LEGAL PROFESSION (AMENDMENT) BILL

Order for Second Reading read. 4.42 pm

The Minister of State for Law (Assoc. Prof. Ho Peng Kee): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time." . Sir, this Bill carries the first set of amendments to the Legal Profession Act which my Ministry proposes to table in this House this year. There will be another set of amendments mainly concerning reform of the disciplinary procedures which will be tabled later this year after we have completed consultations with the Law Society.

Sir, this Bill implements two important initiatives which were announced recently. The first is to allow law firms to practise in the form of limited liability companies. The second is to allow foreign law firms to form joint law ventures and formal law alliances with local law firms. These changes will strengthen the legal profession and make it more competitive, especially when firms go regional. There have been wide consultations on these initiatives.

Let me now discuss the first change, which is, on the corporatisation of law practices. Today, law firms can only exist in the form of sole proprietorships (if the firm has only one owner) or partnerships (if the firm has more than one owner). They cannot form limited liability companies. One characteristic of a partnership firm is that the liability of the firm is not separate from the liability of the partners. If a partnership does not have enough assets to meet a claim against it, the claim will have to be met from the partners' personal assets. Indeed, all the partners in the firm are jointly responsible for the acts of every other partner. It is therefore possible for one partner's mistake to wipe out the personal assets of all the other partners. This acts as a disincentive for the formation of larger law firms as, in reality, it is not possible for partners in a large law firm to adequately supervise matters handled by other partners. It may also hold law firms back from taking on new ventures or expanding operations overseas, as such ventures necessarily involve risks.

Sir, the Law Reform Committee of the Singapore Academy of Law therefore proposed to the Government that law firms in Singapore be allowed to operate as limited liability companies. In doing so, the Committee endorsed the recommendations of a Sub-Committee comprising members of the Courts, Attorney-General's Chambers, Law Faculty as well as legal practitioners. The Government has accepted this proposal.

Sir, the idea of allowing professionals to form limited liability companies is not new to Singapore. Architects, professional engineers and land surveyors have been allowed to form limited liability companies since 1991. Allowing law firms to form limited liability companies will encourage law firms to grow larger, giving rise to greater economies of scale and greater competitiveness. It will allow law firms to build up their institutional identities, thus encouraging them to commit to greater long term investments in information technology and other high-tech equipment.

Other jurisdictions like the United States, United Kingdom, Australia and Hong Kong allow law firms to either form limited liability companies or limited liability partnerships. Hence, allowing Singapore law firms to corporatise will enable them to compete on a more level playing field with foreign firms. This move is timely both in facilitating the expansion of overseas operations by Singapore firms and also in preparing Singapore firms for the liberalisation of the legal market to foreign firms.

Sir, let me now briefly outline the framework under which limited liability company law firms, known as law corporations in the Bill, can be formed. A law firm wishing to operate as a law corporation must apply to the Law Society for approval. Like other companies, law corporations will be incorporated under the Companies Act. They will be subject to the Act's regulatory regime, with a few exceptions, notably that law corporations need not have the words "private limited" in their names, carrying instead the words "Law Corporation" or the letters "LLC".

Limited liability notwithstanding, a number of safeguards have been built into the Bill to ensure that high professional standards are maintained and that the interests of consumers are adequately protected.

First, in the interest of maintaining standards, it is currently provided that all the shareholders of a law corporation must be lawyers. However, to allow flexibility for employee shareholding and the possibility of forming multi-disciplinary practices in the future, the Bill allows rules to be made in future to provide for minority shareholding by non-lawyers.

Second, the Bill provides that a lawyer of less than three years' standing is not allowed to be a director of a law corporation unless there is at least one director in the law corporation who was in active practice for at least three out of the preceding five years. This is consistent with the existing rules governing partnerships and serves to maintain professional standards.

A valid concern is that limited liability may mean a loss of consumer protection. Let me assure the House that this will not be the case. The law corporation is essentially a vehicle for the provision of services. Individual lawyers in a law corporation who provide legal services will continue to be regulated by the Legal Profession Act. In other words, they will be subject to the same standards of professional conduct and disciplinary controls as if they were providing the legal services as solicitors in a sole proprietorship or partnership. Hence, even though the law corporation operates with limited liability, the personal liability of the lawyer who provides the legal services will not be affected. The formation of a law corporation therefore does not shield a lawyer from the consequences of his mistakes. Also, the consumer will know that he is being advised by a law corporation as every invoice and official correspondence must carry the statement that the firm is incorporated with limited liability.

Finally, on this first amendment, a law corporation will be required to take out a minimum amount of coverage for professional indemnity insurance. This is the key safeguard for consumers. If there is sufficient insurance coverage, it would not matter to the consumer whether the law firm's liability is limited or unlimited. The exact amount of insurance coverage will be spelt out later in rules to be promulgated by the Council of the Law Society.

Sir, let me now come to the second set of amendments in the Bill which relates to foreign lawyers and foreign law firms. In 1997, the Government set up a multi-sectoral committee headed by the Attorney-General to review Singapore's strategic legal needs in the financial sector, and the conditions under which foreign law firms and foreign lawyers could be allowed to operate in Singapore, so as to ensure Singapore's competitiveness in financial services.

The Committee began its task by soliciting feedback through surveys from foreign financial institutions, offshore law firms in Singapore, local banks, corporations, stockbroking houses, Government-linked and insurance companies as well as local law firms. The Committee submitted its Report to the Government in June last year. The Government has accepted the Report's recommendations. This Bill gives effect to the Committee's recommendations which, in essence, seek to promote a more vibrant legal services sector through closer collaboration between offshore and Singapore lawyers. The focus is on how to supply legal services more conveniently and efficiently and, at the same time, upgrade the legal expertise of local lawyers.

Sir, the Bill provides for two types of collaboration between local firms and foreign firms: joint law ventures and formal law alliances. Let me list, first of all, the key similarities and differences in these two models of collaborations. First, the similarities. The Attorney General's approval must be obtained to form both joint law ventures and formal law alliances. To maintain flexibility, the criteria for registration of joint law ventures and formal law alliances will be spelt out in the rules. These will be based on the Committee's recommendations. I expect that the rules will be published by probably April or thereabouts this year. Lawyers in both joint law ventures and formal law alliances will be allowed to draft documents relating to cross-border transactions, including documents governed by Singapore law. However, they will not be allowed to appear in local courts. Important benefits which both joint law ventures and formal law alliances can enjoy include sharing staff, premises and resources; marketing themselves as one-stop service providers and billing their clients as a single entity. . Now, for the differences. A key difference is that foreign lawyers in a joint law venture will be allowed to render advice on Singapore law. Before doing so, he must seek registration with the Attorney General who may require him to undergo prescribed courses. To protect consumers, these foreign lawyers who practise Singapore law will be subject to local rules concerning professional conduct or ethics, unless otherwise exempted by the Attorney General. The AG will have powers to discipline these foreign lawyers. Another key difference is that a joint law venture would be structured as a distinct business entity from its constituent firms. It can take the form of a partnership or a limited liability company. In contrast, a formal alliance is essentially an alliance of law firms without a new business entity being created. . Sir, the opening up of our legal market in this manner will bring benefits to players in our financial sector, as they can now obtain one-stop service for their legal needs in international transactions. While benefits to the financial sector are the main focus of these amendments, these amendments will also bring in legal expertise in other fields, such as information and communications technology.

This liberalisation will benefit both Singapore law firms and offshore law firms. Singapore law firms will benefit because, firstly, local firms will be exposed to the organisational, management and marketing techniques of their offshore partners;

Secondly, local firms may gain access to clients of the offshore firms;

Thirdly, local firms can upgrade their legal expertise in areas of financial work which they otherwise may not be exposed to;

Fourthly, local firms may use the partnership with offshore firms as a springboard to expand their regional practice; and

Fifthly, there will be greater possibility of expanding the scope of Singapore law as a governing law for regional financial transactions.

On their part, offshore law firms will benefit because: first, they will have a Singapore law firm to complement their global network of law firms; second, they can practise Singapore law; third, they can provide a one-stop service which they presently cannot without using a Singapore law firm; fourth, in time, they will be able to induct the best of our legal talent into their global practice; and, fifth, they will feel more at home in Singapore if they are able to work with Singapore lawyers for the same goals.

Sir, the main objective of these amendments is to ensure that both the local and offshore legal services sector can meet Singapore's strategic legal needs, in the context of ensuring Singapore's competitiveness in financial services, and to upgrade the legal expertise of local lawyers; in other words, the beneficiary will be Singapore. Singapore aims to be a strong financial centre with good legal support services, a major centre for legal and financial services, in the years to come.

Singapore law firms are already highly-rated in Asia. As reported in the Business Times of 13th January, the latest edition of Asia Pacific Legal 500 published by Britain's Legalese Ltd ranked Singapore law firms amongst the best in Asia. The Report however noted that there were shortcomings in the delivery of legal services, reflecting partly the prohibition against foreign lawyers from practising Singapore law. In turn, this has made it difficult for local lawyers to gain experience in top-flight international and corporate practice. The Report then highlighted that the authorities, recognising these shortcomings, have taken steps to liberalise the legal sector. . Sir, the point is that our strategic move has been picked up abroad. It has been recognised for what it is. An opening up that will further enhance the quality of the legal profession here - one which already has gained some reputation in the region. That can only be good for Singapore.

In short, Sir, the amendments in this Bill which have been carefully thought through over a period of time, with inputs from many and diverse quarters, should lead to an upgrading of local legal expertise, thus bringing about a stronger local Bar, a more vibrant and competitive legal services sector, one able to better meet the challenges of the new millennium, including the challenge of going regional. . Sir, I beg to move.

Question proposed.

Assoc. Prof. Chin Tet Yung (Sembawang): Sir, I rise to speak in support of the Bill.

This amendment Bill contains significant changes to the way in which lawyers can group themselves to provide legal services. Hitherto, lawyers have operated in partnerships and practise largely domestic law, with a few larger firms undertaking cross-border work. Today, we are considering a Bill that would allow the setting up of law corporations, joint law ventures and formal law alliances. These amendments are therefore important, not just from the legal profession's point of view, but also from the businessmen's point of view.

[Mr Deputy Speaker in the Chair]

5.00 pm

Assoc. Prof. Chin Tet Yung (Sembawang): Indeed, one of the main reasons for the Bill is to follow up on the recommendations of the Legal Services Review Committee in June last year that are intended to enhance Singapore's competitiveness in the financial sector. The Committee observed that the weak legal services sector would impede the growth of Singapore as a financial centre. To quote the Committee, "The legal services sector plays an important contributory role in enhancing competitiveness in financial services, but does not drive it. One of the perceived needs for the legal profession at present is to develop the legal expertise for cross-border financial transactions." In fact, I should go further and say that as Singapore positions itself as an e-commerce hub, a technopreneurs hub, and a telecommunications hub, in addition to being a financial centre, it is important to develop legal expertise in these fields as well.

It is well known that while we do have some law firms that can handle such work as well as the foreign firms, we may lack the number of legal experts that would provide such services once the industry begins to grow. I believe the assessment of the Committee is that our law firms are coping with the current volume of cross-border work, but not if such work increases substantially, as well it might. Secondly, it is also clear that we lack the expertise for what the Committee referred to as Tier 1 "legal software" expertise to handle such matters as project finance, of infrastructure works such as power, roads, water and telecommunications, asset securitisation, and structured finance. This legal software can best be imported to Singapore through the import of foreign talent, ie, foreign lawyers. Hence, the provision in the Bill for the setting up of formal law alliances and joint law ventures.

My comments and queries are directed principally at clause 15 of the Bill, referring to the new Part IXA on "Foreign law firms, joint law ventures, and formal law alliances".

The Bill contemplates two different types of organisation between local and foreign lawyers - joint law ventures, and formal law alliances. The first question I have for the Acting Minister is: what are the reasons for having these two types of organisation? As far as I can see, and from the explanation that the Acting Minister has given just now, the privileges are more or less the same, except in relation to the role of the foreign lawyers.

In a joint law venture, the foreign lawyer can be registered to practise Singapore law, but does not have appearance rights before any judge, arbitrator or regulatory body unless otherwise permitted to do so. In the case of a formal law alliance, the foreign lawyer who is a "partner, director or an employee of the foreign law firm" may "prepare all the documents in a transaction involving the law or regulatory regime of more than one country or jurisdiction, except that any legal opinion relating to Singapore law must be given by a Singapore lawyer" who is in practice. Is this not too fine a distinction to have in the legislation, especially in the area of banking and finance law, where the base is contract law, and where Singapore applies English law?

I ask this question because it is important for the legislation to be seen to be attractive enough to attract the best foreign law firms and foreign lawyers to enter into such ventures and alliances with our local law firms. If the benefits for entering into an alliance and joint venture are not evident, we may be disappointed if there is a low take-up rate for such alliances or ventures. I should like to add that even now we are behind Hong Kong in attracting foreign firms to Singapore. Hong Kong in 1998 had 86 foreign firms compared to 69 in Singapore for the same year. This is despite the somewhat liberal conditions for the setting up of offshore law practices in Singapore.

My second question is this: the Bill does not disclose the guidelines for the approval of such ventures and alliances. Of course, these are important to know before any law firm decides to enter into negotiations with its foreign counterparts. Could the Acting Minister let us know what sort of guidelines would be given? I know that the Committee gave several criteria for the approval of such alliances, but these are specific to the financial sector. This leads me to my third question.

My third question is this: if the guidelines are sector-specific, will there also be guidelines to encourage firms practising in information technology law, telecommunications law, and intellectual property law to enter into similar alliances with their counterparts in the US and Europe? I see a great need for us to encourage the setting up of such alliances in the areas of law that I have just mentioned. Singapore, as we all know, is positioning itself as a hub for e-commerce, telecommunications and technopreneurs. Without a doubt, these sectors also require legal expertise of the highest order. These are truly the cutting edge areas where there is global competition for lawyers in these fields. I would respectfully suggest that we should also encourage, as quickly as possible, alliances of foreign and local firms specialising in these areas, if these are not already contemplated.

Finally, Sir, as a last comment, I should like to point out that the legal profession is facing its greatest challenge since the practice of law began in Singapore. Lawyers in practice must now not just compete among themselves for business, but may have to compete with foreign lawyers, at least those who are registered under the new Joint Law Venture scheme. There is a need to upgrade both skills and knowledge to enable them to compete on a level playing field. Our members of the legal profession must accept that as the amendments bring with it more competition, it also has the potential for high reward for those who are perceptive enough to take up the challenge to make Singapore the legal services centre of the region.

Sir, with these high hopes in mind, I support the Bill.

Mr Sin Boon Ann (Tampines): Mr Deputy Speaker, Sir, thank you for allowing me to speak on the amendments to the Legal Profession Act which I support. Before proceeding further, allow me to declare my interest as a practising solicitor who will be affected, whether directly or indirectly, by the outcome of the amendments.

Sir, I believe the present amendments have no doubt been initiated by the recommendations of the Legal Services Review Committee. In its report to the Government dated June 1999, the Committee made a number of significant proposals that I believe form the basis of the amendments that are before us today.

Following from the recommendations of the Financial Sector Review Group on the liberalisation of the financial sector, the Legal Services Review Committee has also recommended that the legal services sector should likewise be liberalised. Towards this end, the Committee has recommended that the Government allow an unrestricted number of foreign alliances and a restricted number of joint ventures between local and offshore firms. The recommendations for strategic tie-up come with a string of other recommendations; such as keeping tabs on the talent pool of Singapore lawyers working abroad and relocating in-house counsel of the global banking and financial institutions to Singapore.

In order to effectively debate on the present Bill, it is therefore necessary for us to examine in detail the underlying premises of the Legal Service Committee's recommendations.

I have no doubt that the Legal Services Committee has put in substantial amount of effort in seeking to tap on a wide range of opinions to see how Singapore's long term competitiveness in the financial services can be better served by a restructuring of the legal services industry.

In their findings, the Committee envisaged that the volume of onshore and offshore and cross-border financial transactions is likely to increase in the coming years. With the expansion in the volume of financial services, it would therefore be crucial that the legal services in Singapore have the capability to support such an expansion.

As a matter of finding, the Committee concluded that Singapore law firms have the capability to undertake Tier 2 and Tier 3 work. On the other hand, the Committee also concluded that local firms do not have the adequate capability to advise on Tier 1 work. For the benefit of my colleagues here, let me just explain the different definitions with respect to the different tiers that were referred to by the Committee. By definition, Tier 2 work refers to the legal software required for conventional financial services, such as the issue and trading of capital markets instruments, onshore and offshore financing such as syndicated and multi-currency loans, and mergers and acquisitions. Tier 3 work refers to the legal software required for Singapore law opinion on Tier 2 offshore financial products, domestic property, consumer financing and unsecured loans. On the other hand, Tier 1 work refers to the software required for the cutting edge financial products, such as project finance of infrastructure involving power, roads, water and telecommunication, international capital markets, asset securitisation and structured finance. In the area of the legal capability for Tier 1 work, we do not deny that offshore firms, in particular those coming from the UK and US jurisdictions have it.

Sir, the recommendation of the Committee to intensify collaboration between offshore and Singapore firms to provide convenient and efficient legal services for cross-border financial transactions is one strategy which the Committee has recommended to help Singapore breach the gap in capabilities for Tier 1 work.

The Committee recognised that in contrast to New York and English law which is used for Tier 1 work, Singapore law is used largely for onshore and cross-border financial transactions which are typically Tier 2 and Tier 3 work. Currently, these onshore and cross-border financial transactions constitute only a small percentage of the total value of financial transactions in the region. Singapore law services play an insignificant role in enhancing Singapore's competitiveness as an international financial centre. The Committee concluded that competition in Singapore law services alone does not contribute to Singapore's competitiveness as a financial centre. What it does mean is that as far as international financial transactions are concerned, parties still prefer the application of New York and English law as the governing laws, especially for financial transactions funded in US dollars which is the standard currency of international finance.

Offshore firms in Singapore do play a part in meeting the demands for legal services in respect of regional transactions that apply non-Singapore laws. It follows that unless and until home-grown Singapore financial institutions expand their capacity for regional lending, the choice of governing law will continue to be New York and English laws. In this regard, it does not appear that, at least in respect of Tier 1 work, Singapore law is likely to have a significant role in the foreseeable future. Moreover, because Tier 1 work typically involves substantial capital funding, it is unlikely that local financial institutions are willing to bear the bulk of the risk without syndicating such risk, often internationally. Where there are foreign elements in cross-border transactions, and I am referring to the foreign banking and financial institutions, as it stands at the moment, one finds it hard to see how we can avoid the application of New York and English laws in these transactions. This is also particularly compounded by the fact that the Monetary Authority of Singapore has a stringent policy against using Singapore currency for offshore lending.

The Committee also concluded that in respect of the legal services for Tier 2 and Tier 3 work, Singapore lawyers are sufficiently equipped and would have the legal expertise to undertake these transactions. The finding of the Committee also confirmed the opinion of the large majority of offshore lawyers that Singapore lawyers have the adequate skills for current onshore financing and also for a limited range of cross-border financial transactions. It is also a known fact that in respect of Tier 1 work, Singapore law firms do not have the necessary legal expertise. But then again, until Singapore law becomes the applicable law in these transactions, it is unrealistic to expect Singapore lawyers to acquire any expertise in Tier 1 work.

Sir, having said that, it does not mean that we should not, as part of our evolutionary process of our legal profession, begin to acquire such expertise. However, as it stands at the moment, unless and until Singapore develops substantially as an international financial centre where the international community has developed much confidence in the use of Singapore law, it is unrealistic to expect Singapore legal capabilities to develop on its own in this direction.

The current arrangement involving a division of labour between offshore and local firms in respect of foreign and local law seems to have worked very well to meet the needs of the present requirements of the financial sector in this country in respect of Tier 1 work. One would therefore be very hard put to see how acquiring Tier 1 expertise by Singapore lawyers is likely to improve Singapore's competitiveness as an international centre if in respect of these transactions, the governing laws continue to be US and UK laws. It is non sequitur, Sir, that because Singapore lawyers have acquired expertise in Tier 1 work, international investors and financial institutions are likely to apply Singapore law as the governing law of the transaction.

Sir, if as the Committee has concluded, the weakness of the local legal services lies in the lack of capability in Tier 1 work, formal alliance and joint ventures, which depending on the nature of the tie-up, allow for the practice of Singapore law by foreign lawyers is unlikely to help us acquire Tier 1 capability if Singapore law is unlikely to be used in Tier 1 work for the foreseeable future. As it stands, the Committee is of the view that our legal expertise in Tier 2 work is adequate for our needs. Giving foreign law firms and foreign lawyers a licence to practise Singapore law does not necessarily assure us that local lawyers will have the hands-on experience for Tier 1 work. Unless Singapore lawyers are equally equipped or qualified to practise New York or English law, there is a strong likelihood that the joint venture or formal alliances in form and substance may result in a situation where Tier 1 work will continue to be dominated by foreign lawyers and Tier 2 and Tier 3 work will continue to be handled by local lawyers with foreign lawyers competing on Singapore law as well. What it does mean is that while there is no assurance that Tier 1 technology will be transferred to the local lawyer, greater competition will result from giving foreign lawyers the opportunity to practise local law.

Sir, it is unfortunate that the Committee did not consider in depth the consequences that follow from allowing foreign law firms to practise Singapore law. How will the small firms adapt to the greater competition that will result? The Committee believes that formal alliance or joint venture will provide a convenient and efficient mode of delivery for legal service in cross-border financial transactions and the upgrade of legal expertise of Singapore lawyers through the transfer of expertise presumably in Tier 1 work from foreign lawyers to Singapore lawyers which hitherto has yet to materialise.

I would support the amendment to the Legal Profession Act not because I believe that the joint venture would necessarily transfer substantial Tier 1 expertise to Singapore lawyers, but because I believe that by allowing foreign lawyers to practise Singapore law, it would intensify the extent of competition with respect to Tier 2 and perhaps Tier 3 work, and hopefully result in an overall improvement in the quality of legal services in Singapore. Hopefully the involvement of off-shore firms in local practice will increase substantially the competitiveness of our financial services sector and help promote Singapore as a regional financial hub.

Singapore firms have evolved in its own way because it has been a relatively sheltered profession all these years. We do not deny that legal services in Singapore have improved over the years. In terms of the way law firms are managed and run, I would admit that the current local legal services are still lacking in some ways when compared to the offshore firms. In this regard, there are many areas that Singapore law firms can usefully learn from their counterparts. Joint ventures and formal alliances will give Singapore firms the ability to bring themselves up to the standards and demands of an international practice. Intensive interaction with these law firms will give Singapore lawyers the opportunity to provide legal services at a standard which is comparable with those of the West.

Sir, it is right that the Act sets out certain safeguards in respect of formal alliances and joint ventures. One must bear in mind that in a joint venture the possibility of a stronger party dominating the weaker one is very real. Here unless such ventures are regulated, we cannot be sure how Singapore law firms may not be overwhelmed by their stronger foreign counterparts.

I believe that to focus the changes to the legal profession on formal alliances and joint venture entirely may be to miss the point altogether. What is crucial and necessary to enhance Singapore's competitiveness for the future really lies in the quality of the lawyers that we produce. The Committee recognised that the quality of lawyers in recent years has generally speaking improved substantially. Yet, while the quality of the entrants to the law faculty and the profession has improved, it does not necessarily mean by the same token that these graduates will in the course of their career acquire the cutting edge technology in the legal profession which Singapore needs for the future. Acquiring these skills through hands-on experience and through formal alliances and joint venture is part of the solution. Perhaps the authority should seriously consider setting up an institute of financial services within the law faculty of the NUS that is dedicated to the teaching and research of Tier 1 work. This institute could perhaps be dedicated to acquiring the necessary legal software and know-how and disseminating the technology to practitioners who are currently in the profession dealing with these sorts of matters. The focus of the institute should be more on the practical approach to the law, including drafting and negotiation. And I might add that in the curricula, they should include subjects from the other disciplines as well, such as business administration, economics and accounting. By acquiring an overall expertise in not just law alone but in the other disciplines, I think we will go a long way in the training of our lawyers to acquire Tier 1 expertise. There is a great gap at present in our legal education at this moment with respect to such requirements, and I would urge the Government to seriously consider such an initiative.

Sir, I was greatly encouraged by another amendment which allows the formation of limited liability corporation. It is a fact that as lawyers, unlimited liability hangs over us like a sword of Damocles. This adds greatly to the stresses and anxieties that a solicitor has had to face. The new arrangement means that a lawyer's liability need no longer be unlimited in respect of his partners' deeds. Presently lawyers, as you may have heard earlier, act in partnerships and are liable for one another.

Sir, while I welcome the amendment, I would say that the amendment, however, does not go far enough. Presumably, retaining the personal liability of the solicitor at law, despite the formation of law corporation, is meant to ensure that the solicitor continues to give his full attention to his work. This provision seems to assume that the removal of the liability of the solicitor under a corporation would mean that a solicitor would not give his full attention and this may increase the possibility of negligence on his part. I am not sure whether this assumption is borne by any empirical evidence. Does it mean that the solicitor will be careless in his work simply because he no longer suffers from being liable in an unlimited manner?

If the concerns are with the care and diligence with which a solicitor handles his work, and the protection of the clients, these issues can be dealt with in several ways. For instance, a solicitor can be struck off the Rolls for negligence, in which case the price he pays will be a loss of livelihood through legal practice. Alternatively, the laws could be amended to ensure that there is adequate insurance coverage in such matters. The extent of the insurance coverage may be made known to the clients in advance so that if a client chooses to deal with the solicitor on a matter in excess of the amount covered by the insurance, he deals with his solicitor at his own peril. Additionally, where most of these transactions run into astronomical sums, making a solicitor liable will not help recompense the victim in any way. It is unlikely that the solicitor is ever going to have sufficient assets to pay for his mistakes.

It seems strange to me that fund managers who give wrong advice and cause people to suffer losses in their investments should be able to hide behind the veil of incorporation. Lawyers, on the other hand, are expected to face consequences on their own. Sir, I believe this is an anomaly. It is archaic and should be rectified.

Sir, all said, subject to my earlier comments, I support the Bill.

Mr K. Shanmugam (Sembawang): Sir, I speak in support of the amendments. And if it needs to be said, let me declare my interest as a practising lawyer, and I practise in a law firm that has perhaps the keenest interest in how these amendments work out.

The Minister has pointed out the two major elements in these amendments. First, is to allow law firms to corporatise and, second, is to allow foreign lawyers to practise Singapore law, within the framework set out in the amendments. Both changes are revolutionary in the context of Singapore.

The first change, the move to allow law firms to corporatise, is to be welcomed and really for law firms, the decision to corporatise should be a no brainer, and I say no more about that.

The second change sought to be brought about by these amendments has drawn mixed reactions among local lawyers, foreign lawyers, as well as in the corporate world.

The reaction of these proposed amendments has differed, depending on the perspectives and interests of the parties involved. Singapore lawyers have reacted with concern about the entry of foreign lawyers. Foreign lawyers, understandably, welcome the move to open up the legal sector in Singapore. People who use lawyers are also divided.

In this scenario, what is the best policy? I would argue that the proposed Bill seeks to strike the right balance between the competing interests and concerns. The question for the policy maker has to be not what is in the interests of Singapore lawyers. Nor should the question be what is in the interests of foreign lawyers. The question instead should be, what is in the best interests for the majority of Singaporeans.

Is it in the interests of Singaporeans that the legal profession be opened up, albeit in a limited way? Convincing and powerful arguments can be made both for opening up as well as for retaining the existing system. Singapore lawyers would say, as my colleague, Mr Sin Boon Ann, has said a little bit earlier, that the level and competency of the legal services is high in Singapore and that the entry of foreign lawyers is really not necessary, and will only serve to drive up costs and perhaps affect the profession as it is. Foreign lawyers and non lawyers will not be sympathetic to such arguments and will say that competition can only be better for all concerned. Singapore lawyers' case is not much advanced by the perception, sometimes exaggerated, about the compensation lawyers get in Singapore. The figures one sees in the Business Times and Straits Times do not reflect what most lawyers earn. They reflect the income of a very tiny minority.

Leaving aside the issue of income, and weighing the reasons for and against opening up, I think the balance, in recent times, has swung towards opening up the legal profession, in the way these amendments seek to do.

I say this because the risks of not opening up outweigh the risks of opening up. If we open up fully and immediately, that would create a level playing field where the players would be of vastly different sizes. The largest firms in Singapore can probably be bought up with one or two months' cash flow of some of the world's largest law firms. A legal scene devoid of local firms may not necessarily be in the interests of Singaporeans. At least, we cannot say with certainty at this stage that that is a desirable outcome.

On the other hand, there are very significant risks if we were not to open up at all. There is a revolution going on in the market place throughout the world. Technology and global integration are moving at lightning speed. And for those of us who have not woken up, the fact that AOL can take over Time Warner is a real wake-up call. All that does not automatically mean that opening up is the correct thing to do. Only time will tell if opening up is the right strategy. However, if we have not opened up, and that is a mistake, and by the time we realise that we should have done so, it will probably be too late. On the other hand, if we open up cautiously now, giving ourselves flexibility, in future, to adapt policies, as dictated by changed circumstances, and hindsight, that will probably be a better option.

There are also other advantages. Mr Sin, my colleague, said earlier that local lawyers do not do Tier 1 work anyway and how would these amendments seek to introduce Tier 1 competency among local lawyers. I think the answer is this. At present, perhaps we are completely out of the market. If there are joint ventures and alliances allowed, there is a serious possibility that when there is Tier 1 work involved in the region, some of the local lawyers involved in such joint ventures and alliances would get access to their expertise.

He also suggested that the Committee perhaps did not consider the impact on small firms. Perhaps one could make two points. The Committee's role was perhaps not to consider what other interests of the small firms. It was to consider what best enhances the competitiveness of the financial sector in Singapore in the context of the provision of legal services. But more importantly, small law firms are not in this market anyway and they are unlikely to be seriously affected by this opening up, because the kind of work that major foreign law firm would go for would not be the kind of work that the small law firms would be handling. To that extent, the people most affected are the larger law firms and most of us know their names.

He suggested that Prof. Chin consider seriously introducing some classes on Tier 1 work. Again, I suppose one has to make the point that for Tier 1 work, you really become an expert by doing it and there is a limited amount that you can do in the law faculty.

Anyway, I welcome the fact that the amendments provide for a considerable degree of flexibility. In line with the recommendations of the Legal Services Review Committee, no doubt the Attorney-General would approve joint ventures and alliances which would be structured to provide for a transfer of know-how, in return for the foreign firms getting an equitable share of our growing economy. Though the Attorney-General needs no such urging, I would point out that "Ali Baba" arrangements should be discouraged. There is a serious risk, in my view, of that happening. Only genuine joint ventures and alliances should be promoted.

My colleague, Prof. Chin, asked why the proposal to have a difference between joint ventures and formal alliances. I can understand the question. The answer is this, that in practice, both the bigger Singapore law firms as well as the bigger international law firms, which would look towards this potential marriage as a loose liaison, might want to check each other out. They might not want to immediately rush into a serious joint venture. For those who are concerned and want a looser form of arrangement, and there are many like that, an alliance makes sense. And for those who are absolutely sure of the marriage or the union, a joint venture makes sense. So it is to be welcomed that there is flexibility in the amendments.

Secondly, Prof. Chin made the point that perhaps we are a little bit behind Hong Kong in that Hong Kong has over 80 foreign law firms whereas we only have about 69. I do not think policies should be dictated by that consideration alone. And the reason is simple. Hong Kong was, until very recently, a colony, a haven for British law firms who had free access and the economy was considerably monopolised by British companies, and there was a good historical reason for the number of foreign law firms that one sees in Hong Kong. It is not necessarily the best policy to encourage local talent to thrive.

Thirdly, he suggested that we should consider joint ventures and alliances to be moving into other areas, like information technology, and so on, as quickly as possible. My own view would be that the speed and pace of the reform and change, as emphasised by the present Bill, should probably be adequate because this is an area one wants to proceed. Open up and let the best of the foreign law firms to come in, have loose forms of alliances and joint ventures and take it one step at a time. Because the level of playing field on a completely open environment in any sector in the Singapore economy is perhaps a long term objective. But if we want to make sure that Singaporeans are left standing at the end of the day, perhaps a step by step process might be better.

Sir, the amendments are also significant in that they vest a comfortable degree of discretion on the Attorney-General or discretion that he has been given. And he is given the discretion to approve the structure of the joint ventures and formal alliances, the discretion to approve the terms on which licences are given to joint ventures and alliances, and absolute discretion to also revoke such licences. There can be no appeal to the Minister in respect of these matters.

Sir, I am not someone who usually likes to see legislation which invests absolute discretion on anyone without further recourse. That is not the norm. However, I can understand and I support the considerable degree of discretion that is given here to the Attorney-General because, I suppose, one is unclear as to how these amendments would work out and have an impact on the legal profession and the economy as a whole. To that extent, it is perhaps best that considerable discretion be given to see through these amendments as it were over the next few years. However, I would suggest that consistent with all aspects of the rule of law, that as time goes by and the situation becomes clearer, perhaps one should move towards institutionalising how this discretion is exercised in a slightly more structured way.

With that, I support the amendments.

Mr Sin Boon Ann: I want to make a clarification.

Mr Deputy Speaker: Please do so.

Mr Sin Boon Ann: Mr Deputy Speaker, Sir, thank you for allowing me to clarify the point which I made earlier. In my speech earlier, I said that, for Singapore lawyers to practise here, the opportunities are not that many. My learned colleague has replied by saying that there are plenty of opportunities. I do not deny that at this present moment, the opportunities for tie-up and therefore to learn areas of Tier 1 work, which we otherwise do not have, are there. Presently, the opportunities are there for Singapore law firms to acquire Tier 1 expertise through continuing participation with their foreign counterparts and their regional work itself. What I am saying is that to formalise this arrangement by an amendment to the legislation under the Legal Profession Act may not be necessary if that was our only concern.

The second point which Mr Shanmugam said is in respect of small firms. I agree that the mandate of the Committee does not encompass the effects of allowing foreign competition on small and medium-size practices. One would however need to consider the issue of excesses in competition that would result from increasing competition in Tier 2 and Tier 3 work which results from allowing foreign firms to practise Singapore law. We all know that excesses in competition may not necessarily be good for the consumers. One of the concerns arising from this competition and allowing foreign law firms to practise Singapore law is the increase in costs for the consumers. With rising costs, I am not sure whether or not this would have an impact on the competitiveness of our financial services sector.

As regards the third point about my suggestion that the faculty set up an institute of financial services, I do not deny that hands-on experience is important. But I would also at the same time like to add that hands-on experience is of limited application if it is not tied up with theory which is acquired in the classroom. I think with maturity of experience in practice, going back to the classroom and re-examining some of the propositions in law and having a deeper understanding of the legal theories would help make us better lawyers. In this regard, I stand by my earlier suggestions that there is a place for such an institute to be formed under the auspices of the Law Faculty.

Mr Jeyaretnam: Mr Deputy Speaker, Sir, much has been said and I do not propose to repeat what has already been said by the others. But before I begin my speech, may I also say that I am a practising lawyer but I have no pecuniary interest in this Bill, nor do I hope to have any interest in this.

May I say that I am not very concerned or worried about the first part of the Bill which seeks to allow law firms to corporatise except to add that I personally regret the passing of a law firm which is a personal service rendered by the solicitor to a client into a kind of impersonal service and the practice becoming a business. But I suppose it is thought that in these days, the bigger the better. I am not sure that the bigger the better is right. I hear, quite often, clients or people coming to tell me when I see them outside, "Oh, we never get to see the lawyer who himself is handling our work. We are always delegated to somebody else in the firm or even the clerks.".

Having said about the corporatisation of the local firms, may I say something about clause 15 which introduces a new part, Part IXA, into the Act, ie, allowing the entry of foreign lawyers into Singapore practice. It seems to me, speaking not on behalf of the big law firms, but on behalf of the smaller firms and especially those who do a one-man practice, that perhaps in the pursuit of financial excellence or wanting to become an international finance centre, we are sacrificing our lawyers to whom we have a duty.

It is not very long ago, Mr Deputy Speaker, Sir, that it was thought we had too many lawyers in Singapore and amendments were made to restrict Singaporeans who obtained their degrees outside from practising in Singapore by requiring that they had to hold their degrees only from selected universities. The number of universities was cut down drastically and they were also told that they had to have a Second-Class Honours degree before they could apply to practise in Singapore. Hand in hand with that, action was taken to restrict the number of people coming out of the National University of Singapore to practise law. The feeling was that there were too many lawyers in Singapore and there was of course the other action taken to restrict the almost ad lib admission of Queen's Counsel to do work in Singapore.

Courts were required to insist on greater requirements for the necessity for the admission of the QC before admitting the QC. But now, it seems to me that suddenly the Government seems to have a change of mind. This Bill seems to open the door, perhaps not the floodgates altogether, to foreign lawyers coming into Singapore, not only just to do offshore work but also to practise Singapore law. The Minister of State said they would not be able to appear in the Singapore courts. But as I read the amendment, if they are registered by the Attorney-General and if they have got their registration approved by the Attorney-General, then they can do whatever the Singapore lawyer can do under Part IV of the Legal Profession Act. That is how I read the Bill. If I am wrong, I wish to be corrected on it. But I see that to practise Singapore law the definition is to be able to do whatever the Singapore lawyers can do under Part IV and have the same rights and privileges, and of course the major right and privilege is the appearance in Singapore courts. So we are now opening the door to foreign lawyers coming in. Are we going to place the same restrictions on these foreign lawyers who come in, requiring them to have degrees only from selected universities, and of attaining a certain standard in their degree before they are admitted? What about the question of whether they are to be resident in Singapore or not? Are we going to allow a foreign lawyer, who is not resident in Singapore, to apply for registration, and then to turn up in Singapore to do court work? That does not appear clear to me.

It seems to me that we are unduly favouring foreigners at the expense of our own people. This, I suppose, is in line with the declared policy, that we have heard from time to time, that Singapore needs foreign talent, that we have not got the talent. I question that. It seems to me too easy a way out. And Mr Sin, may I say, rightly asked whether the expectations of transfer of expertise is not perhaps misplaced. How is this going to ensure, as he has pointed out, that the expertise will be transferred to Singapore lawyers unless, again as he says, Singapore law becomes the governing law? Is there any great expectations of that happening? And how will that happen by just allowing foreign law firms to go into joint law ventures or law alliances with the Singapore firms?

The other concern I have is that after a foreign lawyer has been registered with the Attorney-General, he enjoys the same rights and privileges, including the right to appear in the courts on any matter, not just a case involving financial transactions. He is not limited to that. He is not under the disciplinary control of the Council of the Law Society, but he is under the disciplinary control of the Attorney-General. Why this differentiation? If he is to be registered and to enjoy the same rights and privileges as a Singapore lawyer, and has the required practising certificate, should he not come under the disciplinary control of the Council of the Law Society, rather than the Attorney-General? Would he be required to pay the subscriptions that Singapore lawyers pay to the Law Society?

I would like an answer to these questions from the Minister of State. But, as I said, it seems to me that suddenly we are opening the doors to foreign lawyers, and not necessarily the right kind of lawyers that we need in Singapore at the expense of our own local lawyers.

Mr R. Ravindran (Bukit Timah): Sir, first of all, I would like to declare my interest as a practising lawyer, and also to state that I have no interest in the amendment involving formal law alliances and joint law ventures.

Sir, as far as the amendments go, I think they are timely. They come in the wake of the recommendations of the Legal Services Review Committee, chaired by the Attorney-General, and the Law Reform Committee, chaired by the Justice of Appeal, L.P. Thean, on Corporatisation of Law Partnerships.

Our judicial system and the legal service have won world accolades for being progressive, and being ready to embrace change. It is timely that our legal profession also positions itself for change - change to become better and to become world-class law firms.

Sir, the amendments before this House seek to address two critical issues for the legal profession. The first is the corporatisation of legal practice for the setting up of law corporations. I am happy that corporate limited liability will be extended to legal practitioners. It is not uncommon in the past for all partners of a law firm being exposed to claims and, in some cases, to substantial claims. Whilst insurance helps, in cases of fraud and other instances, insurance does not cover these areas. With limited liability, the directors and shareholders of these law corporations can enjoy protection on their personal assets, save for the partner who is in default.

Sir, my only concern is: how do we ensure that the client is adequately protected in instances where there is a misfeasance by a partner or a practising lawyer of the law corporation? Whilst the Law Society arranges for professional indemnity as a group, my concern is that not all law firms take insurance to provide for non-negligent areas, particularly like fraud. I was happy to hear the Minister of State say that he will be looking carefully into the area of insurance, and I would urge that serious attention be paid into the area of insurance coverage for these law corporations. Many a time, law firms choose a form of insurance which is low cost, because if they take a policy which is very extensive and covers every field of possible claim, then it will lead to the cost of services being rendered much higher. So I would urge the Minister of State to look carefully into the form of insurance that needs to be taken up by these law corporations, so that clients of law firms who engage these law corporations are not short changed, as many laymen may not be able to distinguish the difference between a sole proprietorship, a partnership and a law corporation.

The second issue that I would like to raise in respect of law corporations is the question of why is there no minimum paid-up capital for these law corporations. Here, I am concerned because looking at the way the amendments are drafted, there is no clear minimum paid-up capital that is needed for these law corporations. Even an employment agency that is being set up under the Ministry of Manpower, I think they require a minimum paid-up capital of $100,000. Similarly, there are many other corporations which are regulated by various bodies where a minimum paid-up capital is required. I would recommend that, depending on the size of the law corporation and depending on the number of lawyers who are involved, perhaps a minimum paid-up capital needs to be laid down, so that members of the public can feel comforted by the amount of paid-up capital that a law firm has.

Sir, the third issue that I would like to raise is why do we limit the shareholding of these law corporations to lawyers only. New section 81H of the Legal Profession (Amendment) Bill will only allow solicitors to become shareholders. Subsection (2) says, "may be held by such other persons or class of persons as may be prescribed." Sir, it is unclear now who is this class of persons who can hold shares in future.

I would urge that the shareholding structure of these law corporations be liberalised for several reasons. For one, some lawyers have expressed the view that allowing non-lawyers to become shareholders in these law corporations will have a great impact on them, particularly in relation to the ethical standards, and that as compared to other corporations, law corporations are distinct because, as officers of the court, they owe a duty to the court. But I believe that these can be addressed with adequate provisions, as these standards and duties are personal to the lawyer as a legal practitioner.

Sir, one possible way to ensure that lawyers remain in control is perhaps by restricting the non-lawyer shareholding to not more than 49% at any time. I am quite sure that such an approach will allow for the flow of investments to law firms from other professionals. And such an approach will allow for cross shareholding among the different professions and pave the way for multi-disciplinary practices in future.

Sir, another creature that could also be considered to allay the fear that shareholders will interfere in the practice of law is perhaps a class of shares, like preference shareholding, be created. Because some law firms could be limited in size, and finance also. If they are able to obtain external finance, it could be a form of investment. They could invest in better IT equipment, recruit better lawyers and expand their business. So, allowing for a different form of shareholding besides ordinary shareholding will allow law firms to tap into other forms of investment.

Sir, let me now move on to the other amendment that is before this House, which is the creation of joint law ventures and formal law alliances under Part IXA of the Legal Profession (Amendment) Bill. The provision for joint law ventures and formal law alliances is in line with the move to make Singapore a premier financial centre. The legal profession here has been recognised as being among the best in Asia, as was highlighted by the Minister of State from an article in the Business Times of 13th January. However, there has been criticism that there is only a very limited pool of local practitioners experienced in top-notch international and corporate practices such as securitisation, project finance and structured finance. Sir, some have attributed this to the ban on foreign law firms not being able to practise local law and restricting themselves to offshore work only. Not doing anything will lead to the big businesses who do cross-border transactions having to engage local and foreign law firms to advise them or document cross-border transactions elsewhere. This certainly increases the cost of the work and also takes more time to complete the work. The provision of joint law ventures and formal law alliances will allow for local firms to tie up with foreign firms and offer one-stop service centres. This will certainly allow for world-class legal service for businesses operating in Singapore and in the region. This will certainly enhance the reputation of Singapore not only as an international financial hub but also as an international legal hub just like London and New York.

Sir, the amendment also comes at a time when some of our law firms are also expanding in the region. Just as our law firms wish that they will be allowed to practise local law in these countries where they are now expanding, foreign law firms are also wishing that they can be allowed to practise local law through these vehicles as they would also like to offer one-stop legal services to their clients for their home countries. Hence, this amendment comes at a timely moment.

Sir, however, there are concerns raised whether the law firms will be aggressive and take away substantial business from the bigger law firms who will face the greatest competition from these joint law ventures and formal law alliances. How do we ensure that these foreign law firms indeed pass on the specialised knowledge which is purportedly lacking in Singapore law firms? How do we also ensure that these foreign law firms do not become a means to monopolise international legal work here with little or no benefit to the local firms. I would urge the Attorney-General who is given great powers under the Bill to carefully monitor the implementation of the scheme, and to impress upon the law firms, particularly the foreign law firms, the intent behind the whole exercise.

Sir, the other concern expressed is the shareholding or associated structure that will be allowed. It is unclear what is the formula that these foreign law firms will be allowed to adopt with regard to joint law ventures and formal law alliances. Will these foreign firms be allowed to hold 99% of these law corporations or joint law ventures? Because if it means that they control 99% or a substantial percentage, I think it may even lead to a situation where some of these smaller law firms, as Mr K Shanmugam earlier stated, may be used as a front like an Ali Baba operation where they merely rubber stamp documents and the prime beneficiary becomes the foreign law firm. I think it is wise or perhaps it is something which we should look carefully into how foreign law firms take an interest in the local practice. We have to ensure that perhaps the local firms which are involved in these joint local ventures or foreign law alliances do control the majority, at least in the initial stage, so that the fear that some of the smaller firms may be used as a Trojan Horse to win the business of the corporate world here will be avoided. I would urge the Attorney-General, in formulating the rules, to be mindful of the fear of many of the law firms here that these joint local ventures, if there are loopholes in the shareholding structure, may be used to come and take away business from the local law firms, particularly the bigger law firms, Sir.

On that note, I support the Legal Profession (Amendment) Bill, Sir.

Mrs Lim Hwee Hua: Sir, thank you for allowing me to join in the debate. I would like to provide a non-lawyer's perspective.

Sir, as Singapore maps out its strategy to operate in a borderless economy, the underlying business infrastructure must be modified and necessary changes made to facilitate the realisation of these objectives, particularly in the financial services sector. Towards this end, the amendments to the Bill will go a long way, especially in view of the ballooning volume of cross-border transactions, as observed by many of my colleagues.

The pro-business stance of Singapore is well known and often cited as one of the main reasons for investments by multi-nationals. The proposed amendments under section 103 will facilitate the formation of foreign law ventures and alliances, thereby allowing an integration of foreign and local expertise. This is especially crucial to enabling the services sector to cater to multiple jurisdictions in an efficient and effective way.

Sir, from this perspective, I find the process and decision making relating to the application for a foreign law venture or alliance as outlined in the new section 130B, to be slightly inconsistent with the overall intent, and lacking in transparency. Allow me, Sir, to elaborate.

Subsection (1) provides for the Attorney-General to consult "such authorities as may be prescribed". May I ask the Minister who these authorities are, and would the list be made public? In addition, I would like to echo Prof. Chin's call to publicise the guidelines for setting up such ventures and alliances.

Next, as my colleague, Mr Shanmugam has raised, subsection (4) provides for the Attorney-General to refuse to approve an application "without assigning any reason". Furthermore, section 130H states that the Attorney-General's decision "shall be final and conclusive".

It would appear, Sir, that these amendments, firstly, do not provide for the degree of transparency that would be expected of Singapore by foreign parties; secondly, do not allow for an appeal or further discussion to support an application; and, thirdly, would place the approving power solely with the Attorney-General. Can the Minister explain if inputs from either Government agencies or the industry would be incorporated?

Finally, Sir, may I end on a short point of clarification. Subsection (6) of new section 81H proposes that a solicitor who is suspended would not be allowed to hold shares in a law corporation. While this is justified for those struck off the roll, in the case of a solicitor who is suspended for only a short period of time, the penalty may appear to be disproportional. Can the Minister kindly clarify, please?

On that note, Sir, I support the Bill.

Mr Noris Ong Chin Guan (Nominated Member): Mr Deputy Speaker, Sir, I rise to speak in support of this Bill.

The introduction of this Bill is timely. It will enable the profession to move forward with the times to keep pace with the worldwide development in the profession and to meet the growing needs of the business community. I would like, however, to raise three points for the Acting Minister's clarification.

The name of the law corporation. Clause 81C of the Bill proposes that every law corporation shall have either the words "law corporation" or the acronym "LLC" as part of its name and that no person, firm or group practice other than an approved law corporation shall have such words as part of its name. I have received feedback from some quarters of the business community that the use of the acronym "LLC" may not be appropriate. This is because the acronym may be easily confused with the foreign equivalent of "Limited Liability Corporation", which is widely adopted in countries such as the United States and certain tax haven locations.

Secondly, I would like to comment on the shares of the law corporation. Although the Minister mentioned the possibility of multi-disciplinary firms emerging from the proposed corporatisation scheme, the Bill appears to restrict the ownership of law corporation basically to practising solicitors. There are definite merits in restricting the shares of law corporations to within the legal profession. An obvious advantage is that the profession's standards and ethics are best maintained by solicitor shareholders. In this way, legal standards and ethics will not be easily overlooked or inadvertently diluted by shareholders who are outside the profession and who will be excessively driven by commercial interests and gains. The flip side to this restriction is that it does not encourage the development of multi-disciplinary professional corporations, which is the growing trend overseas.

Sir, the business environment is getting more complex and multi-disciplinary. News about mega mergers confronts us almost every other day. Ironically, the demand for immediate, simple and integrated solutions has become the norm of the day. This phenomenon has led to the propensity of forming strategic alliances across professions, often involving lawyers, auditors, tax advisors and IT consultants. Going forward, I can envisage one-stop multi-disciplinary consultancy centres sprouting out in Singapore. In the light of this trend, may I ask the Minister to clarify if a capping of the percentage of non-solicitor shareholders to a fixed appropriate percentage has been considered. The injection of a multi-disciplinary shareholder interest would better equip our law corporations to meet with the demand of the business environment with its increasingly regional and international aspects. At the same time, the capping can ensure that the legal profession standards and ethics are not diluted.

In a similar way, the Bill also seems to rule out the possibility of share option schemes for employees. Whilst there are other compensation schemes, many corporations have come to realise the benefits of rewarding their loyal and quality employees by way of share options. Incorporating a law firm opens up the possibility of extending compensation schemes to match the trend in the market place which competes for the same human talent. It will also promote job loyalty and permanence beyond merely direct monetary attractions.

Ownership of law corporation therefore should be extended to other than practising solicitors and a fixed percentage specified.

Thirdly, like what my learned colleague had earlier said, I am concerned about the provision of clause 81D which states that the personal liability of the solicitor is not affected by the mere fact that a solicitor provides legal service as a director or an employee of a law corporation. Sir, we need to make a distinction as the claims against professionals are grossly disproportionate to the fees that they earn. The tendency for such claims is due to the deep pocket syndrome, as professionals such as lawyers and accountants usually take up indemnity insurance, which makes them prone to law suits and claims. Such disproportionate claims are neither fair nor equitable, given that a single successful claim can wipe out the entire reserves of a law corporation and, if the latter is insufficient, the personal assets of the solicitor providing the legal service. In the event that a successful claim brings down a law corporation, the repercussions will be felt beyond the profession concerned. The employees of the corporation will be affected and so would the immediate family of the solicitor.

For a professional, the ultimate punishment for an unsatisfactory professional conduct or professional misconduct is to be struck off the roll or to be suspended from practice. This recourse is generally available. Where a claim is made on the assets of the solicitor, it may tantamount to double punishment or jeopardy. Due to the fear of litigation, a solicitor may also so qualifies his advice as to significantly reduce his effectiveness. It is of crucial importance to the commercial life of Singapore that our professionals should feel free to give advice in clear and forthright terms.

Sir, the claims sought and awarded against solicitors should bear some relationship to the quantum of fees charged which is based on the complexity and time spent on each assignment, and not on the level of risks and likelihood of claims.

I would like to ask the Minister to clarify whether he will consider a capping on the liability of the law corporations, including the solicitor concerned, to a maximum multiple of the assignment fee.

Sir, with these few points which I hope the Minister can clarify, I support the Bill.

Assoc. Prof. Ho Peng Kee: Sir, first, let me thank all the speakers who have spoken up. I think all of them are in support of the Bill, except perhaps for Mr Jeyaretnam.

The speakers have expressed some concerns. Some of these concerns are valid, which I would deal with. But it is heartening to note that all of them see the need for these changes. As I have said in my speech which Members have appreciated, this is a cautious, balanced start. These are not sweeping changes. These are carefully thought through changes of the Legal Services Review Committee headed by the Attorney-General which consulted many players on the ground, balancing what is needed for Singapore. I think Mr Shanmugam makes the point. It is not for the benefit of Singapore lawyers or for the benefit of foreign lawyers, but a scheme which will fill up a gap which exists in the current legal sector and also to ensure that Singapore's financial centre drive continues to receive the support of the legal services. I think that is important. That is the first point.

The second point is that while we make a start, we will continue to monitor these amendments. This is a point which a few speakers have made, including Mr Ravindran. It is important because, for a start, the Attorney-General with inputs, will have to make a decision as to who to admit and approve as joint venture partners and to form formal law alliances. He will assess how these foreign firms which are registered or approved will perform and whether the needs are met by their inputs. These will have to be assessed. They are not cast in stone. But certainly we will take this approach and we will continue to monitor.

The third point is that the Committee's recommendations have been approved by Government and adopted. This Bill provides the framework on which these recommendations are mounted. But there is also in place an Implementation Committee headed by the Attorney-General with representatives from the various involved players, including, I believe, the Dean of the Law Faculty, Law Society and so forth, which will continue to make the rules so that the scheme will work. These are the few general comments that I want to make. This is not a sudden change. I think Mr Jeyaretnam would want to paint the picture that Government is flip-flopping. But we are talking about different things altogether - the restriction on the number of lawyers, the aim was to boost the quality of lawyers who are practising here, especially Singaporean students who are trained overseas, and that is why there is a requirement for them to come only from 15 scheduled foreign universities. All those issues have been largely and widely debated. Their aims are quite different. So now we are not just opening up to all and sundry. We are doing a very selective process, opening up a certain sector of the legal services market to a certain select group of lawyers who can fill that need. And even when they are registered or approved, they can only do certain designated things, and certainly not practise in court. This is very clear from the Committee's report even though it may not be expressed in the Bill. Certainly, this is not a back door way for foreign lawyers to come and appear in our courts. I can give this assurance to Mr Jeyaretnam.

Let me deal with one primary concern which Members have raised. This has appeared through different threads. But the point really is: how do we ensure that Singapore will benefit, that the regime that is set in place will achieve its intended effect of absorbing legal services that will fill up the recognised gaps? Prof. Chin puts it this way - whether or not the joint law ventures and formal alliances will also facilitate the entry of critical non-banking and non-financial areas of law, such as information technology. He sees that need. And indeed there is a need. But the question, of course, is the pace and how we do it. Mr Shanmugam has cautioned that we should not open up the doors for all and sundry.

So what the Committee intends to do, I understand, is to again take a balanced approach. There is a distinction between formal law alliances and joint ventures. Insofar as formal law alliances are concerned, I understand that AG will exercise his flexibility vis-a-vis foreign firms which may have expertise in, for example, information technology, with a clear understanding and proper analysis of Singapore's needs. I think that is a point I must continually emphasise. AG, as Chairman of the Committee, was on the job for two years. He knows what Singapore needs from all his consultations. Members have pointed out that AG, in fact, is the key player in the entire exercise. But he will not be alone. Because, for example, in considering whether or not an application for a joint venture or formal alliance should be approved, he will consult other relevant agencies and authorities, including the Monetary Authority of Singapore. He will consult them and take their inputs. I believe that this will be published in the rules which Mrs Lim Hwee Hua has asked.

As to whether or not the scheme will allow also the influx of expertise in non-banking and non-financial related areas, the answer is yes. But again a cautious start through formal law alliances, and only in those areas where AG, in the context of Singapore's strategic needs, thinks will benefit Singapore.

In any case, I understand that for joint law ventures, they may still bring in expertise in some areas, for example, IT and telecommunication laws, as transactions that require knowledge of IT and telecommunications constitute part of the larger project financing deals. There will not be a conscious effort, but it will be one of the side-effects of having these foreign lawyers come in and do the work in Singapore. So that is the first point.

The second point is a good point that Members have made, which is, we should ensure that firms that come in are not firms that ride on a "Ali Baba" arrangement. I think Mr Shanmugam made this point. In other words, we should not be taken for a ride. Some Members have asked if Singapore firms have that strength, that depth of expertise to really be full-fledged partners with these foreign firms. I have said earlier on that the Business Times have reported that the UK Legalese Limited Report says that we have done very well. And indeed, over the last three to five years, many Singapore firms have already entered into informal alliances with foreign partners. So that is not a new game for them. They are already into this process. What we are doing now is giving them a choice of a more formal structure.

This is related to a point that Prof. Chin asks: why are there two types of collaboration? I think the approach is to give law firms a choice. Do they want to go in with a tighter fit, like a joint venture, or a looser fit, sort of engagement before a marriage? I think Mr Shanmugam talked about that process. You may not want to straightaway rush into it. Enter into a formal alliance, not a single entity, where instead of a distinct entity, one can have all the benefits - one marketing centre, one billing centre and, of course, sharing some expertise, foreign lawyers can draft documents on cross-border transactions, even including those relating to Singapore law, but they cannot advise on Singapore law. So you see the nice balance that the Committee must have thought through, how to ensure that there is a gradation for law firms which may not want to jump straight into the fray. Then when they are prepared, they go ahead. Of course, there may be some Singapore firms, the bigger ones, who are confident enough and having considered the pros and the cons, because there will be pros and cons, if you enter into a joint venture with one particular firm, you may stop other referrals from coming to you, they proceed. So the scheme is such that it is flexible enough for law firms to make their own judgements, do their own sums, and then come to a decision how they want to do it. It gives them some flexibility.

But there is this point about how to ensure that law firms which come in will indeed add value. Here, again, AG is the person primarily tasked with this important job. Like I have said, he will consult other relevant agencies, including the Monetary Authority of Singapore. He will, of course, look at the track record of firms which apply, and also the track record and expertise of foreign lawyers in these firms. Foreign lawyers in these firms - I think Mr Ravindran made this point - should not come in and take control. It is important that they do not come in in the guise of a joint venture when, in fact, they are practising in Singapore wholly on their own. This point has been taken into consideration. Because the rules that will be made will say that in a joint law venture, the number of offshore partners should not exceed the number of local partners, so that the management will not fall into the hands of the foreign partners.

What is also important is that each applicant for a joint venture licence or registration must submit a business plan. In other words, the ball is really in their court. They have to persuade and convince the AG that they can add value. And this strategy is also a good one because they will then be monitored against their business plan over time. The business plan will therefore act as a benchmark - whether they are delivering on their promises. If they do not, then the next time their registration comes up for renewal, the joint venture will not be renewed. And I think this acts as a very good safeguard because foreign firms which want to enter into joint venture arrangements with Singapore firms are reputable firms which will not risk their reputation. AG has many years of experience doing this already. Because we have had many offshore firms coming to Singapore to set up branches here and they must get permission from the AG. So he is not a new boy in the block. He has been doing this for a long time. I believe that the AG has the necessary wherewithal to handle this task.

Then the question arises as to why when foreign lawyers come in they are treated differently from local lawyers in terms of the disciplinary process. The feedback that we have is that foreign lawyers, in fact, prefer a system that is confidential. They would prefer not to be involved in the disciplinary processes of the Law Society, ie, they would rather that the current regime continues. In other words, the AG will still be the primary person who will regulate them and discipline them. But he will not be doing it in a vacuum because the Act says that the rules can prescribe Codes of Conduct and Ethics by which foreign lawyers will be judged, will be pegged against, so that when the AG disciplines them, he will not be doing it in a vacuum. He will be doing it in that context. Indeed, the Act provides that before he disciplines a lawyer, the lawyer would have the opportunity to submit a written explanation, and then AG will act if he has sufficient reasons to do so. Mr Jeyaretnam makes that point. But he should not worry for these foreign players who come in.

Another point is whether or not the entry of foreign lawyers will lead to hardship for local lawyers. I think there will be some adjustments. There will be more competition. So a lot depends on the local lawyers. Are they up to it? Do they see the need for the move? Are they positive, and indeed I think many are positive. Two to three years ago when the fact was announced that the Government was looking into this, local lawyers were more resistant. But over time, partly because of the economic crisis and partly because of what is happening elsewhere, I think they realise - and also partly because of the work being done in the region by local law firms - that there is a market out there. There is now greater confidence on the part of local players to tie up with foreign partners.

So will local law firms be affected? I think a lot will depend on how they respond to the challenge. If the scheme works out, as it should, where the AG takes in established reputable firms who will give us their business plans, whom the AG assesses will work for Singapore, and these established foreign firms do not take us for a ride, as they probably will not, and they come in and do the type of work which currently only a small percentage of top-notch lawyers are exposed to, ie, Tier 1 work, which will then be available to a larger number of Singapore lawyers, a good start is made.

Mr Sin Boon Ann wondered whether this will benefit Singapore lawyers. I think he himself has answered it. For a start, it may not be a quick uplift. But, I think, as Singapore lawyers get exposed to Tier 1 work, complex work, they will also be clued in. It may not be Singapore law, but then they will be exposed to the documentation, the processes. And over time as these joint ventures become larger and venture into the region - as I have said in my Second Reading speech - they may, in fact, push for Singapore law to be the governing law of these regional contracts. So this is a process which I think, if all works well, will indeed be a boon to the Singapore legal sector.

Having said this, small firms will continue to have a role. I think much has been said about this too. Indeed, out of the 800 law firms in Singapore, about half, 430 are actually sole proprietorships. So despite the fact that the practice of law has become harder - quicker deadlines, greater client expectations - there is still a large number of small firms out there - sole proprietorships, small partnerships - who cater to Singaporeans who need services in contract matters and advice on family law and criminal laws. The point is that Singaporeans need not fear that arising from this opening up, costs will rise so astronomically that they cannot even have access to legal services. This approach really, together with the other amendments on corporatisation, increases the choice for Singapore consumers. We are talking about the mode of delivering legal services. So besides the sole proprietorship, you have got your small partnerships. And indeed even for small partnerships, some of them have created niche practices. Others are larger partnerships. And now there will be law firms in the form of corporations. Then you have got informal law alliances which are existing and soon formal law alliances, and joint ventures. So there is a whole range. Even as there is a whole range of consumers, now there is a whole range of suppliers, and the matching can be done by the market.

I hope I have answered most of the major concerns which Members have raised. There are also some good suggestions made by Members. For example, Mrs Lim Hwee Hua asked whether lawyers and law corporations should be required to divest their shares when suspended for a short period. I think that is a good point. The Bill provides that a lawyer who is suspended from practice cannot take part directly or indirectly in the management or practice of a law corporation. However, I think she also has noted that the Bill provides that a suspended lawyer cannot hold any shares in a law corporation unless the Council of the Law Society grants him a grace period to dispose of the shares.

Sir, the point, of course, is that if the suspension is a short period, should he be made to divest his shares, only to, after the suspension is over, buy back the shares? Of course, I cannot pre-empt the Council who must make the decision and exercise its discretion. But I should think that if the suspension is really for an extremely short period, a few months, for example, so that it is impractical for the lawyers to divest his shares during the suspension period and then buy them back immediately, it could well be a reasonable exercise of the Council's discretion to grant the grace period which covers the entire suspension period. But we have to wait and see whether the Council takes this approach.

I think Mr Ravindran argues that law corporations should have a minimum paid-up capital. This question was, in fact, considered very carefully by the Law Reform Committee. It was decided on balance that there was no need to provide for a minimum paid-up capital, as it was felt that the best protection for clients or corporations is to ensure that they are adequately insured to cover any claims which clients may make against them. Hence, as I said in my speech, the rules will set out what is the minimum coverage that is required.

Indeed, for lenders who lend to these law corporations, even though they are private exempt companies and therefore need not file annual returns, if they are scrupulous, careful lenders, they can ask the firm for its accounts. For example, the Bill provides that law corporations must comply with the Solicitor's Accounts Rules and that includes the filing of the accountant's report with the audited accounts with the Registrar of the Supreme Court. That is a safeguard which lenders of law corporations can take up.

The other point which Mr Sin Boon Ann makes, and which I think Mr Noris Ong also supports, is why lawyers in law corporations should not also enjoy limited liability. Mr Noris Ong's case is that his liability should be capped. This is of course a matter of debate. But the position is that if we take this tack, it may lead to a lawyer lowering his guard and hence, lower professional standards. We think that it is probably in the public interest that lawyers continue to be personally liable for matters over which they have personal charge. We think this is the correct approach because lawyers, even though they operate in the context of law corporation, are still professionally charged with the duties that are incumbent on them. Indeed, they are expected to be competent and exercise due diligence in matters over which they have charge. So I would expect in a law corporation, the directors would have to decide who is the best person to handle a particular deal. That is one of the benefits of a law corporation where directors can have different legal expertise. The point is the directors will then not say, "I don't want to handle this because if I take it up and anything goes wrong, I am personally liable." This is a management decision which the directors in a law corporation must make. Because if none of the directors wants to handle the deal, then the deal will go elsewhere.

The other point which Mr Noris Ong makes is on the acronym "LLC". "LLC" was suggested by the Law Reform Committee which included two Senior Counsels and other law firm partners. There was no objection expressed to this acronym which, in our context, stands for "Limited Law Corporation". It is felt that the acronym should not cause any confusion when used in Singapore for domestic clients although in some jurisdictions, LLC may have a different meaning, ie, Limited Liability Company. But in Singapore's context, the fact is that - I have mentioned this in my speech - the invoice and the official correspondence must state that this is a law corporation with limited liability. So domestic clients dealing with the law firm which is incorporated will know who he is dealing with. We do not think it will cause confusion. But in any case, for people who want to avoid doubt, the Bill actually gives an option. You can either put "LLC" or "Law Corporation". So those law corporations which have US clients may want to adopt that option.

The other point that has been mentioned is why the provision that all shareholders must be solicitors. Both Mr Noris Ong and Mr Ravindran know that, from the Bill, this is the current position. But the Bill itself provides that, in future, the rules can prescribe for other non-solicitors to be shareholders. As some Members will know, this vehicle called the multi-disciplinary practice is in fact something which many other jurisdictions have considered. I understand that there is a working committee of the Law Society which is also considering that. So I think that is something for the future. And if, indeed, the rules are changed, I am sure the suggestions made by Mr Ong and Mr Ravindran will be considered by the Committee.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Assoc. Prof. Ho Peng Kee].

Bill considered in Committee.

[Mr Deputy Speaker in the Chair]

Clause 1 -

The Chairman: The citation year "1999" will be changed to "2000" as indicated in the Order Paper Supplement.

Clause 1 ordered to stand part of the Bill.

Clauses 2 to 16 inclusive ordered to stand part of the Bill.

New Clause -

"Amendment of section 135

Section 135 of the principal Act is amended by

deleting the words "and the payment thereof shall be

denoted by an impressed stamp on the relevant

document".".

Brought up, and read the First time.

Assoc. Prof. Ho Peng Kee: Sir, I beg to move, "That the clause be read a Second time."

Sir, this amendment is consequential to the amendment made in clause 3 of the Bill. Clause 3 amends section 25 of the Act to allow practising certificates to be issued electronically. Section 135 of the Act provides that the practising certificates and instruments of admission must be stamped by an impressed stamp as evidence that the prescribed fees have been paid. With the amendment to section 25 to provide for electronic practising certificates, the requirement in section 135 for practising certificates to be stamped with an impressed stamp is now obsolete. The reference to impressed stamps should therefore be removed from section 135 of the Act.

Sir, I beg to move.

Question put and agreed to.

Clause read a Second time and added to the Bill.

The Chairman: The new clause will be inserted immediately after clause 15 and the consequential amendment to be made to the renumbering of clause 16 as listed in the Order Paper Supplement will be made.

Bill reported with an amendment; read a Third time and passed.