External ownership of law firms across the European Union inched closer on Thursday with the latest development in a landmark dispute involving a German practice. But there remain formidable regulatory and legislative hurdles to overcome if UK-style alternative business structures are to proliferate across the bloc.
An advocate-general for the Court of Justice of the European Union recommended that the court declare Germany’s current rules on non-lawyers owning stakes in firms as inconsistent.
The plaintiff in the case is Halmer Rechtsanwaltsgesellschaft UG, a law firm founded by Dr Daniel Halmer. After receiving its licence to practise law from the Munich Bar Association (RAK) in 2020, the Halmer firm assigned 51 of its 100 shares to an Austrian limited liability company. The RAK, defendant in the case, then revoked the plaintiff’s licence to practise, because the Austrian LLC was not licensed to practise law either in Germany or in Austria and, under the German Federal Lawyers’ Act (BRAO), was not allowed to be a shareholder in a law firm as an investor.
Halmer UG challenged the constitutionality of Germany’s third-party ownership ban before the Bavarian Lawyers’ Court (BayAGH), as well as the ban’s compatibility with EU law. The BayAGH then requested the CJEU to review the German ban on third-party ownership.
Advocate general Manuel Campos Sánchez-Bordona yesterday said he considers the restrictions imposed by the BRAO on shareholdings in law firms to be inconsistent with EU law. In particular, certain professionals from outside the law are allowed to hold shares in law firms – including tax advisers, accountants and even pharmacists – but not other parties.
Although the ECJ is not bound by advocate-general opinions, the court follows them in most cases.
Writing for the Gazette in May, Jonathan Goldsmith, former secretary general of the Council of Bars and Law Societies of Europe, said the Halmer case could ‘decide the question of alternative business structures in Europe for a long time’.
Progress will not be swift, however. Speaking in a personal capacity, Goldsmith, who is Law Society Council member for EU and international, said today: ‘It is not so much that the advocate general came out in favour of ABSs. It may be that this particular ABS may eventually be allowed, but that is not a decision in favour of ABSs in principle. Rather, it strikes down the inconsistent way in which that particular ABS may or may not have been regulated.’
He added: ‘If Germany were to change its rules, the country could still ban ABSs. And so could other countries, because the advocate general allows that member states have great leeway in how they regulate lawyers. But the way they regulate them must comply with basic EU law relating to the public interest and other factors.’
If the court finds for Halmer the matter will be remitted to the Bavaria court, which could appeal.