By David Webster, Partner in the Corporate & Commercial Team at Russell-Cooke LLP.
Despite recent regulatory changes and innovations, most Chambers still operate as a group of self-employed, independent, barristers joined together as an unincorporated association. The constitutional arrangements of these unincorporated associations vary in type and complexity, but will invariably deal with common themes, including crucially:
- Decision-making within Chambers
- The admission to, and departure from, Chambers (including provisions which can be particularly contentious such as the financial obligations of departing members)
- Obligations to contribute towards Chambers’ expenses
Increased competition and other financial pressures have led many Chambers to review their constitutional arrangements to ensure that they allow for effective decision making (whilst maintaining appropriate checks and balances) and are sufficiently robust in relation to the financial obligations of members.
This article looks at some of the key issues that need be addressed in Chambers’ constitutional arrangements.
- An effective Constitution
It is essential to ensure that Chambers has a clear written constitution which is reviewed and updated from time to time to reflect the way Chambers operates and any changes in law and regulation. Flexibility can be achieved by limiting the matters dealt within by the constitution to certain core issues, with more administrative matters dealt with in policies or guidance issued by those responsible within Chambers.
It is important that the affairs of Chambers are actually conducted in accordance with the constitution. Problems can arise if, for example, individuals are able to argue that the constitution has been effectively varied by conduct; or that a contentious decision at a Chambers’ meeting should be set aside because formalities such as quorum requirements were not observed.
- Ensure individuals are bound
All members of Chambers should sign a document acknowledging that they are bound by the constitution and a central record should be maintained.
Generally Chambers have arrangements in place for new starters to sign up to the constitution when they are admitted as members. However procedures may not always have been robust and there may be a number of longstanding members who have never signed up. This can cause difficulties when members leave or if the constitution is amended to impose more onerous obligations on members, most notably in relation to their financial contributions to Chambers expenses.
- Clear structure
It is important to ensure there are clear lines of responsibility and authority within Chambers, Again, it is also important to ensure that these are set out in the constitution and observed in practice.
Generally authority over Chambers’ matters will ultimately rest with the members as a whole, but of course certain matters will be delegated to certain individuals or committees such as Head of Chambers, the Management/Finance Committee, or Chief Executive.
Problems can arise where material expenditure is incurred on Chambers’ behalf without those concerned having the necessary authority to do so. This can be a particularly fertile ground for disputes where the liabilities created are material and, for example, have to be satisfied on dissolution through aged debt or indemnity contributions rather than through incoming fees in the normal course.
As well as legal considerations, there are also more practical factors to take into account when considering how best to avoid disputes. For example, it may be prudent to obtain the approval of the members at a Chambers meeting before incurring a particularly substantial liability even if the item concerned is within the scope of the authority conferred on the Management or Finance Committee.
- Strong internal accounts function
Unsurprisingly, disputes in Chambers are often financial in nature and commonly relate to the requirement for members to contribute towards the expenses of Chambers. These issues can be particularly acute when as set is struggling financially. It is essential to have a robust accounting function in place to monitor Chambers’ financial performance.
A key issue facing many Chambers at the moment is cash flow, particularly for those who undertake significant amounts of publicly funded work. Cash flow issues can often be difficult to identify and address as they do not necessarily involve barristers having insufficient work, or not billing enough.
It is also important to consider how much and how frequently financial information should be provided to members. A common complaint when financial difficulties do arise and action needs to be taken is that members were not kept informed about the financial position of Chambers.
- Preparing for the worst
Chambers are no different from any other commercial organisation and should have in place a clear set of arrangements dealing with what will happen should Chambers dissolve.
Where a dissolution occurs on a solvent basis (i.e. there are sufficient readily available funds to discharge all creditors in full) then it may be relatively easy to manage the process of winding up Chambers’ affairs. However, in other situations this may be much more difficult. Particular issues to consider include:
- Ensuring that the constitution deals adequately with the position on dissolution. Of particular importance is the basis on which members and former members will be required to contribute to any shortfall on a winding up.
There is a balance to be drawn as it would clearly be unfair if former members were on the hook indefinitely for matters which may well be entirely outside their control. However if members do not remain liable for a period following their departure from Chambers (in the event that Chambers is dissolved within that period) then it is all too easy to jump ship at the first sign of trouble leaving the remaining members to deal with the fallout.
- Considering whether all members of Chambers should be required to enter into separate Deeds of Indemnity in respect of Chambers’ liabilities in addition to their obligations under the constitution. This is often considered when Chambers is taking on a significant additional liability, such as entering into a lease, in to avoid any disputes as to whether the liability is covered by the standard indemnity arrangements in the constitution.
- Use of a service company. Many Chambers now use service companies to enter into contractual commitments on behalf of Chambers, including acting as the employer of Chambers’ employees. Even if the Head of Chambers or other members benefit from indemnities from other members of Chambers, if they contract on behalf of Chambers they will have the primarily liability to the third party and will then be required call upon and possibly enforce the indemnities. That is an uncomfortable position to be in and can be mitigated by the use of a service company.
- Capitalisation and security deposits
Many professional practices are considering the need to recapitalise their businesses in order to improve their financial robustness and Chambers are no different.
Many Chambers now set Chambers’ rent at a level which is sufficient to generate a surplus. This sinking fund will provide a degree of protection against a sudden reduction in fees and be available to meet unexpected or substantial non-recurring items of expenditure.
Chambers can also face difficulties in recovering sums due from members of Chambers who leave. There may be no dispute as to sums due, but departing members may direct aged debtors to make payments to a new account, leaving Chambers to pursue the former member for payment, which they are often understandably reluctant to do.
In order protect against this situation, Chambers may wish to consider raising a levy (either on a one off basis or via a modest monthly payment) on members to act as a security deposit. The “deposit” will be held by Chambers in a separate account and applied against member’s undischarged liabilities to Chambers. It will be returned to a departing member (after deductions) within a period following their departure.
David Webster is a Partner in the Corporate & Commercial Team at Russell-Cooke LLP.