As the Legal Services Bill reaches its final Parliamentary lap, Neil Rose looks at what concessions the government has made to ensure this groundbreaking legislation becomes law


A process that began in 2001 with the Office of Fair Trading’s report into competition – or the lack of it – in the professions will come to a climax over the next month as the Legal Services Bill heads for Royal Assent.



Its slower than anticipated passage through Parliament means that the Bill still has to complete its report stage and third reading in the Commons, scheduled for 15 October. It should then return to the Lords on 17 October, when the so-called ‘ping pong’ between MPs and peers may commence to agree the final text of the legislation before the session closes ahead of the Queen’s Speech on 6 November.



With the shape of the Bill largely agreed, it could be that the Lords will just accept the changes made by the Commons. If they do not, and start pushing for further concessions, they will be able to ratchet up the pressure – because the Bill began its parliamentary life in the Lords, the government would not be able to invoke the Parliament Act to force it through. However, such brinkmanship seems unlikely and ultimately the Lords should back down.



For those who have been living in a cave – or, more likely, been up to their eyes with work – the Bill is to a large extent the 2004 Clementi report made flesh. To boil it down, it will:

l Establish a supervisory regulator, the Legal Services Board (LSB), that will take on the oversight responsibilities currently held by a variety of bodies in relation to the profession’s approved regulators – such as the Law Society (through the Solicitors Regulation Authority), Bar Council (through the Bar Standards Board) and Institute of Legal Executives. Separation of representational and regulatory functions is key, and the institute will be doing this shortly.

l Centralise the handling of complaints against all the various kinds of lawyers through the creation of an independent Office for Legal Complaints (OLC).

l Free up restrictions on ownership of and investment in legal practices, allowing alternative business structures (ABSs). This is the so-called Tesco Law, which could see non-lawyers owning or becoming partners in legal practices and a liberalisation of corporate structures, so that law firms could, for example, float on the stock exchange.



A draft Bill was scrutinised last summer by a joint parliamentary committee headed by solicitor Lord Hunt of Wirral, the former Conservative cabinet minister – although few of its substantive arguments were accepted at that stage by the government – and the Bill was then amended on various key points in the House of Lords.



When it entered the Commons in June, legal services minister Bridget Prentice MP made little effort to hide her feelings about the state the Bill was in. ‘The consumer focus, as the volume and nature of amendments in the [House of Lords] show, was clearly forgotten during the Bill’s long and drawn-out six-month passage there, so I now look forward to this House reacquainting the Bill with its real purpose,’ she said. ‘This is our opportunity to give voice to the needs and aspirations of consumers as opposed to providers of legal services.’



As a result, in June’s committee stage, the government reversed virtually all the changes made in the Lords – more than 70 in all, including consequential amendments. But then, over the summer, it emerged that the Ministry of Justice has been, after all, prepared to move to some degree. Amendments that will be laid when Parliament begins work again on 8 October actually adopt several of the joint committee’s main recommendations. Such is the way of politics.



UP IN THE AIR

But Lord Hunt highlights two issues that still need resolving. First is ensuring the legislation accurately reflects the intention that primary responsibility for regulation should rest with the approved bodies, with the LSB a ‘light-touch’ regulator that can only intervene in serious situations. ‘Otherwise you could have interference and double regulation – nobody will know who is in charge,’ he says. Secondly, he wants to bring government solicitors within the regulatory net by requiring them to have practising certificates.



Russell Wallman, the Law Society’s director of government relations, also identifies clarifying the relationship between the LSB and approved regulators as vital. There is nothing in the Bill, he explains, to make it plain that the LSB is not supposed to substitute its judgement for that of an approved regulator unless the latter has been clearly unreasonable. The requirement on the LSB to act proportionately does not do the job.



He gives the example of referral fees. There are good arguments for and against a ban, and the LSB should not be able to interfere with whatever the policy on them is. ‘If [the government] doesn’t get this right, the risk is that the LSB will become too interventionist,’ Mr Wallman explains, ‘undermining the role of the approved regulators and becoming much more expensive [because every decision will be scrutinised].’



But Mark McLaren, a public affairs officer at Which?, one of the consumer groups consulted by the government in developing the legislation, says it opposes further amendments. ‘We would not want to see the LSB weakened vis-à-vis the approved regulators, so we don’t see the need to clarify any further,’ he says.



However, there has been movement on some of the other big issues, such as the Lord Chancellor’s power to appoint the chairman and members of the LSB. This has been widely opposed for at least giving the impression – not least to overseas bars looking for reasons to keep solicitors out of their jurisdictions – of too much government involvement in an independent profession.



The Law Society, Bar Council and others said appointments should only be made with the concurrence of the Lord Chief Justice, but this was strongly rejected by the former Lord Chancellor, Lord Falconer, and also by consumer groups, with both arguing that the existing public appointments procedure under Nolan principles would suffice. Perhaps having a new man in that post has made a difference, but the Ministry of Justice has now adopted the recommendation made by both Sir David and the joint committee that the Lord Chancellor must consult with the Lord Chief Justice.



‘We believe that consultation in a UK democracy adequately preserves the independent regulation of the profession,’ said Bar Council chairman Geoffrey Vos QC last month in his ‘end-of-summer’ report. ‘We are grateful to the overseas legal professions that have supported this cause, particularly the German and Belgian bars.’ Mr Wallman adds that the concession is satisfactory so long as it is full and genuine consultation on the entire process and not just a name at the end of it. Mr McLaren describes it as ‘unnecessary but fine’.



The Bar Council has also professed itself satisfied with the compromise offered over its campaign to allow the OLC to delegate the handling of complaints back to approved regulators. Under this, the OLC will be able to seek the assistance and advice of the Bar Council (through the Bar Standards Board) in the investigation of complaints against barristers. ‘This will mean that the expertise of specialist barristers [who current advise pro bono on complaints] will not be lost to the complaints process,’ wrote Mr Vos.



However, it is hard to see that actually this achieves anything close to what the bar was seeking. Certainly the consumer lobby, which is vehemently against delegation, sees nothing in this to worry about.



Still with the OLC, the government has given way on a Lords bid to mitigate the application of the ‘polluter pays’ principle, under which the OLC could require lawyers to pay complaints-handling charges, for those against whom a complaint is not upheld and who had tried to resolve it internally.



It is also planning to increase the limit of redress the OLC can award from £20,000 to £30,000 (the present Legal Complaints Service limit is £15,000, which has recently been matched by the Bar Standards Board). Which? is backing an amendment by Labour MP Kevan Jones to up it further to £50,000, which Mr McLaren says would encourage more consumers to pursue a complaint. However, the tricky issue of the OLC handling what are effectively negligence cases in place of the courts is likely to raise its head at this point.



SPEED WALKING

But the most interesting developments have come in relation to ABSs, the only area where the government did not accept the Clementi report. Sir David foresaw the regulatory problems ABSs could cause, and recommended that legal disciplinary partnerships (LDPs) between the different types of lawyer (and also non-lawyer managers) be created. He characterised LDPs as walking and multi-disciplinary partnerships and non-lawyer ownership as running for a later date. But the government decided it wanted to legislate for full ABSs.



The joint committee called on the government to phase in ABSs and, in effect, that is what will happen. ABSs will require a new licensing regime, and approved regulators will need to apply to the LSB for the right to issue licenses. This is unlikely to happen before 2011 at the earliest. In the meantime, however, LDPs will be allowed – just as soon as the Solicitors Regulation Authority (SRA) and other interested legal regulators can draw up new rules and procedures for regulating them, likely to be early 2009.



It then emerged over the summer that the government was to insert a clause in the Bill extending LDPs to include up to 25% of non-lawyer partners, who would also be allowed to invest in their practices (see [2007] Gazette, 6 September, 1). Such non-lawyer partners would be limited to offering services ancillary to the work of a legal practice – so an accountant, for example, may be able to conduct tax work, but not auditing. It will also include firms’ non-lawyer managers.



The move, effectively a limited introduction of ABSs, reflects a Law Society proposal dating back to 2000 known as ‘legal practice plus’ – on which the Society has long been lobbying – which was seen as a step towards full multi-disciplinary partnerships. Interestingly, the legislation will only require LDPs to have one solicitor partner, meaning that, in theory, there could be a practice with 20 legal executive partners with a single solicitor partner to make it an LDP.



However, while all this has largely been welcomed, the Law Society and SRA are concerned about one change the government made to the Bill when it first arrived in the Commons – exempting trade unions that offer reserved legal services in a post-ABS world from the need for licensing. This is apparently to protect the work of non-lawyer union officials, but Mr Wallman says the exemption is ‘much too wide’. He says the Society would accept a partial exemption that relates to legal advice given ancillary to the work of the union – such as advising a member over an accident at work or employment matter – but that it should not allow unions to run, for example, an effectively unregulated conveyancing service.



On this point Mr McLaren has some sympathy, observing that ‘trade union members are consumers too and deserve the protection of the law, so we wouldn’t want them less protected’.



IMPLEMENTATION TIME

But otherwise the SRA is pretty happy with the Bill. SRA consultant Alison Crawley says: ‘The SRA and Law Society have succeeded in getting a lot of key changes to modernise our powers, increase flexibility, and introduce innovations such as LDPs. Our minds are now turning to implementation.



‘Before we can enable LDPs, we have to review most of our rules and regulations, such as the new Code of Conduct, to make sure that the code applies to LDPs as entities and to the individual non-solicitor and non-lawyer managers. We need to rework the current procedures that apply to recognised bodies [companies and LLPs] and adapt them to apply to partnerships and LDPs. Some of these may be technical changes, but some will require important policy considerations – and consultation – on issues such as the extent of the suitability test for non-lawyer managers.’



There remains one issue, however, on which the government has shown no sign of moving: levying on the legal profession the entire estimated £30 million cost of transition to the new set-up. Campaigners seem to have largely given up trying to persuade the government to contribute to this; Mr Wallman says he hopes the opposition parties will press the government to give assurances that it will fully consult with the profession over what at the moment look like high costs.



While in theory the running costs should not be hugely different from those lawyers already pay for, Mr Wallman says there also needs to be greater accountability mechanisms to ensure that the LSB and OLC cannot run away with costs. The smaller professional bodies are also concerned about how both the start-up and running costs will be apportioned.



Overall, however, this is a piece of legislation that, with the focus on the consumer interest and heavy involvement of consumer groups, many feared would turn out to be much harsher on the legal profession than it has. Mr Wallman says the amendments the government will lay this week represent ‘considerable progress’; even if in parts the Bill is not ideal, lawyers can live with it. Mr McLaren adds: ‘If all sides are broadly happy, then it means it’s a pretty good Bill.’



Lord Hunt says that ‘no one should underestimate the degree to which there will be profound and deep change to the profession’ as a result of this legislation. The future is about to begin.