PROVING THINGS 63: LAW SOCIETY FAILS TO PROVE IT MAKES A LOSS: “DISAPPOINTING, TO SAY THE LEAST”

June 2, 2017 · by · in Civil evidence, Disclosure, Education

The Law Society put forward a budget of £637,000* to defend the action in Socrates Training Limited -v- The Law Society of England and Wales [2017] CAT 10.  The Law Society, however suffered from a basic failure to prove one of the matters it asserted.

THE CASE

Socrates is a training company. It brought an action against the Law Society arguing abuse of dominant position when the Society made it mandatory for those seeking accreditation under the Conveyancing Quality Scheme to attend courses run by the Law Society.  The Law Society was unsuccessful in its defence.

EVIDENCE THE COURSES WERE MAKING A LOSS

One of the arguments the Law Society put forward was that the courses it provided were loss making. The tribunal was sceptical of the evidence put before it.

  1. “In reliance on this schedule, the skeleton argument for the Law Society stated that: “[t]he CQS is … loss making overall, and is subsidised by practising certificate income.”
  2. However, not only is the method of cost allocation (whereby an increase in revenue automatically generates a corresponding increase in attributable cost) an unreliable basis for any fair assessment of the profitability of the scheme, but it became clear during the course of the trial, following questions from the Tribunal, that the figures presented for CQS training income in the years prior to 2015 were materially understated. It emerged that before 31 October 2014 the Law Society’s system did not in fact record income due to CQS training, and on the final day of the hearing the Law Society presented revised figures which represented an upper bound of training income: those figures were between 70% and over 100% higher than the figures originally presented.
  3. We are bound to record that it is disappointing, to say the least, that the Law Society produced a schedule of figures in purported compliance with the Tribunal’s orders which was wholly unsatisfactory. The method used for allocation of costs is such that even with the revised figures showing an upper bound for training income (which on that method would require all the costs figures to be recalculated), it is in our view impossible to reach any reliable view as to whether or not the CQS was loss-making, at least after 2012 when the training income significantly increased.
  4. What can be deduced from the revised figures is that in the year ended 31 October 2014, the income from all CQS training was likely to have been close to £1 million; and that thereafter the training income (which is now accurately recorded) has been between about £1.4 and £1.5 million.[13]We noted above that financial projections for the CQS were presented to the Management Board of the Law Society on 20 October 2010, although that also came to light only in the course of the hearing. Copies of the 2010 Business Case for the CQS, supplied to the Tribunal subsequently, projected that even on a “worst case” scenario, the CQS was expected to become significantly profitable by 2012. However, those initial budgetary estimates, as the Law Society has pointed out, assumed that applications for CQS accreditation would be made on-line, which is not in fact what happened, so that the largest cost of running the CQS is the cost of processing applications. As regards the more recent situation, we were told by Ms Smith QC, on behalf of the Law Society, that no overall financial forecasts for the CQS have been made.
  5. We note that by letter from its solicitors to the Tribunal written after the conclusion of the trial, the Law Society restated its case to assert that the CQS is loss-making on “a standalone basis.” We doubt very much that even that conclusion can be drawn robustly given the method used for cost allocation, but in any event, the CQS of course is not a standalone business. We therefore cannot accept the submission that the CQS has had to be subsidised from the Law Society’s practising certificate income. Overall, we conclude that it is impossible on the evidence before us to determine whether or to what degree, when considered in terms of avoidable costs, the CQS as a whole is profitable for the Law Society, but it seems clear that by 2014-15 the supply of the CQS training courses generated a substantial income stream and made a positive contribution to overheads.”

(Some observers may think that if the project was making a loss and being subsidised by its members it is peculiar that the Law Society was willing to spend £637,000 of its members’ money attempting to uphold a loss-making monopoly. Members would be better off with the courses being provided by third parties and the Society not having to subsidise them at all.  That is, of course, a matter for clever commercial minds and not us simple lawyer folk,)

*Recoverable costs were capped at £200,000 for the claimant from the Law Society and £350,000 for the Law Society from the claimant, see the earlier costs capping judgment available here 

 

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