Non-lawyer ownership of legal firms across the European Union appears further away than ever following the latest development in a dispute involving a German practice. In a landmark decision, the Court of Justice of the European Union has ruled that national bans on investors owning stakes in legal practices do not breach EU free market laws. Safeguarding the independence of lawyers in the public interest trumps freedom of establishment, the court has effectively decided.
The plaintiff in the case is Halmer Rechtsanwaltsgesellschaft UG, a law firm founded by Dr Daniel Halmer. After receiving its licence to practise law from the Munich Bar Association (RAK) in 2020, the Halmer firm assigned 51 of its 100 shares to an Austrian limited liability company. The RAK, defendant in the case, then revoked the plaintiff’s licence to practise, because the Austrian LLC was not licensed to practise law either in Germany or in Austria and, under the German Federal Lawyers’ Act (BRAO), was not allowed to be a shareholder in a law firm as an investor.
Halmer UG challenged the constitutionality of Germany’s third-party ownership ban before the Bavarian Lawyers’ Court (BayAGH), as well as the ban’s compatibility with EU law. The BayAGH then asked the CJEU to review the German ban on third-party ownership.
Last year advocate general Manuel Campos Sánchez-Bordona said he considered the restrictions imposed by the BRAO on shareholdings in law firms to be inconsistent with EU law. In particular, certain professionals from outside the law are allowed to hold shares in law firms - including tax advisers, accountants and even pharmacists - but not other parties.
Although the CJEU is not bound by advocate-general opinions, the court follows them in most cases. Handing down judgment today, however, the CJEU ruled that a member state is permitted to ban ‘purely financial’ investors from taking stakes in law firms.
‘Such a restriction on the freedom of establishment and the free movement of capital is justified by the objective of ensuring that lawyers can exercise their profession independently and in compliance with their professional conduct obligations,’ the court said in a media statement. ‘EU law and, more specifically, the free movement of capital and the Services Directive, which gives concrete expression to freedom of establishment, do not preclude national legislation which prohibits shares in a law firm from being transferred to a purely financial investor and which provides, in the event of that legislation being infringed, for the firm’s registration with the bar association to be revoked. That restriction on the freedom of establishment and the free movement of capital is justified by overriding reasons relating to the public interest.’
Writing for the Gazette last year Jonathan Goldsmith, former secretary general of the Council of Bars and Law Societies of Europe, said the Halmer case could ‘decide the question of alternative business structures in Europe for a long time’.
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