data/assets/pdf_file/0006/258135/pubs-6.pdf>.

https://www.deakin.edu.au/__data/assets/pdf_file/0010/258553/inquiry-5.pdf

https://www.parliament.vic.gov.au/images/stories/committees/fcdc/inquiries/57th/Disability/Submissions/13_Centre_for_Rural_Regional_Law_and_Justice.pdf

https://www.parliament.vic.gov.au/images/stories/committees/fcdc/inquiries/57th/Disability/Submissions/13_Centre_for_Rural_Regional_Law_and_Justice.pdf

http://www.pc.gov.au/inquiries/completed/access-justice/submissions/submissions-test/submission-counter/sub020-access-justice.pdf

http://www.lawreform.vic.gov.au/sites/default/files/Submission_CP_5_Centre_for_Rural_Regional_Law_and_Justice_28-09-15.pdf




54

Ensuring that there is business certainty and logical business outcomes is a vital part of regional productivity.

The local solicitor often plays a significant role in developing and maintaining the social fabric of the regional

town.

“We are a small country practice that has only been around for less than 3 years. We are struggling

to make this practice work and given the massive push for practitioners in regional areas, there

should be some incentives. This fee increase would be very difficult for us coupled with the LPLC

fees…”

There have been a number of studies done on the importance of a strong legal framework and social fabric

in regional centres for them to prosper52

. The country solicitor often plays a significant role in the community.

They are often the Justice of the Peace as well as taking on the role of sheriff and mediator. In addition, they

are frequently the keeper of the governance skill base for a centre with a range of volunteer roles on the

boards and committees which help to ensure the success of the organisations, from the local school through

to the regional basketball association to the agricultural co-operative. For example, in a 2012 submission,

Deakin University noted that:

“...legal practitioners with local knowledge and mediation or collaborative practice skills, who foster a

less adversarial approach, are vital in smaller communities where those in dispute need to continue

to work and live together. In many instances, effective advice requires a local understanding of the

unique circumstances of a particular region or industry, placing regional law firms in a prime position

essential for providing small business with the capacity to optimise the commercial opportunities

arising as a result of these evolving specialist areas.”53

A significant rise in fees could jeopardise the ongoing viability of a number of suburban and regional legal

practices with flow on business and social impacts through the geographic areas in which they are

embedded.

“Sole practitioners in country Victoria are doing it tough. The clients you do get don't want to pay city

prices and often don't want to pay at all! I think there should be a different rate for trust account

holders and for both categories (Trust Acc and no Trust Acc) there should be a concession rate for

country practitioners.”

A rise in fees is also likely to force practices to increase their fees and reduce their pro-bono or lower fee

work.

“Firms doing legal aid work have no capacity to increase fees to VLA when overheads increase. The

result will further erode firms' ability to do legal aid work in the country.”

In response to the question “How much impact would an increase of 59% or greater on the current practising

certificate fee of $509 have on your decision to hold a practising certificate and continuing to practise?” 78%

answered that this would have a noticeable or significant impact to the point of compromising ongoing

practise. Of the suburban and regional respondents, 83% felt that there would be either a noticeable

or significant impact to the point of compromising ongoing practise.

52 Ibid.

53 Deakin University, above n 54.




55

Reduced employment, workplace flexibility and age and gender diversity

“The higher the practising certificate fees the less likely we will be able to employ solicitors as the

costs become too large and we are better off employing a clerk for whom we do not have to pay

fees.”

Employment

PC fees are one of the core costs of doing business in the legal sector. An increasing business cost

particularly in environments where there is little leeway to pass on costs, requires all business costs to be

reviewed. Given comparatively smaller margins, the fixed cost of a PC, regardless of profit, is likely to be felt

more drastically by smaller practices and sole practitioners. Sadly, practitioners operating in outer-suburban

or regional areas in more disadvantaged communities will be least able to pass on increased business costs,

are likely to be already facing slim profit margins and are consequently more likely to reduce the number of

employees (or fail to employ new ones) as demonstrated by a sample of LIV members’ comments below:

“[I]t would affect the firm's willingness to hire additional lawyers or to continue to employ existing

lawyers unless strictly necessary.”

“It will impact upon future employment prospects of current employee lawyers.”

“I am a lawyer working for a non-profit organisation (union) which provides legal services to union

members. We do not bill for our work. Our small team services around 20,000 members who would

otherwise be unable to afford legal assistance. Currently my organisation is proactive in taking on

junior graduate lawyers and fostering their development, which I feel is very beneficial to the

continuation and advancement of the legal profession given the glut of law graduates in the market

looking for work. A large increase in fees would be a significant obstacle to my employer continuing

to take this approach to hiring and fostering development of young lawyers, and may even threaten

the jobs of the current (quite small) team that we have.”

There is a highly significant correlation between decreased employment and increased disadvantage in an

area. Impacting on small businesses in outer-suburban and regional areas can have significant and long

lasting negative impacts including contributing to intergenerational disadvantage.

Gender diversity

The proposed substantial fee increases will have ramifications for gender diversity in the sector. Gender

diversity has been slowly improving over the last ten years, and is now expected to reach 50% parity in early

201754

. Similar to other industries, it is likely that a key aspect of this increased diversity has been the

employment flexibility55

. afforded through many legal profession roles. Part-time and casual work is a

significant factor in this flexibility equation, including the ability of sole practitioners (including stay-at home

mothers) to increase, decrease or adapt their workloads.

“I work part-time, I pay for my own practicing certificate, and CPD. These items together cost more

than what I earn.”

54 Victorian Legal Services Board and Commissioner, Annual Report 2016(2016) 6<http://lsbc.vic.gov.au/documents/Report-Victorian

Legal_Services_Board_and_Commissioner_annual_report_2016.PDF>. 55

See for example Douglas Hall and Victoria Parker, ‘The Role of Workplace Flexibility in Managing Diversity’ (1993) 22(1) Organizational Dynamics, 5.

http://lsbc.vic.gov.au/documents/Report-Victorian




56

“I believe all fee structure options proposed by the VLSB+C will disproportionately negatively affect

sole practitioners practising without trust authorisation and will push many of them out of practice

thereby reducing the overall number of practitioners in Victoria. The sole practitioners in this

category I believe would be mostly mothers with small children who are not able to take full time

employment in law firms due to their family commitments. As such, the fee rise will again hit such

female lawyers the hardest and further reduce the number of women practising law.”

The literature indicates that a likely theme in the positive diversity story is the legal sector’s capacity to have

effective ‘off ramps and on ramps’56

. This includes the capacity of women juggling family to keep ‘their hand

in’ and skills fresh by assuming occasional or less than full time work. The legal sector currently offers part-

time and contract work in small, medium and larger firms, providing a conducive environment for those

juggling other roles to work. A significant proportion of the legal sector is made up of sole practitioners and

micro businesses where individuals pay for their own PCs.

“It is costly for me to maintain a PC just so I can do a little work around a young family and I would

not appreciate soaring PC fees. Increased fees would not impact on my applying for a PC with trust

because I need that to legally do my work but it would impact on me financially…”

In response to the question “How much impact would an increase of 59% or greater on the current practising

certificate fee of $509 have on your decision to hold a practising certificate and continuing to practise?” 78%

answered that this would have a noticeable or significant impact to the point of compromising

ongoing practise. Of these respondents, 74% pay for their own fees. This is disproportionate against the

total sample where self-paying and employer paying ratio is 50:50, providing strong evidence that it is the

smaller businesses and sole practitioners where individuals pay for their own PC who will be most negatively

impacted by a significant increase in PC fees.

If the cost of PC fees rises from its current rate, it can be expected to impact more generally on cost of doing

business, and therefore decisions such as whether to remain in the industry and/or whether or not to employ

additional employees, including casual or part-time, with consequent workplace flexibility and gender

diversity impacts. This includes the marginal work-hour practitioners including stay-at-home mothers and

semi-retirees.

Increasing PC fees can make employers of casual or part-time workers reluctant, for example, before hiring

two employees (who require two PCs) to job share as it is double the cost. Economic literature backs the

view that cost of employment increases due to fee increases, and are likely to impact on the decision

whether to take on additional employment. Given their PC fee is fixed, while output is potentially variable this

will be particularly so for the extra casual or part-time employee where employers pay for the PC fees.

In responding to the question “How much impact would an increase of 32% or greater on the current

practising certificate fee of $344 have on your decision to hold a practising certificate and continuing to

practise?” As discussed above, 62% said that there would be either a noticeable or significant impact

and could compromise ongoing practise. However, this percentage increased markedly to 77% when

looking at part-time or casual employees who pay for their own PCs. This is highly disproportionate against

the total sample responses, indicating that part-time or casual employees will feel a disproportionately

greater negative impact as a result of a $344 fee increase.

56 See Sylvia Ann Hewlett and Carolyn Buck Luce, Off-Ramps and On-Ramps: Keeping Talented Women on the Road to Success

(March 2005) Harvard Business Review <https://hbr.org/2005/03/off-ramps-and-on-ramps-keeping-talented-women-on-the-road-to-

success>.




57

An increase in PC fees will act as a deterrent to hiring. Of those respondents that had capacity to make

hiring decisions over 75% indicated that the increase in fees would prevent them from hiring an

additional person or have an impact on the marginal hiring decisions (where other factors are also

influencing). Alarmingly, 23% of those with the capacity and authority to hire would not be able to hire

under the scenario of the proposed fee increase.

The impact of PC fee increases on respondents’ marginal decision to hire (52% of respondents) should not

be underestimated. Economic evidence backs the view that increasing employment costs within a specific

sector will have a substantial impact on employment within that sector, including the ‘3 for 10 rule’, based on

a range of international studies that demonstrate a 10% increase in labour costs will generally result in

decreased employment or employment hours or a combination of both by 3%57

.

“When labor costs increase, an employer’s immediate options are to do nothing and absorb the extra

cost, or to reduce the amount of labor employed. It takes time to alter capital investments in

machinery, buildings, and technology, which might allow a more efficient operation. On the other

hand, changing workers’ hours, or the number of workers, is quicker and easier. So an employer’s

first decision when labor costs rise is whether to do nothing or to reduce employment and/or hours;

and, if the latter, by how much.”58

There is often a significant lag in employing new people even when the increased workload from new

business or opportunities is substantial. With business absorbing extra workload using current staffing where

possible, rather than hiring new employees. Providing increased costs to hiring an employee puts off hiring

decisions further. Where this occurs in one firm it will not register in the economy; however the proposed fee

increases outlined in the Discussion Paper will impact across the entire Victorian legal sector and the

employment costs can be expected to be measurable.

Age diversity

A significant proportion (more than 20%) of the respondents have been working more than 35 years and may

be undertaking or looking for greater workplace flexibility or semi-retirement now or in the next 10 years (see

Chart 3 below). It is important for the diversity and experience levels of the legal profession that the costs of

doing business are not increased to the point of losing key members of the legal workforce.

“I have been practising since 1969 and there seems little consideration for senior lawyers and the

cost of maintaining a certificate.”

“My practice is part-time; I am semi-retired. And my Trust Account, though necessary for Estates, is

little-used. I have no capacity to absorb any sizeable increase in fees.”

57 See for example, Daniel Hamermesh, Do Labor Costs Affect Companies Demand for Labor?, (2014) IZA World of Labor

<https://wol.iza.org/articles/do-labor-costs-affect-companies-demand-for-labor/long>.

58 Ibid.




58

“Although I hold a Full Practicing Certificate, I work part - time only ie one day a week as the General

Counsel for a construction company. I do not have any other income. I am also the volunteer

General Counsel for the Asylum Seeker Resource Centre (ASRC) in Footscray. The substantial

increase in fees will greatly affect my ongoing volunteer commitment as General Counsel to the

ASRC and my part-time employment. I have been practising law for more than 35 years, and this

proposed increase lacks consultation with the legal profession, lacks understanding of the various

roles undertaken by lawyers, lacks the depth of proper research and is totally unrealistic and

unwarranted. I am a lawyer who is working part-time as I am not ready to give up my legal

profession and in addition I am committed to continue working for the ASRC. The proposed increase

must be objected to and challenged by the Law Institute.”

Chart 3 –

More than 20% of survey respondents have been in practice five years or less. The detriment of an increase

in PC fees for those who are less experienced and either trying to find or retain work can be substantial. This

is because fixed costs against employees who are still improving their productivity, or are less productive

because they are doing fewer hours, are relatively higher than those against a full time more experienced

employee, as illustrated by employer responses59

:

“If practicing certificate fees increase it will be more difficult for graduates to gain employment as

solicitors/lawyers. It is already very difficult as some firms would rather hire paralegals and/or clerks

(i.e. have a law degree, but you don't have a practicing certificate).”

50CommSec, State of States – Executive Summary State & Territory Economic Performance Report (2017).




59

“I run a conveyancing practice. I will be much less likely to employ law grads if the PC fees increase

much. We charge low, fixed fees so the burden of PCs, LIV Membership, PI insurance and CPD (all

of which I pay) is already significant. “

A number of practitioners, including those in the first few years of practice, are paying their own PC fees. An

increase in the PC fees will form a barrier to entry for some of these practitioners or jeopardise the viability of

them continuing to practise.

“I am a first year lawyer and earn $25 per hour a fee increase of any kind affects me greatly as I

don't earn very much”

Diversity of practitioner and legal businesses

A resilient legal sector will have many different types of practitioners and robust competition. A significant fee

increase will impact on a range of different businesses and practitioners.

For some practitioners, a significant PC fee increase is expected to impact on crucial decisions, such as

whether to invest or remain in the industry.

The RIS should fully assess the impacts on these various groups within the legal sector. The higher fees

may result in fewer government lawyers renewing their practicing certificates.

“Practising certificates are paid for Government lawyers in our State Government department.

Higher fees may mean place this arrangement in doubt if those fees place too much pressure in

internal budgets, meaning lawyers will need to pay for their own. There is no capacity to recoup

costs from internal clients as we do not charge fees.”

Higher fees may also mean that there are fewer surviving community legal practices and pro bono work

undertaken.

“Any of the increases proposed will have a very significant impact on Community Legal Centres

which have no capacity to recoup the costs of Practicing Certificates, are likely to have more part-

time solicitors and are facing funding cuts.”

“[T]his will have a significant impact on the already underfunded community legal sector and there

should be a fee waiver for community legal centre paid lawyers”

“The profession is overly regulated already…Firms doing legal aid work have no capacity to increase

fees to VLA when overheads increase. The result will further erode firms' ability to do legal aid work

in the country.”

“I work for a not for profit provider of legal services. We do not charge client fees. Any increase in

costs associated with the right to practice cannot be passed on to clients. An increase in the cost of

practising therefore results in a reduction in service delivery. Practitioners in not for profit

environments should therefore not be paying the same rate as practitioners in for profit

environments. There is a long history of Pro Bono in the law. Why shouldn't this extend to providing

free practising certificates for not for profit providers of legal services?”




60

Expected Results:

Reduced employment (potentially measurable impacts in some areas of the legal sector).

Reduced flexible options within employment.

Impacts on availability of flexible roles or incentives for women to maintain suitable ‘on ramps’

through continued, but significantly lighter, caseloads.

Impacts on senior, experienced practitioners.

Barriers to entry or to remaining within the legal profession for practitioners with experience of five

years or less.

Impacts on government lawyers.

Impacts on pro-bono work and the not for profit sector.

Detriment to Access to Justice and Vertical Equity

“…given the cost of running a practice is constantly increasing, including PI insurance, rent, wages

etc., the reality is we will have no choice to pass this increase onto customers by increasing our

rates, and therefore shutting out consumers from obtaining legal advice…”

The Discussion Paper refers to Access to Justice issues on page 38. The Discussion Paper raises the

expectation that the fee increase could decrease competition at the lower charging end, which caters for

clients with lower capacity to pay (see pages 46 and 49 of the Discussion Paper for example)60

. However the

next step of the connection between this reduced competition, availability of lawyers offering services at the

lower end and the consequent legal services prices increase further providing increases to legal fees (in

addition to passing fees on) is not fully outlined. A substantial increase in PC fees will impact on access to

justice, regardless of whether fees are ‘passed on’ or not. The full costs of reduced access to justice need to

be examined in detail in the full RIS.

“The market in which country practitioners operate is vastly different to that of our City colleagues.

The pricing of legal services is absolutely limited by the client’s capacity to pay. I for one have not

increased my fees for the last three years simply because the economic environment I live and work

in has stagnated (in an area that was already a designated as socially and economically

disadvantaged), the costs of running my practise have in that same period continued to rise

inexorably (compliance costs, wages, town agents fees, rent etc).

“I do not feel that I can just shut down my practise because of the social obligation I have to the

community, so I continue to practise, increasingly unprofitably. Access to the legal system is hard

enough for country people and if I do make the decision to close my business (because I can

certainly be better rewarded financially doing something other than practise law in the country) my

client base will have no choice other than to travel (and by travel I do mean not just next door or

walking down the street as is the case or the option for clients in the city and suburbs, where there

are a plethora of legal practises to choose from.”

A reduction in the level of Access to Justice is a significant concern when increasing the cost of doing

business in the legal sector. Consistent with Box E above, there are impacts on Access to Justice from

significant fee increases, regardless of whether or not fees can be passed on to the client. Where

practitioners are able to pass on costs there will likely be an increase in fees for those paying for the relevant

service. Fees will usually be passed on where the market can absorb them. In practice, this may mean that

60 Victorian Legal Services Board + Commissioner, Review of Lawyers’ Practising Certificate Fees Discussion Paper (2016) 46, 49

<http://www.lsbc.vic.gov.au/documents/Discussion_paper-Review_of_practising_certificate_fees-2017.pdf>.




61

there are a sufficient number of clients with the capacity and willingness to pay to enable a viable business to

continue. There may also be a number of clients without capacity to pay the increase who then do not seek

or have access to legal assistance or representation.

“The majority of my work is from community legal services for clients who do not qualify for legal aid.

These clients cannot absorb any increase in my fees.”

In some cases, the client will have both the capacity and willingness to pay. However as a number of reports

have noted, 61 there is a significant proportion of those who need legal advice, are not eligible for Legal Aid

assistance but do not have the capacity to pay. Increasing PC fees where these fees can be passed on and

individuals are already on the margin of being able to afford legal services will have a direct impact on

access to justice. More than 17% of respondents to the LIV survey indicated that they would have capacity to

pass on the fees to their clients (see chart x below).

As Box E Section X above illustrates, where practitioners are not able to pass on the fee rise costs, the

adverse effect on Access to Justice is also likely to be significant. As the added costs of doing business are

fixed costs, it is the smaller businesses with less capacity to absorb the fees that will be hit hardest. For

businesses already facing slim profit margins, the costs can be significant.

“I do a lot of free or very low cost work for those who can't afford to pay much, as well as for the local

sports club. After paying fixed costs and CPD each year, I usually break even or make a few

thousand dollars. I am happy with this situation as I get personal satisfaction from helping people

who otherwise could not access legal advice, but any rise in my fixed costs would mean I could not

continue to operate the way that I do and I will have to stop practising law. As I am 54 and have

been self employed for 17 years, I would find it pretty hard to get another job in law and will probably

end up changing career or more likely, being unhappily unemployed. I think I provide quite a

valuable service to my friends, family, neighbours and community and I would be very sad if I

couldn't continue.”

It is often these lower margin businesses charging lower legal fees that play an important role in providing

access to justice for those with limited capacity to pay. Increased fees can impact on competition at this

access to justice point of entry.

“As a community legal service, any rise in practising certificate costs will be a significant impact on

our service delivery to vulnerable people.”

Increased PC fees may also result in a number of law practices closing down further exacerbating issue of

the availability of legal services and geographic price competition.

“Country practitioners and more specifically the law firms are under extreme cost pressures and

quite frankly most are not profitable. Further imposts by the VLSB on lawyers should be resisted.”

Competition may also be reduced due to the increased fees resulting in practitioners:

finding alternative employment outside the legal sector;

moving interstate (for example NSW, where the costs of running a legal practice are lower); and

fewer legally trained graduates being able to pay their own way or being hired due to the increased

costs of hiring.

61 See for example, Productivity Commission, Access to Justice Arrangements – Inquiry Report No. 72 (2014)

<http://www.pc.gov.au/inquiries/completed/access-justice/report>.




62

The reduced competition is likely to result in a reduction in locally available lawyers, including in regional

centres, with flow on price increases. In addition to a reduction in legal service availability, declining

competition will have a similar impact to the situation where fees can be passed on directly. Under declining

competition, the costs increases create a barrier to access to justice.

“Suburban and country practitioners are a dying part of the profession yet we are at the coal face

providing a vital service to normal people who are not part of the big end of town but who,

nevertheless require basic legal services. Don't expense us out of the system!”

More than 82% of respondents indicated that they or their firm would not have the capacity to pass on the

increase in fee costs. Amongst the small to medium sized businesses (those with 20 practitioners or less),

this figure was larger again with 83.6%, and amongst those small to medium sized businesses for those

based in regional centres this figure was even larger at 85%.

“The proposed increase will ultimately be reflected in fee increases, will influence marginal

employment decisions and does not account for the already high cost of maintaining trust accounts.

The interest earned should in the first instance act as an offset against increased costs rather than

pass those costs on. Costs passed on ultimately affect price.”

Chart 4 –




63

Expected Results:

In around 17% of cases fees, will be fully passed on as added legal costs. In some of these cases

the client will not have the capacity to pay and will forgo legal services.

Reduced number of ‘marginal’ practitioners (who change industries, state or become unemployed),

resulting in reduced availability of legal services, particularly in some geographic areas.

Reduced competition among small business and sole practitioners who previously catered to the

‘missing middle’, resulting in potentially higher fees in that immediate market.

Reduced competitive pressure on the larger law practices with likely flow-on consequences for their

prices.

7.5 Why Significant Negative Impacts Occur Regardless of Capacity to Pass on Costs

“I am really struggling to keep the doors open and find additional costs a severe impact as I have

returned to work after a period at home with children. The cost of CPD is also very expensive as it is

a formal requirement – hard to get private study verified. It must be remembered that this is one of a

number of significant costs imposed on what is essentially a small business. Family law clients (such

as mine) are paying out of after-tax dollars and I can't charge more. I do a lot of pro bono, and the

more overheads I have to cover, the less pro bono I can afford and the more I have to push clients

for payment of outstanding accounts.”

The Discussion Paper explores, whether the significant increase in PC fee costs can be passed on to clients

and, particularly, if passing on costs would lessen the impact on small business (legal practices with 20

practitioners or less). The current extent to which a legal practitioner can pass on costs to their clients

depends on a range of factors, and varies across different practice areas and specialties. In areas where

there are fewer practitioners and significant client competition for services, practitioners may be in a position

to increase their legal fees to cover increases in PC fees. Factors such as location, specialisation, brand and

reputation can substantially influence this capacity. It is likely that larger, more established and well-known

law practices may have this capability. In general, there is significant competition among practitioners and

practices; this includes many small suburban practices and most sole practitioners.

It is also important to note that there are substantial costs to the community and economy as a whole from

significant PC fee increases, regardless of whether the law practice or sole practitioner can or cannot pass

on costs. Box E below provides an example of this in relation to access to justice principles. However, there

are a number of other productivity and equity detriments that could be used to illustrate this point.

Box E - How Access to Justice is negatively impacted regardless of whether the

increase in fee costs can be passed on

Example 1: Practitioners are able to pass on the full costs

Where this occurs, there will be a relative increase in fees for clients paying for the legal service. In some

cases, the client will have both the capacity and willingness to pay. However, as a number of reports have

noted62

, and the Discussion Paper itself outlines, there is a significant proportion of those requiring legal

services who do not have access to legal aid and are already struggling to pay legal fees. Increasing PC

fees where these fees can be passed on will have a direct impact on access to justice. More than 17% of

62 See for example: Ibid; Richard Coverdale , Postcode: Justice – Rural and Regional Disadvantage in the Administration of the Law in

Victoria(2011) Deakin University <http://www.civiljustice.info/cgi/viewcontent.cgi?article=1000&context=access>.




64

respondents to the LIV survey indicated that they would have capacity to pass on the fees, indicating that

legal fees will increase for legal services provided by those practitioners

Example 2: Practitioners are not able to pass on costs

Where increased fees cannot be passed on, this becomes an additional layer in the cost of doing business in

Victoria. The potential costs for those who are already facing slim profit margins can be significant, with

detrimental impacts on both the legal industry and the broader economy. These potential costs are outlined

in greater detail above, but can range from reduced competition (within the legal industry and with other

industries that provide ‘pseudo’-legal services), reduced diversity of practitioners and services, increased

costs for other small businesses, decreased appetite for hiring additional staff (and, in particular, legal

practitioners), to lesser capacity for innovation. From a vertical equity assessment, increased fees are a fixed

cost and, therefore, will have disproportionately harsher impacts on smaller businesses (often suburban and

regional) where the fees make up a larger part of the cost base. These are often small firms and sole

practitioners servicing clients who have limited capacity to pay.

“I do a lot of free or very low cost work for those who can't afford to pay much, as well as for the local sports

club. After paying fixed costs and CPD each year, I usually break even or make a few thousand dollars. I am

happy with this situation as I get personal satisfaction from helping people who otherwise could not access

legal advice, but any rise in my fixed costs would mean I could not continue to operate the way that I do and

I will have to stop practising law.”

Increased fees can have a significant impact on competition at this level of legal service provision. An

increase in PC fees is likely to trigger a range of responses, such as individual practitioners moving

interstate, practitioners seeking alternative employment outside the legal industry where practising

certificates are not required, or law practices employing fewer practitioners – particularly graduates or those

working fewer hours – where productivity per fixed practising certificate cost is less. Given the already

marginal viability of a number of practices in outer-suburban and country Victoria, there will be a number

which may cease operating as law practices. This reduced competition will result in a reduction in locally

available lawyers, particularly in regional centres, which may result in flow-on price increases and can also

flow through to larger practices. Practices currently providing pro bono or subsidised fee options for clients

for social equity reasons may need to reduce the provision of these services if the costs of doing business

become too high.

“Law firms cannot pass the cost of those fee increases onto their clients. Law firms are operating in a

saturated and highly competitive market. Firms are all experiencing significant downward pressure on fees.

The increase [in] a significant component of the overhead of each law firm by nearly 60% will have a

substantial impact on the profitability of many law firms.”

More than 82% of respondents to the LIV Survey indicated that they or their practice would not have the

capacity to pass on the increase in PC fees. Among small practices (those with 20 practitioners or less), this

figure was even greater at 86%. Among small to medium-sized businesses based in country Victoria, this

figure was even greater at 90%.




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SUMMARY OF FINDINGS

Based on the Victorian Government’s Guide to Regulation and Cost Recovery Guidelines , survey data and

individual responses provided by LIV members, independent economic advice and assessing the issues

against standard principles of good regulatory practice, the significant PC fee increases outlined in the

Discussion Paper would likely result in:

1 Unacceptable increases in regulatory burden.

2 Negative impacts on Victoria’s productivity, innovation and growth.

3

Reduced competition within the industry, with flow on effects from the reduction in competition among the lower charging (often smaller suburban and regional) law practices to larger practices and businesses.

4 Increased costs for small businesses and individuals seeking legal services.

5 Reduced competitive standing of Victoria as a cost-efficient place to do business (both within and beyond the legal sector).

6 Higher costs for hiring an additional worker in small to medium-sized law practices.

7

Reduced legal profession diversity and workplace flexibility, including

a. higher relative costs for self-employed legal practitioners, or those undertaking part-time or casual work at less than full-time hours with consequent impacts on diversity in the legal profession including reduced age, gender and other diversity; and

b. higher relative costs for employers in potentially hiring part-time or casual workers at hours less than full-time, with consequent reduced availability of flexible work arrangements;

8

Reduced diversity of legal service provision in the sector, including government, in-house and not-for-profit lawyers unable to pass on the increase in fees to clients or absorb it into department/organisation budgets.

9 Reduced growth potential for Victoria’s regional economy and centres.

10 Reduced resilience of a well-regulated legal sector with price pressures providing growth incentives for other areas such as less accountable offshore internet services.

11

Reduced financial resilience of regulatory income resulting from a reduction in the number of PCs with (reduced use of Trust Authorisation) or without trust authorisation (reduced number of lawyers overall) depending on which option is adopted.

12

Reduced access to justice with fewer lawyers available in certain locations (including suburban and regional), reduced competition at the lower charge end resulting in higher fees for those already struggling to afford legal services, and PC fees passed on to clients as higher legal fees where feasible.




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RECOMMENDATIONS

1 The review process should be undertaken by an independent body

The LIV considers that the VLSB+C is not an appropriate body to undertake this RIS process

because it is arguably conflicted. Notwithstanding the VLSB+C’s role in making recommendations for

the setting of fees under the legislation, it stands to gain directly from increased PC fees. The use of

a conflicted body (who stands to gain from increased regulatory burden) to undertake this RIS

process is inappropriate, against the basic principles of good governance, counter to the Victorian

Public Sector Values63

and does not support government policy to pursue continuous improvement in

regulation.

2 Changes to the regulatory model, or the mix between the Trust Account Income and the PC

fees income, should be revenue neutral

The VLSB+C has not adequately justified the need for a significant increase in revenue. Any valid

justifications presented for future proposals to increase fees would need to be balanced against the

economic and social costs of increased regulatory burden.

3 Current fee units and tiered fees should remain

Unless, as part of a broader review of legal profession regulation in Victoria, there is sufficient

demonstration of efficiency gains under alternative arrangements, there should be no change to the

existing arrangements. Any change in the mix between reliance on Trust Account income and PC

fees should only be as a result of detailed analysis of economic efficiencies and price responses and

should not be used to drive increased revenue for the VLSB+C.

4 A full review of the Victorian legal profession regulatory framework is required

The current regulatory framework for the legal profession in Victoria is not based on international

best practice (or best practice in Australia). A broad review is needed to consider the best regulatory

models for delivering the most satisfactory regulatory outcomes in the most efficient and effective

way. It needs to be adequately resourced, with appropriate lead times.

63 See, for example, Victorian Public Sector Commission, Public Sector Values (1 March 2015) <http://vpsc.vic.gov.au/ethics-

behaviours-culture/public-sector-values/>; Victorian Public Sector Commission, Public Sector Values (22 August 2016)

<http://vpsc.vic.gov.au/resources/conflict-of-interest-and-duty-guidance-for-directors/>.







67

APPENDIX A SURVEY METHODOLOGY AND ANALYSIS

To inform its response to the Discussion Paper, the LIV developed a survey which ensured that its members

were provided with an adequate opportunity to contribute to the discussion around PC fees, which directly

impact on their practices.

The LIV Survey was circulated to over 12,500 LIV members via e-mail and LawNews, the LIV’s daily online

bulletin. This represents all practising LIV , members, and covers approximately 68% of all practising

solicitors in Victoria. The survey was also circulated directly to approximately 1350 LIV Practice Section

Committee and Working Group members.

LIV Survey Methodology

The LIV Survey went live on 3 March 2017, with a deadline for responses of 17 March 2017.

The LIV Survey was designed to distil the range of issues and PC fee options canvassed in the Discussion

Paper into a form that would efficiently and effectively elicit relevant responses. The questions asked are

detailed in Appendix B of this Submission.

Responses were collected anonymously to provide respondents with the best opportunity to provide honest

feedback without potential undue influence.

There were 769 responses to the Survey.

Respondent Profiles

In order to contextualise the results obtained from the LIV Survey, respondents were asked relevant

threshold questions to gather demographical data.

The following is the demographical breakdown of survey respondents:

Location of Business

Out of 769 respondents:

327 (42.52%) practised in the Melbourne CBD;

293 (38.10%) practised in suburban Melbourne;

146 (18.99%) practised in country Victoria; and

3 (0.39%) practised interstate.




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Size of Practice


253 (32.90%) were sole-practitioners;

160 (20.81%) were in a practice with 2 to 3 practitioners;


97 (12.61%) were in a practice with 6-10 practitioners;


31 (4.03%) were in a practice with 21 to 40 practitioners; and

94 (12.22%) were in a practice with more than 40 practitioners.

Years in Practice


159 (20.68%) have been in practice for 5 years or less;

220 (28.61%) have been in practice between 6 to 15 years;

234 (30.43%) have been in practice between 16 to 35 years; and

156 (20.29%) have been in practice for more than 35 years.

Work Arrangements


583 (75.81%) worked full-time;

138 (17.95%) worked part-time;

25 (3.25%) worked casually;

3 (0.39%) were on leave; and

20 (2.60%) indicated that they engaged in other working arrangements.

Specific responses where respondents indicated they engaged in other working arrangements ranged from

retired or semi-retired to those who held practising certificates but were no longer working as legal

practitioners (e.g. legal education, conveyancing, non-legal government department), or worked on a

voluntary/pro bono basis only.

Practising Certificate Payment

Respondents were evenly distributed as to whether or not they paid for their own practising certificates:

377 (49.02%) paid for their own practising certificates; and

392 (50.98%) has their employer pay for their practising certificates.




69

APPENDIX B LIV SURVEY

Question 1

Where is your business located?

a) Melbourne City

b) Suburban Melbourne

c) Country Victoria

d) Interstate

e) Overseas

Question 2

What is the number of practitioners in your law practice?

a) 1

b) 2-3

c) 4-5

d) 6-10

e) 11-20

f) 21-40

g) >40

Question 3

How long have you been practising law?

a) 0-5 years

b) 6-15 years

c) 16-36 years

d) More than 35 years

Question 4

Which category do you feel best describes your work?

a) Full-time

b) Part-time

c) Casual

d) On leave

e) Other (please specify)




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Question 5

Who pays for your practising certificate?

a) I pay for it myself

b) My employer pays for it

Question 6

How do you feel about the regulation of the legal profession in Victoria?

a) Satisfied

b) Neither satisfied nor dissatisfied

c) Dissatisfied

Question 7

If the level of regulation remains the same, would you be prepared to pay more for regulation of the legal

profession through an increase in practising certificate fees?

a) Yes

b) No

Question 8

Do you currently hold a practising certificate with trust authorisation (that is, you are authorised to receive

trust money)?

a) Yes

b) No

Question 9

How much impact would an increase of 59% or greater on the current practising certificate fee of $509 have

on your decision to hold a practising certificate and continuing to practise?

a) No impact

b) Noticeable impact

c) Significant impact and could compromise ongoing practise

Question 10

How much impact would an increase of 32% or greater on the current practising certificate fee of $344 have

on your decision to hold a practising certificate and continuing to practise?

a) No impact

b) Noticeable impact

c) Significant impact and could compromise ongoing practise




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Question 11

To what extent would a fee increase of 59% or greater for practising certificates with trust authorisation influ-

ence your decision whether or not to have this authorisation?

a) Not applicable. I do not have authorisation to receive trust money and practising certificate pricing

has not influenced this decision

b) It would not influence my decision to have trust authorisation

c) It would be of marginal consideration

d) It would be of noticeable influence

e) It would prevent me from having trust authorisation

Question 12

What is your view on the benefits and disadvantages of a single fee versus a higher fee for practising certifi-

cates with trust authorisation?

a) Fees for practising certificates with trust authorisation should be higher than practising certificates

without trust authorisation

b) There should be a single fee for both practising certificates with and without trust authorisation

Question 13

To what extent would an increase of 32% or greater on the current practising certificate fees influence your

decision to hire an additional practitioner?

a) Not applicable. I do not have authority to hire (for example, I am a sole practitioner, barrister or not in

management)

b) It will have no impact

c) It will influence marginal hiring decisions

d) I will not be able to hire an additional practitioner

Question 14

Would your law practice have the capacity to pass on an increase in practising certificate fees to clients?

a) Yes

b) No

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