Establishing a Paralegal Law Firm Pints fr Cnsideratin 1. Backgrund Paralegal law firms are a relatively new phenmenn: but a ppular ne. At the end f the 1990s there were very few indeed. Hwever as realisatin f the extent t which legal services have been deregulated has grwn (alng with the general need fr legal services) s paralegal law firms have multiplied. We estimate that has at Octber 2009 there are between 6,000 7,000 paralegal law firms (cmpared t 10,100 slicitrs firms). We estimate the rate f grwth at between 15% and 20% per year. 2. Definitin The term paralegal is a default, catch-all term used t describe a wide variety f nn-lawyers wh d legal wrk. Similarly, paralegal law firm is a default, catch-all term used t describe cmmercial entities (including sle traders) wh ffer legal services t the public r business. Many paralegal law firms therefre d nt describe themselves as such. Sme describe themselves as paralegal advisry firms, thers as legal cnsultancies, legal advisrs etc. 3. Use f the Terms "Lawyer" and Law Firm Use f these terms is nt regulated by law in the same way that, fr example, use f the term "slicitr is prtected under the Slicitrs Act 1974. Hwever we anticipate at sme pint ppsitin frm sme r all f the eight grups f legal practitiners defined as lawyers under the Legal Services Act 2007 (slicitrs, barristers, ntaries, legal executives, law csts draftsmen, trade mark agents, licensed cnveyancers and patent agents). We suspect this ppsitin will arise when paralegal law firms start becming mre widely knwn f. Similarly, a great many members f the public still equate the terms "lawyer" and "law firm" with slicitrs. Anyne starting up a paralegal law firm needs t prtect themselves by making it very clear, preferably in writing, upn taking instructins frm a client that the client is aware that they are dealing with paralegals 1 P a g e
and nt slicitrs. Failure t d s wuld leave the paralegal law firm pen t ptential cmplaint frm clients. Our view is that using the term "law firm" is an acceptable plain-english descriptin f the services ffered. Hwever individuals shuld think very carefully befre calling themselves lawyers. Nt nly fr the reasns given abve, but because clients need t have trust in their legal advisers. If the client's definitin f a lawyer is smene wh has taken exams and jined a prfessin recgnised by statute then a paralegal wh falls shrt f this definitin runs the risk f lking dishnest. Such an impressin is like t lse firms mre clients than use f the term "lawyer" will gain! 4. Incrpratin Check List With tw exceptins, paralegal law firms are nt regulated any differently t ther rdinary cmmercial ventures. Fr example, there is n implied bligatin t have prfessinal indemnity insurance. Therefre when chsing an apprpriate business vehicle (partnership, limited cmpany, limited liability partnership etc.) The usual issues f cntrl, risk management, market perceptin and grwth strategy apply. Based upn the lng experience f slicitrs running legal practices, we recmmend that, where apprpriate, paralegal law firms cnsider the fllwing. Nne f these suggestins are required by law: Get prfessinal indemnity insurance. There is n case law n paralegal law firms being sued. Hwever there must be a gd chance that they will be held t a higher standard by the curts than ther business service prviders/advisrs t the public, and penalised mre severely fr transgressin. This is because there is ver 200 years f case law relating t slicitrs, saying that the law is special and high standards must apply t it. It's nt clear that this "extra burden" f heightened cmpetency/prfessinal service will be impsed upn paralegal law firms the way it has been impsed upn slicitrs and ther lawyers, but there must be a gd chance that sme paralegal law firms will be cnsidered sufficiently akin t slicitrs firms in the service they ffer that the principles relating t slicitrs will be extended t them. Get yur senir staff legally qualified in sme way - with the Institute f Paralegals r the Institute f Legal Executives fr example. Experience with ther paralegal law firms is that in situatins where persnal advice is being given (as ppsed t merely a prcess being fllwed) clients expect qualified practitiners t be advising them, and are wrried if they perceive the advisr t be a lay persn like them. Have a detailed client engagement letter setting ut all the relevant terms f ding business with yur client. There are tw reasns fr this: (a) Clients still benchmark mst legal services against the bligatin/services ffered by a slicitr. Slicitrs perate under a large number f regulatry requirements (e.g. the bligatin t keep client files free f charge fr at least seven years). Paralegal law firms run the risk f a serius mismatch between unviced client expectatins based upn what a slicitr wuld d, and the service actually being ffered. As mentined abve, it is nt entirely certain which party the curt wuld side with if a matter became litigius. Paralegal law firms shuld nte hwever that the curts have cnsistently held that in a relatinship between a prfessinal and a laypersn the nus is n the prfessinal t take preventative steps t avid bvius areas f misunderstanding and cnfusin. 2 P a g e
(b) It makes gd business sense even if the client is nt benchmarking against the service a slicitr wuld prvide. The prvisin f services have prven t be a very fertile grund fr mismatched expectatins between clients and prviders Fr the same reasns as abve, have a client clse-ut letter detailing where matters stand. Have sme frm f cntinuing prfessinal develpment prgramme fr yur staff. The quickest way fr any client t demnstrate pssible negligence n the part f the paralegal law firm is t ask a simple questin: The law can change - literally frm week t week. Yu are prviding legal services based upn that ever-changing law. What frmal systems d yu have in place t mnitr relevant changes and t ensure that yur staff keep their practice knwledge up-t-date? Make sure the client is cmpletely clear hw, and fr what, they will be billed. If yu are charging, (like slicitrs) n the basis f time spent, then be aware that the whle tpic is a minefield. Charging n the basis f time spent can mean many different things: All time spent wrking substantively n the matter, regardless f hw prductive it was Only prductive time spent wrking substantively n the matter All time spent n the matter even if nt wrking e.g. arriving unavidably early fr a meeting and charging fr the ne r tw hurs wait because yu can t d anything else with the time see als travel time, research, internal file administratin, lunch with the client etc Any f the abve, but nly if the matter is cncluded successfully Any f the abve, regardless f hw the matter ends (e.g. cmpany acquisitin des nt g ahead) r fails (debt nt recvered) Autmatic discunt if the underlying deal falls thrugh fr any reasn If yu are handling client mney, think seriusly abut ring-fencing it frm yur cmpany s wn mney. Have a frmal internal cmplaints prcedure - clients expect it. 5. Registratin Requirements Anyne nt specifically exempted (e.g. slicitrs) must first be registered with the Office f the Immigratin Services Cmmissiner befre they undertake any immigratin related wrk. Failure t be registered is an ffence. Fr mre details see www.isc.gv.uk. Under the Cmpensatin Act 2006, anyne wh is nt specifically exempted (e.g. slicitrs) must first be registered with the Ministry f Justice (claims management divisin) befre they undertake any services relating t claims in the fllwing areas: (a) Persnal injury, including wrk-related injury, disease r disability; (b) Criminal injuries cmpensatin; (c) Industrial Injuries Disablement Benefit; 3 P a g e
(d) Emplyment; (e) Husing disrepair; (f) Financial prducts and services. Services in this cntext means: (a) Advertising fr, r therwise seeking ut (fr example, by canvassing r direct marketing), persns wh may have a cause f actin; (b) Advising a claimant r ptential claimant in relatin t his claim r cause f actin; (c) referring details f a claim r claimant, r a cause f actin r ptential claimant, t anther persn, including a persn having the right t cnduct litigatin (but nt if it is nt undertaken fr r in expectatin f a fee, gain r reward); (d) Investigating, r cmmissining the investigatin f, the circumstances, merits r fundatin f a claim, with a view t the use f the results in pursuing the claim; (e) Representatin f a claimant (whether in writing r rally, and regardless f the tribunal, bdy r persn t r befre which r whm the representatin is made). The Cmpensatin Act 2006 is designed t regulate the activity f claims management cmpanies - histrically the "ambulance chasers" wh wuld drum-up business fr slicitrs firms. The claims management business is much mre sphisticated nwadays. Hwever the Act was drafted s widely that it catches many paralegal law firms wh have nthing whatsever t d with claims management activities. It is an ffence t undertake any f the abve services in any f the said areas withut first being registered. Fr mre infrmatin please visit www.claimsregulatin.gv.uk. 6. Reserved Activities Sectin 5 abve relates t activities which paralegal law firms can d, but in respect f which they have t be registered. There are six activities which paralegal law firms are prhibited by law frm ding. The six activities are called "reserved activities". The nly peple allwed t d them are slicitrs and (in a few f the cases) sme f the ther grups f lawyers recgnised under the Legal Services Act 2007. Paralegal law firms are nt allwed by law t d the fllwing types f wrk: I. Have rights f audience befre the curts 1 ; II. Represent parties engaged in litigatin 2 ; III. The preparatin f instruments and the ldging f dcuments relating t the transfer r charge f land 3 ; IV. The preparatin f trust deeds dispsing f capital; V. The preparatin f papers n which t fund r ppse a grant f prbate r a grant f letters f administratin 4 ; 4 P a g e
VI. The administratin f aths and statutry declaratins. Ntes 1 Rights f audience means the right t stand up and speak n the behalf f the client in curt. Paralegal law firms hwever have rights f audience in almst all tribunals. 2 Representing parties engaged in litigatin means being their agent fr the purpses f the litigatin: having the paralegal law firm's name n the curt recrd, having the right t require the ppsing party t deal with them instead f the client direct etc. Please nte that fr paralegal law firms cvered by the Cmpensatin Act 2006 there is an even wider prhibitin n becming invlved in litigatin, even in the early pre-curt stages. 3 Prhibitin n ldging dcuments relating t the transfer f land. This is ften incrrectly described as a prhibitin n ding cnveyancing. Slicitrs and licensed cnveyancers d nt have a mnply n cnveyancing. The prhibitin relates purely t certain stages in the cnveyancing prcess. Paralegal law firms are at liberty t cnduct thse ther steps. 4 Prhibitin n ldging dcuments relating t prbate - as pint 3 abve fr cnveyancing. NB: pints 1 and 2 are nt always hnured - quite a few paralegal law firms cnduct litigatin even if the legal basis fr their actins are uncertain 7. General Requirements The usual requirements n business relating t such issues as data prtectin, VAT registratin, anti-mneylaundering prvisins, and Health & Safety cmpliance all still cntinue t apply. 8. Directrs/Officehlders There are n particular "fit and prper persn" requirements relating t directrs r fficers f paralegal law firms (althugh the persnal standing f cntrlling individuals may be taken int accunt by the Office f the Immigratin Services Cmmissiner r Ministry f Justice as part f the registratin prcesses they perate). 9. Cnclusin Fr the mst part the deregulatin f legal services has been a success. Hwever things are fluid, fr example the Legal Services Bard is nw debating the merits f pssibly regulating the activities f paralegal will writers. End James O'Cnnell Head f Plicy Disclaimer: The infrmatin cntained in this briefing nte is fr intended as an intrductry, backgrund briefing nly. Befre setting up a paralegal law firm r therwise acting n the infrmatin cntained in this dcument yu shuld seek prper legal advice and this undertake necessary research y Institute f Paralegals, 6 Graphite Square, Vauxhall Walk, Lndn, SE11 5EE, United Kingdm, Tel: 020 7587 3917 5 P a g e