Why the LSK is wrong on legal fees

A robust discussion is going on today between the Competition Authority on one side and the Law Society of Kenya on the other about the setting of fees for legal services.

Since the passage of the Competition Act in 2009, it has been predictable that the Competition Authority would soon challenge one of the many professional bodies in Kenya.

This is because the nature of informed competition law was bound to clash with most of the organized professions in Kenya regarding the manner in which fees are set and services delivered. 

In Kenya, most professional societies gain formal recognition from government and use that recognition as a shield for their membership by setting rules regarding fees for each service.

Such rules take the form of price floors or the division of markets among members. 

They argue that this form of price setting and market division is self-regulation that ensures high standards of service delivery. 

In the language of dispassionate economic and market analysis, professional bodies that set and enforce prices, divide markets and forestall competition between firms are correctly known as cartels, and the Competition Authority is justified to act against cartels in defense of the public interest.

The essence of the disagreement between the Competition Authority and the Law Society of Kenya (LSK) arises from longstanding authority resident in the Chief Justice to periodically revise and set rates for legal services. 

With respect to the office of the Chief Justice, this requirement may originate from a statute but effectively makes the office holder a price setter for legal services.

Bearing in mind that the Chief Justice holds qualifications in law and could thus revert to the profession upon retirement, such a decision to adjust fees is unlikely to be completely objective. 

Citing the provisions in Section 29 (2) of the Competition Act, the Competition Authority correctly and sensibly contends that professional bodies seeking to set prices to guide service provision must seek authorization and exemption. 

It is unclear whether the sole purpose of the objection by the Competition Authority in the present matter is to ensure that procedural requirements are adhered to or to object completely to price setting as pleaded by the Law Society of Kenya. 

Without preempting the decision of the Competition Authority, the argument raised by the Law Society of Kenya (LSK) that the setting of the minimum price serves to protect consumers of legal services is completely wrong-headed.

The price floor proposed by the LSK has the effect of reducing competition because firms that are capable of providing services at a cheaper rate are constrained from expanding business through providing cheaper services. 

It is also preposterous to argue that the cheaper service provider is the more likely to provide poor service. Many countries with a comparable legal services industry have reformed pricing for legal services by allowing firms and individuals to develop their own pricing mechanism.

This has not affected the quality or quantity of services available, but has instead raised the level of competition between firms and encouraged specialization. 

In Kenya’s case, it can be demonstrated that a price floor works against smaller and less established firms because it exposes them to misconduct should they provide services below the arbitrary price floor. 

Separate from the disagreement between the Competition Authority and the Law Society of Kenya, the Chief Justice maintains that the consumers of legal services should be allowed to participate in the revision of the fees. 

This reasoning is informed by the constitutional requirement for public participation in the formation of laws and other public affairs.

Clearly, allowing for representation and fixing prices on behalf of lawyers through an archaic legal provision would make it difficult for the Chief Justice to conscientiously sit in judgment in a future case brought against cartels in a separate industry. 

In conclusion, the whole set of established professions in Kenya have used established guilds to ensure that their fees are determined without competition by arguing that this benefits the consumer. 

The frontal challenge by the Competition Authority to these claims is correct policy and worthy of support. 

Regarding price setting, the Competition Authority is on the consumers’ side and should release professional bodies from “conspiracy against the laity and contrivance to raise prices”.

Competition is good for consumers and firms too.