Statement on the draft bill for a law on the reorganization of the professional law of the legal and tax advisory professional practice companies as well as on the amendment of further regulations in the area of the legal advisory professions

The Legal Tech Verband Deutschland (hereinafter the “Association”) is committed to shaping a progressive and innovation-friendly regulatory environment that creates legal certainty for legal tech ventures inside and outside law firms. In doing so, the Association is guided by the goal of protecting legal users, legal transactions and the legal system from unqualified legal services and strengthening the rule of law.

We would like to thank you for the opportunity to comment on the BMJV’s draft bill. In addition, we refer to our statement on the draft bill of the Federal Ministry of Justice and Consumer Protection on a law to promote consumer-friendly offers in the legal services market of December 7, 2020, which is made in connection with the present statement.

I. Introduction

Germany has an exciting and dynamic legal tech scene. It has given rise to novel, innovative legal services that lead to faster and more effective results in certain areas. Non-lawyer providers that specialize in enforcing consumer rights and take the cost risks off their shoulders on a commission basis to do so are creating effective access to justice (for example, helpcheck for life insurance rescission, myright for diesel plaintiffs, advocado or for brokering attorney services, Flightright for flight compensation, for speeding tickets, for tenants’ claims, etc.). They enforce claims that individual consumers typically do not pursue with lawyers because they are dealing with seemingly overpowering opponents (e.g., airlines, landlords, government agencies, etc.) or because the cost risks of legal proceedings are out of proportion to the amount of the claim (“rational disinterest”).

But it is not only in the area of “consumer debt collection” that innovative offerings are emerging. Law firms are also turning to the use of technology (e.g., in handling mass legal proceedings, increasing efficiency in law firms, dealing with redundant legal issues, and developing innovative advisory products for clients). In addition, completely new providers are entering the legal services market (e.g., providers of mediation platforms for legal services and operators of “self-service offerings” such as contract generators).

Both groups – lawyers and non-lawyer legal tech companies – face enormous regulatory hurdles in Germany when it comes to tapping the potential for innovation. Law firms have too little entrepreneurial freedom to make large technological investments and to offer certain consulting models at all. This also inhibits cooperation with platform operators who never appear in court themselves. And “outside,” in the non-lawyer structures, there is a lack of legal certainty in the question of what legal tech is actually allowed to do. It is true that in the dispute over “” in November 2019, the Federal Court of Justice confirmed that with a debt collection permit, far-reaching legal services are possible in the enforcement of monetary claims, including litigation financing. However, it is unclear which specific business models are permissible. This leads to considerable legal uncertainty, because the success of the enforcement of rights stands and falls with the permissibility of the business model. Even offerings that have no relation at all to the enforcement of claims, such as contract generators, challenge the current regulatory framework.

Germany is in danger of being left behind by the legal markets in the USA and Great Britain, because targeted scope for new legal advisory models has already been created there. According to the “Legal Technology” study by AGC Partners from April 2017, around USD 750 million has been invested in legal tech in the USA since 2012, partly because the business models described here have the necessary regulatory security (Legalzoom: USD 100 million, most recently financed with a further USD 500 million in July 2018, Avvo USD 132 million, Rocket Lawyer USD 72 million, and most recently United Lex with a USD 500 million investment from CVC). By comparison, the three largest recent investments in Germany were Medienunion’s acquisition of Flightright (transaction amount unknown) and the funding rounds of German providers Advocado (2018), Fox (2019) and rightmart/Atornix (2019), each under €10 million, according to market data. The market is also much more developed in the UK, especially since the Legal Services Act greatly liberalized the legal framework for law firms back in 2007 (participation rights for non-lawyers; IPOs for law firms, etc.). Stanford University’s online geographic overview “CodeX LegalTech” shows the USA as the clear global market leader and the UK as the European number 1.

II. On the draft of the BMJV

The association focuses on tapping the innovation potential of technology in legal advice. It comments here only on those topics of the draft bill that it considers directly relevant to the realization of this goal, but not on a number of issues of general professional law for lawyers. The core of the draft concerns the regulations on lawyers’ company law (§§ 59b ff. BRAO-E), which, both under the current legal situation and under the present draft, provide central obstacles to the entrepreneurial activities of lawyers in Germany.

Lawyers in Germany are basically only allowed to work with other lawyers and a few other groups, and law firms are only allowed to have lawyers as partners. This very strict regulation unnecessarily hinders lawyers in their professional and economic development. Only with greater entrepreneurial freedom will lawyers in Germany be able to leverage the enormous potential of legal tech for legal advice and improve people’s access to justice. The Federal Court of Justice’s ruling on in November 2019 showed that there is currently an imbalance in entrepreneurial design options in the German legal advice market. Legal tech providers that operate as debt collection service providers and compete directly with law firms are not subject to the restrictions of lawyers’ professional law. They often operate in the same market as lawyers, but have completely different economic conditions. This imbalance represents a significant distortion of competition that lawyers do not have to accept.

In recent years, increasing pressure to reform has meant that questions of interprofessional cooperation and participation in law firms have repeatedly been driven through the judicial process without the Federal Constitutional Court or other courts being able to provide a viable clarification. There is no reason to deny lawyers the opportunity to join forces with people from other professions, as is taken for granted in Switzerland, some Scandinavian countries and Great Britain, for example. They should be able to set themselves up in such a way as makes sense for their business orientation, and of course they should also be able to accept partners who are not lawyers themselves.

The Association welcomes some of the proposed amendments contained in the draft. It is right that lawyers should be able to operate in companies irrespective of their legal form, and the extension of professional law ties to responsible persons outside the actual client work is consistent and makes an important contribution to ensuring compliance with professional law.

However, the draft is not likely to create a level playing field and address key barriers to the emergence of innovation in law firms.

1. Task of the professional practice company

Any German or European corporate form should be used to provide legal advice and representation if it is ensured that where only lawyers may be used, services are also provided by lawyers. This means saying goodbye to the decades-old notion that lawyers, as professionals in a sensitive and liability-prone field, should only be allowed to act in their capacity as professionals or partners with like-minded or very similarly structured professionals.

Current professional law provides for only very few openings for cooperation (e.g. with auditors and tax advisors), and the draft bill for the BRAO reform makes an attempt at a cautious opening to selected professions (in particular “liberal professions” within the meaning of Section 1 (2) of the Partnership Act) and formulates a number of generally worded conditions (“compatible with the position as an independent organ of the administration of justice”, “endangering confidence in its independence”).

We consider these half-hearted openings to be inconsistent, because in fact the “liberal professions” do not have any more overlaps than with other “non-liberal” professions. Only a fundamental opening for other occupational profiles and professions is suitable for removing the ground in advance for unequal treatment compared to other occupational groups and the associated legal uncertainties.

§§ Sections 59b and 59c of the draft bill should be amended as follows (amendments highlighted):

“§ 59b Anwaltliche Berufsausübung in Gesellschaften Berufsausübungsgesellschaften

(1) Der anwaltliche Beruf darf durch Gesellschaften ausgeübt werden Rechtsanwälte dürfen sich zur gemeinschaftlichen Ausübung ihres Berufs in Berufsausübungsgesellschaften verbinden.

(2) Für Berufsausübungsgesellschaften z Zulässige Rechtsformen sind

1. Gesellschaften nach deutschem Recht einschließlich der Handelsgesellschaften,

2. Europäische Gesellschaften und

3.         nach dem Recht eines Mitgliedstaats der Europäischen Union oder eines Vertrags­staats des Abkommens über den Europäischen Wirtschaftsraum zulässige Gesell­schaften.

(3) Rechtsanwälte, die zugleich Notar sind, dürfen nur ihre anwaltliche Tätigkeit in einer Gesellschaft nach Abs. 1 ausüben. Im Übrigen gelten die Bestimmungen und Anforderungen des notariellen Berufsrechts.

(3) (4) Die vertretungsberechtigten Gesellschafter und die Mitglieder der Geschäfts­führungsorgane sind verpflichtet, sämtliche Daten, die für die Eintragung in die Ver­zeichnisse nach § 31 Absatz 4 erforderlich sind, unverzüglich der zuständigen Rechts­anwaltskammer zu übermitteln. Tatsachen, die eine Änderung oder Löschung der ein­getragenen Daten erforderlich machen, sind ebenfalls unverzüglich der zuständigen Rechtsanwaltskammer mitzuteilen.

§ 59c Berufsausübungsgesellschaften Gesellschaften mit Angehörigen anderer Berufe

(1) Die Verbindung zur gemeinschaftlichen Berufsausübung in einer Berufsaus­übungsgesellschaft Gesellschaft im Sinne des § 59b ist Rechtsanwälten mit Angehörigen sämtlicher anderer Berufe auch gestattet.

1. mit Mitgliedern einer Rechtsanwaltskammer, Mitgliedern der Patentanwaltskam­mer, Steuerberatern, Steuerbevollmächtigten, Wirtschaftsprüfern und vereidigten Buchprüfern,

2. mit Angehörigen von Rechtsanwaltsberufen aus anderen Staaten, die nach dem Gesetz über die Tätigkeit europäischer Rechtsanwälte in Deutschland oder nach § 206 berechtigt wären, sich im Geltungsbereich dieses Gesetzes niederzulassen,

3. mit Patentanwälten, Steuerberatern, Steuerbevollmächtigten, Wirtschaftsprüfern und vereidigten Buchprüfern anderer Staaten, die einen Beruf ausüben, der in der Ausbildung und den Befugnissen den Berufen nach der Patentanwaltsordnung, dem Steuerberatungsgesetz oder der Wirtschaftsprüferordnung entspricht und die mit Patentanwälten, Steuerberatern, Steuerbevollmächtigten, Wirtschaftsprüfern oder vereidigten Buchprüfern im Geltungsbereich dieses Gesetzes ihren Beruf ge­meinschaftlich ausüben dürfen,

4. mit Personen, die in der Berufsausübungsgesellschaft einen Freien Beruf im Sinne des § 1 Absatz 2 des Partnerschaftsgesellschaftsgesetzes ausüben, es sei denn, dass die Verbindung mit dem Beruf des Rechtsanwalts, insbesondere seiner Stellung als unabhängigem Organ der Rechtspflege, nicht vereinbar ist oder das Ver­trauen in seine Unabhängigkeit gefährden kann; eine Verbindung kann insbeson­dere dann ausgeschlossen sein, wenn in der anderen Person ein Grund vorliegt, der bei einem Rechtsanwalt nach § 7 zur Versagung der Zulassung führen würde.

(2) Unternehmensgegenstand der Gesellschaft Berufsausübungsgesellschaft nach Absatz 1 ist die Beratung und Vertretung in Rechtsangelegenheiten. Daneben kann die Aus­übung ders jeweiligen nichtanwaltlichen Berufes treten.”

2. Release of the participation of outside capital providers in law firms.

The development of legal tech business models involves considerable investment. A central factor is therefore the raising of capital through the participation of third parties (third-party participation). However, according to the draft of the BMJV, lawyers are still not allowed to take on third parties as shareholders. Instead, pure professional practice companies without the possibility of third-party participation will be retained. Third-party investors, however, will not agree to invest in companies in which they do not have a stake and whose entrepreneurial orientation they cannot help shape. Under the conditions of the draft presented, innovative legal service offerings will inevitably be developed outside of law firms, and large portions of value creation will not be opened up to lawyers or will be lost.

Die Regelung in § 59i des Referentenentwurfs sollte wie folgt gefasst werden (Änderungen hervorgehoben)

“§ 59i Gesellschafter- und Kapitalstruktur von Berufsausübungsgesellschaften

(1) Zugelassene Gesellschaften im Sinne des § 59b Berufsausübungsgesellschaften können Gesellschafter einer Gesellschaft im Sinne des § 59b Berufsausübungsgesellschaft sein. Bei gesetzlichen Voraussetzungen, die in der Per­son der Gesellschafter oder der Mitglieder der Geschäftsführung erfüllt sein müssen, kommt es in den Fällen des Satzes 1 auf die Gesellschafter und die Geschäftsführung der beteiligten Gesellschaft im Sinne des § 59b Berufsausübungsgesellschaft an. Haben sich Rechtsanwälte, Angehö­rige anderer Berufe nach der in § 59c Absatz 1 genannten Berufe sowie Gesellschaften im Sinne des § 59b Berufsausübungsgesellschaf­ten, die die Voraussetzungen dieses Abschnitts erfüllen, zu einer Gesellschaft bürger­lichen Rechts zusammengeschlossen, deren Zweck ausschließlich das Halten von An­teilen an einer zugelassenen Berufsausübungsgesellschaft ist, so werden ihnen die Anteile an der Berufsausübungsgesellschaft im Verhältnis ihrer Beteiligung an der Ge­sellschaft bürgerlichen Rechts zugerechnet.

(2) Die Übertragung von Gesellschaftsanteilen muss an die Zustimmung der Ge­sellschafterversammlung gebunden sein. Bei Aktiengesellschaften oder Kommandit­gesellschaften auf Aktien müssen die Aktien auf Namen lauten.

(3) Dritte dürfen Anteile an der Gesellschaft im Sinne des § 59b halten und an deren Gewinn beteiligt werden.Berufsausübungsgesellschaft dürfen nicht für Rechnung Dritter gehalten werden. Dritte dürfen nicht am Gewinn der Berufsausübungsgesellschaft be­teiligt werden.

(4) Sofern Gesellschafter die Voraussetzungen des § 59c Absatz 1 nicht erfüllen, haben sie kein Stimmrecht.

(45) Gesellschafter können nur stimmberechtigte Gesellschafter zur Ausübung von Gesellschafterrechten bevollmächtigen.”

3. lawyers’ professional law offers sufficient protection

The risks that may arise, for example, from confidentiality obligations and conflicts of interest are covered and resolved by the law governing the legal profession – they do not need to be additionally regulated in the organization of the law firms or in the corporate structure. By overcoming these ties, we achieve an adaptation and expansion of professional law to the new professional profiles and corporate forms. Protection against conflicts of interest, errors in consultation or breaches of confidentiality can be achieved through the law governing the legal profession. This is because it regulates what lawyers are allowed to do and what is contrary to their professional ethics.

The operational business is the responsibility of the management and not of capital investors. In any case, the shareholders have no right to issue instructions or exert influence within a specific mandate relationship. In this respect, there is already sufficient protection today. This professional right of lawyers should – as provided for in the draft bill – be extended to all professionals as well as to the management of the companies.

There is nothing to prevent third parties from holding shares in law firms or these being controlled by non-lawyer partners or, in extreme cases, managing without lawyer partners, as long as at least one lawyer is a member of the management in each law firm. This managing lawyer assumes responsibility for the operational legal services business and ensures compliance with professional regulations. The law firm and also the members of the management and other responsible persons are held accountable under professional law and are subject to the supervision of the bar associations.

The company is liable for the breach of professional duties, and the personal professional liability of the members of the governing bodies, shareholders and lawyers exists independently.

In view of the fact that the existing professional law for lawyers already covers all supposedly dangerous situations and excludes conflicts of interest, there is neither a need nor a justification based on a principle of proportionality to restrict the freedom of profession of lawyers guaranteed by fundamental rights by binding them to the professional association.