HOUSE OF COMMONS HOUSE OF LORDS

Joint Committee on the Draft Legal Services Bill

Session 2005–06

Draft Legal Services Bill

Volume II: Evidence

Ordered to be printed 13 July 2006 and published 3 August 2006

Published by the Authority of the House of Lords and the House of Commons

London : The Stationery Office Limited £26.50

HC 1154-II HL Paper 232-II

CONTENTS

ORAL EVIDENCE Page Office of Fair Trading (OFT) Written evidence (Ev 43) 1 Oral evidence, 6 June 2006 4

Law Society of England and Wales Written evidence (Ev 03) 14 Oral evidence, 8 June 2006 19 Supplementary written evidence Law Society (Ev 03a) 26 Further supplementary written evidence Law Society (Ev 03b) 26 Further supplementary written evidence Law Society (Ev 03c) 34 Further supplementary written evidence Law Society (Ev 03d) 38 Further supplementary written evidence Law Society (Ev 03e) 41 Further Supplementary written evidence Law Society (Ev 03f) 42

General Council for the Bar of England and Wales Written evidence Bar Council (Ev 01) 43 Oral evidence, 8 June 2006 55 Supplementary written evidence Bar Council (Ev 01a) 63 Further supplementary written evidence Bar Council (Ev 01b) 65 Further supplementary written evidence Bar Council (Ev 01c) 67 Further supplementary written evidence Bar Council (Ev 01d) 70 Further supplementary written evidence Bar Council (Ev 01e) 74 Further supplementary written evidence Bar Council (Ev 01f) 76

National Consumer Council, Which?, Written evidence National Consumer Council (Ev 04) 78 Written evidence Which? (Ev 21) 81 Oral evidence, 12 June 2006 84

Sir David Clementi Oral evidence, 12 June 2006 93 Written evidence Sir David Clementi (Ev 72) 102

Council for Licensed Conveyancers (CLC), Institute of Legal Executives (ILEX), Institute of Trade Mark Attorneys (ITMA), Chartered Institute of Patent Attorneys (CIPA) Written evidence Council for Licensed Conveyancers (CLC) (Ev 08) 106 Written evidence Institute of Legal Executives (ILEX) (Ev 41) 111 Written evidence Institute of Trade Mark Attorneys (ITMA) and Chartered Institute of Patent Attorneys (CIPA) (Ev 12) 115 Oral evidence, 15 June 2006 121 Supplementary written evidence Legal Executives (ILEX) (Ev 41a) 127

Legal Services Commission and Practitioners Group (LAPG) Written evidence Legal Services Commission (Ev 75) 129 Written evidence Legal Aid Practitioners Group (LAPG) (Ev 02) 131 Oral evidence, 15 June 2006 133

Legal Action Group (LAG) and Law Centres Federation Written evidence Legal Action Group (LAG) (Ev 40) 139 Written evidence Law Centres Federation (Ev 19) 142 Oral evidence, 15 June 2006 143

Lord Chief Justice and Master of the Rolls Oral evidence, 19 June 2006 149

Legal Services Ombudsman for England and Wales and Financial Ombudsman Service (FOS), Written evidence Legal Services Ombudsman (Ev 20) 156 Written evidence Financial Ombudsman Service (FOS) (Ev 18) 160 Oral evidence, 19 June 2006 162 Supplementary written evidence Financial Ombudsman Service (FOS) (Ev 18a) 167 Supplementary written evidence Legal Services Ombudsman (Ev 20a) 169

Law Society Consumer Complaints Board and Law Society Regulation Board Written evidence Law Society Consumer Complaints Board (Ev 68) 171 Written evidence Law Society Regulation Board (Ev 67) 174 Oral evidence, 19 June 2006 179 Supplementary written evidence Law Society Regulation Board (Ev 67a) 183

Bar Standards Board Written evidence (Ev 56) 184 Oral evidence, 19 June 2006 193 Supplementary written evidence (Ev 56d) 197

Co-operative Legal Services, AA Legal Services and Institute of Chartered Accountants in England and Wales (ICAEW) Written evidence Co-operative Legal Services (Ev 66) 199 Written evidence Institute of Chartered Accountants in England and Wales (ICAEW) (Ev 65) 202 Oral evidence, 22 June 2006 205

Federation of Small Businesses, City of (CLLS), Sole Practitioners Group (SSPG) and Bar Sole Practitioners Group Written evidence City of London Law Society (Ev 42) 210 Written evidence Solicitors Sole Practitioners Group (SSPG) (Ev 25) 215 Oral evidence, 22 June 2006 220 Written evidence Bar Sole Practitioners Group (Ev 73) 229

Bridget Prentice MP, Parliamentary Under Secretary of State, Department for Constitutional Affairs Oral evidence, 26 June 2006 231 Written evidence (Ev 76) 246 Supplementary written evidence (Ev 76a) 256

WRITTEN EVIDENCE Page LLP (Ev 81) 215 Advice Services Alliance (Ev 29) 259 Allen and Overy (Ev 34) 261 Amicus (Ev 26) 262 Association of Personal Injury Lawyers (APIL) (Ev 28) 265 Dr Kamlesh Bahl CBE (Ev 35) Simon Baker (Ev 80) 271 Berrymans Lace Mawer (Ev 82) 276 Bird and Bird (Ev 23) 214 British and Irish Ombudsman Association (BIOA) (Ev 15) 278 British Printing Industries Federation (BPIF) (Ev 39) 279 Charles Russell LLP (Ev 49) 215 C S Caisley (Ev 05) 282 (Ev 36) 283 LLP (Ev 59) 285 Complaints Against Solicitors, action for Independent Adjudication (CASIA) (Ev 33) 286 Sarah Cook (Ev 27) 288 Dr Bernhard Dombek (Ev 70) 289 Dechert LLP (Ev 44) 215 Eifion Edwards (Ev 17) 290 Epoq Group (Ev 45) 295 Fishburns (Ev 47) 297 Freshfields Bruckhaus Deringer (Ev 24) 214 Hampshire Incorporated Law Society (Ev 54) 301 HIPS(97) (Ev 06) 301 Holman Fenwick & William (Ev 48) 215 JUSTICE (Ev 10) 302 John Kirkhope (Ev 30) 303 Law Society of (Ev 51) 303 Lovells (Ev 38) 214 Robin Makin (Ev 09) 304 Guy Mansfield QC (Ev 77) 314 Master of Faculties (Ev 11) 325 Mayer Browne, Rowe and Maw LLP (Ev 07) 326 Medical Protection Society (MPS) (Ev 32) 326 Mercer (Ev 61) 328 David Morgan (Ev 52) 329 Notaries Society (Ev 31) 331 Olswang (Ev 50) 333 Professional Negligence Lawyers’ Association (PNLA) (Ev 58) 333 PricewaterhouseCoopers (PwC) (Ev 46) 335 Resolution (Ev 55) 337 RMT (Ev 78) 342 Reform of Complaints Against Solicitors (ROCAS) (Ev 13) 343 Royal Institute of Chartered Surveyors (RICS) (Ev 53) 346 (Ev 22) 214 Society of Legal Scholars (Ev 74) 346 Solicitors Disciplinary Tribunal (Ev 69) 348 Mr William Taylor (Ev 16) 350 TUC (Ev 57) 351

Mr David Wolfe (Ev 37) 354 Young Legal Aid Lawyers (YLAL) (Ev 60) 357

Evidence received by the Joint Committee but not printed can be inspected in the House of Lords Record Office (020-7219 2333), e-mail [email protected] 3435523001 Page Type [Ex 1] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

Minutes of Evidence

TAKEN BEFORE THE JOINT COMMITTEE ON THE DRAFT LEGAL SERVICES BILL TUESDAY 6 JUNE 2006

Present Bach, L Mr David Burrowes Campbell of Alloway, L Michael Jabez Foster Henig, B Stephen Hesford Hunt of Wirral, L (Chairman) Mr David Kidney Neill of Bladen, L Emily Thornberry

In Attendance: Mr Nigel Reeder,andMr Alasdair Wallace, members of the Draft Legal Services Bill Team.

Memorandum by the Office of Fair Trading (Ev 43)

1. Introduction 1. The OYce of Fair Trading fully supports the Draft Legal Services Bill. In our view, the Draft Bill represents a significant opportunity to improve current arrangements for the regulation and delivery of legal services in England and Wales. The legal professions need reformto e nhance competition and improve choice for their clients and to ensure that consumers are properly protected when things go wrong. Regulatory arrangements that allow lawyers freedom to develop new, better and more eYcient ways of supplying legal and other services are likely to serve the needs of consumers in England and Wales better and to improve the capacity of lawyers and other professionals to better compete in markets that are increasingly international. We welcome this opportunity to contribute to scrutiny of the Draft Bill by the Joint Committee. OFT gave oral evidence to the Joint Committee on 6 June 2006.

OFT involvement 2. OFT has been actively involved in advocating pro-competitive reform of the legal professions for some years. In March 2001, OFT’s report Competition in professions challenged a number of restrictions on the provision of legal services both in professional rules and in statute.1 A progress report in April 20022 noted some reform of anticompetitive rules by professional bodies but noted that significant restrictions remained in particular with regard to business structure.3 Restrictions that remain to be addressed are: — the prohibition on partnership between and between barristers and other professionals, including other lawyers; — the prohibition on sharing of fees between solicitors and other professionals; — the prohibition on solicitors in employment to non-solicitors providing services to third party clients; and — the prohibition on barristers providing litigation services to third parties. 3. An important principle of our work in this area is that it is not for us to dictate how lawyers should or should not supply services. The manner in which goods and services are supplied is generally best determined by unfettered competition between suppliers for the custom of consumers. The freedom to compete that results can only benefit suppliers and consumers. Where rules are necessary, for example to protect vulnerable consumers, it will be important to ensure that these are no more restrictive than necessary to meet that objective. This cannot be guaranteed where the task of making professional rules is the sole preserve of the professional bodies which represent the interests of suppliers, and in the absence of eVective independent oversight.

1 OFT 328 available on our website at www.oft.gov.uk 2 OFT 385 available on our website at www.oft.gov.uk 3 OFT 722 available on our website at www.oft.gov.uk 3435523001 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

2 joint committee on the draft legal services bill: evidence

6 June 2006

Key Proposals in the draft Bill

4. Provisions in the Draft Bill fall into three main areas: regulatory framework; alternative business structures; complaints handling. Overall we consider that proposals in the Draft Bill are necessary, workable and suYcient. We comment briefly on each in turn:

The regulatory framework

5. With regard to the first, the regulatory framework, we welcome the LSB model because it allows for proportionate, yet eVective oversight and intervention while retaining the expertise and the goodwill of the professional bodies who maintain significant regulatory roles. It is right that in order to retain this role, professional bodies are required to separate their representative functions fromtheir continuing function as regulators. The establishment of an independent body with oversight powers in relation to regulatory decisions by professional bodies is also a fundamental step towards ensuring that regulation is necessary, proportionate and meets the consumer interest. We consider that the regulatory objectives that will guide the LSB and other regulators have been appropriately defined and prioritised. In particular, we welcome the inclusion of an objective that calls for the promotion of competition. 6. An additional reason for welcoming the LSB model is that, by maintaining a regulatory role for the professional bodies as front line regulators, the LSB model retains the potential for the development of competition between regulators. For example, where suppliers who wish to be licensed to supply services as an ABS firmhave a choice as to licensing body, competitionbetween licens ing bodies will help ensure that those bodies operate a licensing regime eYciently, in a user friendly manner and without unnecessary restrictions. Oversight by the LSB will help ensure that in making necessary rules the licensing bodies balance objectives appropriately. 7. We welcome also the structural provisions that seek to ensure that the interests of consumers remain central to future regulatory decisions. This is achieved, in our view, by the role of the Consumer Panel that will both keep the LSB informed about the experience of consumers and, when appropriate, challenge the regulator on behalf of the consumer interest. It is also achieved by provisions that ensure eVective competition scrutiny, and in so doing seek to ensure that consumers get the benefits of a competitive market in legal services.

Competition scrutiny and the regulatory framework

8. The establishment of an oversight regulator will have the eVect of substantially removing the professional rules governing the legal profession fromthe scope of both UK and EC compet ition enforcement provisions. Alternative scrutiny arrangements are therefore necessary. 9. The Draft Bill provisions address OFT’s concerns about competition scrutiny in a number of ways. Most significant, with regard to eVective competition scrutiny, is provision of an ongoing power for OFT to scrutinise regulatory arrangements and report to the LSB, and a corollary duty on the LSB to respond to competition concerns raised by OFT. We welcome the proposal that in this capacity, the OFT is to have investigation powers. 10. This power allows us to be pro-active about competition concerns rather than merely passive and to ensure that the LSB responds to these when raised. In the event of a disagreement between OFT and the LSB, the Secretary of State will have power to resolve the issue following advice fromthe Competition Commission. While we think that recourse to this “arbitration” mechanism is likely to be wholly exceptional, and that most competition issues will be resolved by dialogue between the LSB and OFT, we nonetheless consider that that the inclusion of the mechanism provides a useful framework within which that dialogue will take place. 11. In addition, we welcome the provisions that place a duty on the LSB to seek competition advice from OFT in relation to certain significant regulatory decisions, in particular, decisions that have significance for regulatory structure. 12. Relevant also to competition scrutiny is the provision, mentioned previously and welcomed, that decisions of the LSB and of all the approved regulators will be governed by a competition objective. Moreover, we welcome the proposal that the composition of the LSB should ensure that it can oVer experience of competition issues. 3435523001 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

joint committee on the draft legal services bill: evidence 3

6 June 2006

13. Finally, the Draft Bill also provides for OFT involvement in relation to extending or contracting the list of legal activities that are reserved. We welcome OFT’s role as one of the 4 bodies who may request an investigation of the possible exclusion or inclusion of a particular activity fromthe regulatory net, following which, the LSB has a duty to respond. Final decisions on the size of the regulatory net lie with the Secretary of State. We do not think that this is inappropriate.

Alternative business structures

14. We welcome provisions in the Draft Bill that enable lawyers of diVerent types to work together and with non-lawyers to deliver both legal and other services. Fundamental to these changes and to our support of themis that these are facilitative measuresthat allow those who wish to take advantage of themto adapt services to better meet client needs but which also allow those who wish to continue to provide services as currently to do so. In our view, consumers at all levels of the market may benefit fromthe resulting choice of provider. 15. This is achieved through a licensing regime under which, subject to safeguards, licensed bodies will be permitted to attract external investment and it will not be necessary for the Alternative Business Structure firm(licensed body) to be one in which managerialcontrol is exercised by la wyers. The ABS licensing systemstrikes a necessary balance, in our view, between freedomfor firmst o explore new and potentially more eYcient structures, better adapted to client need, and the protection of ABS consumers against potential risks inherent in the new ownership and management arrangements. 16. The extent of external ownership and of managerial control of ABS firms by non-lawyers depends to some degree on future rules. However, insofar as the framework enables external ownership and control and permits the provision of legal and non-legal services, it has the potential to ensure that the anti-competitive restrictions on business structure identified by the OFT are addressed and to allow professionals greater freedomto adapt structures for the provision of service in a way that best m eets the needs of clients. Each of the ABS firms will be regulated by one licensing body of their choosing and traditional models will remain available. 17. In our view, facilitating these new ways of providing services can bring benefits to both consumers and suppliers and at both ends of the market. In relation to vulnerable consumers the changes facilitate the provision of combinations of services that are currently impossible. Both the convenience of a one stop shop and the capacity of the supplier to see and address needs more comprehensively are potential advantages here. In relation to rural and isolated consumers, new structures, as well as potentially improving quality of service, can bring innovative ways of getting services to people. This is essentially because in new structures fixed and operating costs can be spread over a broader range of services. At the commercial end of the market, potential benefits include cheaper and more eYcient services, for example where new structures unlock eYciencies of scope and scale or where external expertise and investment brigs improvement to management and service delivery. UK firms that are more eYcient and better adapted to client needs will be better able to contest what are, increasingly, international markets.

Independent complaints handling: an Office for Legal Complaints

18. With regard to complaints handling, we have consistently supported the establishment of a fully independent complaints handling body. We see this as the only option that is likely to adequately address concerns about consumer confidence which we see as a key issue. 19. We welcome the provision the OLC will have a lay chair and a lay majority and, through an Ombudsman it appoints, will act as a gateway for all complaints. It is right that the Ombudsman will deal itself with service complaints. In relation to complaints about professional misconduct and discipline, a role is retained for the professional bodies who will deal with these. It is right, in our view, that this role should be subject to the oversight of the OLC. 20. The rise in the compensation maximum, following a service complaint, to £20,000 is welcome, as is the provision that this can be further amended by Order. Particularly in the new context of alternative business structures, it will be important to take account of compensation available in comparable schemes. We note that maximum redress in the comparable scheme for financial services is currently £100,000 and that for estate agents is currently £25,000. June 2006 3435523002 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

4 joint committee on the draft legal services bill: evidence

6 June 2006

Examination of Witnesses Witnesses: Mr Philip Collins, Chairman, and Mr Grahame Horgan, CompetitionPolicy DivisionOffice of Fair Trading, examined.

Q1 Chairman: Good afternoon Mr Collins and Mr provide services to third parties. In addition to that, Horgan. Thank you very much indeed for coming to barristers cannot provide litigation services to many assist us. The Committee is operating on a rather third parties. So those are the main restrictions. As I strict timetable; as you know, we have to report by say, we feel that the new Alternative Business the end of next month. But we did feel it would be Structures will require these restrictions on business very helpful if we were able to start with evidence structures to be relaxed and we think that is very fromthe O Yce of Fair Trading because of the very much in the public interest in terms of the clear line you have adopted in the past, both in competitive market. reports and vocally, that this is an area that does Chairman: We will come back to Alternative Business require some further action. We have of course read Structures in a moment. David Burrowes. your various reports, Competition in Professions and the other commentaries and responses that you have Q4 Mr Burrowes: Do you think that the proposals in published from time to time, but I am not aware at the draft Bill are proportionate and necessary to meet the moment that you have commented on the draft the legitimate regulatory aims identified by the Bill itself and I wonder whether or not I could just ask Commission in their 2004 report? you, to start oV with, how you feel with this Draft Mr Collins: Yes, I think they are and obviously the Bill? Does its provisions meet your concerns and to Commission set down a very general principle that what extent are there other areas which you feel these provisions should be necessary and require attention? proportionate. Obviously a great deal will depend on Mr Collins: Thank you very much. In broad terms, how they are actually implemented in practice, but in yes. We have obviously had a limited time to look at principle we think that the structure is right. the bill since it was published but, in very broad terms, it does seem to us to address the concerns that Q5 Mr Burrowes: When compared with other we outlined in our previous reports. In principle it European providers, how would you see the draft does this by ensuring that the restrictions which Bill’s regulatory innovations putting legal service remain within the professions, which are mainly providers in England and Wales? Do you think it going to combinations of professions or business would be an advantage or disadvantage when structures, are addressed through the Alternative compared with other European providers? Business Structure mechanism and through the Mr Collins: I think it will be an advantage, and separation of regulatory fromrepresentative standing back a little and looking at it particularly in functions. So, in broad terms, we support the a business context—there are separate issues in provisions of the Bill. relation to consumer interests, vulnerable consumers and so on—English legal services are a very Q2 Chairman: We have of course been made aware important export and they are a very important of the diVerences between regulating professions, service provided by this country in many places regulating activities and also regulating entities. around the world, and it is very important that Where do you feel that the main focus should be here? English lawyers have the greatest flexibility to adapt Mr Collins: I think it really has to be a combination themselves to appropriate business structures to meet of both and we feel that the Bill, as it is drawn at the the needs that clients impose upon them. moment, allows there to be some potential healthy competition between the regulating bodies, which we Q6 Mr Kidney: Can I ask a little about independence think is desirable. fromgovernmentfor the new regulator? In your own response you said that it seems desirable that it Q3 Chairman: What anti-competitive restrictions, in should be independent fromgovernment.Do you your view, remain at the moment in the legal services think an organisation that has its Chair appointed by market that have just not been resolved by the actions the government and all the members of its board of the professional bodies? appointed by the government will be seen by Mr Collins: The main ones are that partnerships consumers and those regulated as being independent between barristers and between barristers and other of government? professionals, including lawyers, are prohibited Mr Collins: There are a number of points there. First under the Bar Rules, and partnerships, including the of all I think that consumer confidence is likely to be sharing of fees, between solicitors and other more sensitive to independence from the professions, professionals are presently prohibited. Furthermore, if you like regulated slightly at arm’s length, rather solicitors who are employed by non-solicitors cannot than independence fromthe government.I think that 3435523002 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

joint committee on the draft legal services bill: evidence 5

6 June 2006 Mr Philip Collins and Mr Grahame Horgan is the first point. I think there is an issue on four rather than as number six, so from that point of independence. I amindependent, I amappointed by view I ampleased about it . the Secretary of State for Trade and Industry; I have a majority of non-executive members on my board. I Q11 Mr Kidney: There are two things I want to regard that as being perfectly satisfactory given the pursue. The first one is could I just put to you that various guidelines that exist over public elevating to a regulatory objective, the way that the appointments. Having said that, I can see that it is a professions themselves can look at themselves, is that constitutional issue and not a competition issue, that not devaluing regulatory objectives? there may be issues about the way in which the Mr Collins: No, because I think the way in which Secretary of State might or might not exercise this professions regulate themselves should be a matter of power of appointment. But I do not think it is a point legitimate concern within the overall framework of on which, froma competitionlaw point of view, I regulation. should probably have a position. Q12 Mr Kidney: Of course it should be a concern but Q7 Mr Kidney: Moving on though, if the board a regulatory objective? itself, when it is operating or thinks that there are Mr Collins: Should it be an objective. reserved matters that ought to cease to be reserved, consults with interested bodies, the Consumer Panel, yourselves, the OFT, and puts up the submission to Q13 Mr Kidney: Should it be a regulatory objective? the government that the Secretary of State should Mr Collins: I do not see why it should not be a remove this reserved matter the Secretary of State can regulatory objective. say, “No, get lost.” Does that not suggest that it is not suYciently independent of government too? Q14 Mr Kidney: The other interesting thing you said Mr Collins: There are a number of areas where in our was that because the competition objective is number own work we make recommendations which are not four it is higher than number six or number seven. Do binding on government and government can decide you take the view then that one to seven is a priority; whether it wishes to adopt themor not. What we can that they are in an order of one to seven? do, wearing our competition hat, is to make a great Mr Collins: No, my understanding is that they are deal of noise about the government’s failure to not, and that is deliberate, and I can understand why implement changes that we recommend from a because I can see that looking at the overall objectives competition law point of view, and I would have it may be necessary to balance one against another thought the similar situation would arise in this case; and give a greater weight to one rather than the other. that if recommendations were made and the Secretary of State decided not to follow the advice Q15 Mr Kidney: So competition objective has no then there might be a similar degree of noise. greater or lesser impact than the other six? Mr Collins: No, it is one of a number of objectives. Q8 Mr Kidney: Suggesting that the Secretary of State would be careful not to exercise the power to Q16 Mr Kidney: And you are comfortable with that? reject the suggestion and request fromthe board, is Mr Collins: We are comfortable with that. that what you are saying? Mr Collins: Yes, that is right. But, as say, I do think it is a constitutional matter to which the Committee Q17 Mr Kidney: And the balancing that you will want to give careful attention. understand there is between the objectives is for the board to determine in each case? Mr Collins: Q9 Mr Kidney: The Clementi Report contained Yes, it is for the board to decide. these six excellent regulatory objectives—I thought they were excellent—and I think you approved of Q18 Mr Kidney: And again you are comfortable them. with that? Mr Collins: Yes. Mr Collins: We are comfortable with that.

Q10 Mr Kidney: And the Bill has seven regulatory Q19 Mr Kidney: Coming back to my last point, the objectives. What do you make of the seventh one that Chairman’s original question about regulating has been added in? professions and regulating activities, do you take the Mr Collins: I do not have a problemwith the view that accepting all the existing regulators as the regulatory objectives as they are set out in the Bill and new frontline regulators misses a trick in terms of for our own purposes, and although the objectives moving on from regulating professional people and are not prioritised I ampleased to see that the professionals to regulatin g activities? Is it a drag on competition objective has come higher up as number moving forward? 3435523002 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

6 joint committee on the draft legal services bill: evidence

6 June 2006 Mr Philip Collins and Mr Grahame Horgan

Mr Collins: I can see the case, on the one hand, for of dealing with isolated problems as they arise? What saying that since we are moving into a brave new is the reason for it? world let us get rid of the whole lot or start again and Mr Collins: Let us just be clear, that so far as the Bar try to consolidate them. On the other hand, I think it is concerned of course, there are many successful and is important to understand the huge amount of distinguished members of the Bar who practise very experience there is within these bodies about the successfully. What we are trying to look to is the particular way in which the diVerent professions future, so that members of the Bar can, if they wish— operate, the way they work, the kind of issues they and I emphasise that it is not compulsory in any sense face, particularly on things like conflicts and so on. and we are not forcing people into a straightjacket— So I think it is probably better to allow the thing to, practise in other forms of business structure to those if you like, migrate over time and to allow transition to which they have traditionally become accustomed. over time, and it may be that some of these bodies will I have no argument with the point that the Inns of merge over time, for all we know. So I think it is Court and the Bar Council have worked very better perhaps not to go too far and too fast on that eVectively and have produced some excellent particular point. barristers, but we are looking at a situation now Chairman: Lord Campbell, Alternative Business where, I think in the future, it is more important that Structures. barristers have the opportunity to practise in a number of flexible structures and are not restrained fromdoing so by these provisions imposedby the Bar Q20 Lord Campbell of Alloway: What exactly are the Council. anti-competitive practices of the Bar, which you wish to dispose of? Mr Collins: The practices are in general those Q23 Lord Campbell of Alloway: But with respect, sir, practices which prevent barristers fromworking in why is it more important? Why has it suddenly partnership or in some other kind of entity with other become more important? What is wrong—and tell us, barristers, or fromworking in partnership with other if you will—with the administration at the moment professionals. This has obviously been a under the aegis of the and the Bar longstanding issue so far as the Bar is concerned who Council? What has gone wrong? Why do you want to believe that they need to maintain their present destroy it? V structure in order to operate e ectively. That is not a Mr Collins: I do not think it is being suggested at all matter on which we agree with the Bar. that the Inns of Court or the Bar Council will be destroyed; they will still remain as a frontline Q21 Lord Campbell of Alloway: Why should you not regulator. All we are seeking to do is to achieve leave it to the profession, to the Inns of Court, to the greater mobility and flexibility within the present Bar Council instead of imposing this structure, which systemto allow those who wish to do so to adapt to you support? What is the reason? new structures. I was in practice before I retired for Mr Collins: Let us just be clear, we are not imposing 35 years and I think this is an issue that has been a structure nor is the Bill imposing a structure; it is going on for, if not the whole, certainly the majority essentially facilitative. So that it enables those people of those 35 years. This is not in any sense an anti-Bar who want to adopt new structures to adopt new or anti any other profession move, it is a question of structures, it enables those who wish to carry on as looking at the way the professions regulate they are, but without the restrictions, carrying on as themselves and asking ourselves the question: would they are. So there will be nothing to prevent consumers and would the market benefit from independent barristers continuing to practise in the relaxing the ability of professionals to practise in way that they do at the moment if that is their wish, diVerent forms? and many, I am sure, would wish to do so and will be very successful. Q24 Lord Campbell of Alloway: Thank you very much sir. I will not ask another question. It is quite Q22 Lord Campbell of Alloway: That is not, sir, quite clear that your view about what benefits consumers the question that I meant to ask. Perhaps I put it and my view of what benefits them, which is the badly. If something has gone wrong, say with the Bar, standards of excellence as run at the moment, tell me what it is, apart from the question that there certainly by the Bar and there are certain ways in may be a problem about partnerships, but it has not, which it can be improved as regards discipline as a matter of fact, I think you will agree, arisen in certainly with the solicitors, I give you that, but there any diYcult formwhich a Vects anti-competitive are many ways in which by making specific practices. What is it that you want to do? Why do you arrangements you can deal with specific defects. want to upset the whole structure, create a state-run Thank you very much for your answers but you and administration when there is a perfectly simple way I will never be able to agree. 3435523002 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

joint committee on the draft legal services bill: evidence 7

6 June 2006 Mr Philip Collins and Mr Grahame Horgan

Mr Collins: I amsorry. been produced to support those claims. What would your comment be to the Legal Action Group’s Q25 Chairman: One further point. In reacting to the remark on that? proposals I think the Bar Council has said that they Mr Collins: I think two or three points. First of all, in would need no statutory authority to regulate such terms of vulnerable groups, it does seem to me that structures and ask whether it would be justifiable to the Alternative Business Structures do potentially appoint an alternative business structure regulator oVer opportunities for other businesses to provide and the Law Society has actually made a point that legal services which simply cannot be provided at the the proposals for regulation of Alternative Business moment, and certainly I have been particularly Structures are just too cumbersome to oVer real concerned in my first eight months at the OYce of benefit to consumers. What do you say to that? Fair Trading, in moving around the country, to Mr Collins: I think the proof here will be on the extent understand the extent to which vulnerable consumers to which these structures are taken up. I do not think find it diYcult to get advice on a whole range of anyone is expecting there to be the kind of “big bang” issues, from money advice to family advice and that there was, for instance, in the City in 1986. What housing advice. So I think this is an important issue. we are looking for is a situation not of revolution but The diYculty at the moment is, as I understand it, of evolution and of allowing those individuals and that more and more work seems to be migrating to firms who wish to do so to adapt to market the voluntary sector, which is under considerable conditions. It is diYcult to say on the face of the Bill strain because an increasing number of professionals whether these provisions would be operated in a way are giving up advising in this area under existing that is unduly cumbersome, but it seems to me that structures. Therefore, one of the attractions of these they are capable of not being operated in that way, new structures may be that new entrants will come particularly if the professions of frontline regulators into the market with a diVerent background and take the lead, because then you will have a very light enable legal services to be oVered where they hand of an oversight . currently are not being oVered. That is the first point. The second point is that it may well be that the result Q26 Chairman: So there is no competition law of this Bill is that a number of existing firms do leave reason why the existing professional bodies should the market because they simply do not find it not be approved to regulate ABS firms? attractive to continue, but we are not there, nor do we Y Mr Collins: No, there is none at all. think anyone should be there, to defend ine cient firms or people essentially seeking protection from competition. The third point is that in relation to one Q27 Chairman: Is there a risk that the provision for group of consumers, which is rural and isolated multiple regulators in respect of Alternative Business communities, obviously these are people who do, at Structures and the regulated individuals working the moment, find it very diYcult to get advice because within themmaylead to a di Verent kind of regulatory advice tends to be given face to face, rather remotely maze? That is the point that has been put to us. How fromwhere they live, and it maywell be that new would you answer that? entrants may be able to find innovative ways of Mr Collins: We think it is important to realise that, getting around to these people and giving thema for the purposes of the ABS regulation, each supplier better service than those that are provided at the will be regulated by a single licensing body and we moment, particularly, essentially, where fixed and think in that sense, as I said earlier on, a degree of operating costs will be spread over a broader range choice between licensing bodies is likely to be a good of services. thing, and that will help ensure eYcient performance by licensing bodies. So I do not see there being a regulatory maze that is going to be a big problem for Q29 Lord Bach: That is very interesting because I businesses. I think, if you like, the market and the think the argument the other way would be that innovation of individuals and firms will make sure under the present systema numberof various that it does not happen that way. diVerent ways of providing advice have developed Chairman: But we are concerned about legal advice one way or another and the concern would be that by given to vulnerable groups and Lord Bach wishes to allowing ABS what would in fact happen would be ask some questions. that the corporate consumer would be better oV but those who are not corporate consumers but need Q28 Lord Bach: Could I ask a couple of questions legal aid, need the access to justice in rural areas that around that end of the market? The Legal Action you have referred to, Mr Collins, might potentially be Group has expressed concern that the White Paper, worse oV, and you would answer, presumably, that which of course largely finds itself in the Bill, cites a you do not think that is so and you think that the range of potential consumer benefits to justify the ABS systemwill allow for those who are described as creation of ABSs but argues that little evidence has vulnerable under the present system? 3435523002 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

8 joint committee on the draft legal services bill: evidence

6 June 2006 Mr Philip Collins and Mr Grahame Horgan

Mr Collins: It certainly oVers the opportunity for be well-equipped to take forward consumer other people to come into the market to try to information and education initiatives in this area, provide those services and it is quite striking, and the and I think that is an area which it might well wish to area that I have been looking at, particularly over the pursue. It is an area that we are pursuing in a number last few months, has been in terms of money advice, of areas on consumers, under our Consumer Codes where there seems to be an extraordinarily complex Approval Scheme, and I think that is an interesting pattern of commercial service providers, voluntary area where further work could be done. providers and essentially government sponsored services, all of whomare, if you like, competingin the Q32 Michael Jabez Foster: I assume that you accept same market or the same overlapping market, that certainly many country firms of solicitors, and I V providing, e ectively, advice to consumers. There suspect city firms too, do a great deal of pro bono may be issues about how that advice has been work and they do that because they are capable of provided; there may be issues about how it is being cross-subsidising the work that they do by the funded but in principle that is quite an interesting profitability of other work. Can you see what would model, I think. happen if some of that profitable work were removed, how would that aVect the provision of pro bono and Q30 Lord Bach: But funding is right at the heart of other cross-subsidised services? this, I think. The Legal Action Group and others like Mr Collins: I think that depends on the extent to themwould argue, they would say that that is fine as which there is a shift in the market as a result of these long as people can pay for the legal services to be changes. I ama firmsupport er of pro bono work. I provided, and that would be a reason why ABSs are was even quoted in some legal journal this week as set up, of course, to be profitable organisations. But being willing to oVer pro bono competition advice, I if there is less or little public funding in the years understand; that is not correct but there we are. I ahead, why should ABSs be interested in that part of think pro bono work is a very important part of the the market? After all they will be there, of course, to profession’s work and I would strongly support it. compete with others and to make a profit. On the other hand, a situation in which there are Mr Collins: Is it part of the concern, perhaps, I do not extensive cross-subsidies between diVerent areas of know, that the voluntary sector feels that ABSs might work is a matter of concern to us because it does be seen as a means through private services of usually mean that markets are not working well and providing for services currently provided by public the consumers are usually losing out in relation to sources? I do not know what their particular angle is, one or more areas of work. Areas like probate work but that could well be one of them. It seems to us that and come to mind. Providing you have the important thing is to allow the public and a good business model, I do not see why, as in any voluntary sector to work alongside the private sector other business, you cannot do good, charitable work, to try and provide these services and I amsure that including pro bono work. You see examples all round the market will find its own equilibrium. the business world, whether it be in supply of goods or supply of services, of businesses willing to engage Q31 Lord Bach: My last question, Lord Chairman, in charitable work and doing things for free because is really on a similar line. It is something called the they believe it enhances the value of their brand, if “knowledge gap”. In other words, there are some will you like, or their reputation in the market. I think go to law who know what they want and what they that should continue in the future. are talking about but there is a large number of people who go to law nervous, anxious, worried Q33 Michael Jabez Foster: It may only be empirical about the consequences of going to law. Do you evidence that suggests it but it is suggested that many think that the creation of ABS firms, of that system, local firms, certainly country firms, where indeed that structure, will do anything to fill that most people get their advice still, were unable to knowledge gap? continue some of the work they did after the loss of Mr Collins: I think it has the potential to do so conveyancing to registered conveyancers and so on. because if you think of a branded service—and it is Is that not just going to progress that sort of move far fromclear how manybranded services there towards people becoming much more competitive in might be and exactly how the brand would work— the profitability of their firms because there will not any branded service has a very strong incentive to be any soft options of profitability fromwhich they ensure the quality of the service and the value for can subsidise their other work? money it oVers, and most big brands spend a huge Mr Collins: There may be no soft options but I think amount of time measuring the response they get from it is also important to understand that the provision consumers and the value they are providing to of legal advice, certainly in my experience, is still a consumers. So that is one area. The other point that pretty personal matter in relation to quite a lot of is important is that the Legal Services Board itself will issues. I believe certainly in relation to country firms 3435523002 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

joint committee on the draft legal services bill: evidence 9

6 June 2006 Mr Philip Collins and Mr Grahame Horgan that many of those enjoy very strong personal Q38 Baroness Henig: Can I now switch the focus to relationships with their client base and their clients the safeguards that any regulatory regime requires to may well not want to move to alternative services and ensure compliance with competition scrutiny, and I will continue to use the established firms. suppose to ask really do you think that the Bill as drafted currently provides adequately for on-going Q34 Michael Jabez Foster: The expression “Tesco competition scrutiny? law” is of course a shorthand— Mr Collins: Section 46 gives us essentially a proactive, Mr Collins: Yes, it is not a particularly attractive one. continuing role to scrutinise the way in which the profession and the market operate and we think those Q35 Michael Jabez Foster: It is not a particularly provisions are satisfactory. attractive one but what if they do start oVering Club Card points? How are we going to avoid these Q39 Baroness Henig: So you are happy with those. V alternative structures o ering incentives which of What is your response to concerns that the themselves would be unfair competition to mechanisms for on-going competition scrutiny single V professionals who are o ering a good service at the out the legal profession for unnecessarily moment but do not have the structure or the ability complicated treatment? V to o er the grandeur of be it Club Card points or Mr Collins: I do not think that is justified. The Bill anything else that would persuade people to use their accommodates clearly and tries to adapt, as we service rather than that which is currently available? discussed earlier on, the existing regulatory bodies to Mr Collins: I cannot comment particularly on what this new structure. I can see it can be presented by might be the situation if Tesco were to oVer Club some as being complicated but it seems to me to be Card points, but it seems to me that the areas they are perfectly operable. likely to target in terms of the work that they want to do are likely to be what I might call more the commodity end of the market, and the important Q40 Baroness Henig: So you do not think those thing for the professional who wants to remain concerns are justified. Why should the power to independent and remain as traditional firms, is to find direct the Legal Services Board to take steps ways of adapting to the new situation and attracting to implement the OYce of Fair Trading new work based on the excellence of his performance. recommendations remain with the Secretary of State? Mr Collins: Is there not a fall-back position that it can Q36 Chairman: I suppose this is one of the key be referred to the Competition Commission or have questions and I amvery grateful to Michael for I got the wrong provision there? raising it. I suppose I summarise it by saying that if Tesco’s have contributed to the closure of the corner shop in the village, will “Tesco law” lead to the Q41 Chairman: I think there is but it still remains the closure of the high street or the rural law firm? fact that the power to direct is with the Secretary of Mr Collins: I have extraordinary confidence in my State and I think Baroness Henig is just asking you fellow professionals in the profession that whether that is the way you would like it to be and we can survive and adapt. I do believe that the to remain? successful solicitors will survive and adapt and will Mr Collins: I do not have any particularly strong continue to practise in the kind of way they have in views about that because it fits in with the kind of the past and practise in competition with others. I framework we have in relation to other reports that cannot see a reason at the moment for justifying the we make under other pieces of legislation. maintenance of the present restrictions. Chairman: It may be an opportunity for you to put Q42 Baroness Henig: So you are open-minded? the record straight but there was a report over the Mr Collins: Open-minded on that. weekend that the OFT had welcomed the closure of Chairman: Thank you very much. Stephen Hesford? the village shop.

Q37 Lord Campbell of Alloway: Yes! Q43 Stephen Hesford: It is a phrase that you used Mr Collins: That is not true. There has been a fair fairly early on that I want to just re-visit. You said— amount of misrepresentation about various things unless I am misquoting you and tell me if I am—it is a which have been said. All we have said is that we good thing because there will be healthy competition believe that it is important that there is competition between the regulatory bodies ie, the LSB versus the in the high street and that smaller shops have to adapt professions. to survive in the evolving market conditions. There is Mr Collins: No, it is not. It is between the professional no question of us taking one side or another. bodies. There is no scope for potential competition Chairman: Thank you very much. Baroness Henig? between the regulatory body and the licensing body. 3435523002 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

10 joint committee on the draft legal services bill: evidence

6 June 2006 Mr Philip Collins and Mr Grahame Horgan

Q44 Stephen Hesford: Not between the LSB? ethnic or diVerent drivers should not come into the Mr Collins: No because the LSB is intended to have system, what I am saying is why can we and others a higher level role. That is not what I meant anyway. not be assured that these diVerent drivers will not get in the way of what is currently excellent? Q45 Stephen Hesford: Good because I could not Mr Collins: At the end of the day, it seems to me on understand it if that is what you did mean. Moving the structure of the Bill, that it is ultimately a matter my question sideways, you talked about this idea of for the Legal Services Board to make sure these healthy competition between regulatory bodies and regulators were all adopting the appropriate these multidisciplinary firms that will come into professional standards. operation and you seemed to suggest that the only possible result of the healthy competition is that Q49 Stephen Hesford: Does that mitigate then regulatory bodies would be driven by excellence to against the light touch regulation by the LSB? Would compete with each other as excellent regulatory they not have to be fairly tough fromthe outset to bodies, so these multidisciplinary firms would be make sure standards come in at the appropriate level attracted to the best regulatory body. It seems to me fromthe outset, a kind of no-nonsense approach? that there is an opposite position, that it might be in Mr Collins: Whether they would have to be tough or the interests of the firmto go to the worst because not will depend on the particular attitude taken by they get an easy ride fromthem.So can you deal with the regulating bodies, but it seems to me that it is that apparent paradox? perfectly possible to have a situation where there is a Mr Collins: But those bodies will all have to have their light touch regulator at the top and professional rules approved by the LSB and they will all be subject bodies are operating in competition but also not to separate competition scrutiny by ourselves. It reducing professional standards. I understand the seems to me that whilst there will be some diVerences point. It is a point which we have to look at carefully between the regulators in the way they approach that but I do not think, in principle, I have a problem particular issue, it is unlikely that we are going to find with it. a great movement to the lowest common denominator. Q50 Lord Campbell of Alloway: This touches right on to the nub of the problem. It comes to this, and I Q46 Stephen Hesford: Does not that then argue think I have put it to you: why on earth do we have against healthy competition because if they are going to have state run regulating bodies? What good is it to be the same they will be theoretically equally the going to do for the consumer at the end of the road? same standard? Why do you imagine that the whole structure of this Mr Collins: They will not necessarily be all exactly the Bill is going to improve anything for anyone other same. They may approach some issues in diVerent than government control? It is a freak. ways. There should not be any overall qualitative Mr Collins: I can only repeat what I said earlier on. If diVerence in the outcome but some people may one takes the two extremes, if you like, the large decide to go to X rather than Y. business corporate client and the role of the consumer, I think in both cases the removal of Q47 Stephen Hesford: Just to pursue this, it may professional restrictions and the introduction of alarm some members of the profession if there is this alternative business structures provides the apparent healthy competition that there will be a opportunity for better services to be made available relaxation of professional standards. Is there a case more cheaply and more eYciently than they are at the to be made that there may be a relaxation of moment. At the one extreme of the large corporate professional standards because the healthy clients, I think it is very important in terms of being competition drives other factors into the regulatory sure the clients can get the best advice wherever they parameters? want it around the world and can combine in the best Mr Collins: So you are suggesting that the way they think is appropriate for that business. At competition between regulators would cause them to the opposite end in terms of vulnerable consumers, it adapt their professional standards to a lower is very important that the private sector tries to find standard, is that right, in order to attract business? ways and means of making sure the needs of Stephen Hesford: It is suggested and it will be vulnerable consumers are eVectively addressed and suggested that this is a possibility, and I think Lord where there are gaps between the private sector and Campbell was potentially exploring that area before. the public sector those are filled. Lord Campbell of Alloway: Yes I was. Q51 Lord Campbell of Alloway: Yes, but it costs Q48 Stephen Hesford: There will be a diVerent ethic nothing for the Bar Council and the Inns to regulate joining in the systemthat is not currently there, and the standard of condu ct and expertise; the same with whilst I amnot necessarily personally saying a new the Patent Agency; the same with solicitors. Why do 3435523002 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

joint committee on the draft legal services bill: evidence 11

6 June 2006 Mr Philip Collins and Mr Grahame Horgan you imagine bringing this government monster into Mr Collins: You would need to go and talk to them the aVairs of the professions, not just the bar but and decide the extent to which there was a real solicitors, patent agents, trademark agents, the lot, problem as opposed to an imaginary problem, and will be better? What on earth do you imagine it has see the extent to which within the structures there got to do with government? were ways of making sure that conflict could be Mr Collins: The professions will, under this structure, avoided. I think one could speculate on any number continue to be responsible for managing themselves of potential cases. Clearly this is something that will to a very large degree. We are only talking about a have to be fairly high up the LSB’s agenda but, as I situation where we are trying to remove restrictions say, I do not think it is a totally insoluble problem. that currently do not enable people providing We have had this problemin th e financial markets for professional services to combine and operate in the a long time, where the various financial regulators way that many professional services are provided and have had, over the last 20 years, to address conflicts operated. of interest within integrated banks, for instance, and they have been resolved in a variety of diVerent ways. Q52 Chairman: Just returning to Mr Hesford’s point, what will be the basis of competition between Q55 Chairman: In a way in the FSA model, which I regulators? suppose was Clementi’s Model A, the Financial Mr Collins: My understanding is that there will be an Services Authority has now taken the place of all opportunity for those people who are, if you like, these diVerent bodies and is therefore the authority operating in mixed structures to decide which body that sets the ground rules. By opting for a diVerent should be their primary regulator, and they may be model I think you are beginning to identify for us a drawn towards it because they have a majority of number of areas of possible conflict. patent agents, they may be drawn towards it because Mr Collins: Yes. I think it is fair to say that the point they have a majority of solicitors, or they may be I made was equally applicable in the old pre-FSA drawn towards it because they have a majority of regime. I am afraid my FSA knowledge goes back trademark agents. There will be the flexibility to to1986 because of my age, but I seem to remember, decide which one they wish to go for. under the original regime, there were five or six regulators under the SIB, as I think it was called the Q53 Chairman: Is it not possible that conflicts could first time round. arise between the professional obligations of an individual regulated by an LSB-approved regulator Q56 Chairman: IMRO. I know we must never think and another professional subject to another set of of this but we have to explore every eventuality. It regulatory rules, for instance an accountant, who is may well be that early on in the scene that is being set not subject to regulation by the LSB? Could these out in this draft Bill there will be conflict between one conflicts have a detrimental eVect on the consumer of the professional regulators and the LSB which benefit of alternative business structures in any event? could lead to a judicial review of a decision made by Mr Collins: That is certainly a risk that exists and it the Legal Services Board. In this sort of area one is a risk that has to be managed sensibly by the Legal always has to imagine the conflicts that could arise. Services Board and by the professional bodies I cannot quite see how that would easily be resolved concerned. An obvious example would be legal without a very lengthy, complicated and diYcult professional privilege and auditors’ obligations to process. report in relation to third party investors where there Mr Collins: No. I would like to think in the early years are specific obligations. I would hope and think that of the Bill, given its objectives—as I say, I look at this the Legal Services Board would be able to speak with from a competition perspective—that many of these a single voice in relation to legal professional issues issues would be resolved by sensible dialogue rather and would be able to talk on a sensible basis with than through the courts, but one cannot rule out the representative bodies of other professions to make idea that there will have to be litigation. sure that these issues are fully addressed and, equally, that non-law participants are not discouraged as a Q57 Lord Bach: As I understand your position now, result of these problems from participating in these you are against Model A on balance because it is alternative business structures. There are many potentially anti-competitive, or not competitive things that have to be worked out in detail and I am enough, while you are in favour of Model B! for the sure there will be problems down the road, and this is reasons you have stated to the Committee, which is one of them, but I do not believe it is insoluble. that it will allow for more competition among the frontline regulators, subject of course to the LSB. I Q54 Chairman: Could you just tell us how you hope that is an accurate statement of your position. I envisage the Legal Services Board solving these amstill worried about wha t actual competition there conflicts with other regulatory bodies? will be between the frontline regulators in practice. Is 3435523002 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

12 joint committee on the draft legal services bill: evidence

6 June 2006 Mr Philip Collins and Mr Grahame Horgan it suggested that, for example, the Bar Council will be to operate in a diVerent structure and give advice in looking to regulate some members of the solicitor’s that way. profession or the Law Society will be looking to regulate some members of the ’s profession? Q60 Lord Neill of Bladen: That is already I do not understand where that competition from happening, is it not, members of the bar joining firms frontline regulators will come in. If there is not going of solicitors? to be competition, real competition, from frontline Mr Collins: It is interesting that there are also a regulators, taking completely the opposite view to significant number of moves the other way. I am Lord Campbell for the sake of questions, why have struck by the number of solicitors, particularly in the frontline regulators at all? Why not just have an FSA later stage of their careers, who are now moving to structure, an LSB structure, as with the FSA? the bar, which I think is very healthy. Mr Collins: Perhaps I can comment on that last point first. If you go down that route, then you lose all the Q61 Lord Neill of Bladen: Some have the best of benefits, of which Lord Campbell has spoken both worlds, they become QCs while remaining as eloquently, of the existing professional bodies that solicitors, which is a phenomenon which— are custodians and have a huge amount of experience Mr Collins: Yes. and expertise in the way in which their profession works and how it operates. To deal with Clementi Q62 Chairman: There are a couple in the House of ! Models A and B and B , our position was we were Lords! Mr Horgan, you have not said anything. Is ! neutral between Models A and B but we were there anything you want to add? persuaded at the end that we could see the advantages Mr Collins: He can correct me on anything I have ! of the B model because it does separate regulatory got wrong! representative functions and gives LSB a light Mr Horgan: Something did occur to me on the final oversight role hopefully. We felt we could see the way question. Clearly the conflicts issue is one that an in which the professional bodies have a unique individual barrister is going to think through very insight into the way their professions operate. It carefully before deciding to enter an ABS. It is only seemed to us at the end of the day we came down, in circumstances when a barrister sees it as being to having been neutral initially, in favour of Clementi his or her advantage to enter this new structure that ! B . they will do that. I think the decisions by individual practitioners will take account of the question that Q58 Lord Neill of Bladen: I would like to ask you a you are raising. question about access. It is a completely standard question I amgoing to ask you now, equivalent to a Q63 Lord Neill of Bladen: Let me raise another full toss outside the leg stump which you can deal question. It means that those who think it is not in with accordingly. The traditional bar objection to their interest will not forma partnership. I would like partnerships is that every time you create a to hear a statement of what is the benefit to the partnership within an existing set of chambers, let us consumer of introducing partnerships as a possibility suppose about 40 strong now, you rule out a number for sets of barristers’ chambers. How does the of other barristers who can take on the other side in consumer benefit anyway? the case because they are all partners. There is no Mr Collins: Consumers will benefit if, in partnership, suggestion that the law of partnership will be altered barristers can provide a better service practising in any way, is there? together or with others. I have no doubt at all that Mr Collins: Not as far as I know. many barristers will choose not to go into partnership; they will choose to practise in the Q59 Lord Neill of Bladen: So what I say is correct, is traditional way. I also predict that they will be it not, that you could actually diminish the access to extremely successful. I also predict that many the profession every time a set opts for partnership? solicitors’ firms will decide to carry on as they are and They cannot go against each other, it is as simple as adapt to the new situation. What we are talking that. about here is facilitating change and facilitating the Mr Collins: That would be true insofar as barristers operation of the market which will bring better are operating within sets but obviously, as happens at service to consumers, whether they be business the moment, there are now many barristers who go consumers or private consumers. and practise in solicitors’ firms and they have new opportunities. Therefore, even if you argue that the Q64 Chairman: Thank you very much indeed, Mr market is being limited in terms of choice, because if Collins and Mr Horgan. We particularly appreciate barristers go into partnership they cannot compete the speed with which you responded to our with one another, there should be a compensating invitation. I think it has been enormously helpful that benefit the other way of people who decide they want you have been able to come and see us so early in our 3435523002 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

joint committee on the draft legal services bill: evidence 13

6 June 2006 Mr Philip Collins and Mr Grahame Horgan inquiry and you have helped us focus on some very Mr Collins: Yes. We have got the date of 15 June in key areas. We are all very grateful to you, thank you our diaries. We will produce something by then. It very much indeed. will be quite short. Mr Collins: Thank you very much. Do you wish to Chairman: If at any stage after 15 June there is have something from us in writing or would it be something further you would like to say to us before better to wait until later in your deliberations? the end of the month I am sure we would be pleased to hear fromyou, but it would be helpful if you could Q65 Chairman: We certainly wish to have something let us have something before the 15th. Thank you from you in writing. May we please leave the timing? very much. 3435523003 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

14 joint committee on the draft legal services bill: evidence

THURSDAY 8 JUNE 2006

Present Bach, L Mr David Burrowes Campbell of Alloway, L Michael Jabez Foster Henig, B Mr David Kidney Hunt of Wirral, L (Chairman) Emily Thornberry Neill of Bladen, L

In Attendance: Mr Nigel Reeder and Mr Sean Langley, members of the Draft Legal Services Bill Team.

Memorandum by the LawSociety of England and Wales (Ev 03)

Introduction 1. Sir David Clementi’s recommendations have the potential to improve the way in which the legal services market operates for consumers and practitioners alike. However, the Society considers that in a number of important respects, the proposals in the draft Bill fall far short of what is needed to establish an eVective, proportionate, risk-based regulatory regime for the 21st century. 2. Sir David’s report recommended that the regulation of legal services should continue to be carried out primarily by the long-established professional bodies (and other existing front-line regulators) subject to a number of important changes: — The establishment of a light-touch Legal Services Board to act as the supervising regulator, replacing the variety of diVerent supervisory arrangements which apply to the diVerent branches of the legal profession at present. — A requirement that those professional bodies which carry out representative as well as regulatory responsibilities should separate the two roles, so that there is no improper representational influence on regulatory decision-making. — The establishment of a new OYce for Legal Complaints, wholly separate from all the professional bodies, to deal with consumer complaints about lawyers. — Measures to permit so-called Legal Disciplinary Practice (LDPs) in which non-lawyers could be partners in law firms (or senior managers of incorporated law firms), and external bodies could own law firms, subject to appropriate safeguards. 3. The Law Society strongly supports Sir David Clementi’s conclusion that regulation of legal services should continue to be based on the professional bodies. The Society believes that profession-led regulation is necessary to ensure the proper independence of the legal profession and of its regulation fromGovernment; to ensure that regulation is well informed—and thus eVective; to maximise the willing acceptance of regulation within the legal profession; and to ensure that regulation is cost eVective. 4. The Law Society also supports in principle all the main changes proposed by Sir David Clementi. Indeed the Law Society has for some time itself been seeking powers to enable it to regulate LDPs eVectively. The Society has already established arrangements for the governance of its regulatory functions which ensure that all decisions on regulatory matters (except for rule-making, which cannot lawfully be delegated under present legislative powers) are taken by the independent Regulation Board, and not by the Council. 5. The principal defects in the draft Bill are: — The arrangements for the appointment of the Legal Services Board, and the arrangements for subsequent involvement of the Secretary of State in its decision-making, fail to secure the necessary independence of the legal profession and its regulation fromGovernment. — The proposals for the operation of the Legal Services Board fail to ensure that it will operate as a light-touch supervisory regulator, and instead create an over-intrusive primary regulator. This would detract fromthe principle of regulation continuing to be based on th e professional bodies and would substantially increase the costs and delays associated with regulation, to the detriment both of consumers and the legal profession. 3435523003 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

joint committee on the draft legal services bill: evidence 15

8 June 2006

— The proposals for regulating Alternative Business Structures (ABSs) would create a regulatory regime which will lead to duplication and inconsistency, and would give the Legal Services Board an inappropriate role as front-line regulator. — The provisions for the creation of the OYce for Legal Complaints fail to provide an appropriate demarcation between the role of the OLC and the role of the approved regulators on disciplinary matters; and fail to ensure that the OLC provides the approved regulators with the information they will need to carry out their regulatory responsibilities eVectively. This note expands on each of these points and suggests ways in which the Bill might be amended to meet the Law Society’s concerns.

Overall Assessment 6. The overall eVect of the present draft Bill is that the approved regulators would be little more than the administrative arms of the Legal Services Board. The result would eVectively be to create an overbearing Legal Services Authority by the back door. This would have serious consequences both for the cost and eVectiveness of regulation, and for the perceived independence of the profession. Doubts about the profession’s independence would in turn have a serious impact on the ability of law firms in England and Wales to become established overseas and would consequently jeopardise the £1.9 billion of earnings the UK economy derives from law firms’ overseas activities. 7. In the case of the Law Society, criticismof our performanceas regulator has been directed almost entirely at the handling of consumer complaints—which is to be transferred to the new OLC—rather than on the regulatory responsibilities the Law Society will retain. Serious disciplinary matters are already dealt with by a tribunal independent of the Law Society, the Solicitors Disciplinary Tribunal. It is important to note Sir David Clementi’s own conclusion: “The current systemhas produced a strong and independently mindedprofes sion, operating in most cases to high standards, able to compete successfully internationally. These strengths would suggest that the failings of the system, identified in the scoping study and covered in this review, should be tackled by reformstarting fromwhere we are, rather than fromscr atch.”

Independence of the Profession 8. The Law Society has long recognised that the old concept of self-regulation of the legal profession needs to be updated. In particular, it is important to ensure that regulatory decisions are free fromimproper representational influence, and that there is suYcient lay involvement in regulatory decision-making to ensure that it properly reflects the needs of consumers of legal services and of the wider public. That is why the Law Society supports the proposals for separation of regulatory responsibilities from representation, and has itself implemented arrangements which enshrine that principle as far as can be achieved within existing legislation. 9. But the need for reformon those lines should not be used as an opportunity to secure improper Government involvement in the regulation of the legal profession. The independence of the legal profession—and of its regulation—from Government is crucial to maintain public confidence in the profession (which often needs to represent the citizen against the State); and to uphold its reputation—and hence its economic success—internationally. Maintaining the independence of the legal profession from Government ought to form one of the regulatory objectives in the Bill. 10. The draft Bill provides for all the members of the Legal Services Board to be appointed by the Secretary of State alone, although the explanatory notes recognise the need to follow the Code for Public Appointments. The Bill also provides for the Legal Services Board to consult the Secretary of State in a number of aspects of its decision-making. 11. The Law Society believes these provisions need to be amended in order to reduce the risk of the Legal Services Board operating in a way which is too close to Government. In particular: — The regulatory objectives in the Bill should be amended to include a specific reference to maintaining the independence of the profession from Government. — Ministerial functions should fall to the , rather than to the Secretary of State, especially as if the powers are given to the Secretary of State they could be transferred to any Secretary of State. 3435523003 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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— Appointments to the Legal Services Board should be made by the Lord Chancellor and the Lord Chief Justice or the Master of the Rolls jointly. — The provisions throughout the Bill under which the Legal Services Board would consult the Secretary of State prior to exercising particular functions (such as applications to become an approved regulator, and giving directions to approved regulators) should be reconsidered. The Lord Chancellor will need to have a role in relation to matters where secondary legislation is needed to give eVect to the Board’s decisions, but that should not stretch into a general consultative role on the Board’s activities.

Establishing a Light-touch Legal Services Board

12. The Law Society supported Sir David Clementi’s recommendation for the establishment of a Legal Services Board on the basis that it would act as a light-touch supervisory regulator, leaving the principal responsibility for regulation with the front-line regulators. The Law Society accepted that bodies which had regulatory and representative responsibilities would need to establish governance arrangements which ensured that regulatory responsibilities could not be subject to improper representational interference.

13. The Law Society accepts that the Legal Services Board needs eVective powers to intervene when there is a serious regulatory failure. But the range of powers in the draft Bill is far wider than is needed to achieve that, and the draft Bill fails to provide a clear and appropriate definition of the approach the Legal Services Board should take to the exercise of its powers. This creates a serious risk that the Legal Services Board will adopt an unduly interventionist approach.

14. The Bill appears to be drafted on the assumption that approved regulators would be inherently untrustworthy. It provides for a range of powers which might be appropriate if there were to be no distinction in future between professional bodies’ representative and regulatory roles, but which cannot readily be justified in the light of the changes to regulatory arrangements which have been made. The Law Society’s regulatory functions are now the responsibility of an independent Board, appointed entirely on Nolan principles. Seven of the sixteen members are lay persons. No member of the Law Society’s Council is eligible to serve on the Regulation Board. The Law Society has thus established governance arrangements for regulation which fully meet modern public needs. It is important that—having implemented these reforms—approved regulators are able to get on with their task, subject only to light-touch supervision, rather than being subject to continual micro-management and second-guessing

15. A number of changes to the draft Bill are needed to ensure that the LSB operates in a proportionate and light touch way: — The proposed powers of the Legal Services Board should be streamlined. We accept that a power to give directions to approved regulators is needed. However, the powers to set targets, to fine, and to intervene in regulatory functions are inappropriate, and risk encouraging the LSB to micro- manage approved regulators. Since all approved regulators will need to establish satisfactory governance arrangements which provide a proper separation of regulation fromrepresentation, the proposed power to fine is particularly inappropriate, as it would involve fining the profession for the failings of its independent regulatory arm. — Powers to give directions should arise only where the Legal Services Board concludes that the action or inaction of an approved regulator risks serious damage to the regulatory objectives, and the matter cannot be resolved informally. — The LSB should only be permitted to decline to approve a regulator’s proposed rule where the Board considers that the proposed rule would seriously undermine the regulatory objectives. — The regulatory objectives should be ranked, rather than treated as of equal importance. In particular, the desirability of promoting competition should specifically be made subject to the need to support the rule of law, the need to protect the interests of consumers, and the need to maintain the independence of the legal profession from Government. 3435523003 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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— The approved regulators should generally be free to carry out their functions (after appropriate consultation) without advance approval fromthe Legal Services Board. Ad vance approval should be required only for significant changes to the governance arrangements, and for major new rules (such as those to permit external ownership of law firms).

Office for Legal Complaints 16. The Law Society supports the proposal to establish an independent OYce for Legal Complaints, wholly separate from all the professional bodies, to deal with consumer complaints about lawyers. The Law Society believes public confidence in arrangements for dealing with what are ultimately potential disputes between consumers of legal services and their service provider depends on the adjudication arrangements being wholly independent. This view is fortified by the fact that the Law Society continues to be criticised for its performance in handling consumer complaints despite the fact that on most objective measures it compares well with the performance of other complaints handling organisations. 17. It is important that the roles of the OYce for Legal Complaints and of the approved regulators are properly demarcated. The role of the OYce for Legal Complaints—like the Financial Ombudsman Service—is to deal with redress for the consumer (whether the complaint arises fromwhat was formerly categorised as a “service” or “conduct” issue) not to deal with any disciplinary sanction which may be necessary. Information derived from complaints handling should be used to improve the regulatory system, but responsibility for regulatory action in individual cases properly rests with the approved regulators, who—as the White Paper emphasised—should take a risk-based approach to their responsibilities. 18. The Bill fails to implement this principle eVectively. Instead, the OYce for Legal Complaints appears to be set above the approved regulators, in a quasi-supervisory role, rather than having an equal but distinct function. There is no provision in the Bill requiring the OYce for Legal Complaints to give the approved regulators the regulatory information they need, at the time they need it; nor is there a power for the OLC to refer to approved regulators general regulatory issues which arise fromtheir handling of complaints. However, the OYce for Legal Complaints is given an ill-conceived power to require the approved regulators to report to the OLC on action they take in relation to any reference of a conduct matter. This is likely to cause significant diYculty between the OLC and the approved regulators, especially as regulators increasingly adopt a risk-based, rather than complaint led, approach to disciplinary matters. Giving such a power to the OLC risks distorting the regulatory priorities of approved regulators. 19. The key changes to the Bill necessary to establish the appropriate relationship between the OLC and approved regulators are: — The introduction of a clause requiring the OLC to provide approved regulators the information they need to carry out their regulatory functions, at the times they need it. If the OLC believed that the requirements for information were disproportionate, the matter could be resolved by the Legal Services Board. — Modification of clause 125 (which as currently drafted enables the OLC to require an approved regulator to report to it on action taken in response to a conduct reference, and to report to the Legal Services Board if dissatisfied with the regulator’s response). The clause should be amended so that it applies not to individual conduct matters, but to reports from the OLC drawing attention—on the basis of their experience of complaints handling—to general issues which the OLC believes the approved regulator needs to consider.

Alternative Business Structures 20. The Law Society supports the development of new business structures for the delivery of legal services to the public. The Law Society believes that, provided the necessary consumer protection can be put in place, there should be no restrictions on the entities through which legal services can be provided to the public. The Law Society has specifically endorsed the concept of Legal Disciplinary Practices (in which non-lawyers can become partners of law firms and which would permit external ownership of law firms). The Law Society originally hoped to introduce LDPs through its existing regulatory powers, but was advised by leading counsel that it could not do so. The Society has consequently sought new powers to enable it to regulate LDPs eVectively. 21. To provide the same consumer protection as is available from existing law firms—and in order to reduce the complexity and cost of regulation—it is important that these new vehicles should be regulated so far as possible in the same way as other law firms, rather than through a wholly separate structure. Alternative 3435523003 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Business Structures (ABSs) should be subject to all the rules applying to ordinary law firms. In addition, of course, it will be necessary to have specific rules to deal with the new issues posed by non-solicitor partners, or external owners. These will need to cover: — Requirements to show that non-solicitor partners are “fit and proper” to be involved in a law firm. — Any requirement for non-solicitor partners to demonstrate understanding of the conduct of business rules. — The need to have a register of permitted non-solicitor partners, and of persons who are disqualified frombeing partners. — Rules concerning the ring-fencing of an externally owned law firmfromany other part of the owner’s business. — Stringent rules concerning “fitness to own” including the arrangements for notifying proposed changes of ownership. 22. The draft Bill fails to adopt this approach. Instead, it creates a wholly separate licensing structure for ABS firms. The Bill envisages that the Legal Services Board would be a primary regulator of ABS firms— contrary to the principle that the LSB should be a supervisory regulator rather than a front-line regulator. It is also odd to use the concept of licensing, which in other regulatory concepts generally enables the conditions of the licence to be tailored to individual firms. In the case of legal services, it will be important for the same core rules to apply to all firms regulated by an individual approved regulator. 23. Furthermore, even existing approved regulators would need to make a specific application to the LSB to be authorised to license ABSs. This means that the Law Society, for example, would have to operate two separate regulatory regimes—the regime applying under its existing powers (with whatever additional powers may be introduced through this Bill), and a separate licensing regime for ABSs. Yet many law firms will move from one category to another, as there are changes in the personnel of the firm. Furthermore, the powers the Bill provides in respect of ABS firms are not the same as those available in respect of solicitors’ firms. For example, for ABS firms there will be no power to intervene without notice to the ABS concerned. Yet the power to intervene in the business without notice, in the case of suspected dishonesty, is a crucial consumer protection. 24. The main changes to the draft Bill needed in order to establish a workable approach to the regulation of ABSs are: — The deletion of the separate regime for ABS firms provided for in part 5 of the Bill, removing the presumption that the Legal Services Board will act as a primary regulator of ABS firms. — The inclusion of additional provisions for the Law Society (and any other regulators which wish to regulate ABS firms) to ensure that they have the appropriate powers to do so. Many of these provisions will be modelled on the powers in Part 5. — A requirement to secure specific approval from the Legal Services Board for any rules permitting external ownership of law firms. — Provisions to ensure that the Law Society can regulate all law firms (not just ABS firms) as entities, rather than merely as a collection of individuals.

Conclusion

25. The Law Society remains supportive of the main objectives of Sir David Clementi’s proposals for reforming the regulation of legal services. However, we believe that major amendment is needed to the draft Bill in order to ensure that those objectives are achieved in a way which builds on the strengths of the existing regulatory system, rather than creating an unwieldy, excessive and burdensome new tier of regulation. 26. The Law Society will be pleased to expand on these points, or to deal with any other issues raised by the Joint Committee, when giving oral evidence. The Society will also submit a further memorandum, by 15 June, setting out our views on the draft Bill in more detail. June 2006 3435523004 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Examination of Witnesses Witnesses: Mr Kevin Martin, President, Ms Fiona Woolf, Vice-President, and Mr Russell Wallman, Director of Strategic Policy, Law Society of England and Wales, examined.

Q66 Chairman: Welcome to the Committee. We are lunch. It undermines the independence of the very grateful to you for coming, particularly at such profession, and this is a point which has not escaped short notice, but we did want to hear fromyou early international governme nts and bar associations that on in the process and, as you will be aware, we heard are deeply scrutinising these reforms. It is already evidence fromthe O Yce of Fair Trading on Tuesday being used as an excuse to make negotiations over and we have Sir David Clementi coming and other market access more diYcult for the English legal witnesses fromMonday, but today we are delighted profession and to make th e exercise of those rights that both you, Mr President, Vice-President and rather more diYcult and more cumbersome and the Director of Strategic Policy are able to come more expensive to practise. You must remember because it does give us a great deal of assistance in our that the English legal profession punches well above inquiry. I should immediately declare my own its weight relative to its size in international interests, that I have been a member of the Law markets. It has more than quadrupled its invisible Society since 1968 and, indeed, have paid for a earnings over the past 10 years, and I amnot just practising certificate in every year since then. talking about the big firms either. I think it says I just wanted to make sure everyone was aware much for their competitiveness and innovation that of that. they do so well in all the major economic centres of Mr Martin: Good. the world. We also think that it is a practical problemwhich will underminethe frontline Q67 Chairman: I amdeeply out of pocket over the regulator credibility and therefore its eVectiveness, years! Now, you have given us a very helpful paper. and finally in my list of practical problems there is I just wondered whether I might start oV by asking a cost and burden of regulation which will fall on you about the warning which you have given very the profession and ultimately be passed through to clearly and publicly that you believe that to succeed the consumer which is much greater than I think we this draft Bill has got to strike the right balance had anticipated or Sir David Clementi anticipated between consumer protection and over-burdensome froma modelwhere the Legal Services Board would regulation. First, which specific parts of the draft be a supervisory authority, exercising the powers Bill do you think place a disproportionate that are currently inherent in the oversight function. regulatory burden on providers of legal services, But I think what we do know is that if you give and why? regulators powers, and we have seen this in other Mr Martin: That is an area of questioning that sectors, they will want to find something to do and Fiona is going to deal with. they will use them. Ms Woolf: There are many provisions in the draft Chairman: Well, that is very helpful. I think we will Bill that combine together to create a very heavy- now, if we may, just get down to the detail and turn handed primary regulator, rather than the first to the Legal Services Board, and I will ask Mr supervisory regulator that Sir David Clementi and David Kidney to start. the Lord Chancellor led us to expect. There is, for example, a requirement for approved regulators to Q68 Mr Kidney: Thank you. In respect of the get Legal Services Board approval for everything, Board I have split these questions into two sets, one for any change to the regulatory arrangements, is the independence of the Board and the other one however minor. There are six sets of very strong is the light touch of the Board. If we just start with powers that can be exercised under a subjective and independence, the Board will be appointed entirely rather vague test of failure to meet adequate by the Secretary of State, the person to chair it and standards. There are no review or appeal all the members, and then the members can appoint mechanisms apart from one in relation to fines, and their own chief executive. That is what the draft Bill the processes do not seemto recognise that an currently suggests. What do y ou make of that approved regulator would, in fact, be a regulator proposal of the Secretary of State to appoint and expect to consult. Bringing all these provisions everybody on the Board in terms of it then having together gives us a number of really practical the actuality and the appearance of independence? problems, some of which are really quite Mr Martin: We have consistently opposed that. We immediately upon us. Even if the powers were not said in our response to the White Paper and we say exercised the Legal Services Board would be the de now that the Secretary of State will not be facto regulator. Approved regulators will do exactly suYciently independent fromgovernmentand will what the Legal Services Board says, however not be seen to be, and that issue of independence informally that is communicated—for example, over has been mentioned by Fiona and will be mentioned 3435523004 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Kevin Martin, Ms Fiona Woolf and Mr Russell Wallman in everything we have to say in relation to this Bill. service providers. We have internationally renowned As far as the profession is concerned, and this is the organisations like the Financial Services Authority, message we have from our own Council loud and the Bank of England, the Monetary Policy clear, we must really do everything we can to protect Committee, where ministers appoint the people who and strengthen the independence of the profession run those organisations and yet there seemto be no without which we are not able to take on a whole qualms that they are clearly independent of range of cases, deal with governments and so on and government. Why is there a need to pick out this so forth. In everything we do and say we are trying organisation for a diVerent treatment? to be as constructive as possible, and we have Mr Martin: The reason I would give is that the proposed that the appointment should be by the independence of the legal profession is something Lord Chancellor and the Lord Chief Justice or the special. If you go back to the Financial Services Master of the Rolls and in accordance with Nolan Authority and you look at the regime that was put principles. That is mentioned in some of the in place there, that was to regulate a group of people accompanying notes but we would like that Nolan who were not regulated, so you were starting with principle point to be enshrined in the Bill. We a clean sheet of paper. What you have here is a believe that is absolutely in the interests of profession that has been regulated properly and consumers so they can have complete confidence without giving rise to serious criticism. I am not that, when they instruct a solicitor, they are dealing talking about complaints handling, that is a separate with an entirely independent professional. issue; I amtalking about how it has been regulated, how we make our rules, how we enforce our rules, Q69 Mr Kidney: I amso keen to ask these questions education and training, maintenance of the roll of I omitted to declare my own interests, that I am a solicitors—all those things that people generally do non-practising solicitor and I pay £30 a year to the not tend to think about but which are terribly Law Society to keep my name on the roll of important, and I believe the fact that they are to solicitors. So I have declared my interests now. Just some extent taken for granted is because we have going through who you think should then be set up done themrather well. Now, we would be very to appoint, are you saying the Lord Chancellor or unhappy if there was a gross departure fromthat an equivalent of the Judicial Appointments sort of structure, and that is connected with the issue Commission? of independence. We have it now, we really do not Mr Martin: We would be content with the see why it should change in the future. equivalent of the Judicial Appointments Commission or the Lord Chancellor provided there Q71 Mr Kidney: That is very helpful. The Board is that disconnect between the appointment, who it has the power to impose various sanctions on is done by, and the Government, so we are fairly practitioners, and can recommend that a front line flexible about that, but for it to be done just by the regulator can have their authorisation removed. Secretary of State, the Secretary of State for the These are very important powers. Do you see in the V Depart of Constitutional A airs presumably, does Bill the exercise of those powers as clearly defined? Y not give that su cient separation. Ms Woolf: Perhaps I can answer that. I did say Mr Wallman: What we suggested at an earlier stage earlier that I was concerned, greatly concerned, by was that it should be a joint appointment by the the subjective and vague test for the exercise of those Lord Chancellor and the Lord Chief Justice or the powers by reference to some adequate standard as Master of the Rolls, and that the process they yet to be defined, and frankly I think it would be should use to get to the individual in the chair would extremely diYcult to define, even if the Legal be similar to what the Lord Chancellor adopted Services Board were to issue policy statements on when appointing the chair of the Judicial that. I do not think that it would be easy for an Appointments Commission, in other words making approved regulator to know what behaviour it sure that the Panel identifying the name—I think in would have to adopt to avoid one of these sanctions that case it was chaired by the Commission of the being put in place. But the solution I think to the Public Appointments with a senior judge and question that Lord Hunt posed at the beginning somebody else on the appointment panel, and that would be that we obviously recognise that the board is the sort of mechanism we had in mind. does need eVective powers to sanction and to act if approved regulators fail, but really the combination Q70 Mr Kidney: There are some very important of the powers of direction and censure, coupled with audiences as well as the members of the profession the power to remove a designation of an approved looking obviously on at this. There are the users of regulator, give it more than adequate supervisory legal services, the consumers, and there is an and enforcement powers. After all, what you want international audience wanting to know that this is is performance, you do not want money and fines, a good country in which to do business with legal and the power of direction, if used in a circumstance 3435523004 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Kevin Martin, Ms Fiona Woolf and Mr Russell Wallman where there is a real problemand if used well, will that the decision should not rest purely with the deliver everything that an oversight regulator would Legal Services Board, since it is such a nuclear event need. I think the powers of intervention in any for approved regulators and, indeed, the profession. particular regulatory function of the Legal Services Board are quite inconsistent with the concept of it Q74 Mr Kidney: So the diVerence is because there being a supervisory regulator, and those are I think is a parliamentary process behind this, and so you the powers that our international colleagues will would expect the Secretary of State to have an focus on when they assess whether this is, in fact, involvement at some stage anyway, it is all right? Sir David Clementi’s Model A regulator by some Ms Woolf: Yes. sort of back door. Mr Wallman: Could I add that one key to this from Q75 Mr Kidney: Bearing in mind the Secretary of our point of view is that there is a clear and State refuses the recommendations there will not be objective test for the exercise of any coercive anything happening in Parliament. You like that powers. The first assumption should be that front because it is going to protect you, whereas a minute line regulators, the approved regulators, are ago you did not like the Secretary of State trustworthy. If the Government does not think they involvement because you might not like the choice are trustworthy then it is crazy to go for this system of people for the board. It seems inconsistent— at all. Yes, you need a supervisory regulator in cases Mr Martin: I think this is something we need to of major failure, but it should take action only have some further thought about. We are not, to use where what the front line regulator is doing or a phrase, going to die in a ditch over it. The failing to do seriously undermines the regulatory important thing is we have to maintain the objectives, and putting a test like that in would help independence of the profession and this detail, and to ensure that it does not, if you like, micromanage it is an important detail because, as Fiona said, it is and second-guess legitimate decisions of the about the nucleus of the situation, may or may not frontline regulator. be consistent but whatever we do, whatever happens with the Bill, there must be enshrined in it and we Q72 Mr Kidney: Just before I move completely on need to say, it is terribly important that there should to light touch now, one last point about be as a regulatory objective, we would like to have independence. That independent Legal Services as a regulatory objective, maintaining and Board can make a recommendation that a frontline strengthening the independence of the profession if regulator’s designation should be cancelled and at you like in the interests of the consumer. That is the the moment in the Bill the Secretary of State can important thing. refuse to implement that recommendation. Is that an exercise of power by the Secretary of State that Q76 Mr Kidney: Returning to light touch and is acceptable to the Law Society? focusing for the moment on the interests of the Mr Martin: I think we do not have a major problem consumer that you just mentioned, would you with that. I do not think it is particularly accept that a Legal Services Board that was set up contentious. with powers that were too weak would make no Ms Woolf: It seems consistent with the requirement diVerence to the present set-up and therefore would to get approval in both Houses of Parliament and not aVect public confidence in the regulation of legal so would be an inherent part of the process with services? parliamentary approval process in it. Ms Woolf: I do not know that we think that setting up a Legal Services Board, which probably the Q73 Mr Kidney: That puzzles me because I public would regard as yet another government expected you to say that since you did not like the quango, is going to improve the confidence of the idea of the Secretary of State making appointments public. to the Board because it harmed the independence of the set-up, you would not like the Secretary of State Q77 Lord Campbell of Alloway: Quite right. interfering, albeit as a protector this time of you Ms Woolf: It is perhaps easy for me to say that, but instead of somebody forcing something on you, in I think the confidence of the public really lies in the this procedure at all. Why the diVerence? way in which the profession is regulated and the Ms Woolf: Our original proposition and submission access to the compensation fund and the standards to the White Paper was that cancellation of the that are imposed by the approved regulators. I do designation should require primary legislation. We not know that the public really focuses on the may be compromising with something that does Government oversight of regulators at the moment: require approval of both Houses, in which case it I amnot sure that the publi c focuses at all on the does seemappropriate that the Secretary of State constitutional set-up of regulators; and this would I should be part of a separate step in that process and think be unique in terms of having a regulator over 3435523004 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Kevin Martin, Ms Fiona Woolf and Mr Russell Wallman a regulator set up in a two-tier systemin this way. the quality of advice where the Bar co-operates with We do know fromother sectors, the utilities, that solicitors on this and th e patent agents and the regulators regularly get blamed when things go trademark agents and one thing and another? What wrong, so I do not know that the existence of the do you say about that in the context of this Bill? Legal Services Board with strong or weak powers is It looks to me, and I find the Bill very diYcult to going to do much for public confidence. assimilate, I must confess, as if no thought has been Mr Wallman: We have said fromthe start that we given to this concept which is the prime concept in accept that the Legal Services Board needs to have this Bill. What do you say to that? Have I got it powers of direction in appropriate circumstances wrong? where the inaction of a role or action of an Mr Martin: I do not think you have got it wrong: approved regulator is seriously compromising I think it is absolutely the prime issue and it begs regulatory objectives, so we are not arguing for no the question what mischief are we seeking to resolve, more powers than there are at the moment. We are and in a way that is our main worry about the Bill— recognising that there is a case for a supervising regulator having those directional powers. Q80 Lord Campbell of Alloway: That is mine. Mr Martin: —because we have been very closely Q78 Mr Kidney: What I aminterested in pursuing intensely involved in the Clementi process, if I can now, finally, is where you say as the Law Society call it that, and we were not dissatisfied with the that line should be drawn in terms of getting the overall conclusions of Sir David Clementi. We balance right between an ineVective, useless, no- always put one or two caveats in but we were not point-in-setting-up-in-the-first-place Legal Services dissatisfied with the overall conclusions, and we put Board and an over-intrusive, cumbersome in a fairly robust response to the White Paper. organisation such that you describe in your Underpinning all that was that we have that robust submission. Give us your advice on how we should and eVective regulatory regime which guarantees, so draw the line somewhere diVerent than it is at the far as is possible, the quality of service that is so moment without falling too far in the other important to the consumer— direction. Ms Woolf: To summarise what I have said already, I think we think that of the six sets of powers that Q81 Lord Campbell of Alloway: Precisely. are in the Bill the only powers that are necessary are Mr Martin: —and everything that should be done the powers of censure and direction and the power now should ensure that that is not diminished. in extreme circumstances to terminate the designation of approved regulators. We think that Q82 Lord Campbell of Alloway: I quite agree. the powers of direction will give the Legal Services Mr Martin: One of the risks we see in all of this, Board a very satisfactory route, really quite and we see it having happened in other areas which intrusive, in many ways perhaps more than you I will not spell out but it will be perfectly obvious, would see in other countries, to make sure that the I think, is that you spend if you are not careful approved regulators perform, but the test must be virtually all of your time dealing with the regulators. better than the vague and subjective test that we What we should be doing is working on driving up have. It must be allied to a serious harm to the standards, improving the quality of service, regulatory objectives. educating, training—getting all of those vital areas Mr Kidney: Thank you. as right as it is possible to do—and that is where we see some contradictions. We do not think that the Q79 Lord Campbell of Alloway: Fiona Woolf, the issues that you are quite properly talking about are Vice-President, touched tangentially upon a matter going to be resolved by more targets, more fines, of crucial importance which is, of course, the quality more looking-over-the-shoulder and all of that. I of service to the consumer which seems to have been think it is worth bearing in mind as well one of the almost forgotten. I declare my interest: I was called statistics that I do like to indulge in fromtimeto to the Bar in ’39, had to go away for a bit, came time, which is that no matter what the reputation of back and I retired at the age of 85, a few years ago, lawyers might be, when you ask people what they so I amnot practising, but I amdesperately keen, feel about the service the y have just had fromtheir as obviously Fiona Woolf is, about the quality of solicitor, well over 80 per cent are completely service to the customer, and what is worrying me is satisfied. We must never lose sight of that and we everybody is talking about complaints—all right, we must not do anything which drives that down. can get a better system, we can deal with it, we can Chairman: Without losing sight of it there is make arrangements, or the Bill provides a form of something of a record so far as complaint handling resolution, I would only call it that, but what do you is concerned, and I think Lord Bach wanted to ask say about really the prime importance is to retain some questions on the OYce for Legal Complaints. 3435523004 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Kevin Martin, Ms Fiona Woolf and Mr Russell Wallman

Q83 Lord Bach: Thank you. My interests are I am a very considerable reduction, and is reflective of the a non-practising member of the bar but I was a measures we took in the early 1990s to start the Minister in the Lord Chancellor’s Department client care culture, to make sure that people got cost between 2000 and 2001. Your support for the new information upfront. All the firms have complaints OLC, OYce for Legal Complaints, is clearly much handling procedures and everybody was schooled warmer than it is for the matter in the LSB that we and trained in how to deal with clients and so on. have just been describing and some would say that That is just a bit of background; there are many is because of the diYculties that the Law Society has more statistics where that came from which you do had over the number of years in dealing with not want to hear this afternoon. As far as the complaints from clients, so you support the idea of comment by the Chairman of Regulation Board, the OLC, as I understand it, with some feeling. I just Peter Williamson, is concerned, we have no want to inquire why it is you support that. I have diYculty with that at all. Greater transparency is two quotes for you. One is anonymous from within something we would welcome; we do not know this the Law Society: “The problemis that a solicitor afternoon quite how far we would welcome it but could be reprimanded five times and the public we do not have any diYculty, for instance, about would not know about it”, and the other is not the decisions of the Solicitors’ Disciplinary Tribunal anonymous, it is from the Chairman of the Law and the processes, the actual hearings, being made Society Regulation Board: “We need new powers to public. At the moment, we are trammelled by the make us a modern regulator, along the lines of a Solicitors Act 1974 so legislation is required, and if body such as the Financial Services Authority. The it is to be enshrined in the Bill or in some subsidiary Legal Services Bill provides a golden opportunity legislation then we do not have any diYculties with for new powers that we now need and we are that. As far as your second question was concerned, hopeful we will get them”. How would you respond we do think it is important that there should be this to that complaint by the Regulation Board dividing line between the two kinds of complaints, Chairman that, indeed, his powers are inadequate, if you like, that you are talking about. This would and that there is a lack of transparency, which is follow the recommendations of our own recently really the first quote, and secondly, is there a risk concluded, as it were, independent Complaints that separating the treatment of complaints into Commissioner, Sir Stephen Lander, and again it is service complaints and conduct complaints, as the important here to distinguish between conduct draft Bill envisages, will lead to a delay and complaints and between service complaints, many duplication of eVort? We may hear evidence later of which are actually quite low level. A lot of them this afternoon froma very interested party that that are about not answeri ng letters or not responding is exactly what it would do, and I would be to telephone calls. They expand, but that is often interested in your comments on those two matters. where they start oV, and they do not involve any Mr Martin: If I can just, by way of preamble, kind of regulatory issues at all and they can mainly confirmwhat you said, that we are in favour of the be dealt with very quickly by informal mediation OLC, in some respects without being in any way and so on. The other kind of complaint in the facetious we shall breathe a sigh of relief. broadest sense of the word you are talking about is Complaints handling is not easy; complaints when there has been a regulatory breach; a breach handling in some respects has been a considerable of undertaking or a dishonesty, or something of that success story, and I say that very seriously, and we sort, clearly, has to have much greater and more do not get suYcient credit for it. As far as complex investigation. It is a diVerent process. We complaints generally are concerned I am going to do think it is terribly important that the two should leave the comments to be made by Shamit Saggar, be always kept separate, but we also believe that the the chair of the new Consumer Complaints Board, lines of communication between the two parts of the and I mention that because it confirms we have set regulatory organisation in future should be kept up an independent Consumer Complaints Board open both ways. There is another defect in the insofar as we can do with the current regulatory Bill there because it provides for the OYce for structure and I know he is giving evidence to you Legal Complaints to receive—demand, in fact— and I do not want to pre-empt anything he says. Just information from the frontline regulator, but that to quote one statistic to you, because it is important does not seemto work the other way, and that that everybody bears this in mind, 10 years ago we seems to be an imbalance that we believe should be had 80,000 solicitors in round figures, we now have addressed. 126,000. The volume, the value, of business done Mr Wallman: If I can make two points: firstly, we over the last 10 years has gone up by 60 per cent to are talking about complaints against solicitors, of £19 billion. The level of complaints, the number of course, we entirely accept that there may be a complaints actually coming in, is about the same as diVerent balance in how far complaints are just it was 10 years ago. That by anybody’s standards is service or inextricably involve conduct with 3435523004 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Kevin Martin, Ms Fiona Woolf and Mr Russell Wallman complaints against other legal professions, such as Q86 Lord Campbell of Alloway: The Bill does not barristers. We are not saying that absolutely the diVerentiate between your two diVerent types of same system has to apply. Just on the regulatory complaint. You cannot just walk in to the structure powers, the point Peter Williamson has made, the of this Bill, first of all, because you have got to keep request for extra regulatory powers which went into going your extant structure and if you walk into it the DCA sometime ago is a request from the Law there is no provision to distinguish between the two Society that went in before we separate out the diVerent types of complaint. Regulation Board, so there is absolutely nothing Mr Martin: No. between us at all on that. We fully endorse and, indeed, have been seeking the powers for some time. Q87 Chairman: That is conduct, on the one hand, and customer— Q84 Lord Bach: Just to sum-up your position—is Mr Martin: Service on the other. this a fair summing-up of your position—you do Lord Bach: Forgive me, but clause 125, I thought, did really quite warmly welcome the setting up of this make a distinction between— OLC body, you do have some real concerns that it is not as it should be in the draft Bill, but you welcome Q88 Chairman: It is exactly where is the it and you think that the principles that it sets out are demarcation line, as I think the Law Society point ones that the Law Society should support? out in their paper. Is that not right? Mr Martin: Pretty well, yes Mr Martin: It is in the note, yes

Q85 Chairman: Are you going to make sure that transitional arrangements mean that there is no Q89 Chairman: Are you talking, Mr Martin, to the diminution in quality of service? How can we Government about making sure that this transitional underpin that? period does not result in the sort of situation you Mr Martin: There is a two-part answer to that. Of have just outlined? Mr Martin: course, we will continue to devote huge resource, Intensively. expertise and staV time to that, as we have done over Chairman: We are just going to move on to the past six or seven years, and we set up our new Alternative Business Structures, and Lord Neill of consumer complaints board on 1 January, as I have Bladen has some questions. said. That is a transitional body, by definition. Its role is to terminate in 2008–09 when the OLC is set up. Its Q90 Lord Neill of Bladen: I ought to declare my task, its mission, is to make sure that it hands over an interest. I have been a practising barrister for some organisation that is as fit for purpose as it can be at time and Chairman of the Bar Council, and I have sat that time. So all of that is in place, it appears to be as a judge in the Channel Island Court of Appeal. working well, it is properly resourced, it is, as you You say in the paper, when you are talking about said earlier, my Lord Chairman, costing the Alternative Business Structures (ABS) that the Bill profession a very large amount of money, and that is provisions are far too cumbersome in relation to the something that we have had to take on board for a formation of new types of partnership in relation to considerable period of time. The issue you raise does attracting external investment. Would you like to mean that I have to mention something which sits explain why, and what you would like to see behind the Bill, as it were, which is that the changed? transitional arrangements will work best if there is no Ms Woolf: Yes. If you go back to basics, I think it is gross disruption of the current operation of important to remember that what we are talking complaints handling. If, as some will tell you and about is the lifting of restrictions on business some believe, that is to be moved to an entirely structures in relation to the practice of reserved legal diVerent part of the country, which really means that activities. The essential issue is how to regulate that we are going to have to start all over again, and really practice of reserved legal activities in whatever means the OLC will be starting with a clean sheet of business structure you are talking about and paper with a whole new group of people with no whatever structure someone chooses to undertake it. connection with complaints handling at all, some of Actually, we think you can simplify things a lot by them, and means that the people who are doing it at building on the regime that approved regulators have the moment—nearly all of whom actually do a very in place already and simply adding the necessary good job—we will lose all of that; we will lose that consumer protections and rules that you would need expertise and the cost will be astronomical; figures of to reflect the fact that an Alternative Business £3.5 million have been mentioned and I think that is Structure had in that practice, either non-lawyers or a conservative estimate. So that complete disconnect, outside owners—outside capital. I think it is geographically, from where it is at the moment, we important for consumer protection and, also, to believe would be a massive own goal. avoid consumer confusion (which I think we worry 3435523004 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Kevin Martin, Ms Fiona Woolf and Mr Russell Wallman about a lot in relation to the Bill) that all legal Mr Martin: Of course, we recognise that that is one practices regulated by particular approved regulators of the objectives, and that part of the purpose are regulated in exactly the same way. Actually, this behind ABSs is to improve access to justice, and we regulation of ABS is very suitable to standard rule- all have a great deal of respect for that. based regulation of the sort that the Law Society undertakes at the moment. Licensing is a system that is used as a modern regulatory tool, but it is actually Q93 Lord Neill of Bladen: Is this “Tesco law”? chosen so that you can have diVerences between one Mr Martin: That is part of it. As it would enable licensee and the next, even if they are in the same greater flexibility of business models, you can class. So you can have a diVerent licence for Severn imagine, for instance, a solicitor and an estate agent Trent Water as you do for Thames Water, for in a small town wanting to get together to provide example. Actually, even in the utilities sector they conveyancing and house selling services—and have had diYculty with using licences because of actually that might fit in with the Home Information inconsistencies which were felt to be unfair and they Packs regime that is coming in. How it is actually had to change the law in 2000 on that. You would not going to work is something, I think, on which more want to do that in legal services, for a whole host of work can be done. I think there is plenty of scope consumer protection reasons, so we think that having for greater assessment to be carried out amongst a dual regulatory regime of approved regulators and those who are perceived to be the beneficiaries. Is it licensing authorities is cumbersome in the extreme going to be something that will go down well in and, frankly, unnecessary. West Wales, for instance? We do not really know— nobody really knows. It looks as though it has that potential, but I think we need to be completely Q91 Lord Neill of Bladen: Can I move on to convinced about this. The other thing which I think another aspect? We have had some evidence to the is terribly important is that whoever goes for these eVect, or opinion, that an ABS could decide which models, whoever takes them up, whether it is the regulator it wanted to come under, which would be kind of example I just gave or whether it is “Tesco the frontline regulator. The fear is that you can law” or whether it is a merchant bank taking over aVect competition with regulators driving down a big city firmor setting up its law practice, they are prices and driving down standards in order to only going to do it if it makes sense commercially. acquire a bigger bunch of ABSs. What is your Whether that is compatible with providing greater comment on that? access to justice for people in remote parts of the Ms Woolf: Yes, I think that is an issue, and I think country is a question to which none of us, I think, that it is an issue to diYcult to deal with under the have the answer, but I do think a great deal more draft Bill. I think the key principle is that there work has to be done. I think there must be a should be a very clear set of rules and that all safeguard in terms of, if you like, the Tesco model. practitioners working in legal practices regulated by Tesco’s name has been taken in vain here, actually, an approved regulator should be subject to the same because it has never really shown any interest in set of rules. I do not think it is an answer to allow doing this. the LSB to regulate Alternative Business Structures either. In fact, I think it creates a huge conflict of interest for the LSB in approving applications from Q94 Lord Neill of Bladen: Call it “Waitrose”! licensing authorities: why would they approve an Mr Martin: I would not want to cast any aspersions application fromthe Law Society if they would on any particular group of supermarkets, but we all rather regulate themdirectly themselves?Again, it know that supermarkets do have the potential to goes back to the point that I amconcerned with take over the shopping habits of a district, and that about creating the LSB as a primary central has an adverse eVect on the smaller outlets which, regulator when it is supposed to be a supervisory in the end, can often have an adverse eVect on the body. consumer.

Q92 Lord Neill of Bladen: Can I ask an economic Q95 Lord Neill of Bladen: My final point: would it question? We are interested in the concerns of be possible that more provision will lead to the justice being attainable by people fromvulnerable closing of small high street firms— groups, who have no money or are, in other ways, Mr Martin: I think more assessment has to be made disadvantaged. What does this Bill do for themby of that. introducing the possibility of an ABS? Is there Chairman: Thank you very much. I know we are anything here for the impoverished or the disabled, running slightly over time, but Baroness Henig just and so on? wants to ask about costs. 3435523004 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Q96 Baroness Henig: You have already raised the which we do not think is in the Bill. If I can just issue that in your view there are going to be refer to paragraph 4.51 of the RIA, it actually says problems if there was a diVerent location for the the estimate assumes that the underlying nature and OLC. After the partial risk impact assessment, in volume of regulatory activities under the new LSB fact, the Department for Constitutional AVairs would not be substantially diVerent fromthose did further work on the costings with performed under the current regulatory framework. PricewaterhouseCoopers developing the earlier Ms Woolf: By which they mean the oversight work that was done. I wondered whether the result, framework. particularly their suggestion that actually if the site remained in the West Midlands there would not be Q97 Baroness Henig: Your concerns actually reflect the sort of escalation of costs that you were talking the fact that you think what has emerged in the Bill about, made a diVerence to your reaction and is more heavy-handed and likely to be more allayed your main concerns. intrusive than the original proposal? Mr Martin: Yes. Mr Martin: Yes and no, is the answer. There clearly V would be a beneficial e ect as far as transitional Q98 Chairman: Thank you very much, Mr Martin, costs were concerned. I think it would actually go Ms Woolf and Mr Wallman. I hope you feel we beyond that. I suppose it depends on how you define have covered all the main areas. Thank you for your “transitional”, but if you have got to start in preliminary submission, thank you for your Newcastle, for instance, with 350 entirely new evidence today and I think you have agreed to let people and they have all got to be trained, hired and us have a further written submission by Friday of all of that, never mind premises and so on, the cost next week, for which, in advance, thank you very is obviously going to be very considerable. I think much. Thank you for coming today. the other thing goes back to what Fiona has been Mr Martin: May I, my Lord Chairman, on behalf saying about light touch. Our perception is that the of the Law Society, thank you and all of the costings that you have just referred to are actually Committee very much indeed for the courteous and based on the light touch model that Sir David fair reception you have given us. Thank you very Clementi and the Lord Chancellor have in mind, much.

Supplementary memorandum by the LawSociety of England and Wales (Ev 03a) Draft Legal Services Bill:Appointment to the Legal Services Board In response to your request for clarification, our preferred policy is for the appointments to the Legal Services Board (especially that of the chair) to be made by the Lord Chancellor and the Lord Chief Justice (or the Master of the Rolls) jointly. We say Lord Chancellor, rather than Secretary of State, because if the Bill says “Secretary of State” the power could in principle be transferred to any secretary of state, and we think it should specifically remain the Lord Chancellor’s responsibility. So far as the process for appointment is concerned, we think the Government should adopt an approach similar to the approach they took when appointing the Judicial Appointments Commission. For that appointment, the appointment panel consisted of the Commissioner for Public Appointments, the Lord Chief Justice or his nominee, and another person. Something similar would reinforce the independence of the appointments process for the Legal Services Board. We recognise that if the appointment procedure was independent in that way, the issue of whether the appointment should formally be made by the Lord Chancellor and a senior judge jointly, rather than by the Lord Chancellor alone, would become less important. 13 June 2006

Further supplementary memorandum by the LawSociety of England and Wales ( Ev 03b) Introduction 1. The Law Society submitted a preliminary memorandum to the Committee on 7 June, and gave oral evidence on 8 June. This memorandum expands on some of the points made in the Society’s preliminary memorandum; identifies some other issues of concern which the Society wishes to draw to the Joint Committee’s attention; and (in the annex) suggests some ways in which the Bill might be amended so as to meet the Law Society’s concerns. 3435523006 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Objectives of the New Regulatory Regime 2. The Society believes that the regulatory regime which will emerge following the passage of the Legal Services Bill should ensure that: — Regulation of the legal profession remains profession-led and demonstrably independent of Government; and is free from inappropriate representational influence. — The regulatory burden on practitioners (and thus ultimately consumers)—both in terms of the fees paid for regulation and internal compliance costs—is kept to the minimum necessary to secure the regulatory objectives, and that regulation is carried out in a risk-based and proportionate way. — Approved regulators are able to move swiftly to respond to changing circumstances, subject to appropriate consultation with stakeholders. — The Legal Services Board is able to take action where necessary if an approved regulator is clearly failing to do its job eVectively. — There is clarity of roles between the OYce for Legal Complaints and approved regulators with an eYcient arrangement for sharing information they need to carry out their functions. — The arrangements for regulating Alternative Business Structures enable new business vehicles to be facilitated, so long as the consumer protection arrangements applying to existing law firms are fully applied to them, and that arrangements are made to ensure that unsuitable people cannot own or influence law firms, or undermine the independence of the legal advice that is given. — The regulatory regime can respond as necessary to bring new services within the ambit of reserved services, and (if appropriate) to de-regulate services which are currently reserved. 3. We think these objectives are very widely shared. Some of them—particularly the need for the regulation of the profession to be risk-based, proportionate, and no more onerous than is necessary—will be influenced primarily by the way in which the regulatory arms of the legal profession discharge their task, rather than being directly aVected by the Bill. But the Bill will provide the framework within which all regulators of legal services work, and in the Society’s view it is therefore essential to bear all these objectives in mind in considering the provisions of the Bill.

Independence of the Regulatory Regime 4. We have already argued that the regulatory objectives do not give suYcient weight to the need to maintain the independence of the profession and that the arrangements for the appointment of the Legal Services Board and for the continuing role of the Secretary of State do not suYciently ensure the Board’s independence from Government. 5. Independence of the profession—and of its regulation—fromGovernment is of paramount importance. Its importance is recognised in principles adopted by the United Nations in 1990. Independence of the legal profession is fundamental to our freedom under the law. 6. Even a perception of the loss of independence risks significant damage internationally. Legal professions overseas are often unenthusiastic about solicitors fromEngland and Wale s being permitted to provide services in their jurisdiction. The overseas earnings of England and Wales law firms make a significant contribution to the economy, of the order of £2 billion a year. It is highly undesirable to do anything to put that at risk, by giving those overseas professions who are minded to take a protectionist approach an additional argument to oppose practice rights for solicitors fromEngland and Wales or to makethe exercise of those rights more diYcult.

Separation of Representation from Regulation 7. As we have already indicated, the Law Society supports the proposition that regulation should be free from improper inappropriate representational influence. We have ourselves established arrangements—through the creation of wholly independent Boards to deal with regulation and consumer complaints—which achieve that as far as we can within existing legislative constraints. We support the provisions in the Bill requiring the LSB to be satisfied that regulatory functions should not be prejudiced by any functions bodies may have in connection with the representation, or promotion, of the interests of regulated persons (Schedule 5). 8. We have seen Sir David Clementi’s comments to the Committee that the Bill does not at present satisfactorily deal with the issue of separation between representation and regulation. We said in our preliminary submission that even if (as we contend) the advance approval of the Legal Services Board should 3435523006 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 not generally be required for changes to the regulatory arrangements, advance approval should be required for changes to the governance arrangements concerning regulation. We made that suggestion because we recognise that those governance arrangements are crucial in ensuring that a proper separation between representation and regulation is achieved and maintained. But we recognise—as Sir David has argued—that there is scope for greater clarity in the statute itself about this. 9. It will not be practical for the Bill to provide in minute detail for every issue which might conceivably arise concerning independence of the regulatory arms of professional bodies. But there are some principles which could be laid down. We suggest independence requires that: — All regulatory decisions are taken by or on the authority of a properly appointed regulatory body, which is free frominappropriate representational influence or control. — The arrangements made by the approved regulator ensure that the regulatory armhas the resources it reasonably requires. — The regulatory armhas unfettered access to the Legal Services Board if an y other issue should arise on which it considers that the actions of the parent body are undermining the regulatory arm’s independence or eVectiveness. 10. We would be happy for provisions on those lines to be included in the Bill. That would reinforce the case for ensuring that approved regulators are left to get on with the job, and that the Legal Services Board intervenes only where there would be serious harmto the regulatory object ives.

Relationship Between the Legal Services Board and Approved Regulators 11. We recognise that—as a matter of theory—regulators do not have to exercise all the powers they are given, and that there is nothing in the Bill to prevent the Legal Services Board fromtaking a light touch approach, intervening only where there is a serious failure. But we do not think that is at all likely to happen in practice. 12. Our concerns about this are reinforced by our experience of the Legal Services Consultative Panel, which is an advisory body dealing amongst other things with professional rules concerning advocacy and litigation. The Legal Services Consultative Panel was set up under the Access to Justice Act 1999, in succession to the former Advisory Committee on and Conduct. One explicit purpose of replacing ACLEC with the new Panel was to provide a more streamlined method of dealing with the issues concerning litigation and advocacy which came within the Panel’s remit. 13. The Act gave the Lord Chancellor a discretion—rather than a duty—to refer rules to the Panel. Nevertheless, the practice of the Lord Chancellor has been to refer to the Panel all rules which come within their ambit. The Panel in turn has carried out exhaustive examination of proposed rules, notwithstanding the fact that regulatory bodies have themselves consulted extensively before finalising their rules. In some cases this has led to considerable delay, and to uncertainty as to what rules are in force. 14. We do not criticise either the Lord Chancellor or the Legal Services Consultative Panel for this. We refer to the matter simply to illustrate our point that in the absence of clear statutory guidance as to how powers are to be exercised, it is wholly unrealistic to assume that they will be exercised in a light touch and proportionate way, even if that was the Government’s intention at the time legislation was before Parliament. 15. If the present provisions of the draft Bill remain unaltered, we believe the Legal Services Board would act in a very similar way. It is unlikely that it would be willing to waive the requirement for prior approval of changes to the regulatory arrangements, and we believe it would generally carry out a detailed consideration of any changes which are put forward. We also believe—as we highlighted in our preliminary submission— that it would exercise its various powers in relation to approved regulators in a way which eVectively substituted its judgement for that of approved regulators, rather than (as we believe should be the case) taking action only where the actions or inactions of the approved regulator risks serious damage to the regulatory objectives. 16. We believe that allowing the Legal Services Board to act in that way is misconceived on a number of levels: — It is wrong in principle, because it undermines the profession-led regulation which we believe is the most eVective way of regulating legal services. We agree with the Chairman of the OYce of Fair Trading about that, and we agree with Sir David Clementi that the front-line regulators should in general be left to get on with the job. If the Bill is not amended, the Legal Services Board would eVectively become the primary regulator, very easily able to influence all the day-to-day activities of the approved regulators. 3435523006 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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— It would create considerable delays—amounting almost to paralysis—in some regulatory activity. At present, once the Law Society has concluded its consultations and reached a decision, that can be implemented swiftly (except for those rule changes which require to be considered by the Legal Services Consultative Panel, as explained above). In future, all rule changes would be subject to the same disproportionate scrutiny as now applies to those concerning advocacy and litigation. All other regulatory changes—such as changes to the approach taken on particular compliance issues—would be subject to the same delays. This would also require the Legal Services Board to equip itself with much more costly resources (both in terms of numbers and calibre of staV) to carry out these activities—a cost that would be borne by the profession (and passed on to the consumer). — The eVect of disempowering approved regulators is likely to make it far more diYcult for themto be able to retain and recruit the high calibre staV and Board members they need. For example, the new Boards the Law Society has appointed for regulation and consumer complaints are of outstanding calibre. It is inconceivable that such individuals would be willing to join what would eVectively be an administrative arm of the Legal Services Board.

Relationship between the OLC and Approved Regulators 17. As we made clear in our preliminary submission, the Law Society supports the establishment of an independent OYce for Legal Complaints to deal with consumer redress against all lawyers, in place of the current arrangements provided by the diVerent professional bodies. We have no objection to there being a power for the OLC to delegate the handling of consumer redress issues back to approved regulators if it wishes to do so, although even if such a power were provided, the Law Society does not envisage seeking it for itself. We believe it is important that—as with the Financial Ombudsman Service—the OLC deals only with consumer redress issues, leaving regulation to the approved regulators. Clarity on this point is essential to avoid confusion, and possible discord in future. 18 We recognise that a number of consumer complaints will also give rise to conduct issues. That is why we believe it is imperative for there to be arrangements which ensure that the OLC passes to the approved regulators all the information they need, at the time they need it. If that is not done, a key source of regulatory information will be lost. 19. The regulators’ likely information needs can be broken down into a number of categories: — Immediate notification where consumer complaints give rise to a suggestion of a major conduct issue (such as dishonesty). Notification in such cases should not await resolution of the consumer redress issue. — Notification at the conclusion of a consumer redress issue of any other conduct issue above an agreed threshold of seriousness. — Information about firms or individuals who (on the basis of a pattern of complaints to the OLC) appear not to be taking seriously their responsibilities with relation to client care. — Information about firms or solicitors who fail to co-operate with the OLC. — Information about general regulatory issues arising from complaints handling to which the OLC thinks the regulator needs to give attention, perhaps in the formof additi onal guidance, enhancing training provision, or possibly a rule change. 20. We emphasise that although regulators need this information arising from consumer complaints, that does not mean responsibility for redress and conduct should rest in the same body. The Law Society separated its redress function from its compliance function following a recommendation fromour Independent Commissioner, Sir Stephen Lander. Our experience has shown that the separation enables us to provide a significantly more customer focused Consumer Redress Service, whilst also enabling us to operate a risk- based, rather than complaint led, approach to compliance.

Alternative Business Structures

21. As we made clear in our preliminary submission, the Law Society has long supported liberalisation of the business vehicles through which legal services can be provided to the public. We have supported changes to enable solicitors to formpartnerships with non-solicitors and non-soli citors to own law firms, in both cases subject to ensuring that the necessary consumer protection measures are in place. 3435523006 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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22. We believe the most eVective way of achieving this is not to create a separate licensing regime, dominated by the Legal Services Board as a primary regulator, as the draft Bill proposes. Rather, it is by ensuring that existing regulators have the powers they need to regulate eVectively in this new environment. The Council for Licensed Conveyancers already regulate such businesses, because their powers (dating frommorerecent legislation than the Law Society’s) enable themto do so. The Law Society ne eds the same powers. 23. Under our model, if (say) a supermarket wished to provide reserved legal services (such as divorce litigation) to the public, it would do so by establishing a ring-fenced law firm–which it could fully own. The law firmwould be subject to all the ordinary requirementswhich apply to oth er law firms regulated by the Law Society. That would ensure that the consumer protection arrangements were identical whether the consumer obtained their legal services froma High Street partnership, or froman ex ternally owned law firm. The ordinary rules about clients’ confidential material would ensure that information was required to be kept within the ring-fenced law firm, and not available to the rest of the owner’s business. Equally important, the ring-fencing would ensure that consumers continued to be protected from conflicts of interest and influence fromexternal owners which underminedthe independence of the advice that they receive. To do anything else would create consumer confusion and risk serious gaps in important consumer protection measures. 24. In addition, the supermarket (or other owner) would have to demonstrate that it was a fit and proper person to own a law firm. That might be an easy task in the case of a publicly listed company, but one can readily imagine some prospective external owners who would not be suitable. It is essential that such prospective owners can be prohibited fromowning law firms. 25. We recognise that externally owned law firms will be a new concept for England and Wales, and that gives rise to understandable concerns about the need to maintain the integrity of the way in which legal services are provided. The Law Society will be absolutely determined to maintain that integrity. We recognise that there may be a case for some special provision concerning the approval of any rules which would permit external ownership. We suggested in our preliminary submission that the Legal Services Board should have to approve the necessary rules, even if the Board did not generally have to give advance approval to rules. We would have no objection if it were decided that rules of this nature should also be subject to Parliamentary approval.

Will Writing 26. The Law Society welcomes the fact that the Legal Service Bill will enable new services to be brought within the ambit of reserved services if it should become desirable to do so. We do not argue for the wholesale extension of the definition of reserved legal services, although that is no doubt an issue which the Legal Services Board will wish to study in due course. 27. We welcome the fact that the Government has decided that claims management companies should be brought within the ambit of reserved services as quickly as possible. We believe it should take the same approach to will writing and probate services. The absence of regulation of will writing, combined with the fact that it is almost inevitable that a defect with a will will only be identified when it is too late to do anything about it, provide a particularly strong need for regulation in this sector. Similar points arise with the unregulated provision of probate services. The Law Society has collected considerable evidence of harmdone by unregulated will writers.

Exemption of Government Lawyers 28. The Bill proposes that solicitors in Central Government should be exempt fromany requirementto hold the practising certificate. This perpetuates—and indeed widens—the current provision in the 1974 Solicitors Act (as amended) by extending the exemption to CPS lawyers. We recognise that there is a strong case (as applies to CPS lawyers at present) for diVerent levels of fees being charged to those, including Government lawyers, who inherently make less call on regulatory resources . The Society has already sought powers to enable it to do that. 29. But there is no rational basis on which Government lawyers should be exempt from the requirement to hold a practising certificate, or frommeetingtheir share of the cost of reg ulation. There is no similar exemption for local government, or for lawyers in commerce and industry. Nor does such an exemption apply to barristers. 30. Providing an exemption from the requirement to hold a practising certificate for Government solicitors undermines their status as professionals on the same footing as those in private practice. We believe the provision should be deleted fromthe Bill. Indeed, the Bill should makeit c lear that wherever lawyers in local 3435523007 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 government or commerce and industry are providing primarily legal services to their employers, they are subject to the requirement to hold a practising certificate fee in the same way as their colleagues in private practice.

Costs 31. The Regulatory Impact Assessment—based on work undertaken by PWC—assumes that: — There will be significant savings for complaints handling as a result of the transition fromthe current arrangements to the OLC. — The on-going cost of the Legal Services Board will be of the order of £3.5 million a year. 32. As far as the OLC is concerned, we think the estimates of the eYciency savings which can be obtained compared with the costs of running the CCS are highly optimistic. There are no doubt some eYciency savings to be achieved, not least through centralisation of the complaints handling function, but the CCS has itself drawn heavily on the experience of the Financial Ombudsman Service in recent years in developing its processes, and the scope for further eYciency savings is likely to be small. Accordingly, we do not think it safe to assume any significant savings. 33. The costs of the Legal Services Board are explicitly based on the assumption that the overall level of regulatory activity will not increase fromthe present level. But in light of the provisions of the Bill, such an assumption is wholly unrealistic. The Legal Services Board’s role in deciding whether or not to approve changes to the regulatory arrangements will for almost all of the Law Society’s rules represent substantial new activity. At present the scrutiny of our rule-making (apart from litigation and advocacy) is very light-touch, whilst there is no external scrutiny of our other regulatory activities. As a result, we believe the costs of the Legal Services Board are likely to be of the order of £10 million a year, rather than £3.5 million. 34. We believe the Government’s intention to pass all the costs of the new regulatory structure to the profession is unreasonable. We accept that the cost of the work carried out by the approved regulators, and the OLC, can properly be charged to the legal profession. But, just as in the accountancy and health regulation fields, the Government should contribute towards the cost of the supervisory regulator. We consider that the Government should meet the full cost of any market studies commissioned by the Legal Services Board, as well as a reasonable proportion (perhaps one-third) of the ordinary running costs. 35. These concerns about costs highlight the need for an explicit requirement for the Legal Services Board and the OYce for Legal Complaints to consult stakeholders—in particular the professional bodies representing lawyers who will have to pick up the bill—before settling their plans and budgets each year.

Conclusion 36. The Society doubts whether the proposals in the draft Bill reflect the Government’s Principles of Good Regulation. It is these principles which the Better Regulation Commission is charged with policing and which the government wishes specifically to promote through the Legislative and Regulatory ReformBill. Yet these principles do not seemto underpin the current proposals:

Proportionality The ability of the Legal Services Board, and indeed the Secretary of State, to intervene in the day to day actvities of the approved regulators are far fromthe “light touch” promis ed by government.

Accountability The multiple roles of the Secretary of State and the Legal Services Board would confuse lines of accountability and lead to potential conflicts of interest.

Consistency The introduction of a separate licensing scheme for ABSs would make it virtually impossible to maintain consistent regulation of diVerent types of provider oVering the same legal services.

Transparency Given the complex regulatory structures proposed for ABSs it is diYcult to see how consumers would be able to work out who is regulating their provider of services. Indeed some business entities may have to switch from one regulatory fremework to another on a regular basis, as a result of minimal changes to their structure. 3435523007 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Targeting The proposals go far further than is needed to guarantee eVective regulation of legal services; and fail to ensure that the Legal Services Board will act only where nededed to avoid serious damage to the regulatory objectives. 37. The Society has in the time available since publication of the d raft Bill had to concentrate on the areas of most significant concern to us. There are also a number of more detailed points which we would like to make. We will submit those to the Joint Committee (and the DCA) as soon as possible. In the meantime, we are happy to provide any clarification the Joint Committee may require or to deal with any other questions the Committee may have.

Annex

POSSIBLE AMENDMENTS TO THE DRAFT BILL We think the policy objectives we have proposed in this submission and our submission of 7 June might be achieved by amendments to the draft Bill along the following lines. We have not sought to work up the precise drafting of these suggestions, nor have we attempted in the time available to pick up any of the consequential amendments which would be needed. Our suggestions are as follows.

Independence

Clause 1 We suggest the insertion of an additional sub-paragraph in Clause 1(1) to add to the objectives “maintaining the independence of the legal profession, and of its regulation, fromGove rnment.” We suggest also that the objective of promoting competition should explicitly be made subject to maintaining independence, to supporting the constitutional principle of the rule of law, and to protecting and promoting the interests of consumers.

Schedule 1 We suggest that paragraph 1 should be amended so that the Chairman is either appointed by the Lord Chancellor and the Lord Chief Justice (or Master of the Rolls) jointly, of (if the appointment remains with the Lord Chancellor alone) to provide for it to require the concurrence of the senior judge.

Separation of Representation from Regulation

Schedule 5 We suggest that paragraph 14 of Schedule 5 should be expanded to make clear that, in order for the Board to be satisfied that the exercise of an applicant’s regulatory functions would not be prejudiced by representational functions, it would need to show that its governance arrangements ensured that: — all regulatory decisions were taken free frominappropriate representa tional influence; — the regulatory armcould secure the resources it reasonably required to c arry out its functions; and — the regulatory armhad unimpededaccess to the Legal Services Board if con cerned that the actions of its parent body were impairing its independence or eVectiveness.

Relationship between Legal Services Board and Approved Regulators

Clause 3 We suggest the deletion of the words “so far as reasonably practicable” fromClause 3(2). In Clause 3(3) we think the words “have regard to” should be amended to “act in accordance with”.

Schedule 5 We suggest that the general requirement should be that the approved regulator gives advance notification to the Legal Services Board of all proposed alterations to its regulatory arrangements, rather than obtains advance approval. This could be achieved by amending paragraph 21(2)(b) to refer to notification rather than approval. An additional sub-paragraph in paragraph 21(2) could require advance approval for proposed 3435523007 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 changes to governance arrangements concerning regulation. Paragraph 21 could also be amended to enable the Board to direct that alterations of a particular sort should require advance approval by the Board before coming into eVect. The eVect of these changes would be to reverse the presumption that the advance approval of the Board is required for all changes, however minor. Instead, advance approval would be required only for very significant changes (ie to governance arrangements concerning regulation or to rules concerning external ownership), but the Board would have the ability to add additional categories of changes requiring its advance approval if it felt it necessary to do so.

After Clause 23 We think it would be helpful to have a clause concerning the duty of the Legal Services Board, which made it clear that it was the duty of the Board: — to work in collaboration with the approval regulators; — to take action only where it considers it necessary to do so in order to avoid serious damage to the regulatory objectives; and — to seek to resolve matters informally with the approved regulator before exercising formal powers.

Clause 24–40 We argued in our initial submission that the range of powers given to the Legal Services Board is far wider than is necessary to ensure that it can take eVective action if an approved regulator should be failing. In particular, we consider: — whatever the position may be for consumer complaints, it would not be meaningful to set performance targets for the regulatory functions—primarily rule-making, monitoring compliance, and investigating and prosecuting disciplinary matters—which approved regulators will have; — fines are inappropriate where regulatory functions are carried out under arrangements which properly separate regulation frominappropriate representational influ ence, and are in any case unreasonable in the absence of clear criteria as to the basis on which they are imposed; and — powers to intervene directly in regulatory functions are undesirable, because they would destroy the credibility of an approved regulator. Consequently we propose as follows:

Clause 24 We think this clause should be deleted.

Clause 25 We think the test in 25(1)(a) should be amended so as to apply where an approved regulator’s action or inaction “risks serious damage to the regulatory objectives” rather than using the vague test of adequacy.

Clause 30–33 We believe these clauses should be deleted.

Clause 34–37 We believe these clauses should be deleted.

Clause 52 We believe this should be amended to make clear that the Legal Services Board can be designated as an approved regulator only where there is no other approved regulator willing and able to act as approved regulator in relation to the activity concerned. So (for example) if the interimregulatory arrangementsfor claims managers broke down, the Legal Services Board could become the approved regulator for claims managers only if none of the other approved regulators were willing and able to take on the task. 3435523007 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Regulation of ABSs

Part 5 We find it very diYcult to suggest specific changes to Part 5, because it is drafted on the basis that there should be a separate regulatory regime for Alternative Business Structures, rather than ensuring that they are regulated by approved regulators in the same way as other providers of legal services. We think the best approach would be to delete this part of the Bill, whilst ensuring that the approved regulators have all the additional powers they need to enable themto be e Vective regulators of entities which contain non- partners, and which may be owned by external bodies. We believe that, as in respect of Clause 52, the Legal Services Board should act as primary regulator for ABSs only if there is no approved regulator able or willing to do so. In practice, the Law Society intends to regulate ABSs once it has the necessary powers to do so, and the Council for Licensed Conveyancers already regulate ABSs.

Relationship between OLC and Approved Regulators

Before Clause 125 A new clause is needed to require the OLC to comply with any requests from approved regulators for: — information to be supplied to the approved regulator about particular categories of complaint, at such times as the approved regulator may specify; and — generic information about sources of complaint.

Clause 125 This clause should be amended so as to refer not to information about individual cases (which would be dealt with by the new clause we have suggested above) but to power for the OLC to refer to the approved regulator any general issue on which the OLC considers the approved regulator needs to consider taking some action. We agree that, on such general references, the OLC should be able to require the approved regulator to respond within a reasonable time explaining what action it proposes to take. We agree also that the OLC should have power to report the matter to the Legal Services Board where it is dissatisfied with the approved regulator’s response.

Special Position of Government Lawyers

Clause 144 This clause should be deleted. There is no reason why any special provision should be made for the Treasury- Solicitor, Public Departments generally, the Church Commissioners, or the Duchy of Cornwall.

Bringing New Services within Regulation

Schedule 2 This should be amended by including within paragraph 4(1) the drawing of a will or other testamentary document, and by deleting paragraph 4(2)(a). Paragraph 4(1) should be amended to include “administering an estate” within England and Wales, in addition to the preparation of the papers on which the grant of probate or letters of administration is founded. June 2006

Further supplementary memorandum by the LawSociety of England and Wales ( Ev 03c) 1. This document summarises for the Joint Committee’s information a number of points on the draft Legal Services Bill which were not covered (or not fully covered) in the Law Society’s earlier submissions. It is supplemented by further notes on some of the more significant issues (the regulation of ABSs; the arrangements for compensation funds; and the reliability of the costs assumptions in the Regulatory Impact Assessment). These notes appear as annexes to this document. 3435523008 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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The Legal Services Board

2. The Bill should contain a clause specifically requiring the Legal Services Board to act in co-operation and consultation with the approved regulators, and to exercise its formal powers only where any problems cannot be resolved informally. Formal consultation should be required before the Board exercises its powers to set performance targets, just as it is before the Board exercises its other powers. The time for consultation must be realistic. 3. The Bill fails to provide adequately for appeals by approved regulators against Legal Services Board decisions. The only appeals are in relation to fines, and even there there is only an appeal on technical grounds, and not against the reasonableness of the decision to fine, or the level of the fine. Appeal should lie to the High Court against all decisions made by the Legal Services Board in relation to approved regulators. These appeals should go to the merits of the decision, not merely on technical or procedural grounds. 4. The Legal Services Board should be under a duty to give reasons where it declines to approve changes to regulatory arrangements which approved regulators put forward. At present, the Bill imposes a duty to give reasons in relation to failing to follow the advice of the Consumer Panel, but not in relation to declining to approve proposals fromapproved regulators. 5. The Bill does not require for the Legal Services Board to consult before deciding on the anticipated scope and cost of its activities each year. This is unsatisfactory especially as (under the Government’s current proposals) the full cost of the Legal Services Board’s operations will be passed to approved regulators, and thus borne by the legal profession. The Bill should make specific provision for such consultation. The OYce for Legal Complaints should also be required to consult representative and regulatory bodies within the legal profession, as well as consumer bodies and other stakeholders, before submitting its budget to the Board for approval.

Practising Fee

6. Clause 43(4)(e) should be amended to make clear that the permitted purposes for use of the practising fee include the promotion of relations between an approved regulator and bodies regulating (as well as representing) members of legal professions outside England and Wales. The clause should also cover relations between the approved regulator and overseas Governments. A good deal of the Law Society’s work in seeking to open up practice rights overseas is carried out with Governments, rather than simply with Bar Associations.

Alternative Business Structures

Not For Profit Bodies

7. Clause 88 of the Bill enables licensing authorities to modify requirements which apply to ABSs generally, so as to disapply themin the case of not for profit bodies. There is no explana tion as to the thinking behind this in the explanatory notes. 8. The Law Society does not support the creation of a separate regime for not for profit bodies. The Law Society agrees with the Legal Action Group that consumers need the same protection—covering such matters as qualification and supervision requirements, indemnity insurance arrangements, and rules to prevent conflicts of interest—whether they obtain legal services froma not for pro fit body or from a commercial law firm. 9. The Law Society already partially regulates solicitors employed in law centres and other not for profit bodies, although it cannot regulate the entity as a whole. The Law Society considers that entities such as law centres should be regulated as ABSs under the Law Society’s ordinary regulatory regime. That would ensure that the necessary consumer and public protections were in place. 10. The Law Society recognises that the cost of a practising certificate is a particularly onerous burden on not for profit bodies. The Society has sought the power to set diVerential practising certificate fees for diVerent circumstances. It may be—subject to consultation—that not for profit bodies should pay a sharply reduced practising certificate fee. That would involve a small cross subsidy from the rest of the profession, which could perhaps be regarded as a pro bono contribution. 3435523008 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Directors’ duties 11. We believe the eVect of the regulatory structure will be to ensure that directors’ duties to shareholders are subordinate to their requirement to comply with the rules of the regulatory regime. Nevertheless, we would support an explicit provision to that eVect, so that there could be no doubt about the matter.

Office for Legal Complaints

Appeals 12. We agree that the OLC procedures must be compliant with the Human Rights Act. The power to make enforceable awards of up to £20,000 is plainly a determination of individuals’ civil rights. But we believe this can be complied with by establishing appropriate internal appeal mechanisms, which can (if necessary) include provision for appeals to be held in public, and for oral representations to be permitted. The Financial Ombudsman Service has established similar systems, and is satisfied that they are HRA compliant. 13. We do not think it is necessary to provide for external appeals fromthe O LC. Judicial review will be available if the OLC should act outside its jurisdiction. Providing for an additional avenue of external appeal would simply increase the costs of the OLC system as a whole (all of which will be borne by the legal profession) without providing any real benefit.

Scope of Jurisdiction 14. We think the scope of the OYce for Legal Complaints needs to be more carefully defined. We see its purpose as being to deal with complaints from consumers about their own lawyer. It is not appropriate for it to be a vehicle through which consumers can complain about their opponent’s lawyer. To the extent that such complaints are legitimate—where the solicitor has breached a conduct requirement—they will be a matter for the regulator, not for the OYce for Legal Complaints. Clause 102 needs to be amended to make this clear. 15. There is a however good case for including within the scope of the OLC complaints made by beneficiaries who are not clients of the solicitor concerned. It is particularly desirable that beneficiaries should be able to complain in relation to estates where the solicitor concerned is also the executor (and therefore also his or her own client). The availability of redress through the OLC to beneficiaries could be made clear in the redrafting of Clause 102. 16. The jurisdiction of the OLC is unduly narrowed by the provisions in Clause 103 concerning acts and omissions by employees. As drafted, consumers could not obtain redress where they had suVered fromacts or omissions of a non-lawyer employee in a regulated firm, provided the firm had proper supervision arrangements in place. From the consumer’s points of view, that is not satisfactory. Consumers should be entitled to redress where they have suVered poor service from a law firm, whether or not the employees concerned were properly supervised. That is already the case with the Law Society’s Consumer Complaints Service.

Role of the Financial Ombudsman Service 17. The Chief Financial Services Ombudsman has suggested that the OYce for Legal Complaints might be established under the auspices of the Financial Ombudsman Service rather than as a stand-alone body. He has suggested that this would enable the OLC to benefit fromthe expertise in complaints handling within the FOS, and to achieve some economies of scale. 18. The Law Society recognises that the proposals for the OYce for Legal Complaints are in many respects based on the Financial Ombudsman Service. The Society supports that design for the OLC. The Society also recognises the expertise which the Financial Ombudsman Services has developed in establishing systems for dealing with consumer complaints. Indeed, the Society itself drew heavily on the Financial Ombudsman Service experience in implementing the new procedures within the Consumer Complaints Service which have contributed significantly to our much improved performance over recent years. 19. However, the Society does not support the proposition that the OLC should be established as an armof the Financial Ombudsman Service. The Law Society believes it is important that the OLC should be focused entirely on ensuring the fair and eYcient handling of complaints against lawyers, rather than being an oV- shoot of an organisation whose principal role is to deal with complaints about financial services. The Financial Ombudsman Service does not generally deal with issues concerning continuing customer care which are a significant feature of consumer complaints about lawyers. Furthermore, it is imperative that the OYce for 3435523008 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Local Complaints should clearly be accountable to the Legal Services Board, and not to any other regulator such as the Financial Services Authority. Establishing the OLC as an armof the Financial Ombudsman Service might also exacerbate concerns that the Government’s long-term aimis to establish a monolithic central regulator for legal services, along the lines of the Financial Services Authority. 20. Accordingly, whilst the Law Society agrees that the OYce for Legal Complaints should draw on the expertise in the Financial Ombudsman Service (as well as the expertise of existing legal complaints handlers) in establishing its working arrangements, we think it is important that the OLC should be established as a stand-alone body, clearly accountable to the Legal Services Board, rather than as an oV-shoot of the Financial Ombudsman Service.

Polluter pays

21. The Bill (in Clause 106) enables the OLC to require respondents to complaints to pay charges. It does not confine the power to respondents against whomcomplaintsare upheld. This c ould cause serious injustice to those lawyers practising in areas of law where complaints are particularly prevalent, and frequently unjustified. On the other hand, confining the power to cases where the complaint is upheld would mean that every time a last minute compromise is reached just before formal adjudication, concerned would avoid any charge, and the costs of dealing with the matter would thus fall to be met by the profession generally. 22. The Law Society believes the best approach would be to enable the OLC to order the lawyer to pay charges where complaints against them are upheld, or where the lawyer concerned does not have (or operate) a proper internal complaints handling mechanism. But where complaints are not upheld, and the lawyer has dealt with themproperly in-house before the matterwas referred to the OLC, the lawye r should not be liable to pay charges.

Enforcement

23. The Bill leaves enforcement of awards to the complainant, and provides for cases of non-payment to be passed to approved regulators. This seems unnecessarily cumbersome, and thus potentially detrimental to consumers. The OLC should have direct power to enforce the awards it makes.

Qualifications of Ombudsmen

24. Clause 99 requires that all ombudsmen appointed to the OLC should be lay persons. This means that no- one who has ever been a lawyer will be eligible for appointment. That is a quite bizarre provision, particularly bearing in mind that most ombudsman schemes have found that lawyers are very suitable for appointment. It appears to be based on the assumption either that lawyers cannot be trusted to make impartial decisions, or that the public will have no confidence in decisions taken by lawyers. In either case, the assumption is quite unjustified. We recognise that there is a strong case for the Chair of the OLC—and a majority of its Board— to be lay persons. But that is entirely diVerent from excluding individuals from being ombudsmen simply because they hold legal qualifications. It is worth noting that the ombudsmen in the Financial Ombudsman Service include a substantial number with backgrounds in the financial services sector. It is hard to see why the OLC should be compelled to forego the equivalent benefit of industry experience and knowledge fromthe legal services sector. There should be no statutory restriction on the OLC appointing as ombudsmen the individuals it considers best qualified for the role. Clause 99(2)(a) and 99(4) should therefore be deleted.

Competition Scrutiny

25. Clauses 46-50 provide for scrutiny of approved regulators’ arrangements on the grounds that they may restrict, distort or prevent competition. Clause 50 covers the power to the Secretary of State to give directions to the Legal Services Board to implement the OFT’s conclusions. Given that this power involves directions which may override the approach taken by the approved regulator, the Law Society believes it should be exercisable only with the concurrence of the Lord Chief Justice or the Master of the Rolls. Furthermore, since the decision may involve balancing pure competition considerations with issues concerning access to justice and the administration of justice, we believe the Cabinet Minister responsible should be the Lord Chancellor rather than any Secretary of State. 3435523008 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Freedom of Information 26. We agree with the concern expressed in the submission the Joint Committee has received fromCli Vord Chance about the possible impact of the Freedom of Information Act on the Legal Services Board. We accept that the Legal Services Board (and other regulators) should be subject to the Freedomof InformationAct. However, it is important that neither the Board nor the approved regulators should have a discretion to disclose confidential information. We therefore agree with CliVord Chance that a provision on the lines of Section 348 of the Financial Services and Markets Act should be included in the Bill.

Solicitors Disciplinary Tribunal 27. Clause 136 provides a new mechanism for alteration of the Solicitors Disciplinary Tribunal’s rules. The clause is unobjectionable in itself, although it might well be beneficial to provide for the operation of the Solicitors Disciplinary Tribunal (including its rules) also to be subject to the jurisdiction of the Council on Tribunals. 28. However, wider changes are needed to the provisions concerning the Solicitors Disciplinary Tribunal in order to reinforce its independence fromthe Law Society, and to enable it t o operate in a more flexible way. Amongst the changes needed are a clear power for solicitor members of the Tribunal to be paid (at present, only lay members of the Tribunal are paid). The Law Society has provided a number of suggestions on appropriate legislative provision to the DCA, and intends to refine its suggestions following further discussion with the SDT and the DCA.

Legal Professional Privilege 29. Clause 139 of the Bill deals with legal professional privilege. Its intention is to extend legal professional privilege to services provided by an authorised person who is not a barrister or solicitor. 30. The Law Society supports what we believe to be the policy thinking behind this provision. We believe that clients of ABSs regulated by the Law Society should benefit fromlegal profe ssional privilege to the same extent as applies at present to clients of solicitors’ firms. 31. However, we do not think Clause 139 achieves that. In particular, it is confined to the provision of reserved services. Legal professional privilege applies—and needs to apply—to all the legal advice given by a solicitor’s firm, whether or not it concerns advocacy, litigation, conveyancing or probate. It is imperative to get this right, because if legal professional privilege does not apply to ABSs to the same extent as it does to “traditional” law firms, consumers will be less well protected, and the intention to facilitate ABSs may be undermined. July 2006

Further supplementary memorandum by the LawSociety of England and Wales ( Ev 03d)

ALTERNATIVE BUSINESS STRUCTURES 1. This note summarises the Law Society’s views on: — The extent to which Alternative Business Structures should be permitted. — The way in which ABSs should be regulated.

Different Types of Alternative Business Structures 2. The draft Bill uses the term“Alternative Business Structure” to refer t o a number of possible types of entity, which were dealt with separately in Sir David Clementi’s report. These are: — Legal Disciplinary Practice (in which non-lawyers could be partners in entities providing legal services to the public, but the range of services provided by the entity would be no wider than is permitted for traditional solicitors’ firms). — Externally owned LDPs (in which commercial bodies such as supermarkets could own a law firmto provide legal services to the public). — Multi Disciplinary Practice (where the entity could provide some services which are not permitted for solicitors’ firms at present, such as auditing services). 3435523009 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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— Externally owned MDPs. 3. Sir David Clementi recommended that LDPs should be permitted, including with external ownership, but that a more cautious approach should be taken to MDPs.

What Sort of ABS Should be Permitted?

4. The Law Society supports LDPs, including with external ownership, subject to ensuring that the necessary consumer protection mechanisms are in place. Even before Sir David Clementi’s review began, the Law Society had sought legislative powers to enable it to regulate such entities eVectively. 5. The Law Society also supports MDPs in principle. But the Law Society believes that regulating MDPs poses greater challenges than regulating LDPs. By definition, MDPs can provide to the public a wider range of services than traditional law firms (otherwise they would be LDPs). Those wider services may be sub- divided into two categories: — Services which require regulation, but are beyond the competence of the Law Society or another legal regulator to regulate. — Services which are regarded as incompatible with the provision of legal services to clients. 6. It would, in principle, be possible to permit MDPs which fall into the first category, either by the Law Society extending its regulatory competence, or through collaborative arrangements with other regulators. It is not, however, likely to be possible to permit MDPs which fall into the second category. If (as the Law Society believes) the provision of legal advice and auditing services involve fundamentally incompatible duties, it would not be in the public interest for those services to be provided by the same entity, no matter what arrangements were made for co-operation between regulators. 7. Accordingly, the Law Society believes it should have the necessary legislative powers to regulate LDPs and MDPs and to co-operate with other regulators in the regulation of MDPs. But the Law Society is unlikely to wish to exercise the powers in respect of MDPs immediately because we agree with Sir David Clementi’s recommendation to see how LDPs develop first. There are also some combinations of service, such as auditing and legal advice, which the Law Society (on current thinking) is unlikely to permit to be provided, because of the inherent conflict. 8. The Law Society has sought the necessary amendments to its powers in the package of amendments to the Solicitors Act which the Society has submitted to the DCA.

ABSs in the Legal Marketplace

9. When considering the regulatory structure, the starting point must be that ABSs should in principle be subject to the same regulatory regime as “traditional” providers of legal services. To create diVerent regulatory regimes would create confusion both for the public and for providers. 10. There is no reason why any of the arrangements applying to traditional law firms—covering such matters as the requirement to supervise members of staV who advise the public; proper complaints handling mechanisms; indemnity insurance and so on—should be any diVerent in an ABS firm, compared with the requirements applying to “traditional” firms. Nor should ABS firms be subject to unnecessary additional regulatory requirements. Any additional requirements on ABS firms should be confined to what is necessary to deal with the ways in which they are novel—namely that they may have non-lawyer partners, and external owners. 11. To deal with the distinctive features of ABSs, there will be a need for approved regulators to make rules: — Specifying what tests of being “fit and proper” are required of non-lawyer partners in law firms. — Specifying what knowledge of conduct of business rules non-lawyer partners need. — To establish a register of permitted partners, and disqualified persons. — To establish the test for fit and proper external owners (which might include financial soundness as well as integrity). — To establish the rules concerning what level of financial involvement is regarded as material, transfer of ownership, connected parties, and so on. 3435523009 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12. These rules will sit alongside all their other rules approved regulators make concerning the firms they regulate. It may be that because of the novelty of external ownership (at least for solicitors’ firms) some additional scrutiny should be provided before rules on external ownership are approved, but lead responsibility for making the rules should nevertheless rest with the approved regulators. 13. The Government’s policy is that regulation should be based on the existing professional bodies, rather than creating a monolithic Legal Services Authority. In this context, it is important that ABSs are regulated in the same way as other firms which are regulated by a particular approved regulator, rather through an entirely separate regime. An ABS regulated by the Law Society should be subject to all the ordinary rules for solicitors’ firms (in addition to the special provisions concerning non-solicitor partners and external owners which are needed for the ABS). Similarly, an ABS regulated by the Council for Licensed Conveyancers should be subject to all the rules applying to licensed conveyancers’ business.

Who regulates a solicitor working in an ABS licensed by the Council for Licensed Conveyancers? 14. Clause 87 of the draft Bill proposes cumbersome arrangements for the resolution of regulatory conflict where there is a diVerence between the licensing rules and the requirements of a relevant approved regulator. This clause arises from a fundamental misunderstanding of what will be required if ABSs are to be regulated eVectively. 15. The regulatory arrangements can only work satisfactorily if all those working in a firmregulated by a particular regulator are bound by that regulator’s rules. So, for example, if an ABS regulated by the Council for Licensed Conveyancers contained a barrister and a solicitor, the barrister and solicitor—like everyone else in the firm—would be bound by the regulatory regime of the Council for Licensed Conveyancers. It is impossible to have a situation where diVerent individuals in a firmoperate according to di Verent rules because of their individual professional background. 16. In this scenario, a barrister or solicitor who contravened the rules would be subject in the first instance to the disciplinary machinery of the Council for Licensed Conveyancers. Ultimately, they could be prohibited fromworking in an entity regulated by the Council for Licensed Conveyance rs. 17. We recognise that the “home” regulatory body might also have a role in serious cases. For example, if a solicitor working in a licensed conveyancer’s firmwas prohibited fromdoi ng so as a result of misappropriating clients” money, the Law Society would almost certainly apply to the Solicitors Disciplinary Tribunal for the person concerned to be struck oV the Roll of solicitors. But it is essential that the regulator for the entity—in this example the Council for Licensed Conveyancers—should have all the powers it needs to regulate the entity and everybody working within it eVectively. It would not be satisfactory for the CLC to have to rely on a diVerent regulator to discipline those working in CLC-regulated firms. The same will apply to all other regulators, including the Law Society.

Problems with the Bill 18. The problems with the provisions on ABSs in the Bill are that: — They assume a wholly separate regime for the regulation of ABSs, rather than building on the arrangements which approved regulators have for regulating traditional law firms. — They provide too great a role for the Legal Services Board as primary regulator, and would create a conflict of interest for the Legal Services Board is deciding whether to approve other regulators to be licensing authorities. — They fail to provide regulatory powers which are consistent with those applying to ordinary law firms. — They will cause considerable regulatory confusion because entities will move from one regulatory structure to another as a result of comparatively minor changes in their personnel (eg non-lawyer partners leaving the firm). 19. The Council for Licensed Conveyancers already regulate ABSs, as their more modern statute enables themto do so. The Law Society has actively been seeking the necessary power s. Both the CLC and the Law Society agree what is needed if the Bill is to enable ABSs to be regulated eVectively in future. We invite the Joint Committee to recommend that the Government re-thinks this part of the Bill on the lines we suggest. July 2006 3435523010 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Further supplementary memorandum by the LawSociety of England and Wales ( Ev 03e)

COMPENSATION FUND ARRANGEMENTS 1. The Joint Committee is considering what arrangements should be made for Compensation Funds in the future. The DCA has asked PWC to analyse the strengths and weaknesses of three options: — Retaining the present arrangements. — Establishing a single compensation fund under the auspices of the Legal Services Board, covering all lawyers. — Establishing a central scheme, but with the ability for individual approved regulators to opt out if their own compensation fund arrangements meet the necessary standards.

The Law Society’s Existing Arrangements 2. The Law Society’s Compensation Fund operates alongside its indemnity insurance arrangements to provide comprehensive coverage for clients who suVer loss as a result of the negligence or dishonesty of their solicitor. A separate compensation fund is needed because of the legal principle that individuals cannot insure against their own dishonesty. Accordingly, although the Law Society’s indemnity insurance arrangements cover negligence, and all other civil liability, they do not cover situations where loss is caused as a result of the dishonesty of a sole principal, or cases where all the partners in a firmare d ishonest. 3. The Compensation Fund is technically a discretionary fund. But it operates according to well-established principles (which are now the responsibility of the Regulation Board) and judicial review is available to anyone who considers they have suVered loss as a result of a solicitor’s dishonesty, but who has been wrongly refused a payment from the Compensation Fund. 4. The Law Society’s fund is in some respects wider than other comparable funds: — The maximum payment is £1 million. By contrast, the maximum payout from the Financial Services compensation fund is £48,000. — The Law Society scheme can meet claims from corporate clients as well as individuals. By contrast, the financial services scheme applies only to individuals and small businesses.

The Case for a Central Fund 5. The argument for a central compensation fund, covering all legal services regulators, did not arise fromany dissatisfaction with the operation of the Law Society’s Compensation Fund. The Law Society’s scheme is widely recognised as the most eVective and comprehensive fund of its sort. 6. Instead, the argument for a central fund has rested primarily on two factors: — The desirability of arrangements along the lines of those provided by the Law Society being available to all consumers of legal services. — The diYculty for smaller regulators in establishing such a compensation fund. 7. The Law Society sympathises with those concerns. However, the Law Society does not favour the establishment of a mandatory central fund, especially as to do so would significantly disrupt the Law Society’s existing arrangements. Since the Law Society regulates the great majority of lawyers aVected by the decision on compensation fund, far more consumers would suVer fromdisruption of the Law Society’s existing arrangements than could benefit from the establishment of a single scheme for the whole sector.

Disadvantages of a Mandatory Fund 8. One of the main strengths of the present arrangements is that the Compensation Fund is integrated with the rest of the Law Society’s regulatory arrangements. For example, those responsible for administering the Compensation Fund can be alerted of forthcoming interventions, and can thus be in a position to make emergency grants to clients where necessary, for example to avoid a chain of house transfers frombreaking down. The Law Society’s regulatory armis also able to ensure that the Socie ty’s arrangements for indemnity insurance interact properly with the Compensation Fund, because the Society is responsible for both. It would be diYcult to maintain those advantages—which are very plainly in the interests of consumers—if responsibility for Compensation Fund arrangements was separated from responsibility for other aspects of regulation. 3435523010 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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9. At present, solicitors’ contribution to the Law Society’s Compensation Fund are used not merely to meet claims arising against the Fund (and the administration of those claims) but also to cover the cost of regulatory action designed to reduce the risk of claims on the Fund. This includes much of the work of our Forensic Investigation Team. This work could not be carried out by a central compensation fund, since the regulatory work involved would not fall within its responsibilities. 10. The creation of a single compensation fund would also exacerbate the diYculty in allocating the cost of compensation fund fairly within the legal services sector. It is already diYculty for the Law Society to find the appropriate formula for levying solicitors who are subject to its jurisdiction. Fromthe perspective of all but the smallest firms, payments to the Compensation Fund represent a regulatory charge for a fund which is highly unlikely to be relevant to their clients. Payment is nevertheless (more or less) willingly made because solicitors recognise the importance of providing the protection for the public, and of upholding the reputation of the profession. This professional acquiescence in a regulatory burden is much less likely to arise in respect of a single fund. There will thus be substantial conflict about the appropriate method of allocating payment between diVerent lawyers, since there is no uniquely accurate mechanism for determining the risk to the Fund posed by particular categories of lawyer. 11. Needless to say, it would not be possible for the Law Society’s existing Compensation Fund to be subsumed into any new arrangements. Any surplus in the Fund not needed to meet existing claims would have to be returned to the solicitors fromwhomthe contributions were required .

Conclusion 12. The Law Society recognises that it is desirable that all consumers of legal services are protected by appropriate arrangements to cover losses caused by dishonesty. The Law Society accepts that it may be diYcult for smaller regulators to establish fully satisfactory arrangements. 13. The Law Society thus has no objection to the establishment of a central compensation fund under the auspices of the Legal Services Board, provided that it was done on an opt-out basis. But the Society would be opposed to such a fund being mandatory. It would make no sense for the problemsaVecting a small proportion of the legal profession to lead to the disruption of well-established and well-functioning arrangements from which the great majority of lawyers’ clients benefit. July 2006

Further supplementary memorandum submitted by the LawSociety of England and Wales (Ev 03f)

REGULATORY IMPACT ASSESSMENT 1. The Society has a number of concerns about the Regulatory Impact Assessment which was published alongside the draft Bill. Many of these concerns were expressed in our comments on the partial RIA which was published alongside the White Paper. 2. Our principal concerns about the partial RIA were: — The partial RIA did not analyse an adequate range of options. In particular, the partial RIA assumed that there was no middle course between “do nothing” and establishing all the arrangements set out in the White Paper. — The basis for the costings was in some respects unclear and unsatisfactory. — Some of the analysis supporting the RIA was based on questionable economic theory rather than real world experience. 3. The Law Society does not consider that the defects have been remedied in the RIA published with the draft Bill. However, we have preferred to engage directly with the policy encapsulated in the draft Bill rather than producing a detailed commentary on the RIA.

Costings 4. We must, however, comment on the costings in the RIA for the cost of the Legal Services Board and of the OYce for Legal Complaints. Both of these are based on work undertaken by PWC, rather than directly by the DCA. We recognise that—having instructed PWC to carry out the work—it would have been diYcult in the time available for DCA to apply detailed scrutiny to PWC’s costings. 3435523011 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Legal Services Board 5. PWC estimate the cost of the Legal Services Board as being £3.5 million. However, they explicitly assume that the underlying nature and volume of regulatory activities would not be substantially diVerent fromthe present level. 6. The Law Society does not consider that assumption to be realistic. The Bill provides far more extensive powers for the Legal Services Board—for example to intervene in all the actions of approved regulators, and to consider whether or not to approve changes to any of their regulatory arrangements—than apply at present. Furthermore, there is no provision in the Bill ensuring that the Legal Services Board acts in a proportionate way, taking action only where necessary to avoid serious regulatory failure. 7. We believe that if the Bill is passed in its present form, the Legal Services Board is likely rapidly to increase substantially in size. It is diYcult to provide any precise estimates for its costs, but £10 million a year would certainly seem more likely to be accurate than £3.5 million. Needless to say, the Law Society does not wish the DCA to amend the Regulatory Impact Assessment to reflect this. We would instead urge the Government to amend the Bill to ensure that the Legal Services Board operates in the way PWC envisaged.

Office for Legal Complaints 8. PWC have estimated that the running costs of the OLC will be in the region of £16.8 million a year. They cite the present running costs of front-line regulators dealing with complaints handling at around £26.8 million a year. There is no satisfactory explanation of how savings of this size can be achieved. 9. The PWC report assumes that eYciency savings in the order of 15 per cent will be achievable. This seems unlikely. The Law Society has itself recently streamlined its procedures, in many cases adopting systems similar to those in operation in the Financial Ombudsman Service. There is no doubt scope for some further improved eYciency—not least through investment in IT—but it seems highly unlikely that improvements of the order of 15 per cent can be achieved. 10. In any event, the PWC estimate is that the running costs of the OLC will be almost 40 per cent less than the existing running costs. There is no explanation as to how PWC arrive at that estimate. It seems frankly incredible. 11. The Law Society reiterates its support for the establishment of an OYce for Legal Complaints, based on the model of the Financial Ombudsman Service. But any savings in cost compared with the present arrangements are likely to be limited to the savings arising from the abolition of the Legal Services Ombudsman and the Legal Services Complaints Commissioner. Indeed the intention that the OLC should to have a greater role in consumer education than the existing complaint handlers means that its costs are at least as likely to exceed those of the professional bodies at present, as to generate savings. July 2006

Memorandum by the General Council of the Bar (Ev 01)

1. The Bar Council welcomes this opportunity to comment on the draft Legal Services Bill. 2. The Bar Council established the (BSB), chaired by Ruth Evans, in January 2006 to undertake its regulatory work. The BSB will be providing its own submissions to the Committee. 3. The establishment of the BSB, with its strong lay element, goes a considerable way towards meeting the objectives set out in the report of Sir David Clementi, on which the Bill is based. The Committee should be aware of the strengths of the Bar’s existing systemof regulation and of the way in which the Bill could adversely aVect these.

Executive Summary 4. The Bar Council welcomes the Bill and supports the regulatory objectives in Clause 1. 5. The Bar Council’s principal concerns are in the following three areas: (a) the powers of the Legal Services Board (LSB); (b) the arrangements for complaints handling; and (c) the cost of the new system. 3435523012 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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The powers of the LSB 6. The Bar Council believes that the main danger is that the LSB will become a heavy-handed regulator micro- managing the “front line regulators” (FLRs) (referred to in the Bill as “approved regulators”). The focus should be on allowing the FLRs to do their work without inappropriate intervention. 7. The Bill sets the bar for intervention by the LSB too low. If amendments are not made, the LSB will eVectively become a front-line body, wastefully duplicating the activities of the FLRs and the opposite of what Sir David Clementi recommended. 8. We propose that the threshold for each of the Board’s powers should forma graduated range, matched to the particular mischief at which the Bill is directed: (a) The Bill should make clear that the power to set targets should be the first stage in dealing with an FLR, where the Board considers that it is not performing any of its regulatory tasks satisfactorily. (b) The Bill should also provide that the powers to punish an FLR and intervene in its activities should be based on the “need to avoid demonstrable harm to the regulatory objectives”. (c) The Bill should provide expressly that financial penalties should only be imposed where it is clear that the FLR has culpably failed to co-operate with directions or to meet targets. (d) The Bill should provide that an intervention direction or a recommendation to cancel designation can only be made where the LSB is satisfied that “serious harm would be caused to the regulatory objectives”. 9. We make detailed proposals below for: (a) Additional ways by which the Bill could provide for the accountability of the LSB. (b) Improvements to the provisions in the Bill regarding appeals from decisions of the LSB. (c) Removal of the LSB’s power to approve the practising certificate fees of authorised regulators (which is unnecessary, given the LSB’s powers of direction).

The arrangements for Complaints Handling 10. The Bar Council believes that the proposals for the OLC are inflexible and unlikely to provide the best results for consumers. 11. The Bar Council proposes two alternative ways of improving the Bill’s central provisions: (a) The handling of all complaints should, where the LSB is satisfied that this is appropriate, be left to the FLRs. (b) Alternatively, the complainant should be able to choose whether the FLR or the OLC resolves the complaint. Both alternatives would require the FLR to be permitted (in consumers’ interests) to award redress. 12. The Bar Council also believes that: (a) It is inappropriate for the OLC to be able to award redress to individuals who are not the lawyer’s clients. (b) An appeal process from any decision of the Ombudsman is essential under Article 6 of the ECHR.

The cost of the new system 13. The Bar Council believes that the estimated cost of the new system are speculative and optimistic and that the proposed systemmayadversely a Vect a number of practitioners. It recommends the following changes: (a) Many of the Board’s functions involve public policy considerations which ought to be funded by the taxpayer. We, therefore, propose that the Government should fund at least 33 per cent of the total cost of the LSB (as is the case with the Financial Reporting Council). (b) The cost of the new regime should be split fairly between the various professions and should not cost themmore. (c) The professions must be involved in the process for setting the costs. (d) The arrangements for apportioning costs should not adversely aVect those who are vulnerable to unmeritorious complaints, as a result of the nature of their work. This particularly aVects members of the criminal Bar. 3435523012 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Introduction 14. The Bar Council supports the broad thrust of the Bill and has worked closely with Sir David Clementi and the Department for Constitutional AVairs on the development of the Bill’s provisions. In particular, it has already taken action to carry out one of Clementi’s central recommendations: that there should be a split between the regulatory and representative elements of the Council’s work. The BSB was established in January this year, with members being appointed on Nolan principles and a lay chair. Details about the BSB are at Annex A. [Submitted but not printed]. 15. The creation of the BSB needs to be taken into account in considering the operation of the Bill. The separation of regulation fromrepresentation is designed to removethe co ncerns of consumers about the previous systemand enable us to build on our acknowledged record in regula ting barristers. 16. The Bar Council has always tried to place the public interest at the forefront of its approach to regulation. The operation of its complaints system has consistently been the subject of approval fromthe Legal Services Ombudsman, and we continue to review our systems and rules to ensure that they are fit for purpose. We anticipate that the BSB will take this process forward; for example, the new Complaints Commissioner will be conducting a full review of the complaints system. 17. A description of the Bar’s complaints procedure is at Annex B. One of its crucial features is the involvement of experienced barristers, including QCs, in providing (cost free, or pro bono) support. This involves high quality analysis of the complaint and the issues raised. Consideration of complaints involves a high degree of participation fromlay people. The result is a robust system of regulation at low cost to the profession and, critically, to the consumer.

The Bill Overall 18. There are many positive things in the Bill. First, we welcome the role for the professions as what Clementi and the White Paper called Front Line Regulators (FLRs—referred to in the Bill as “approved regulators”). Second, the establishment of the LSB will take the legal sector out of the direct political influence of the Secretary of State, which is desirable. Third, the proposals for setting proper timetables for consideration of rule changes are sensible. Fourth, we support encouragement of greater choice for consumers and believe that, if issues of potential conflict of interest can be resolved, Alternative Business Structures (ABSs) may provide this, as well as greater service opportunities for the Bar, and for the legal profession generally. 19. Our principal concerns arise over (a) the powers of the LSB; (b) the arrangements for complaints handling; and (c) the cost of the new system. 20. In respect of cost, it is recognised that there are a considerable number of imponderables, all of which are likely to raise costs unless there are firm mechanisms for control. Causes for concern are: (a) The extent to which the LSB will use its powers and, instead of being a light touch regulator, become an expensive regulator seeking to micro-manage the FLRs. (b) The number of complaints likely to be received by the OLC and the eYciency of its procedures in dealing with those complaints, particularly those which are unmeritorious. (c) The fact that the FLRs themselves may well want to modernise their arrangements at increased cost or need to respond to initiatives fromthe LSB. (d) The assumption of eYciency savings in the OLC, which we think are unrealistic. 21. We consider it crucial that strong means exist for ensuring the accountability of the LSB and the OLC and for ensuring that costs are properly controlled. We deal with this below.

Regulatory Objectives 22. We support the regulatory objectives set out in Clause 1.

Legal Services Board 23. We support the proposal that the LSB should exist as a flexible oversight regulator (what was described in Clementi’s original proposal as a “light touch” regulator). We support the view that the main work of regulation should be undertaken by the FLRs. We think, however, that there is a real danger that the LSB will become a heavy-handed regulator micro-managing the FLRs. We particularly note that under the Bill as it presently stands: 3435523012 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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(a) there is a danger of the LSB taking a “one size fits all” approach to the FLRs; (b) the LSB’s accountability to stakeholders is unclear and inadequate; (c) the thresholds for use by the LSB of its various powers are set too low; and (d) the availability of legal recourse (appeals etc) against decisions and actions of the LSB is inadequate. 24. We have a diverse legal systemin which the various branches of the wider legal profession act in diVerent ways to meet the needs of their various consumers. The proposal for FLRs to continue to regulate individual branches of the profession seeks to retain this diversity. It must be recognised, however, that diVerent FLRs may choose to regulate in diVerent ways—according to the particular conditions in which those they regulate practise and the degree of risk involved. This diVerence in approach should be permitted to continue—unless it causes harmto the regulatory objectives.

Accountability 25. Much of Part 4 of the Bill1 is concerned with draconian powers of intervention, with little statutory guidance or control over the exercise of those powers. Nor is the LSB required to work in partnership with others, particularly the FLRs. The fact that public interest-led FLRs already exist suggests that such extensive powers are unnecessary and that the focus should be on allowing the FLRs to do their work without inappropriate intervention. 26. A direct comparison with the Financial Services Authority is inappropriate because it regulates practitioners directly, but the LSB will aVect practitioners and many aspects of the accountability of the FSA would be suitable for this model. In addition, therefore, to the provisions set out in Part 2 of the Bill (objectives and principles to be observed by the LSB, an annual report to Ministers (and thence to Parliament) and a Consumer Panel), there should be provision akin to those in the Financial Services and Markets Act 2000 (FSMA) for: (a) A Practitioner Panel (cf. FSMA, section 92). (b) Ministerial action where there is unease about the way in which the LSB is conducting its aVairs in terms of economy, eYciency and eVectiveness (cf FSMA section 12). (c) Internal machinery for ensuring eYcient and economic discharge of functions (FSMA Schedule 1 paragraph 43). (d) A Complaints Commissioner to consider complaints about the activities of the LSB (FSMA, Schedule 1 paragraph 7). (e) An annual public meeting (ibid. paragraph 11). (f) Involvement of the fee payers in the process of settling the financial needs of the LSB/OLC as a whole and in the distribution of the burden among the various sources of payment—at the very least, there needs to be consultation with the relevant fee-paying bodies, and preferably with the public at large (cf FSMA Schedule 1 paragraph 17 and section 1554; and the recent approach taken by the Healthcare Commission). (g) Provision to encourage a cooperative and constructive approach to regulation.5

Triggers for Exercise of the LSB’s Powers 27. It is striking that in Part 4 of the Bill almost all the powers, with the exception of setting performance targets, are triggered by much the same set of threshold conditions (including failing to performfunctions to an “adequate standard” or to “comply with any requirement imposed on it”). Only two of the powers require any further, more substantial trigger: these are the extreme powers of an “intervention direction” and a “recommendation to cancel designation”. Both require the LSB to be satisfied that the measure is “appropriate” and that the failures cannot be adequately addressed by other means. By their nature, it is

1 Except for clauses 22 and 23 on the functions and duties of the front line (approved) regulators, clauses 46 to 50 on competition matters, and 51 to 56 on the LSB as a front line (approved) regulator in its own right. 2 The Financial Services Authority (FSA) has to consider their representations and explain any disagreement it has to each of them. In the Bill the provision is one sided. 3 For a slightly diVerent set of internal controls see Section 3 of the Bank of England Act 1998. 4 For the Financial Ombudsman Service, the same duty on the FSA to consult is provided by section 234 (read with section 155). 5 The Bill does not have the standard provision about cooperation between regulatory authorities of the sort in the Financial Services Act 1986, at paragraph 5 of Schedule 7. 3435523013 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 unlikely that these will be exercised except in the most extreme circumstances. This means that, in practice, the Board will be exercising its powers through directions. 28. If the bar for intervention by the LSB is set too low, the LSB will eVectively become a front-line body, wastefully duplicating the activities of the FLRs. It is important that the Bill carefully pitch the threshold for each of the Board’s powers, ensuring that they forma graduated range, sens ibly matched to the particular mischief at which the Bill is directed. 29. The power to set targets could easily prove to be a way of imposing unnecessary burdens on the sector and for second-guessing the way in which the FLRs do their work. Setting targets should be the first stage in dealing with an FLR, where the Board considers that it is not performing any of its regulatory tasks satisfactorily. This should be made clear on the face of the Bill. 30. Beyond that, the powers to punish an FLR and intervene in its activities should be based on the need to avoid demonstrable harm to the regulatory objectives. Financial penalties should be imposed only where it is clear that the FLR has culpably failed to co-operate with directions or to meet targets. In the case of an intervention direction or a recommendation to cancel designation, the LSB should be satisfied that serious harmwould be caused to the regulatory objectives unless it exercised its p ower.

Appeals 31. It is surprising that, in the entirety of the clauses about the powers of the LSB in relation to approved regulators6, there is only one mention of any power to challenge a decision of the LSB by judicial proceedings. Moreover, that provision7, permitting an appeal to the High Court against the imposition or amount of a penalty, is drafted in as restricted a way as could be devised8. There is no equivalent challenge in the High Court in cases of manifest unfairness or irrationality by the Board or if the Board itself has acted in contravention of the regulatory objectives in reaching its decisions or in setting a penalty. We understand that in other regulatory regimes there is an appeal on the merits from a decision of the regulator to a specialist tribunal, but it would be cumbersome and costly to create yet another regulatory body here. We therefore suggest that the appropriate solution would be to allow an appeal on the merits to the High Court, but only with the permission of the High Court, so as to deter unnecessary appeals. 32. No doubt the remainder of Part 4 is still open to challenge by way of judicial review, but that is wholly inadequate for the kind of decisions to be taken by the LSB, many of which willaVect the livelihoods of thousands of people.

Power to Approve FLR Fees 33. We consider that the provisions at clause 43(5) and (6) are unnecessary. If an FLR is to plan properly, it needs to be able to budget for its activities with certainty. The involvement of the LSB will only create delay and uncertainty. Moreover, it is unnecessary. The LSB would only need to interfere if, in particular circumstances, it considered that (a) the fee was too low and jeopardised the FLR’s regulatory ability or (b) the FLR was using money inappropriately. In such cases, its powers of direction would be suYcient to enable it to take action.

Compensation Fund 34. We recognise that schemes to compensate consumers for negligence and dishonesty need to exist. It is right that lawyers should contribute to such funds if their consumers are at risk fromtheir activities. However, some lawyers (such as barristers) do not handle clients’ money, and so the risk of the consumer losing money is negligible. It would thus be inappropriate to require themto subscribe to such a fund. The powers for the Board to consider such issues are properly drawn and we would expect the Board to operate proper risk-based regulation in the decisions that it takes.

Complaints 35. We believe that the proposals for complaints handling are inflexible and unlikely to provide the best level of service for consumers. While it is clearly right that there should be an oversight regulator to ensure that complaints are handled properly, there are strong arguments for greater flexibility so that, where appropriate in the view of the LSB, complaints handling can be left to the FLRs. This is because:

6 Clauses 24 to 45. 7 In clause 32, especially subsection (4). 8 The only grounds are, broadly, excess of power, and procedural irregularity causing substantial prejudice. 3435523013 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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(a) FLRs should be involved in the full range of complaints made against their members so that they can provide guidance or rule changes if necessary—this is a crucial part of a regulator’s role. (b) About 70 per cent of complaints against barristers involve allegations that, if true, would require both compensation and proceedings for misconduct. The FLRs should be in a position to deal with both aspects if this is appropriate. It is at best inconvenient for consumers if they have to deal with two diVerent bodies in respect of diVerent aspects of their complaints. Examples of these mixed complaints are set out in Annex B. (c) Complainants do not just want redress. Complainants contacting the Bar Council also want to see the barrister reprimanded or disciplined. The FLRs have a range of powers fromadvice as to future conduct to disbarment, including the power to award redress, which are far wider than those proposed for the OLC. This enables themto ensure that the mostappropriate remedy or sanction is provided through a single procedure. (d) Where a complaint discloses cause for serious concern, then the FLR needs to be aware of this urgently—no matter how eYcient the OLC is, there will be an unnecessary and potentially damaging delay. (e) Where the OLC decides that disciplinary action is necessary, there is likely to be duplication of work between it and the FLR and the complainant may well be confused by the fact that two bodies are dealing with essentially the same complaint. There is a danger of inconsistency and considerably greater expense. 36. Part 6 of the Bill enables service complaints against practitioners to be dealt with, if the complainant so wishes, by an independent ombudsman rather than an FLR. That serves the regulatory objectives by steering complaints away from an approved regulator whose own complaints-handling record fails to earn public confidence. But the apparent element of choice in clause 102(1)(b) is seriously undermined by clause 127, which prohibits an FLR fromgranting redress for a complaint.The result is that, in reality, all complaints will be removed from the FLR and into the ombudsman scheme, no matter how demonstrably eVective an individual FLR’s complaints-handling machinery may be. This approach is unlikely to benefit consumers. It will fetter the FLR’s power to act appropriately in individual cases (particularly if it considers that the OLC’s response has been too lenient). It will also mean that if, as we fear, the OLC becomes a cumbersome, ineYcient bureaucracy, the consumer will have no alternative other than the courts (which will decide the complaint on strictly legal grounds, rather than on the wider basis envisaged for the OLC). 37. The best course would be for Part 6 of the Bill to begin fromthe samestart ing point as Part 4: that is, the FLR should undertake the front-line function unless the LSB considers that that function should be removed in the public interest. Complaints should not fall within the (de facto compulsory) jurisdiction of the ombudsman scheme, nor should the FLR lose its power to grant redress, unless the Board, on appropriately framed grounds, gives a direction to that eVect. It may be that one or more FLRs, as at the commencement of the Bill, would prefer to relinquish complaints-handling functions; or the LSB may decide that a direction removingthose functions fromthemis apposite fromthe outset. But that do es not undermine the principle. FLRs whose complaints-handling currently works well should have the opportunity to continue to serve the public under the new regime. Clearly the OLC or the LSB would need appropriate monitoring arrangements to ensure that the FLRs were carrying out their tasks appropriately. 38. An alternative would be to give the consumer a choice of either the FLR or the OLC route to resolution of a complaint. This would require qualification of the removal from FLRs of the power to grant redress. As a bare minimum, a slight modification could be made to the present scheme of the Bill, involving the use of scheme rules made by the OLC. Clause 102(5)(e) already enables the OLC, by scheme rules, to provide for a complaint to be considered and determined by a body other than an ombudsman. That would include an FLR and would enable complaints needing both redress and conduct proceedings to be handled holistically. To enable that to work eVectively, it would be necessary to make an exception to clause 127(1) to enable an FLR to grant redress in respect of complaints referred under scheme rules providing for determination of complaints by the FLR. This route, however, is likely to be less satisfactory than one enabling the FLR to continue to award redress. 39. The proposals in the Bill will be particularly unfortunate so far as the Bar is concerned. Relying on its own expertise it has established and for many years maintained a complaints handling service which is widely acknowledged to be of a very high standard. In her Annual Report for 2004, the Legal Services Ombudsman, Zahida Manzoor CBE, said that the Bar Council achieves a very high satisfaction rating fromher o Yce, one that is substantially higher than that of the other professional bodies. She found the Bar Council to work in a very open and cooperative manner. 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8 June 2006 about its existing complaints handling capabilities but is nonetheless far fromcomplacentand is constantly seeking to make improvements to its operations. The Bar Council, she concluded, seeks to ensure not only that it is complying with its own procedures but that it oVers a fair, consistent and good quality service generally to the consumers who use its services. 40. The proposed new systemwill be radically di Verent, will involve decision making by non-lawyers who are unlikely to be able to supply the level of analysis and expertise which—for the sake of complainants—is now provided. It will moreover involve the Bar—unlike other branches of the profession, who have not had the same level of cost-free input—in very significant extra expense.

Redress 41. We are further concerned by what appears to be a power to enable the OLC to award redress to individuals who are not the lawyer’s client. We consider that this will put further pressure on the lawyer/client relationship. Lawyers often have to do things on their client’s instructions, to which a third party will object. To put the lawyer under the additional threat of having to pay redress to that person (or, at least, to pay for the investigation of a complaint) will put further pressure on the client/lawyer relationship and will enable opponents to make threats which jeopardise that relationship.

Qualifications of the Chief Ombudsman 42. We are puzzled by the provision that the Chief Ombudsman and assistant ombudsmen may not be lawyers. Most ombudsmen in similar schemes are lawyers because the training and experience they have enables themto analyse cases properly (in the sense of the rules relating t o decision making) and to reach appropriate decisions. While we can understand the perception that lawyers may be inclined to favour their own, we do not believe that this is a charge that can be made convincingly against individuals otherwise appropriately qualified to undertake this task.

Appeals 43. In our view an appeal process from the decision of the Ombudsman is essential under Article 6 of the ECHR, particularly if the compensation limit is to be raised to £20,000. We attach at Annex C [submitted but not printed] a copy of a note that we have received to this eVect.

Costs 44. We have five main concerns about costs: (a) The estimates are speculative and, in our view, optimistic. (b) Some central Government funding is required to ensure that the professions are not subject to unjust burdens; (c) Costs for the Bar are likely to increase; (d) Apportionment of costs between FLRs needs to be fair and to be transparently handled; and (e) The Bill’s definition of a “polluter” in the context of “the polluter pays” principle could work real injustice. 45. The estimated costs in the Regulatory Impact Assessment are lower than those included with the original report by Sir David Clementi. While this is to be welcomed as a gesture of intent, these estimates cannot be binding on the LSB. Moreover, the assumption that the OLC will be able to achieve eYciency savings of the level suggested in the report is optimistic. The Bill appears to give the LSB the eVective power to tax the profession, with no apparent control, beyond the retrospective scrutiny of the Public Accounts Committee. This is unacceptable.

Central Government Funding 46. The proposals in the White Paper and subsequent statements (and, indeed, clause 131 of the Bill) indicate that the Government considers that the full cost of the LSB should be borne by the sector. It is noteworthy that this transfers a good deal of expense currently borne by the taxpayer (because it is done by the DCA) to the regulated sector. We believe that there should continue to be some funding by the taxpayer (on the lines 3435523014 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

50 joint committee on the draft legal services bill: evidence

8 June 2006 of the Financial Reporting Council, to which the taxpayer contributes 33 per cent of the cost), as Sir David Clementi pointed out9. This is for the following reasons: (a) it will provide a further level of accountability for the LSB; (b) it will add to the perception of the system’s independence from the profession, a point made by Sir David Clementi; and (c) there are a number of functions which it would be inappropriate to ask the professions to fund. 47. The third point needs elaboration. The LSB will have a duty to consider whether individual activities ought to be brought within the regulatory framework. Presumably, this will typically be because the conduct of people outside the framework is giving cause for concern. The LSB has a duty to do so if asked by the Secretary of State and other individuals (not including the FLRs or their representative equivalents). The cost of such an investigation could be considerable and there are general public interest questions involved. It will be diYcult, if not impossible, to collect the costs of the investigation from the unregulated sector, particularly if the decision is not to bring the activity within the net. It would be unconscionable to expect the professions to pay for investigations which they did not initiate and which they might consider unnecessary.

Costs for the Bar 48. The Regulatory Impact Assessment concludes that the cost of regulation will not increase overall after a transitional period. It projects an increase on the LSB side of £3 million to £5 million, and possible savings on the OLC side of £8 million to £12 million.10 Transitional costs of £25 million are mentioned. Even if these figures turn out to be near the mark, there is at present little analysis of how the costs and savings, if achieved, will impinge on diVerent sectors. There is a real danger that the approach to the OLC in particular will have serious adverse eVects on the Bar. The costs of the Bar’s complaints system, depending largely on unpaid volunteer work, are around £640 per complaint, compared with what would appear to be around £1,000 per complaint under the new system.11 Even if eYciency savings are made, which seems questionable, the eVect in terms of cost on individual members of the Bar, and on the profession as a whole, is likely to be seriously adverse. The cost of staV needed by the new organisation to undertake the work done voluntarily by barristers is likely to be considerably in excess of any savings to the Bar Council. This will result in increased cost to the Bar, even if the overall systemmaybe cheaper. Moreover, there is no guaran tee that the task will be more eVectively performed by OLC staV, and some may feel that there is reason to fear the contrary.

Apportionment of costs. 49. It is vital that the process of apportioning, between the diVerent FLRs, the costs of the LSB and, if necessary, of the OLC, is carefully considered. The process needs to produce a fair outcome and must avoid any element of cross subsidy. The Bill does not yet secure this. It does not, for instance, appear to embrace the desirable principle that those who do not provoke increases in costs should not have to pay for them. The basis on which apportionment takes place should be clearly and publicly stated. For instance, most of the charges should reflect the costs to the systemthat the paying parties themselvesha ve provoked, though a small amount could be regarded as base costs and recovered on a basis of headcount or turnover. 50. As we indicate at, paragraph 26(f), the Bill needs to contain provision to ensure that the stakeholders, and in particular the FLRs, are involved not only in the process of setting that suggested policy, but also in its periodic application. As it stands, Part 8 of the Bill is deficient in both these respects.

The Bill’s approach to “the polluter pays” 51. Clause 106 requires the LSB to make rules governing the payment of charges by respondents to complaints. We understand that the proposal is that the alleged “polluter” should pay towards the costs of the complaint, even if the complaint proves groundless. This is not only conspicuously unfair, it is also contrary to the Clementi recommendation on this point.12 A person who is found not to have committed any wrong is not a “polluter”; by contrast, his accuser may very well be one. The Regulatory Impact Assessment recognises that there are some sectors, particularly barristers specialising in criminal law, which are particularly susceptible

9 Review of the Regulatory Framework for Legal Services in England and Wales, paragraphs 35–26. 10 The Committee will no doubt wish to test some of the underlying assumptions about economies of scale, eYciency savings and a “steady state” in relation to the numbers of complaints. 11 This assumes around 16,000 complaints per year, which we understand to be the current figure for solicitors. Complaints against other professionals will add around 500 to that amount. 12 ibid. Paragraph 71. 3435523014 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 to complaints which tend to be unfounded. In the Bar Council’s view it is entirely inappropriate that those who are the subject of a complaint that is not upheld should be required to pay directly towards the costs of investigating it.

Alternative Business Structures 52. The Bar Council is in favour of the liberalisation of services (and, indeed, has made a number of reforms of its own rules to permit easier access to barristers). The proposed new ABSs may well provide improved ways for consumers to access legal services and provide new sources of work for barristers. We have expressed concerns, however, that there is a danger that organisations in which non-lawyer owners or managers work with lawyers, may give rise to conflicts of interest or to conflicts of rules which may adversely aVect consumers. The Bill’s solution is to leave it to the LSB and the licence regulators to decide whether or not individuals are suitable to hold these posts, with the posts of Head of Legal Practice (HOLP) and Head of Finance and Administration (HOFA) with duties to ensure compliance. It is essential that individuals operating within an ABS, whether lawyers or non-lawyers, maintain appropriate standards of conduct. The regulatory provisions in the Bill should achieve this so far as lawyers are concerned. The extent to which, through the Bill or otherwise, non-legal participants will be appropriately regulated will merit careful examination.

Legal Professional Privilege 53. We are concerned that clause 139 of the Bill may not adequately deal with the needs of ABSs in respect of legal professional privilege. We attach a note that we have received on this point at Annex D.

Competition 54. With regard to clauses 46–50 of the Bill, we would refer the Committee to the concerns set out in paragraphs 16–21 of our response to the White Paper. For ease of reference these are attached at Annex E. [Submitted but not printed].

Offences 55. The oVences set out at clauses 11 and 12 are generally appropriate, but we are concerned that they do not provide similar protection to consumers in respect of the title “barrister” as is provided by the Solicitors Act 1974 in respect of solicitors. The provisions in the Solicitors Act 1974, making it an oVence for anyone other than a practising solicitor to use the title when oVering legal services, appear to be unaVected by the Bill. There is no equivalent prohibition protecting the title of barrister. Under these provisions an individual could legally claimto be a barrister when o Vering unrestricted legal services (eg simply supplying legal advice) or when asserting that he or she is particularly credit-worthy, without committing an oVence. The title should have equivalent protection to that of “solicitor”. General Council of the Bar June 2006

Annex B

COMPLAINTS AGAINST BARRISTERS This Annex describes the present arrangements for dealing with complaints against barristers.

Chambers All barristers are required to have a procedure for dealing with complaints against them. In many cases this is an important and swift way of resolving concerns. In the light of research carried out last year, the Bar Standards Board is proposing to issue further guidance for Chambers on the use of such procedures. It is not compulsory for complainants to take their complaint to the barrister first. In a substantial number of cases, the allegations are such that there would be little to be gained from doing so—this is particularly the case where the barrister is alleged to have been dishonest or incompetent in court. 3435523015 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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The BSB’s Procedure

If the complainant does not wish to raise the complaint with the barrister or is dissatisfied with the reaction of the barrister, he or she may complain direct to the Bar Standards Board.

The complaint is first considered by the Complaints Commissioner, a layman appointed by the Board, currently Robert Behrens, the former secretary to the Committee for Standards in Public Life. His role is to consider whether the complaint appears to disclose a case of misconduct or inadequate professional service. He conducts the initial investigation of the complaint and has the power to dismiss complaints which do not disclose misconduct or inadequate professional service. Approximately 60 per cent of cases, where there is no evidence that the barrister is at fault, are dismissed by him.

If he considers that there may be a case to answer, the Commissioner refers the complaint to the Conduct Committee. The case is consider by a member of that Committee who prepares a note for the Committee, analysing the issues in detail and recommending action. The Committee considers that note and decides what action to take. A complaint cannot be dismissed without the consent of the majority of lay members attending the meeting.

The Committee can refer the complaint to a range of panels depending on the seriousness of the matter. These are:

— Adjudication Panels (which can consider inadequate professional service only and can require the barrister to apologise, reduce his fees or pay up to £5,000 in compensation).

— Informal Panels (which deal with minor misconduct and have the same powers in respect of inadequate professional service).

— Summary Procedure Panels (which deal with relatively simple cases where the facts are not in dispute and are not likely to lead to disbarment, they have the same powers in respect of inadequate professional service).

— Disciplinary Tribunals (which deal with the most serious cases and, again, can also deal with inadequate professional service).

There are appeals for the barrister in all cases. The BSB can appeal against lenient sentences or mistakes of law.

The BSB can thus look at cases holistically and decide on the most appropriate remedy for the complainant and in the public interest.

Statistics, Timescales and Types of Case

The BSB deals with between 600 and 900 complaints per year. Around 500 come fromlay clients or other outsiders. The remainder are raised by the BSB for failure to pay practising certificate fees, complete compulsory professional development requirements and so forth.

In 2005–06, 56 per cent of cases were closed in under three months, 77 per cent were closed in under six months and over 90 per cent in under one year. 11 awards of compensation were made ranging from£100 to £4,200.

Around 20 per cent of complaints are from criminal defendants and about 15 per cent fromfamilylitigants. The majority of other complaints are from other litigants. The bulk of allegations allege incompetence in providing advice or representation, dishonesty, bullying or collusion. 3435523015 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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It is important to remember that most complaints come from people who have been involved in contentious litigation about which they feel strongly. Their complaints are often the direct result of an adverse finding by a court which was out of the barrister’s control; it may be intended to form a background to an appeal. Around 70 per cent of complaints involve elements requiring both redress and discipline. These include cases where a single piece of conduct might involve both: for example, a case where a client alleges that he/she was bullied into accepting an inadequate settlement would surely require compensation for the poor settlement and disciplinary action for the bullying. A failure to advise a client of theeVect of an important precedent clearly merits redress but may also display incompetence that needs a disciplinary sanction as well. A barrister might give poor advice and, as part of the same case, breach confidentiality or commit some other fault and, again, it makes sense for the whole case to be dealt with as a whole.

Legal Services Ombudsman The Legal Services Ombudsman is able to consider our handling of individual complaints and generally sees around 33 per cent of our complaints. She has endorsed our recommendation typically in around 90 per cent of cases. In 2004–05 that fell to 78.5 per cent. On our figures, however, that figure will be improved to around 88 per cent in 2005–06. She has indicated that our systemis generally sound with little to cause concern.

Annex D

LEGAL SERVICES BILL—LPP ISSUES

Note 1. I have been asked to provide a short note for the Chairman of the Bar Council addressing whether Alternative Business Structures, as proposed by the draft Legal Services Bill, have any unique legal professional privilege issues associated with them. I am instructed that this is required because the Chairman has been asked to give evidence to a Joint Committee of Parliament, on 8 June 2006, with regard to the proposals contained in the draft Bill and their potential eVect. 2. I have not had an extensive opportunity to study the draft legislation in the short time available to me. The main practical eVect of the proposed legislation seems to be to permit and provide for the regulation of multi- disciplinary practices of lawyers and other professionals. Such practices will certainly raise issues which the courts have hitherto only partially addressed. Two aspects of the proposals strike me as raising particular diYculties: (i) drafting issues arising out of section 139 of the draft Bill; and (ii) the application of legal advice privilege generally to multi-disciplinary practices.

Drafting Issues 3. So far as certain types of activities are concerned, the draft legislation specifically addresses the question of legal professional privilege. Section 139 of the draft Bill applies to communications made to individuals who are not barristers or solicitors but who provide advocacy, litigation, conveyancing and probate services.13 Section 139(2) of the draft Bill provides that any communications made to or by such an individual, “P”, are privileged from disclosure in the same manner as if P had at all material times been acting as the client’s solicitor. The intention of the draftsman appears to be to extend the common law so far as it applies legal professional privilege to solicitors to cover P in these situations. If this assumption is correct, the use of the word “communications” in the draft Bill is too restrictive for a number of reasons: — The common law has only ever extended the ambit of legal professional privilege to professionally qualified lawyers14 or their employees.15 Therefore, unless specifically provided for by legislation non-lawyers will not fall within the ambit of the privilege. — There are two sub-heads to legal professional privilege: (1) litigation privilege and (2) legal advice privilege.16 Advocacy services and litigation services would potentially fall under both heads and conveyancing and probate services under the latter head. As to the two sub-heads:

13 As defined in section 139(3) of the draft Bill. 14 See, for example, New Victoria Hospital vRyan [1993] ICR 201, 203–4. 15 B Thanki, The Law of Privilege (2006), para 1.39. 16 Three Rivers District Council v Bank of England (No 6) [2005] 1 AC 610, para 105, HL; Thanki, op cit, paras 1.07–1.09. 3435523015 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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— Litigation privilege is not confined to communications. It extends, in essence, to cover any document created for the dominant purpose of use in litigation.17 — It is a moot point whether legal advice privilege is confined to communications between client and adviser:18 but at the very least it extends to documents which evidence such communications19 and to inchoate communications, ie a document created with the intention of being communicated but which is not in fact communicated (a draft letter is a paradigm example of such a document).20 It also extends to other documents such as a lawyer’s working papers which are not actual lawyer-client communications.21 As presently drafted, for example, P’s working papers—not being communications—would not be caught by section 139 of the draft Bill. 4. In these circumstances it would seem prudent to extend the use of the word “communications”22 in sections 139(1) and 139(2) of the draft Bill to cover generally “documents” created by P in the course of providing the stipulated services or by the client for the purpose of communicating with P—as well as to actual communications with P. The eVect of section 139(2) would mean that the privilege would be no more extensive than if P were a solicitor.

Legal Advice Privilege 5. The draft Bill seems to make no specific mention of legal advice privilege, apart fromin the particular contexts provided for in section 139. This sub-head of legal professional privilege raises particular problems where multi-disciplinary practices are concerned. Legal advice privilege generally extends to “all communications . . . between solicitors and their clients for the purpose of giving or obtaining legal advice”.23 This will include situations where no litigation is in prospect so will not be caught by section 139 of the draft Bill. The traditional assumption of the courts has been that most documents passing between a solicitor and his client will be privileged or irrelevant.24 The rationale is easy to understand where a firmof solicitors is providing exclusively legal services. It is not easy to see why the same assumption should be made in relation to communications with a multi-disciplinary practice. 6. The privileged status of a document would ultimately depend on whether the relevant communication was made for the purposes of giving or obtaining legal advice. But, in my view, the courts would be likely to require more detailed evidence establishing the precise purpose of such a communication than has hitherto been the case with communications between traditional solicitors’ firms and their clients. 7. Dealing first with communications from the client to the multi-disciplinary practice, if the organisation engaged various other professionals such as accountants and mortgage advisers it may well be the case that the documents were sent by the client for purely non-legal purposes (in which case legal advice privilege would certainly be inapplicable). Or the client might have a mixed purpose of obtaining, for example, legal and financial advice. Here the courts would probably seek to identify whether there was an overall legal context to the advice to qualify for privilege.25 This would not necessarily be assumed, as it often is in practice where the advice is sought froma traditional solicitors’ firm. 8. Another possibility is that the client may send information to a multi-disciplinary practice not knowing whether it called for any legal advice. The need for legal advice in respect of the communication may not emerge until later: legal professional privilege would in my opinion be unlikely to apply to such a communication. It cannot be said that the information is sent “for the purpose of giving or obtaining legal advice”. Moreover, the privileged status of a document should not depend on the use to which it subsequently happens to be put.26 It is determined by the intention of the maker of a document (or the person under whose direction the document is created) at the time it comes into existence.27

17 Waugh vBritish Railways Board [1980] AC 521, 543–4, HL. For a summary of the ambit of litigation privilege see Thanki, op cit, para 3.07. 18 Thanki, op cit, para 2.54 V. 19 Three Rivers District Council v Bank of England (No 5) [2003] QB 1556, paras 19, 26, CA. 20 Three Rivers District Council v Bank of England (No 6) [2005] 1 AC 610, para 72, HL. 21 Balabel vAir India [1988] Ch 317, 323, CA. 22 This would clearly include oral as well as written communications. 23 Three Rivers District Council v Bank of England (No 6) [2005] 1 AC 610, para 50, HL. 24 Balabel vAir India [1988] Ch 317, 330–331, CA; C v C [2002] Fam42, para 22, CA. 25 See Thanki, op cit, paras 2.102, 2.109–2.111, 2.123. 26 ibid, para 2.62. 27 ibid, para 2.62. 3435523016 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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9. As for communications from the organisation to the client, similar considerations will apply. It is suggested that a document from a lawyer employed by the organisation to the client setting out legal advice would be privileged but that a document setting out a mixture of legal and financial advice would be more problematic:28 as suggested above,29 the courts would probably seek to identify whether there was an overall legal context to the advice to qualify for privilege. 10. The inevitable consequence of these uncertainties will be a growth of satellite litigation concerning the privileged status of communications with multi-disciplinary practices. Bankim Thanki QC Fountain Court Temple London EC4Y 9DH 5 June 2006

28 ibid, para 1.51. 29 Paragraph 6.

Examination of Witnesses Witnesses: Mr Stephen Hockman QC, Chairman, and Mr Desmond Browne QC, Chairman, Legal Services Bill Response Group, The General Council for the Bar of England and Wales, examined.

Q99 Chairman: May I welcome Mr Hockman and Commissioner, Robert Behrens, who is the former Mr Browne very much indeed to the Committee. Secretary of the Committee on Standards in Public Thank you very much for coming. We have received Life (the Nolan Committee) and we now have that your detailed comments and we have just received a separation of function within a single professional further document “Analysis of Costs in RIA and body, which Sir David Clementi recommended. The PWC Financial Analysis”. I thought I might just structure, as we understand it, was premised on the start oV by asking whether you have any preliminary basis that, once you do that, then it really is essential, views you would like to share with us about the Bill fromeverybody’s point of view, that you let the itself and, also, in particular, whether you feel that frontline regulator get on with the regulation. What this new framework is going to be unnecessarily on earth would be the point of going through that intrusive and lead to duplication of eVort? Any process, and giving a public interest guarantee at that guidance you can give the Committee would be much frontline level, if you then create a structure which, in appreciated on this point. I understand that each the first place, involves giving the Legal Services evidence session is separate and, therefore, I must Board comparable day-to-day regulatory powers make clear that I am a solicitor, a Member of the Law and, secondly, if you then create an OYce for Legal Society and have a current practising certificate, and Complaints which compels everybody to complain to have had for many years. one central body? It is completely illogical. So, as I Mr Hockman: My Lord Chairman, thank you very say, if one recognises what the basic structure ought much indeed. We very much welcome the to be, then I think the answer to your question really opportunity to appear here today. I think we do flows as a matter of logic. welcome what we believe was intended to be the basic Chairman: Let us, if we may, deal with the Legal structure of this reform programme. Let me, if I may, Services Board first. I think Mr Kidney has some just identify what we understand to be that basic questions. structure because it seems to me to be crucial that we see what the platformis upon which this is supposed to be built. The platform, as we have always Q100 Mr Kidney: Indeed. Allow me to declare my understood it, is that day-to-day regulation of the interest as a non-practising solicitor whose name is profession would remain with the professional still on the roll of solicitors. I would like to bodies, with the frontline regulators, but on the basis congratulate you, first of all, in separating the that they achieve whatever reforms were necessary functions of regulation fromrepresentation and ask internally to ensure that they continue to protect the you a slightly leading question: have you done that public interest in the way in which they regulate the out of conviction or because you saw the looming profession. We, by the way, have done that, as you clouds? have seen fromour paper, very clearly, in setting up Mr Hockman: We have done it out of conviction. We an autonomous Bar Standards Board under a lay would have done it anyway. Indeed, we decided to do chair. We have just appointed a new Complaints it and took the major steps towards doing it well 3435523016 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Stephen Hockman QC and Mr Desmond Browne QC before even the White Paper was published, let alone international reputation point for the legal services of the Bill. this country to consider? Mr Browne: Before the Clementi report. Mr Hockman: Again, I understand the anxieties Mr Hockman: The reason is really this: actually, for there. I think that what people are probably trying to us, it represents more of an evolution than a achieve in relation to actually taking away a revolution. We have always, I hope I can say, taken designation, which is a very extreme step, is some sort the public interest quite seriously in our regulation. of balance; I think the concept is to have some checks The committees that we had that dealt with and balances which do not give the Legal Services regulation, including our Conduct Committee which Board too much power. So I am not sure that we still is the body which deals with complaints on a day- necessarily object to the role of the Secretary of State to-day basis, has for a very long time had a lay in that situation. What we think, by the way, is of element. For a very long time we have had a rule that crucial importance, which takes us I think probably a complaint cannot be dismissed without the to your next area of questioning, is that in relation to approval of the lay members. So, for us, giving that the powers of the Board itself there should be very process complete transparency, which is what we clear criteria upon which those powers should be have now really done, was, as I say, an evolution exercised, and, in relation to taking away the ability rather than a revolution. of the frontline regulator to regulate, there should be a very high threshold set before the Secretary of State Q101 Mr Kidney: In that case my original even comes into it; there should be a high threshold congratulations are sincerely intended! May I just ask set which the Legal Services Board would have to you about independence first, and then the light surmount and demonstrate before it was able to touch, where your paper to us has been very helpful. intervene in that way. On independence, the ability of the Secretary of State to appoint the members of the Legal Services Q103 Mr Kidney: Again, that is helpful. As I make Board—all of them—has led some people to say that this crossing fromindependence to light touch, there Y that means that the Board does not have su cient is the issue that you raise about consultation between independence fromgovernment.What is the Bar the Legal Services Board and the frontline regulators, Council’s view on that? where initially there was no mention of consultation, Mr Hockman: We understand and, to some extent, I think, in the White Paper, and now in the Bill it is share the initial unease about that, but I think I have that sometimes decisions should not be taken until to say with candour that, fromour point of view, the Legal Services Board has consulted. You are provided there is a guarantee of what one might label arguing, I think, amI right, that there should be a Nolan process then some, at least, of those anxieties much more consultation at earlier stages? can probably be allayed. What matters to us is that Mr Hockman: Yes. I think there are probably a the Legal Services Board, once appointed, should number of points. Let me mention, certainly, two of of course be genuinely independent, and its them. There is provision in one of the schedules now independence fromgovernment,broadly speaking, is for the Legal Services Board to receive and, indeed, I crucial. By the way, can I just flag up for your think, publish representations before it makes consideration in due course, that there is quite an decisions about rule changes, and that is important. I important competition aspect of this, which you have Y suspect, and this is a point we have not made in our touched on briefly with the O ce of Fair Trading, written paper but we might supply you with an where, contrary to the broad thrust of the proposals, additional note about this, that you do need a system the Secretary of State retains a potentially important whereby, in relation certainly to important rule decision-making role, and that is one key area where changes, there can be consultation across the range of we think that the Legal Services Board does not have frontline regulators, because one frontline regulator enough independence. However, broadly speaking, if might be quite interested in rule changes being made you have your independent Board and if it then is in the context of a diVerent regulatory regime. So suYciently constrained in its powers, then I think the there is progress on that, but maybe it should go a bit process of appointment is not one that we would further. The other point we make, which is also regard as being critical. important, is that what is at the moment lacking is any requirement on the Legal Services Board to Q102 Mr Kidney: That is helpful. There is another consult those fromwhomit has power to raise funds power of the Secretary of State to refuse to accept a before it sets its business plan and its budget, and so recommendation from the Board to take away a forth. It is absolutely crucial, we say, that there frontline regulator’s designation. Do you think, should be very clear mechanisms for ensuring that the taken together, there could be an aspect of a lack of Legal Services Board consults frontline regulators, public confidence in the independence or an and that there is a process of dialogue before it sets 3435523016 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Stephen Hockman QC and Mr Desmond Browne QC its budget and before it decides what its own range of Q108 Chairman: May I immediately say, activities is going to be. particularly as it is pro bono week at the present time, that it would be enormously helpful, and therefore your oVer is accepted. Q104 Mr Kidney: Coming completely now to the Mr Hockman: Thank you very much. May I say, we light touch, which are the provisions in the draft Bill will not, of course, be able to match in any way the then that lead you to the conclusion that at the skill that has gone into the drafting of the Bill. I really moment it is not a light touch regulator? meant, on the key areas where we suggest changes, if Mr Hockman: I think that the key issue for us, as I we gave you at least an illustration of how the said earlier, is that the principle underlying this is, or changes might work, it would at least give you at least ought to be, that it is the frontline regulator, something to compare with what you have at the the approved regulator, which should have the moment. primary responsibility. By the way, that principle was endorsed, was it not, on Tuesday quite strongly by Q109 Mr Kidney: On the paper you have sent us, on the OYce of Fair Trading. I was listening myself to page 9, there are three very good scenarios of how we their evidence, and they themselves supported the could shift the balance to make the frontline idea that it is the professional bodies which have the regulators much more autonomous in carrying out experience and, broadly speaking, the ability to do their frontline regulation role. The first one is to that. It would have been nice to see a positive leave, eVectively, all the powers where they are now endorsement of that in the Bill, and then the negative with the frontline regulators. The second one is to powers that are set out. As far as the negative powers oVer the consumer a choice between whether to go to are concerned, the concern that we have is that the frontline regulator or, I think, in this case, it although you have a whole range of escalating would be the OYce for Legal Complaints. The third powers of intervention, so to speak, there are no one would be—and I think this is the one I am comparable, clear criteria which define when those interested to know about—making a scheme under powers can be exercised. What we have suggested is the Bill so that in those cases where the frontline that the more modest powers, such as target-setting, regulator was dealing with a conduct case they could should themselves have thresholds; so, for instance, also have the power to make redress, if they found the power to set targets should only be exercised if the there was a need for redress as well as discipline. Have regulator is not doing its job properly. Then, as you I summarised your three positions correctly there? move up the scale and you get to the point of Mr Hockman: Yes. I think we are now dealing, really, intervention and, even, taking away the frontline with complaints handling, specifically. As you say, in regulator’s ability to regulate, you should have to a sense it is an aspect of the wider problem. I think the satisfy a test such as “seriously contravening core of our concern here is that the provisions in the regulatory objectives”, or something of that sort. Bill are too inflexible. I was interested to hear that the You should not confer powers on this body without Law Society, albeit that they reach a diVerent defining in legislation what the thresholds are which conclusion, acknowledge the force of that point. The enable the powers to be exercised. way the Bill is structured at the moment oVers people the opportunity of going to the OYce for Legal Complaints, but then it makes it a completely Q105 Mr Kidney: So, in each case of a power, inflexible arrangement, because it denies frontline graduated application and clear criteria set out—on regulators the power which we have at the moment to the face of the Bill? compensate people if they have a complaint. What we Mr Hockman: On the face of the Bill. are saying is that in the case of those frontline regulators which have demonstrated that their complaints handling is eVective (and we hope that we Q106 Mr Kidney: The kind of threshold you are can do that and we have shown you what the talking about, the Law Society used the word Ombudsman has said about it), provided that the “serious harm” and you introduced “seriously” Legal Services Board is satisfied of that (and, of something. course, we do not want to claimthe right to decide Mr Hockman: Yes. We wondered whether it might be this for ourselves—we accept the Legal Services of assistance—I amafraid we have not done this Board should decide whether our complaints yet—to oVer you a little bit of drafting. handling is eVective) but if it is satisfied that our complaints handling is eVective, the Bill should at least provide the power, the opportunity, for that to Q107 Lord Bach: It is pro bono week! happen. The problemwith this Bill is that it takes Mr Hockman: It is; it is a week in which both sides of away fromthe Board the opportunity to give the profession are trying to— complaints handling to the frontline regulator. Now, 3435523016 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Stephen Hockman QC and Mr Desmond Browne QC that is, we would suggest, completely inappropriate. of the Legal Services Board in a way which is Indeed, the Board and the OYce for Legal appropriate? If not, why not? Complaints are, in all probability, going to regret not Mr Hockman: I amafraid we do not think that that is having that power if and when they come into quite suYcient because there is, in fact, no process of existence. It makes common sense for them to have appeal fromthe decisions of the Legal Services the power. Whether and when it is exercised in the Board, save in one very narrow respect when it case of a particular professional body is another imposes certain fines. There might, in certain matter. So that is the core of the problem. It is linked circumstances, be the possibility of judicial review, very much to the issue of costs, on which my but that would only be in a case where the Legal colleague is expert. Services Board was acting unlawfully. We do see it as necessary to have a process of appeal. We understand that in other areas where you have a regulator of this Q110 Mr Kidney: Someone else wants to ask sort there is the possibility of an appeal to a specially questions about that, and indeed someone else wants constituted tribunal. It may well be over- to ask questions about complaints handling, but my cumbersome and over-costly to set up something of point is that if the Legal Services Board were to allow that sort, but an appeal to the High Court, only with a frontline regulator to have the power to make the permission of the High Court, and an appeal redress, would that not fatally undermine the whole which would arise if the Board was plainly wrong in Y point about having an O ce for Legal Complaints? a decision that it took, we believe, would be justified. Is it not a wrecking amendment even to suggest it? Mr Hockman: I do not think so. In the first place, we Q112 Emily Thornberry: So do you think that a have never been opposed, in principle, to the idea of Y the OYce for Legal Complaints as a point of entry, if limited access to judicial review would be insu cient that were thought to be convenient (let me make that to fulfil our obligations under Article 6? Mr Hockman: We do consider that the powers of clear). No, I think that the principle that in the case judicial review, important though they are, would be of a particular regulatory regime, such as that of the insuYcient because, ultimately, it is necessary in a Bar, complaints handling could be left to be dealt judicial review to demonstrate unlawfulness. Of with by the frontline regulators is totally compatible course, unlawfulness can be shown in various ways, with the notion that the OYce for Legal Complaints but we are talking about a situation in which the exists to deal with other regimes where either the Legal Services Board, even if acting lawfully, is professional body agrees or the Legal Services Board nevertheless acting unjustly and wrongly, so far as decides without their agreement to capture the the relevant professional body is concerned. complaints handling by itself. One possible way of Mr Burrowes: I declare an interest as a solicitor and doing it, if I can pick up the reference that you made a member of the Law Society with a practising earlier, is precisely to build on what the Act already certificate. I appreciate the Bar Council’s contains, which is a procedure whereby the OYce for disagreement with the policy inherent within legal Legal Complaints sets scheme rules, as you mention. complaints, is recognised and characterise it as “all The Bill already, in eVect, indicates that where the the solicitors fault”, and they have caused the OYce for Legal Complaints wishes to do so there can V problems, in some ways— be a rule to the e ect that the complaint can be Emily Thornberry: I amglad you admitthat! considered and determined by someone other than an Ombudsman. So that idea of a referral out, so to speak, already exists, and that is one mechanism by Q113 Mr Burrowes: I amsaying “characterised”, which to achieve the objective. There are probably rather than the highly regarded complaints system other mechanisms, and again, if we can, we will oVer the Bar Council has. Given, essentially, the brave new you a little bit of drafting on that, which may help to world of Alternative Business Structures and the clarify things. However, of course, the key question dynamics, perhaps, changing with barristers and of policy is whether you are going to shut out the their involvement with the directive which has a power at the moment, or whether you are going to particular impact, perhaps, on complaints and the leave that in as an option, and it is urging you to leave level and number of complaints that there is at that in and the reasons why that, we think, is so present compared to solicitors, surely you should at important for you to think about. least open the door to consider the proposals for a complaints handling mechanism, and you should not shut the door to it? Q111 Emily Thornberry: I ought to declare my Mr Hockman: I hope we are not shutting the door interest in that I am a member of the Bar, non- to it. Firstly, let me say that, of course, we do hope practising, and my husband is a member of the Bar, the Committee will recognise the quality of our and there are more details on the paper. Do you think complaints handling, but we are not basing our that the draft Bill deals with appeals against decisions argument on a contrast with what other people do. 3435523016 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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We are focusing on the possibility that we or one of would be our preferred solution. The suggestion of the other bodies may be in a position to deliver the giving the consumer a choice would be an best complaints handling service for the customer. alternative but it would probably not be quite so That will arise for the following reasons: first of all, easy to achieve. We will do some more work on that in our case, we are people whose practice tends to and we will try and see whether we can draft be—it is not exclusively but it tends to be—practice something that you would regard as workable. Our in court or in court-related activities. In our case, primary case would be that it is in everyone’s complaints, therefore, are generally complaints interests—the interests of the client, the interests of which involve both a service and a conduct element. the practitioner and the interests of the customer— Something like three-quarters of our complaints for a valid and successful complaints handling involve both and are overlapping and interlinked. service to continue is something that we would be An example we give in the paper, just so that you very foolish to sweep aside. have a sense of this, is where somebody is bullied into making a settlement. That is a classic example Q115 Lord Neill of Bladen: I should first of all of a case where you have potentially a complaint by declare an interest as a member of the Bar and have the client and a complaint involving the conduct of been for some time. The impression gained the practitioner, it being obviously completely throughout the various papers that you have contrary to the professional rules to bully somebody written, and fromwhat you have said to us today, into settling a case. If issues arise there as to what is that if the regulatory framework as set out in the happened and as to what the merits of the settlement Bill were to be adopted by the current Government, were, firstly, judging that complaint does involve the Bar Council would not be applying to be an Y quite skilful legal analysis. It is very di cult, by the authority to grant licences to the ABS. Is that right way, to see how a non-lawyer—and the ombudsmen or wrong? or ombudswomen are, we are told, going to have to Mr Hockman: It is not something that we be non-lawyers; that is compulsory under the Bill— contemplate at the moment, but who knows how is going to analyse and evaluate that in the way that matters will develop? I would not want to rule it out. Y our systempresently allows for, and di cult to see I certainly would not want to rule out the possibility how you can avoid duplication if the service aspect of the Bar Council seeking to be the regulator or Y has to be dealt with, first, by your o ce for legal a regulator for anyone practising within an complaints, and then you have the same story all Alternative Business Structure who was practising over again when you come to deal with it as a matter advocacy before the courts. I agree, with respect, of conduct. In that situation, and as I say this is that it is unlikely for the time being that the Bar characteristic of a case which involves , Council will want to license an ABS in those terms people who are doing court work or related activity, under Part 5. but where you have these overlapping situations, it is much better in the interests of the customer for the complaint to be dealt with once and once only; Q116 Lord Neill of Bladen: Sir David thinks it will V otherwise the customer has to give evidence twice, have rather a chilling e ect on the development of and it takes far longer for the whole thing ultimately LDPs if the Bar Council are not to take a full part. to be resolved. In addition to that there is the costs How would you feel about a regime in which the point and we are quite keen on that, as you know. LSB were the sole licensing authority? Mr Hockman: In the first place, although I noted Sir David’s concerns on that point, it really does not Q114 Mr Burrowes: We will come to that later. The seem to me that they are justified. If this comes proposal in your paper is to give the consumer a about in the way that is anticipated, and I think for choice of it being the front-line regulator or the this purpose it really does not matter whether you OLC route to resolve a complaint. Would that have a separate licensing regime for an ABS or properly meet Clementi’s concerns about whether the ABS comes into being under a consistency, independence, simplicity and flexibility? regulatory regime rather like the Law Society or Mr Hockman: I have to say that I do not think we some other professional body, you will have a regard giving the consumer a choice in this area as systemin which there is a range of di Verent being perhaps the most obvious solution. What we regulatory regimes, and the mere fact that the Bar would say is that the preferable solution is that the Council continues to have its own regime, with legislation should give a power by one mechanism whatever rules its Bar Standards Board decides are or another—and there is probably more than one appropriate, it seems to me ought to have no eVect you could use and we will oVer you some drafting— at all on the success or otherwise of a separate free- which enables a particular front-line regulator to standing ABS regime authorised and licensed by the continue with its complaints handling if the Legal Legal Services Board. As to the other question, Services Board regard that as satisfactory. That whether you would help the problemby the Legal 3435523016 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Services Board doing it directly, I should have Q120 Chairman: Do feel free! thought the answer to that would be no. All that is Mr Hockman: There are times in court when the doing is making matters more rigid and more costly judge oVers you a point, and it may be wise than they would otherwise be. What we should be sometimes to hesitate before embracing it with too aiming for is for Alternative Business Structures, if much enthusiasm. I do myself, if I may express a they come into existence, to be in a cost eVective and personal view, see the reasons behind this Bill and eYcient regulatory regime which can meet the needs I see some benefits. If the basic architecture is of the public. accepted, which I attempted to describe earlier, that, it seems to me, will give clarity to our arrangements and, bearing in mind what the Law Society very Q117 Lord Neill of Bladen: I will move to ethics and eloquently said earlier about the international standards of conduct. Supposing ABS were to come reputation of our system, if we get this architecture into existence. You probably would agree that it right then we will be able to hold our heads up high should not aVect the standards required by internationally and say that we have developed a barristers in their operations. You also, I think, method of ensuring that, on the one hand, the legal state that a great deal of the work of barristers is systemand legal practice are publicly accountable, conducted in court. Would you agree with this too: but on the other we will also have secured the although there has been quite a lot of talk in continuing independence of lawyers. The latter is summaries of the Bill that the primary duty is owed just as important as the former, and particularly one to the client, in the case of the that is quite can see places like the continent of Europe where, wrong. The primary duty is owed to the court. as people have good reason to remember, there were Mr Hockman: Of course I do. The duty to the court tyrannies which did not respect the independence is extremely important and in many instances it may of lawyers, and so that anxiety is totally have to override the duty to the client. understandable, and the responsibility, if you do not mind my saying so, upon Parliament in that respect is quite a heavy one. If we can get the balance right Q118 Lord Neill of Bladen: One of the obvious then we will be able to say that we have taken a step thoughts that occurred to me is that in court the forward and we have a systemwhich guarantees judge should be aware of every relevant authority, both public accountability and independence. Our including cases which blow your case out of the concern, and we share the Law Society’s view on water. If overnight or at the end of a case you this to a large extent, is that at the moment there is become aware of an authority which really puts a a little bit too much emphasis on public nail in the coYn of your case,,it is your duty to tell accountability and not quite enough on professional the judge. independence. Mr Hockman: Yes. Q121 Lord Campbell of Alloway: Yes, but is this not right, that the balance that you seek to achieve Q119 Lord Neill of Bladen: You have kindly oVered is not presented by this Bill? to do a bit of paperwork on another topic. Is there Mr Hockman: We agree that the balance does need any way in which you could find time in the next shifting and we hope that you might make one or fortnight in the Bar Council to do some paperwork two recommendations in support of that approach. on the various aspects of the duty to the court? Another one is obviously disclosure of documents; Q122 Lord Campbell of Alloway: And one, of a very high degree of integrity is required there, and course, is that it is far more important to ensure the there may be others that you could think of more quality of advice given to the client under the system easily than I, I would have thought. Would that be operated at the moment as between various possible? solicitors, barristers, agents and God knows what Mr Hockman: Of course, with pleasure. than to tinker with complaints. Of fundamental Chairman: We now come to regulatory shopping. importance is the quality of the advice, and I do see Lord Campbell of Alloway: It is a broad question. a danger in this Bill which aVects the quality of the Apart fromcertain exceptions is there any need for advice to the consumer because nobody bothers this Bill at the moment in your opinion? The trouble about that. There is not a word about it in any of with the diVerent branches of expertise in the same these documents. Nobody seems to mind and yet chambers, partnerships, all the old trouble we have that is the essence of legal advice. all known about for years, has to be dealt with, but Mr Hockman: I do, with respect, agree and adopt apart fromthings like that I cannot see any two things which I think are implicit in what you justification for this Bill and I wondered if you are saying. First of all that the quality of service that could. lawyers deliver is not just dependent on the 3435523016 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Stephen Hockman QC and Mr Desmond Browne QC structures. It is also dependent on morale and wholly unrealistic and speculation. I spoke to the motivation and nothing that we do should suppress Law Society and they have indicated that I can say that. Secondly, I also agree that we should not see that they do not believe, for example, that the 15 the need to cure any perceived problems in per cent eYciency saving is realistic, and they are in complaints handling, which after all is only one as good a position as anyone to judge, and one aspect (however important) of the problem—we might, with respect, think in a better position than should not as it were let the tail wag the dog and PWC. So far as the overall increase in the number create an excessive structure to deal with that one of complaints is concerned, we all know that if you problem. add to the number of lanes on the M25 you add by Lord Campbell of Alloway: I have to declare an an equivalent multiplier to the number of cars going interest which I do as a defunct Queen’s Counsel. past Heathrow on Sunday night and the same must Chairman: If I may say so, you have given us some surely be true of the stimulus to complaints that very interesting answers, but there is still the there will be once the new systemcomesinto force. question of cost and I would like to ask Baroness PricewaterhouseCoopers themselves in their Henig if she would like to explore that aspect. regulatory impact assessment seem to regard the increase in complaints as inevitable. They build in a notional figure of 25 per cent but think that that Q123 Baroness Henig: Clearly you did have some would be balanced up by improvements in concerns about costs. You did highlight excessive practitioners’ practices. We think that that is costs as one of your concerns I think at one point unrealistic and we have recently been looking at the and since then there has been further work done, I Chief Financial Ombudsman’s report for the year believe, by PricewaterhouseCoopers to develop the ending 2005, which was the end of the first five years earlier work of Ernst & Young. Do you think the of that regime, and he records that in the five years results of the full risk impact assessment and the that he had been operating there had been a four- detailed costings that we now have do anything to fold increase in his workload and their staV numbers allay your main concerns over the financial case? had tripled, so the idea that complaints will remain Mr Browne: I regret to say not, rather the contrary. the same we say is completely unrealistic. Can I just We were very grateful to be given notice of the make one or two other points because I know time questions that might be asked and we have prepared is drawing on and there will doubtless be other a short three-page paper in answer to question 14. questions? Another matter that concerns us is that It occurred to me that advocacy would be much easier if the Judicial Committee next door gave 48 the OLC now has what we describe as staggeringly hours’ notice of any questions they had. Can I just high start-up costs of £23.6 million. That is over two say this? We appreciate what might be thought to and a half times the figure that Ernst & Young be the folly of responding to a 140-page document calculated for Sir David Clementi. It is also worth by PricewaterhouseCoopers in a mere three pages or considering the projected cost for complaints. As we less and the document we have prepared obviously say in our submissions to this committee, the Bar requires careful reading with a towel round the Council’s present cost of each complaint is about head, but can I just flag up some of the headline £640. That, of course, reflects the enormous number points as to why it is that, far fromour concerns of hours put in by members of the profession, V being allayed by the PricewaterhouseCoopers including Queen’s Counsel, in e ective complaints report, they are, if anything, aggravated? The whole handling. The projected cost of complaints of the basis of the regulatory impact assessment new systemwould be about the £1,000 mark presupposes a saving of £11.9 million in the annual depending on what figures you take for the costs of regulatory cost of complaints. Of that sum £9.3 the OLC and the number of complaints. We also million is seen as coming oV the existing Law have a very severe misgiving about the present Society bill for complaints handling. The current policy of the Bill, which is that a substantial cost of complaints handling is in the region of £33 proportion of the cost will be raised under the million. Of that 86 per cent is down to the Law “polluter pays” principle. As Professor Joad said, it Society, so it gives one a current figure of about £28 all depends what you mean by “the polluter pays” million. In comparison the Bar Council’s costs are principle. Sir David Clementi thought that the just over half a million. The projected minimum money would be raised from proven polluters, annual running costs of the OLC are £20.6 million, convicted polluters. The White Paper suggested it as one sees from the regulatory impact assessment, should come from those against whom a complaint but that is premised on two conditions: first, that was made but not necessarily proven. The there be no overall increase in the number of regulatory impact assessment goes back to Clementi complaints and, secondly, that the OLC will operate and assumes that it would be proven polluters, but at a 15 per cent increased eYciency over the current clause 106 of this Bill goes back to the concept of CCS. We think both of those preconditions are raising money from those against whoma complaint 3435523016 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Stephen Hockman QC and Mr Desmond Browne QC is made. We say that it is fundamentally unfair, rigorous analysis of each particular problemin the particularly where young members of the publicly form of what we call the sponsor member’s report. funded criminal bar are concerned, that merely Again I take the concrete example of somebody who because a complaint is raised against them they alleges that they were bullied into agreeing to a should find themselves having to pay these very settlement which they did not really agree to. You large sums towards the overall cost of an enormous have a document in which the relevant law and the body like the OLC. Looking at costs overall, we find facts and the analysis are set out upon the basis on that our concerns are greater than ever and we which a group of people, lay and professional, take believe that when one analyses the position in an objective decision. That is surely the best way of relation to cost it strongly supports our case that arriving at a just outcome both for the customer and FLRs who have satisfied the Legal Services for the practitioner, and it guarantees that you have Ombudswoman in the past, and for so many years an objective analysis and not some kind of oV-the- have done so, should be allowed, so far as they can cuV response to the problem. That is part of the satisfy the LSB as well, to continue to deploy free answer but, as I said, you will be hearing fromthe resources to investigate complaints and that it people who are now operating this systemand would be in the public interest, subject always to the especially fromour lay Chair, and I suspect you will supervisory oversight of the LSB, that they should want to find out fromher what she thinks about continue to do so. Both costs and eYciency we how it works. believe cry out for that option. Baroness Henig: That is a very full response. I am sure we will use that very well, so thank you very Q126 Mr Kidney: A more general point is whether much for that. you can have a systemof peer assessmentthat is of any value to a new regime, whether it be conduct or service complaints. Q124 Mr Kidney: Can I ask Mr Hockman a Mr Hockman: The principles of this, of course were question please? Do you remember my first question exhaustively examined by Clementi himself. about whether splitting oV regulation from Nobody is suggesting that you should either go to representation was conviction, not pragmatism? the extreme of making lawyers a law unto This idea about individual barristers giving their themselves or to the other extreme of saying that time for free to help with the investigation of regulation should be taken out of their hands complaints against colleagues could be seen on the completely. Everybody is talking about a balance. one side as very publicly spirited of themand on the Everybody is talking about a systemwhich involves other as lawyers defending their own. Could you having the benefit of a continuing professional convince me that it is the former, not the latter? involvement and the benefit of a genuine public Mr Hockman: I will try. May I say in the first place interest remit. As I said, of course, it is absolutely that I understand you have agreed to receive right, and may I return the compliment and evidence fromthe Chair of our Bar Standards congratulate you on wanting to get that balance Board, assisted no doubt by one or two people who right and wanting to be sure that there is an are now primarily staYng her operations. She is a lay person and a person of distinction in the objective analysis of these problems. What I think consumer field, a former Chair of the National I might ask for you to do is look not just at, as it Consumer Council, which is the post, I think, now were, the surrounding circumstances but I do think held by Lord Whitty. She might be a more objective with our systemyou also need to look at the actual commentator than I. What I would say is that in process of analysis to see how it works. That is the first place we have significantly increased the lay pretty important. involvement in our process so that all of the committees on the regulatory side have substantial Q127 Chairman: Thank you very much indeed, Mr lay involvement, if not the majority. Hockman and Mr Browne. We have covered a great deal of the territory. There are some questions Q125 Mr Kidney: But not a majority? which we have not had time to deal with and Mr Hockman: Not a majority but that too is in perhaps we might discuss afterwards how best we accordance, may I stress, with Sir David Clementi’s can give you the opportunity of responding to those. recommendations. He had, as you have probably We accept all your oVers of drafting assistance, for seen, a specific section of the report in which he the avoidance of doubt, without any commitment, dealt with that issue, so we have followed it. In other of course, but it would be very helpful to see some words we have not been capricious; we have draft provisions, in particular if you could let us followed the scheme that he proposed in that have themreasonably soon. Also, you will have the respect. Secondly, what to me at least is extremely opportunity of putting in any further written important is that our system does involve a very evidence, particularly, if possible, before the end of 3435523016 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8 June 2006 Mr Stephen Hockman QC and Mr Desmond Browne QC next week, and we look forward to hearing further is unattainable, so if that would be acceptable we fromyou. We are very grateful to you both for would be very grateful. spending so much time with us and answering our questions. Q128 Chairman: It would be acceptable but you Mr Hockman: It has been a privilege to do so. May might ask those behind you to share with us any we take it that as far as the draftsmanship is preliminary drafts at an earlier stage if that were concerned perhaps the end of the month would be possible. a reasonable deadline if that is not going to be Mr Hockman: Yes, we would. delaying your own discussions. I do not want to commit the people behind me to something which Q129 Chairman: Thank you very much indeed.

Supplementary memorandum by the General Council of the Bar (Ev 01a)

ANALYSIS OF COSTS IN RIA AND PWC FINANCIAL ANALYSIS 1. The RIA suggests that there will: (1) only be a modest increase in the overall annual regulatory costs (£2.4 million on top of current costs of £64.9 million—RIA 4.47, 4.48); and (2) be a huge saving of £11.9 million in the annual regulatory costs of complaints (RIA, 6.34, 6.35). It is therefore clear that the alleged saving on complaints costs underpins the reasonableness of the whole proposed regulatory regime in terms of cost. 2. There is real reason to doubt that these figures are reliable. This is because: (a) the assumptions made as to the LSB’s workload, the eYciency saving in complaints handling and the level of expected complaints are unrealistic; and (b) in any event the Government’s assumptions do not justify the saving of £11.9 million claimed.

Complaints Costs 3. (1) The current cost of legal complaints handling (inc overheads) is £33 million (PWC, p 6) (2) Of this, the Law Society is 86 per cent of the cost (ibid.), so about £28 million. The Bar Council’s costs are £512,000. (3) The projected minimum annual cost of the OLC (inc. indirect costs) with no overall increase in the number of complaints is £20.6 million (RIA, 6.34). Of this figure, £16.8 million is the running costs (ibid), of which £11 million is staV costs (PWC, p 82). Importantly, these figures assume an increase of 15 per cent in eYciency (PWC, p 51). So fewer staV will be handling the same number of complaints. (4) Of the claimed net annual saving of £11.9 million, only £377,000 is saved by the Bar and £2.2 million by CLC and OLSO (PWC, p 11). So £9.3 million is trimmed oV the cost of the Law Society’s current complaints handling machinery. (5) But 15 per cent of £28 million is only £4.2 million, not £9.3 million. £9.3 million is 33 per cent of £28 million. (6) Apart fromthe 15 per cent e Yciency saving, no other substantial savings are identified by the RIA or PWC. The remaining £5.8 million of running costs, apart from staV costs, is for staV support systems and accommodation, so it is unlikely that there will be more than the 15 per cent saving on these items, and none is identified. (7) Thus, even if the 15 per cent economy factor is achievable, it will save only £4.2 million. 4. The suggestion that complaints won’t increase in number is surely fanciful. The illogic of this is shown up by RIA, 6.30, which seems at one and the same time to accept that an increase in complaints is inevitable but to deny it on the basis that practitioners will “up their game” in response. The imprudence of assuming no increase in complaints is emphasised by the FOS Annual Report 2005, extract annexed. [Submitted but not printed]. 3435523017 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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5. The publicity and claims that will be made for the new system, the increase in the amount of compensation and the relaxation of the limits on the identity of providers of legal services will inevitably mean that more, and more complicated (ie professional negligence claims up to £20,000), complaints will be made. 6. PWC address the consequences of a 25 per cent increase in complaints overall. The annual running costs of the OLC are then £24.8 million instead of £20.6 million (RIA, 6.35). This is an increase of £4.2 million. 7. So even if the Government’s assumption about eYciency savings is borne out, the realistic maximum amount of the saving will be entirely swallowed up by a 25 per cent increase in complaints. The £11.9 million “saving” that the OLC contributes to the overall cost balance is therefore swept away. The position will be worse if the eYciency saving is not achieved. 8. Moreover, the OLC has staggeringly high start up costs of £23.6 million (RIA, 6.39), a figure to be compared with the £9 million that Ernst & Young predicted. 9. In terms of cost per complaint, £24.8 million divided by 22,500 complaints (the current level of 18,000 (PWC, p 85) ! 25 per cent) is £1,100. At the current level of complaints, the cost per complaint will be £933 (ibid) This compares with the Bar Council’s cost of £640. 10. RIA, 6.25 indicates (contrary to the Bill) that only true polluters will pay, not those acquitted of fault. If this is so, and assuming that 50 per cent of complaints are dismissed or compromised without a determination of fault being made by OLC, each polluter will be taxed £2,200, a disproportionate amount for a compensation award of (say) £250, or an apology, or the waiving of a fee.

Legal Services Board 11. The additional costs of the LSB are £3.6 million to £5.6 million (RIA, 4.55). The lower figure “assumes that the underlying nature and volume of regulatory activities under the new LSB would not be substantially diVerent from those performed under the current regulatory framework” (RIA, 4.51). This assumption is incompatible with the way that the Bill is drafted, and would not be sustainable even if there were a genuinely light touch regulator. 12. The higher “incremental” cost of £5.6 million only reflects temporary increase in staYng before reverting to base levels (PWC, p 44) and London rather than out of London location. The true cost could therefore be much higher.

Conclusions 13. (1) There is scepticismabout the claimede Yciency saving of 15 per cent. (2) The assumption about no increase in complaints is most imprudent. (3) 15 per cent eYciency savings would only save about £4.2 million oV the current Law Society complaints handling costs. No other particular savings are identified. (4) To reach an overall reduction in complaints handling costs of £11.9 million there would have to be no increase in complaints numbers and a 33 per cent eYciency saving or other savings. (5) Even if a 15 per cent eYciency saving is achieved but complaints rise by 25 per cent, the net result is zero rather than an £11.9 million saving, thereby throwing the new regulatory regime costings into a deficit over current costs of £14.3 million per annum, plus start up costs of £25.9 million in total (for LSB and OLC). (6) A true polluter pays principle cannot finance the complaints system so there would have to be a very large levy on the FLRs. (7) The LSB annual running costs are probably understated. (8) These considerations underline the importance of the statutory regime for the LSB being proportionate and cost-eVective. (9) They also strongly support the case for individual FLRs to be able to deploy free or cheap resources to investigate complaints, where the LSB is satisfied as to their competence to do so. 7 June 2006 3435523018 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Further supplementary memorandum by the General Council of the Bar (Ev 01b)

FURTHER RESPONSES TO QUESTIONS BY THE JOINT COMMITTEE ON THE DRAFT LEGAL SERVICES BILL

1. Which provisions in the draft Bill, if any, give rise to your concern that the new regulatory framework will be unnecessarily intrusive and lead to duplication of effort? Our concerns relate to parts 4, 6 and 7 of the Bill as explained in our paper (paragraphs 23–43).

What amendments would you suggest are needed, and why? The amendments we suggest are those we refer to in our paper and in our oral evidence and we will endeavour to supply proposed draft amendments as promised.

2. The Bar Council has previously said that the LSB should follow the model of the Financial Reporting Council, rather than the FSA model rejected by Sir David Clementi. In what ways, if any, do you consider that the provisions for the LSB depart from that “light-touch” model?

What amendments would you suggest? See answer to Question 1 above.

3. How do you think the appointments mechanism for the LSB proposed by the draft Bill will impact on: (a) the independence of the legal profession; (b) the ability of the LSB to foster consumer confidence; and (c) the international reputation of legal services providers in England and Wales? See our answer to Oral Questions uncorrected transcript page 25.

4. Is there a serious risk that the level of Government involvement envisaged by the draft Bill will undermine the independence of the LSB, and in turn, the independence of the legal profession? See answer to Question 3 above.

5. Do you consider that the draft Bill now provides adequate opportunities for the LSB to consult with approved regulators before exercising its powers? See our answer to Oral Questions uncorrected transcript page 27.

If not, what amendments would you suggest? Would these additional requirements for consultation increase delay and complexity in the regulatory process in favour of the professions and at the expense of the consumer? Again we will endeavour to provide draft amendments. There is no reason why consultation should occasion delay or complexity. On the contrary, it will enable the LSB to exercise its powers in a proportionate manner and in the best interests of consumers.

6. Do you consider that the provisions in the draft Bill for appeals against the decisions of the LSB are appropriate?

If not, why not? See our paper at paragraph 31.

7. We understand that there are pros and cons in having a route of appeal against decisions of the Ombudsman, not least delay in satisfying a consumer complaint. Why do you consider that without a route of appeal, the complaints mechanism in the draft Bill would be incompatible with the process rights guaranteed by Article 6 of the European Convention on Human Rights? Why do you consider judicial review an inadequate means of securing compliance with the ’s Convention obligations? See our paper at Annex C. 3435523018 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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8. You have argued that there will be difficulties, including delay and duplication, which will arise from the splitting of service complaints from complaints in respect of misconduct. Do you have any evidence or examples of how difficulties of delay and duplication could arise? How do you consider that these difficulties will affect the consumer benefit of the OLC?

See our paper at paragraphs 35–40, and Annex B, and our answers to Oral Questions at uncorrected transcript page 32.

9. Sir David Clementi favoured a single complaints handling mechanism in order to foster independence, simplicity, consistency and flexibility. How would you justify granting the power to the OLC to delegate its functions to approved regulators?

The independence of our complaints handling process is guaranteed by the involvement of the Commissioner and other lay representatives, by the principle that complaints cannot be dismissed without the lay representatives’ consent, and by the integrity of the practitioners involved. In cases involving advocates (which generally involve both a conduct and a service element) consistency is best achieved by proceeding as we recommend.

10. If the regulatory framework for ABS proposed is adopted, do you expect that the Bar Council would apply to be authorised to license ABS? [IF NOT]

Sir David Clementi considered that it would be detrimental to the development of LDPs if the Bar Council refused to consider licensing ABS (permitting LDPs within its regulatory auspices). How do you meet Sir David’s concern that if the Bar Council refused to permit partnerships or other relationships between barristers and non-lawyers, within your regulatory auspices, that this could restrict the benefit to the consumer of opening up ABS?

Would this concern be met if the LSB were to act as the sole licensing authority for ABS?

It is unlikely that the Bar Council (whose regulatory arrangements do not allow for the handling of client money) will in the short term apply to be authorised to licence ABS. The benefit to the consumer of opening up an ABS under the ABS licensing/regulatory regime will not however be aVected by the extent to which rules applicable in an entirely diVerent regulatory regime may or may not be changed. Equally this benefit will not be improved by the LSB acting as the sole licensing authority for an ABS provided that there is a suitable “frontline” ABS licensing/regulatory body.

11. How do you think that the development of ABS will impact on practice at the Bar? Specifically, do you think that greater contact between barristers and lay clients, and between barristers and other professionals, within ABS firms would: (a) require any particular changes to barristers’ rules of professional conduct; and/or (b) would change your view on whether the Bar Council should be involved in the regulation of ABS?

The extent to which the development of ABS impacts on practice at the Bar will depend upon competition within the legal services sector. It may well be that over time numbers of those who have qualified as barristers will elect to practise under an ABS regime rather than under the Bar Council’s regime. It may very well be too that the Bar Council will seek a continuing regulatory role in relation to those who practise under an ABS regime but whose work involves advocacy to a substantial degree, and for this purpose the Bar Council is likely to propose appropriate changes to its own regulatory arrangements. Whether or not the Bar Council itself applies to be a licensor/regulator of an ABS as a body is a diVerent question and as indicated this seems unlikely in the short term. 3435523018 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12. What is your response to concerns that permitting the LSB to authorise multiple regulators for ABSs will lead to excessive competition between regulators; regulatory shopping by ASBs and lower regulatory standards?

Do you consider that there are adequate safeguards in the draft Bill to guard against the detrimental effects of regulatory shopping? If not, what amendments, or additional safeguards, would you suggest? In principle, the existence of a range of regulatory regimes, whether those regimes regulate lawyers alone (as in the regime currently operated by the Bar Council and the Law Society) or lawyers in combination with others (as in a proposed ABS regime) is likely to be beneficial rather than detrimental to the public. Competition between regulators, in the sense that the regulator will have an incentive to make its regime as light touch and cost eVective, is in the public interest. The Legal Services Board exists precisely to ensure that regulatory standards are maintained, and we consider that the safeguards in the Bill are adequate, indeed (as we have suggested in the answer to Questions 1 and 2) more than adequate.

13. Do you think that the treatment of legal professional privilege in the draft Bill is workable? Do you consider that the draft Bill provides appropriate protection for the ABS client’s right to privilege and to standards of legal professional ethics more generally?

If not, can you suggest any workable safeguards? See our paper at Annex D.

14. After the Partial RIA the DCA has done further work on the costings, using PWC to develop the earlier work by Ernst & Young. In your view, do the results—in the Full RIA and in PWC’s detailed costing—allay your main concerns over the financial case for the Government’s proposals? No. See our paper on this (further copy with additional final page herewith containing evidence of likely increase in number of complaints). See also our oral evidence at uncorrected transcript page 38.

15. We understand that you are particularly concerned about the time which the LSB will be required to spend on public policy work and filling regulatory gaps. Do you have any evidence of the likely percentage of its time the LSB will spend on these activities? Is it comparable to the time spent by the Financial Reporting Council—who receive 33 per cent of their funding from central government—on public policy work? The proportion of time which the LSB is likely to spend on such activities will vary fromyear to year, and we therefore propose a provision whereby the source of funding should depend broadly upon the purpose for which it is used. In other words, insofar as the LSB intends to engage on public policy work, it should be funded fromthe public purse. We will endeavour to provide moredetail as to how this might be achieved.

16. You have expressed concern about the failure of the DCA to take into account the true cost of the work done by the Bar Council, much of which you say is done on a pro-bono basis by its members. Do you consider that the Government’s RIA now accurately takes account of the value of this work? So far as we can see the RIA does not take account of the value (either financial or intellectual) of the pro bono contribution. 16 June 2006

Further supplementary memorandum by the General Council of the Bar (Ev 01c)

Draft Legal Services Bill

KEY AMENDMENTS PROPOSED BY THE GENERAL COUNCIL OF THE BAR These are the key draft revised provisions foreshadowed in the Bar Council’s evidence to the Joint Select Committee on 8 June 2006. Amendments to the draft Bill text are shown with additions in bold and deletions in bold strikeout. 3435523019 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Part 4: Regulation of Approved Regulators

Clause 24 Performance targets and monitoring (1) The Board may, if it considers that a particular approved regulator has failed to perform a regulatory function satisfactorily— (a) set one or more performance targets relating to the performance by the approved regulator of that function, or (b) direct the approved regulator to set one or more performance targets relating to the performance by the approved regulator of that function. … (2A) Where the Board proposes exercising any of its powers under subsection (1), paragraphs 2 of Schedule 7 applies as it applies to a proposed direction under section 25. (Note: the eVect of draft subsection (2A) is to require the LSB to give the approved regulator a warning notice of the proposed performance target or direction and consider any representations the approved regulatory makes in response)

Clause 25 Directions (1) Where the Board is of the opinion that an approved regulator has failed— [(a) to (d) as draft Bill]. and is satisfied that the failure seriously harms the regulatory objectives (or would do so unless a direction were given under this section), the Board may direct the approved regulator to take such steps as the Board considers will remedy the failure, mitigate its eVect of prevent its recurrence.

Clause 28 Public censure (1) This section applies if the Board is satisfied that an approved regulator has failed— [(a) to (d) as draft Bill]. and is satisfied that the failure seriously harms the regulatory objectives.

Clause 30 Financial penalties (1) This section applies if the Board is satisfied that an approved regulator has failed— [(a) to (d) as draft], that the failure seriously harms the regulatory objectives, and that the approved regulator is culpable for the failure.

Clause 34 Intervention directions (4) The Board may not determine that it is appropriate to give the intervention direction unless it is satisfied that the approved regulator’s failures— (a) seriously harm the regulatory objectives (or would do so unless a direction were given under this section), and (b) cannot be adequately addressed by the Board exercising the powers available to it under sections 24 to 33.

Clause 38 Cancellation of designation as approved regulator (7) The Board may not determine that it is appropriate to cancel a body’s designation in relation to an activity or activities unless it is satisfied that the approved regulator’s failures— (a) cause serious harm to the regulatory objectives which the approved regulator is unable to remedy or adequately mitigate (or would cause such harm unless the body’s designation in relation to the activity or activities in question is cancelled), and (b) cannot be adequately addressed by the Board exercising the powers available to it under sections 24 to 36 3435523019 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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(9) If the Secretary of State decides— (a) to make an order in response to a recommendation made under subsection (5), or (b) not to make an order in response to a recommendation made under subsection (3) or (5), the Secretary of State must give to the Board notice of the decision and the reasons for it.

Schedule 5 Approved regulators Part 3—Alteration of approved regulator’s regulatory arrangements 23 (1A) Before taking a step mentioned in subparagraph (1)(a) or (b) the Board must give notice of the application to such of the following as it considers appropriate— (a) Another approved regulator; (b) The Lord Chief Justice.

24 (1) Where the Board has given an approved regulator a warning notice, the Board may invite such persons as it considers appropriate to give to it advice regarding whether the application should be granted; and shall so invite any person who was given notice of the application under paragraph 23(1A).

Part 6: Legal Complaints

First alternative: complaints-handling (including grant of redress) remains with FLR unless LSB confers jurisdiction on OLC

Clause 102 Jurisdiction of the ombudsman scheme

(2) The respondent is within the jurisdiction of the scheme if, at the relevant time— (a) the respondent was an authorised person in relation to an activity which was a reserved legal activity (whether or not the act or omission relates to a reserved legal activity), and (b) (except where the respondent was a body authorised to carry on that activity by virtue of a licence issued by the Board) the Board has given a direction under this paragraph (an “ombudsman scheme direction”) in relation to persons who are authorised to carry on the activity in question by, or by virtue of a licence issued by, the approved regulator named in the direction.

Clause 127 Approved regulators not to make provision for redress

(1) Where the Board has made an ombudsman scheme direction, the regulatory arrangements of an the approved regulator named in the direction must not include any provision relating to redress. [Consequential change in subs. (2)]

Second alternative: where scheme rules made by OLC enable FLR to handle complaints.

Clause 127 Approved regulators not to make provision for redress

(1) The regulatory arrangements of an approved regulator must not include any provision relating to redress; but that does not apply in relation to complaints referred to an approved regulator under provision made by scheme rules pursuant to section 105(5)(e). [Consequential change in subs. (2)] 27 June 2006 3435523020 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Supplementary memorandum by the General Council of the Bar (Ev 01d)

Duties of an Advocate to the Court

1. Introduction 1.1 In response to a request made by Lord Neill of Bladen when the Bar Council representatives gave evidence on 8 June 2006, this paper examines “the various aspects” of the advocate’s duty to the Court. Obviously the duty is binding on all advocates, not merely barristers. 1.2 As the paper shows, the duty to the court which prevails over that to the client has many aspects and is far- reaching in its nature. Since most complaints against barristers are related to their work in court and involve inextricably linked issues of service and conduct, the extensive nature of the duty they owe to the court makes it all the more important that knowledgeable experience is brought to bear on the resolution of these complaints. 1.3 The Bar Standards Board in their evidence to the Committee (see, in particular, paragraphs 46 and 47 of their Comments) have emphasised the need for expertise in the handling of complaints against advocates. It is not only the handling of conduct complaints which needs such expertise, it is also required in resolving mixed service and conduct complaints. In the absence of such expertise, the risk of inconsistent decision-making (to which the Chairwoman of the BSB referred in her oral evidence) is substantially increased. There is also a risk that the OLC will fail to detect when an advocate has fallen below the proper standard of professional conduct.

2. General 2.1 The Code of Conduct of the Bar of England and Wales sets out duties which all barristers must obey. It is professional misconduct to breach the rules and can result in the Barrister being charged by his professional body with misconduct. If misconduct is proved, sanctions can be taken against the barrister, including disbarment. 2.2 Chapter 3 of the Code sets down Fundamental Principles which govern a barrister’s conduct. These principles in part balance the duty which the barrister owes to the Court against the duty he owes to his client. 2.3 In relation to his duty to the Court: H302: A barrister has an overriding duty to the Court to act with independence in the interests of justice: he must assist the Court in the administration of justice and must not deceive or knowingly or recklessly mislead the Court. H307: (c) A barrister must not . . . compromise his professional standards in order to please his client the Court or a third party, including any mediator. 2.4 In relation to his duty to his client: H303: A barrister: (a) must promote and protect fearlessly and by all proper and lawful means the lay client’s best interests and do so without regard to his own interests or to any consequences to himself or to any other person . . . (b) owes his primary duty as between the lay client and any professional client or other intermediary to the lay client and must not permit the intermediary to limit his discretion as to how the interests of the lay client can best be served; (c) when supplying legal services funded by the Legal Services Commission as part of the Community Legal Service or the Criminal Defence Service owes his primary duty to the lay client subject only to compliance with paragraph 304. 2.5 The advocate’s duty to the court has been given a statutory foundation by section 42 of the Access to Justice Act 1999, which inserted new subsections into sections 27 and 28 of the Courts and Legal Services Act 1990. These subsections apply to every person who exercises rights of audience before any court and who exercises rights to conduct litigation before a court and state: s.27(2A) Every person who exercises before any court a right of audience granted by an authorised body has (a) a duty to the court to act with independence in the interests of justice; and (b) a duty to comply with rules of conduct of the body relating to the right and approved for 3435523020 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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the purposes of this section; and those duties shall override any obligation which the person may have (otherwise than under the criminal law) if it is inconsistent with them.” 28(2A) Every person who exercises in relation to proceedings in any court a right to conduct litigation granted by an authorised body has (a) a duty to the court to act with independence in the interests of justice and (b) a duty to comply with rules of conduct of the body relating to the right and approved for the purposes of this section; and those duties shall override any obligation which the person may have (otherwise than under the criminal law) if it is inconsistent with them. 2.6 Legal Professional Privilege protects a client from having communications he has had with his legal advisors about the matter on which they have been instructed being disclosed to a third party, unless those instructions were sought in furtherance of a criminal enterprise. In addition Paragraph 702 of the Code provides that Whether or not the relation of counsel and client continues abarrister must preserve the confidentiality of the lay client’s aVairs and must not without the prior consent of the lay client or as permitted by law lend or reveal the contents of the papers in any instructions to or communicate to any third person . . . information which has been entrusted to him in confidence or use such information to the lay client’s detriment or to his own or another client’s advantage. 2.7 DiYcult decisions sometimes have to be taken where the barrister is required to consider whether his duty to his client might conflict with his duty to the Court. This usually arises where it may be thought that the barrister would have to breach Legal Professional Privilege in order to fulfil his primary duty to the Court.

3. Examples of a Barrister’s Duty to the Court 3.1 In the following examples the barrister’s duty to the court clearly overrides his duty to his client: (a) If a client instructs the barrister to act in a manner that would be contrary to the barrister’s duty to the court then the barrister must advise the client that it is his duty to act in compliance with his duty to the court. If the client refuses to allow the barrister to do so, the barrister should withdraw fromthe case. In addition to the FundamentalPrinciples, the Cod e provides further guidance in paragraphs 603 and 608. Examples of such situations include: (i) If the client instructs the barrister that the barrister is not to disclose a relevant non- privileged document. (ii) If the client instructs the barrister not to draw an adverse authority to the attention of the court. In both these circumstances the barrister is under a duty to the Court to ensure that proper disclosure is made and that the Court is aware of all relevant authorities, even if they do not support that barrister’s argument. 3.2 An example of where Legal Professional Privilege places a duty in law on the barrister not to reveal what may otherwise be considered to be material relevant to the Court’s determination can occur where, in a criminal case, the prosecution assert that the defendant is of good character, but the defendant has told his barrister that he has a previous conviction. That disclosure is covered by Legal Professional Privilege and the barrister should not disclose it to the Court. Because the onus rests on the prosecution to prove any fact, the defendant does not have to provide evidence against himself. 3.3 The Court of Appeal has frequently stressed the duty of a barrister to draw to the attention of the judge to any errors in the summing up so that these can be corrected, to be aware of the commencement date of recent relevant legislation particularly in the sentencing field, to identify to the judge relevant sentencing powers. This last duty was succinctly stated by Lawton LJ in R vClarke (R.W.W.) 59 Cr App R 298 at p 301: “We judge that counsel as a matter of professional duty to the court, and in the case of defending counsel to their client, should always before starting a criminal case satisfy themselves as to what the maximum sentence is.” 3.4 Without detracting fromhis duty to his client, counsel can and should e xercise in the interests of justice as a whole a proper discretion so as not to prolong cases unnecessarily. In Ashmore vCorpn Of Lloyd’s [1992] 1 WLR 446, at p 453 Lord Templeman said: “The parties and particularly their legal advisers in any litigation are under a duty to cooperate with the court by chronological, brief and consistent pleadings which define the issues and leave the judge to draw his own conclusions about the merits when he hears the case. It is the duty of the counsel 3435523020 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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to assist the judge by simplification and concentration and not to advance a multitude of ingenious arguments in the hope that out of ten bad points the judge will be capable of fashioning a winner. In nearly all cases the correct procedure works perfectly well. But there has been a tendency in some cases for legal advisers, pressed by their clients, to make every point conceivable and inconceivable without judgment or discrimination.”

4. Case Law 4.1 In Abraham vJustsun [1963] 2 All ER 401 at p 404, Lord Denning MR explained counsel’s duty as follows: “[It is an] advocate’s duty to take any point which he believes to be fairly arguable on behalf of his client. An advocate is not to usurp the province of the judge. He is not to determine what shall be the eVect of legal argument. He is not guilty of misconduct simply because he takes a point which the tribunal holds to be bad. He only becomes guilty of misconduct if he is dishonest. That is, if he knowingly takes a bad point and thereby deceives the court.” 4.2 Although Rondel vWorsley [1969] AC 191 has largely been overruled (see Arthur Hall vSimons below) Lord Reid noted (at p 227) that in addition to the duty owed to his client, a barrister owes “. . . an overriding duty to the court, to the standards of his profession, and to the public.” 4.3 In Saif vSydney Mitchell [1980] AC 198, Lord Diplock stated at 219-20: “The special characteristic of a barrister’s work upon which the greatest stress is laid by their Lordships was that he does not owe a duty only to his client; he owes a duty also to the court. This is an overriding duty which he must observe even though to do so in the particular case may appear to be contrary to the interests of his client. Furthermore a barrister has to exercise his judgment as to where the balance lies between these competing duties immediately and without opportunity for calmreflection as the trial inexorably proceeds. The rules which mayappea r to conflict with the interests of the client are simple to state, although their application in borderline cases may call for a degree of sophistry not readily appreciated by the lay client, particularly one who is defendant in a criminal trial. A barrister must not wilfully mislead the court as to the law nor may he actively mislead the court as to the facts; although, consistently with the rule that the prosecution must prove its case, he may passively stand by and watch the court being misled by reason of its failure to ascertain facts that are within the barrister’s knowledge. questions of considerable nicety may arise as to what constitutes suYcient foundation or relevance to justify the particular aspersion which his client wants himto make”. 4.4 In Arthur Hall vSimons [2000] 3 All ER 673, Lord HoVmann stated at p 687 and p 693: “Lawyers conducting litigation owe a divided loyalty. They have a duty to their clients, but they may not win by whatever means. They also owe a duty to the court and the administration of justice. They may not mislead the court or allow the judge to take what they know to be a bad point in their favour. They must cite all relevant law, whether for or against their case. They may not make imputations of dishonesty unless they have been given the information to support them. They should not waste time on irrelevancies even if the client thinks that they are important. Sometimes the performance of these duties to the court may annoy the client. I have no doubt that the advocate’s duty to the court is extremely important in the English system of justice. The substantial orality of the English systemof trial and appellate procedure meansthat the judges rely heavily upon the advocates appearing before themfor a fair presentation of the facts and adequate ins truction in the law. They trust the lawyers who appear before them; the lawyers trust each other to behave according to the rules, and that trust is seldommisplaced. . .” Lord Hope stated at p 715 and p 725: “. . . the advocate’s duty to the court or, as it has been put, the issue of divided loyalty. But in order to appreciate the force of this argument it is necessary to appreciate the extent of that duty and the extent to which the eYciency of our systems of criminal justice depends on it. The advocate’s duty to the court is not just that he must not mislead the court, that he must ensure that the facts are presented fairly and that he must draw the attention of the court to the relevant authorities even if they are against him. It extends to the whole way in which the client’s case is presented, so that time is not wasted and the court is able to focus on the issues as eYciently and economically as possible. He must refuse to put questions demanded by his client which he considers unnecessary or irrelevant, and he must refuse to take false points however much his client may insist that he should do so. For him to do these things contrary to his own independent 3435523020 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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judgement would be likely to impede and delay the administration of justice . . . (the) duty which the advocate undertakes to his client when he accepts the client’s instructions is one in which both the court and the public have an interest. While the advocate owes a duty to his client, he is also under a duty to assist the administration of justice . . . his duty to the court and to the public requires that he must be free, in the conduct of his client’s case at all times, to exercise his independent judgment as to what is required to serve the interests of justice. He is not bound by the wishes of his client in that respect, and the mere fact that he has declined to do what his client wishes will not expose himto any kind of liability.”

5. Difficult Cases

5.1 Cases can arise where there is an apparent tension between the duty of the advocate to the court and the concurrent duty of the advocate to disclose all relevant information to his client. In R vDavis [2006] EWCA Crim1155, the appellants appealed against their convictions, on the grounds that certain prosecution witnesses had been kept anonymous from them. The witnesses had attended the trial for cross- examination and were observed by the judge and jury, but had given their evidence frombehind a screen and had their voices disguised to prevent the appellants identifying them. This had raised an issue as to whether counsel for the appellants should be permitted to see the witnesses (which would assist themin their task of cross-examining) even though their clients could not see the witnesses. Counsel were concerned about their conflicting duties, namely, (a) A duty to the court to keep the witnesses anonymous (breach of which duty would be a contempt of court), and (b) A duty to their client to describe the witnesses to them(on the basis tha t this was relevant information).

5.2 The Court of Appeal held that the perceived conflict did not arise. In such circumstances counsel should (a) Explain to his client that counsel could watch the witnesses give evidence, and (b) explain to his client the potential advantages of counsel being able to observe the witness during cross-examination but that a pre-condition of him being able to see the witness would be that he could not provide his client with any description of the witness.

It was for the client to decide whether he was prepared to accept that; if not the client would instruct his counsel to cross-examine from behind the screen without seeing the witness.

5.3 The court did not in this case prefer the barrister’s duty to the court to the barrister’s duty to his client. The court held that the barrister could performhis duty to both by cross-ex amining from behind the screen. However, if the client wished to obtain the possible benefits of his barrister being able to see the witness’ demeanour when cross-examining, then this could only take place if the client consented to a limitation on the barrister’s usual duty to disclose all relevant information to the client.

5.4 This may mark a retreat from the rigid concept of the duty to the client which was accepted in cases such as R vDavis [1993] 1 WLR 613 and RvG[2004] 1 WLR 2932 in which it was held that a court cannot make an order or require a barrister to give an undertaking not to describe to his client information or documents which the barrister learns about during an ex parte hearing which he is permitted to attend. Either the hearing is ex parte and conducted without him, or he attends and is able to inform his client of what happened at the hearing.

5.5 In R vDavis [2006] EWCA Crim1155, the facts of which have been described above, the Cou rt of Appeal stated (at paragraph 72) that they had been invited to consider an extreme case where a prosecution witness was giving evidence subject to an anonymity order and where counsel for the defendant received express instructions fromhis client as to the description of the witness b elieved by the client to be the prosecution witness against him. If counsel observed the witness for himself, with the consent of his client, counsel might very quickly establish from the descriptions that the defendant’s belief was completely wrong. 3435523020 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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The Court of Appeal stated that in such circumstances, the barrister should ask the court to adjourn into chambers for the problem to be discussed with the judge and, after hearing both sides, for the judge to give a ruling. Such a procedure may well involve a barrister being required to reveal privileged conversations to the judge and other counsel. Such a course may cause insuperable problems for the barrister who is not permitted to waive privilege without his client’s consent.

6. Conclusions 6.1 Statute, the Code of Conduct and case law all support the primary duty that the barrister has to the Court. It is essential to the administration of justice and must be adhered to by all those responsible for the conduct of trials in civil and criminal courts. 6.2 Whilst there is a tension between that duty and the duty to the client, in particular in relation to privilege and confidentiality, it is usually not diYcult to resolve those issues in a way which will prevent the Court frombeing misledor the client frombeing placed unnecessarily in jeopard y. 6.3 The Code of Conduct needs to be—and is—regularly reviewed to ensure that it is in step with developments in the law and practice, and, where possible, public opinion. June 2006

BAR COUNCIL SUBMISSION ON CLAUSES 46 TO 50 LEGAL SERVICES BILL

The Competition Provisions The Bar has a number of serious concerns about these provisions. These concerns may be summarised as follows: 1. The Bill takes away rights of access to the Competition Appeal Tribunal which the legal profession presently enjoys. 2. The Bill is silent as to the alternative rights of access to courts. It is however implicit that a decision of the Secretary of State (under clause 50) could be judicially reviewed. However, both the High Court and the Court of Appeal have expressed concerns about their ability to address complex economic questions in competition cases when the matter arises by way of judicial review, and indeed this was one of the very reasons why the Competition Appeal Tribunal was set up in the first place. There is no reason why the legal profession should be singled out for such unusual procedures. This would make it the only business, trade, profession or service sector which was excluded fromaccess to the Tribunal in the UK. 3. The Bill creates an incredibly cumbersome procedure for deciding competition issues and involves a potential five way tussle between the OFT, the Board, the Consumer Panel, the Competition Commission and the Secretary of State. This is not only potentially very time-consuming and expensive but is completely unnecessary. All that is required is for the Board to be required to take decisions on competition issues having taken into account the opinion of the OFT and the Consumer Panel. Thereafter there should be a right of appeal to the Competition Appeal Tribunal. 4. The Bill confers final decision making power on a politician who might not even be a lawyer. This is quite inappropriate given that no other business, trade, profession or service sector is subjected to such political control. It threatens the independence of the legal profession. There follows a brief elaboration of each of these points:

The taking away of rights of access to the Competition Appeal Tribunal The structure of the Bill will take away fromthe legal profession as a whole a right of recourse to the Competition Appeal Tribunal which it presently enjoys. As matters stand today if the OFT has an issue with the rules of a regulator, such as the Bar Council or the Law Society, then it is empowered to take a decision under the Competition Act. In such cases the body concerned has a right of appeal to the Competition Appeal Tribunal which is a specialist Tribunal expressly equipped to adjudicate upon complex competition issues. This places the legal profession on a par with virtually every other business, trade, profession or service in the UK. 3435523022 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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The eVect however of the Bill will be to strip this very important right away from the legal profession and to provide it with no right of appeal whatsoever. There is no justification for taking away this right. Indeed, it is even more important when one of the regulatory objectives of the Board will be to promote competition and there may well be issues of a complex economic nature which will give rise to debate and possible disagreement as between the approved regulator, the Board, the OFT, the Competition Commission or the Secretary of State.

The alternative—judicial review—is inappropriate

The only route to a court possible under the regime set up by the Bill is via judicial review of a decision of the Secretary of State. This is not set out in the Bill but must be taken to be implicit. However, the Administrative Court has no experience of competition cases. In the very few cases where competition law has arisen the Court has expressed disquiet at the fact that it has been required to engage in such an analysis, and the Court of Appeal has also emphasised that the Administrative Court is ill-suited to hear such cases. The Administrative Court Judges do not receive competition law training (as do the Chancery Division and the Commercial Court judges).

The new procedure is cumbersome

Instead the Bill will introduce a very cumbersome procedure whereby if the OFT wishes to take issue with a rule of a regulator of which the Board approves then the OFT is empowered to produce a report in which it expresses its opinion on the issue. The Consumer Panel can then give to the Board such advice on the report as it sees fit (clause 47(4)). The Board must then give the issue proper consideration. If the OFT remains unhappy then it can provide its opinion to the Secretary of State who is bound to take the “advice of the Competition Commission”.30 That advice is then transmitted to the Secretary of State who has a power but no duty to follow that advice. The Secretary of State then has the power to direct the Board as he or she sees fit.

This is an incredibly cumbersome procedure. No provision whatsoever is made for rights of representation to be made for the aVected approved regulator or its members. There are five potential governmental or quasi- governmental bodies who are involved in assessing the approved regulator’s rule or arrangement. None of themis bound to seek and listen to the views of the approved regulator or its members (even though they might do so in practice). The process is likely to be time consuming, costly, and is wholly disproportionate to the object of the exercise. This can be seen when compared to the fact that under the present—much more abbreviated—regime if the OFT has an issue with a regulator then it adopts a decision and that decision is then appealed to the Tribunal. There is no reason which has been advanced why the legal profession should be singled out for such treatment. Indeed, the legal profession is by its very nature intensely competitive with very large numbers of practitioners in all fields, none of whomcan ever exert any significant marketpower. There can be no economic case for clauses 46 to 50 of the Bill.

Why should the legal profession be singled out for political interference?

There can also be no rational reason why the legal profession should be virtually the only trade, industry or sector which vests ultimate competition law control in the discretion of a Minister.

This gives rise to very serious concerns that the legal profession will become subject to “political” control and runs counter to recent developments whereby political influence over the structure of the legal profession is reduced not expanded.

30 But only if the OFT is of the opinion that the Board has failed to give “full and proper consideration to a report” (clause 48(1)). 3435523022 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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There is no reason why the Board cannot be trusted to take its own decisions on competition issues having taken account of the opinion of the OFT and the Consumer Panel. The Board will be independent and objective and immune from “political” pressures.

COMMENTS OF BAR COUNCIL ON EVIDENCE OF DCA MINISTER TO JOINT COMMITTEE ON THE DRAFT LEGAL SERVICES BILL

Costs 1. We have genuine doubts that the figures spoken to by the Minister in her evidence at pp 40-42 of the uncorrected transcript are realistic. 2. Costs overall “in the region of £99 million” compared with a prediction of costs under the new regulatory system “of about £87,88 million” are, presumably, drawn from PWC’s figures of £64.9 million current annual costs of regulation and £32.5 million current annual costs of complaints handling (PWC Report, pp 14, 15), with a projected increase of £2.4 million in regulatory costs and a claimed £12 million saving on the costs of complaints handling (RIA, paras 4.47, 4.48, 6.39). 3. The claimed saving on costs of complaints handling is based on assumptions of no increase in the number of complaints and a 15 per cent eYciency saving in complaints handling. As we have suggested in our Analysis of Costs paper of 7 June and in our oral evidence [ref], these assumptions are most imprudent. 4. If, as PWC assume as an alternative case, there is a 25 per cent increase in complaints numbers, the cost increases by a further £4.2 million (referred to by the Minister as a possible slight increase), and if the 15 per cent eYciency saving is not achieved it increases by a further £4.2 million (if our assessment is right) or £9.3 million if PWC’s calculations are right (see the Bar Council’s Analysis of Costs paper, para 3). Thus, on more sensible assumptions, there is likely to be an overall increase in total annual costs of regulation, plus the very high start up costs of £26 million. 5. The Minister further claims that at current levels of complaints but with the 15 per cent increase in eYciency the cost of complaints handling to the sector as a whole will reduce by over £6 million, a figure which reduces to about £2.3 million with a 25 per cent increase in the number of complaints. These figures are diYcult to reconcile with PWC’s work. The claimed savings (assuming the 15 per cent eYciency increase) on PWC’s calculations are £11.9 million, or £7.7 million with the increased number of complaints. Clearly, a (best) saving of £6 million and an increase of £2.4 million on other regulatory costs do not amount to a saving to the consumer of £10 million. 6. As for PWC’s primary assumptions (no increase in number of complaints, 15 per cent increase in eYciency), the Minister says that although they are PWC’s assumptions and not DCA’s, “we are content those assumptions are not unrealistic”. Later she says that “there has to be a notion of some uncertainty about that”. Even PWC’s alternative assumption of a 25 per cent increase looks conservative when compared with the experience of the FOS, which in its first five years saw a four-fold increase in the number of complaints and a three-fold increase in the number of staV. 7. The truth appears to us to be that the much-trumpeted savings on complaints handling, which are a substantial justification for and which underpin the aVordability of the new regime, are illusory. There is no chance of the Minister’s hope of £10 million being returned to the consumer coming true. Rather, it looks as if there could be a substantial increase in cost, for the reasons given above, to be added to initial start up costs of about £26 million (RIA, paras 4.53, 4.54 and 6.39). July 2006

Further supplementary memorandum by the General Council of the Bar (Ev 01f) Further to previous correspondence I have had the opportunity to see the letter to you dated 12 July from Zahida Manzoor, the Legal Services Ombudsman, together with her supplemental memorandum. I would draw attention in particular to paragraphs 6–8 of that memorandum. As you know, the Bar Council and the Bar Standards Board have submitted to the Committee that the legislation should contain a power (and no more than a power), to be exercisable by the LSB/OLC, to delegate back to a frontline regulator appropriate service complaints eg those very closely intertwined to a related conduct complaint, if they consider it appropriate to do so. There is no objection to a single portal for all complaints. 3435523024 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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We feel very strongly that if, as the Government have announced, the OLC is to be located in the West Midlands, then the case for the legislation to contain this power becomes even stronger. Unless the legislation contains such a power, consumers will lose what the Ombudsman describes as “the quality of the complaints handling service oVered by the Bar Council (the body handling the second largest number of complaints)” but with no guarantee of any compensating gain, and with the risk of very substantially increased costs, which are likely one way or another to be passed on to consumers themselves. At the very least I respectfully suggest that this shows that the issue is one which deserves at least to be considered by Parliament when the Bill is introduced, and upon which a premature advance judgement against the Bar Council’s position would not be in the public interest. 5 July 2006 3435523025 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

78 joint committee on the draft legal services bill: evidence

MONDAY 12 JUNE 2006

Present Bach, L Mr David Burrowes Campbell of Alloway, L JohnHemming Falkner of Margravine, B Stephen Hesford Henig, B Mr David Kidney Hunt of Wirral, L (Chairman) Emily Thornberry Neill of Bladen, L

In Attendance: Mr Nigel Reeder and Mr Sean Langley, members of the Draft Legal Services Bill Team.

Memorandum by the National Consumer Council (Ev 04)

1. Introduction

NCC supports the Draft Legal Services Bill 1.1 The National Consumer Council (NCC) is very supportive of the Draft Bill in its current form. The proposals succeed due to the emphasis placed throughout the reform process on putting the consumer interest first. We hope that this principle will remain foremost as the Bill moves through the parliamentary process. 1.2 Our submission concentrates on areas of the Bill that we would like to see strengthened. The points we make correspond to the order they appear in the Bill. Many of our comments consider issues included in the call for evidence, however we do not have views on all the questions asked in this document.

Key benefits 1.3 Overall, we consider that the proposals are necessary, workable and suYcient. We identify the following main benefits: — All partners in the regulatory framework will have a duty to promote the regulatory objectives, including: “protecting and promoting the interests of consumers”. — The creation of a new oversight regulator, the Legal Services Board (LSB), should provide a modem, simpler regulatory structure and give consumers the greater protection they require. The current maze of self-regulatory arrangements has not delivered real consumer benefits and fails to command consumer confidence. The separation by Front Line Regulators (FLRs) of their representation and regulatory functions is a vital part of the new regime. It will be important for the regulator to ensure that this split is not merely illusory, but instead that FLRs work to the same consumerfocused regulatory objectives as the LSB. — The LSB will act with a proportionate touch. The FLRs will have freedomto c arry out their regulatory activities so long as they performthese satisfactorily. Howe ver, the LSB will have a smart range of sanctions at its disposal if FLRs fail to performtheir regulatory functions to an adequate standard. — The Consumer Panel will keep the regulator in touch with the consumer experience and, equally important, oVer a way for the consumer interest to hold the regulator to account. — Proposals concerning the extension of reserved legal activities, especially the requirement on the LSB to consider a request made by the Consumer Panel, should enable the regulator to protect consumers quickly and eVectively if new problems occur. — Alternative business structures may deliver many consumer benefits. The provision of one-stop- shops promises greater convenience and more choice. Greater competition may also yield additional benefits such as innovation and lower prices. New entrants fromthe private sector should help to stimulate a cultural shift in legal services provision in terms of customer focus, where the profession is currendy deficient. The Bill provides safeguards to protect consumers and scope for the regulator to intervene if access to justice is compromised by market dynamics. 3435523025 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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— The OYce for Legal Complaints (OLC) will be fully independent of the professions and will provide a single access point for all complaints about reserved legal services. To achieve consumer confidence it is absolutely imperative that the OLC is created as an entirely new organisation, rather than as a re-badged Law Society Consumer Complaints Service (CCS). The latest report of the Legal Services Complaints Commissioner has highlighted that, despite some improvement, the CCS continues to fail to meet the majority of its performance targets and a large proportion of consumers remain dissatisfied with the way in which the CCS handled their complaint.

2. Strengthening the Draft Bill

Regulatory objectives 2.1 We are pleased that there is an explicit duty on all partners in the regulatory framework to protect and promote consumers’ interests. However, it should be made clear that complying with this objective should come before all others, alongside other consumer-focused objectives concerning competition and access to justice. 2.2 The Regulatory Impact Assessment states that the intention of the reforms is to put consumers at the heart of a new framework for the regulation and delivery of legal services (page 13). This is entirely right since the ultimate purpose of regulation should be to protect the end user. Further, consumers are at a particular disadvantage in the legal services market due to the imbalance in information between themand the profession. 2.3 If the regulatory objectives are evenly weighted, then there is a risk that FLRs will put professional interests first if these conflict with the consumer interest. We note that although the Law Society and Bar Council have increased lay membership in their reformed governance structures, these still retain a professional majority.

Consumer Panel 2.4 We welcome the creation of a Consumer Panel but further explicit duties and powers are necessary if it is to performits role e Vectively. 2.5 All regulators should develop eVective ways to listen, understand and give suYcient weight to consumer interests in their decision-making. Consumer panels represent one route to help achieve consumer-focused regulation. The roles of consumer panels encompass providing advice, scrutinising policy, holding regulators accountable for their performance and being forwardthinking to identify priority areas where future regulatory activity is needed. 2.6 The Bill currently gives the Consumer Panel some powers, which we welcome. The LSB is required to consider any representations made to it by the Consumer Panel and explain its reasons for disagreeing with these representations. The Consumer Panel may also request the LSB to consider an extension of reserved activities and is consulted on many of its key decisions. 2.7 We would also like to see the Consumer Panel have an explicit right to publish its views and to request information from the LSB. Further, the Consumer Panel should have a duty to prepare an annual report of its activities. In order to ensure the independence of the Consumer Panel fromthe LSB, the Chairmanof the Panel should be approved by the Secretary of State following an open appointment process. Finally, panel members should be remunerated in order to attract individuals of high calibre. These powers and duties are consistent with those held by the existing consumer panels (Financial Services Consumer Panel and Ofcom Consumer Panel) and modern regulatory good practice.

Office for Legal Complaints—voluntary jurisdiction 2.8 We would like to see provision for non-reserved legal activities to be brought within the jurisdiction of the OLC on a voluntary basis. In this scenario, a professional body would request that its members are covered by the scheme. All complaints would be dealt with in an identical way to those under the compulsory jurisdiction of the OLC, ie reserved legal activities. This principle has worked successfully in the financial services sector (see Financial Services and Markets Act 2000, para 227). The principle of voluntary jurisdiction aVords consumers greater protection in markets where reservation is inappropriate or where reservation is anticipated but may take time to come into eVect. 3435523026 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Office for Legal Complaints—redress limits

2.9 There needs to be a clear, justifiable rationale for choosing the level of compensation award available to the OLC. The reasons for choosing the current proposed limit of £20,000 are unclear. 2.10 One key factor in determining the appropriate redress limit is the potential level of detriment that consumers may suVer as a consequence of the actions of a legal services provider. The redress limit available to the OLC should also take into account the limits in comparable schemes (eg £25,000 at the Ombudsman for Estate Agents, £100,000 at the Financial Ombudsman Service). This is particularly important in the context of alternative business structures, where the consumer may in future receive legal, financial and estate agency services from a single provider for the same transaction. In these circumstances, it is clearly desirable for there to be consistency in redress arrangements between the relevant schemes.

Office for Legal Complaints—reports of investigations

2.11 We would like to see the proposals in this section strengthened, so that they make more explicit the right of the OLC to publish any information relating to the exercise of its functions as it considers appropriate. Such information may include the identity of respondents against whom the OLC upholds complaints. We understand that the Freedom of Information Act would permit the OLC to publish this information. However, we would wish the ombudsman to release such information proactively, so it would be helpful to include explicit provisions in this part of the BilL 2.12 In its response to the white paper, the Law Society Consumer Complaints Board notes that in the period from 1 December 2004 to 30 November 2005, 7 per cent of firms referred to the Consumer Complaints Service had ten or more complaints, and seven per cent of solicitors firms accounted for one third of the total complaints received in this period. Publishing information about respondents would aid informed consumer choice and act as a deterrent to non-compliance. We note that the current Macrory Review of regulators’ penalty regimes includes reputational sanctions within the scope of its study.

Office for Legal Complaints—appeals

2.13 We do not consider that there should be a right of appeal against OLC decisions, so the Bill should be unaltered in this respect. However, we consider this issue here since it was highlighted in the call for evidence. 2.14 An appeals mechanism would disadvantage consumers. It would introduce delay in resolving cases, and the prospect of delay could dissuade consumers from making a justified complaint in the first place. Adding further complexity to the complaints process through an appeals mechanism would make the ombudsman more daunting for consumers, and goes against the spirit of the intention to resolve disputes with minimum formality. The proposed case handling procedures give the losing party ample opportunity to provide reasons or additional evidence in support of their case before a binding decision is made. The ombudsman, who is independent and accountable through Parliament, is a competent and expert authority to make final determinations. Finally, we note that other private sector ombudsman schemes do not allow firms to appeal decisions and that HM Treasury recendy considered and rejected proposals to introduce an appeals mechanism for the Financial Ombudsman Service.

Compensation Fund

2.15 We are pleased that the Parliamentary Under Secretary of State has asked the Committee to consider this issue. The absence of a Compensation Fund is a key missing ingredient in the proposals as they currendy stand. Compensation funds provide redress for consumers in cases such as fraud where indemnity insurance or other forms of redress are unavailable. 2.16 We understand that consultants are due to report on the options for establishing a Compensation Fund. We would wish to read that report before reaching a final position on the issue. However, our initial view is that a central compensation scheme should be established, administered by the OLC, to which each FLR would be required to contribute funds on a proportionate basis. This solution is simple for consumers and promotes consistency; the alternative solution would require each FLR to run its own scheme, where diVerent rules and systems may apply. Another advantage is that administration of the Fund by the OLC would promote transparency. This approach is also the most eYcient, which is particularly important for smaller FLRs who may find creating and maintaining their own schemes a heavy burden. 3435523028 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Memorandum by Which? (Ev 21)

Introduction to Which? 1. Which? is the largest consumer organisation in Europe, with around 700,000 members. Entirely independent and not-for-profit, we are funded through the sale of our Which? range of consumer magazines and books. We are also a provider of legal services through Which? Legal Service, oVering consumer advice to subscribers. The service is regulated by the Law Society and the Bar Council. A subscription to Which? Legal Service costs £51 per annum (or £39 to Which? members). 2. The current regulatory system is not delivering for consumers, Too many are suVering frominadequate service and legal advice—in fact our research shows one in six rate the service they received as poor or very poor and in 2004–05 the Law Society received more than one complaint for every six solicitors practising in England and Wales. We believe the new regulatory structure will improve the quality of legal services for consumers because quality is aVected by the way professions are regulated and how they view consumers. In particular, independent, eVective complaints handling that can highlight issues, give feedback to regulators on trends and encourage professionals to improve their complaints handling and service levels can only have a beneficial impact on the quality of advice. 3. Which? strongly supports the proposals set out in draft legal services bill. Access to justice is a fundamental consumer right and eVective regulation of legal services is vital to restore consumer confidence in a system which many feel is letting them down. The radical overhaul of the regulation of legal professions set out in the draft bill will make it easier to access legal services, ensure better protection for consumers and help to reduce the negative perception many people have of the legal professions. It is vital the proposals are not watered down during the legislative process and proper resources are made available to ensure a truly robust regulatory systemoperating on behalf of consumers.

Comments on The Draft Bill 4. We have largely confined our response to where we think the bill needs clarifying, strengthening or where we disagree. We are pleased the Government has put consumers at the heart of the new system. Which? research has shown why this is necessary (see our response to the Government’s White Paper, The future of legal services: Putting consumers first, for details) and we think the draft bill’s proposals are workable and suYcient. 5. Our comments are based on the key principles of ensuring the new system is independent, accessible, transparent, eYcient, straightforward and provides eVective redress for consumers.

Regulatory objectives 6. As we have set out previously in both our responses to the White Paper and the Clementi review of legal services, we believe the key objectives of a regulator should be access to justice, consumer and competition considerations and these should take precedence over any others. We are concerned the proposed objectives as set out in clause 1 of the draft bill include “encouraging a strong, diverse and eVective legal profession”. Regulation is there to protect consumers—it should not be responsible for protecting the industry it is there to regulate.

Legal Services Board 7. We strongly support the proposals to set up an independent Legal Services Board (LSB) to provide oversight regulation of the professions. We believe that by ending the current maze of regulators, consumers will be clear about how regulation works and can be confident it is designed to meet their needs and not those of providers. Despite the view expressed by the Law Society in their oral evidence to the committee, this is bound to have a beneficial impact on consumer confidence in legal services. 8. All appointments to the LSB should be made in line with Nolan procedures. To ensure the LSB is seen as independent from government as well as from the professions, members of the LSB could be appointed in line with the new arrangements for judicial appointments, rather than by the Secretary of State. Alternatively, once the first board has been appointed by the Secretary of State, subsequent members could be appointed by a nominations committee of the LSB. To maintain consumer confidence, all chairs of the LSB should be lay people, not just the first. 3435523028 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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9. In our response to the White Paper we set out how the LSB must take a robust view on how the approved regulators were discharging their duties and maintaining the split between their regulatory and representative functions. We believe the draft bill does give the LSB the necessary powers. Contrary to the views given by both the Law Society and the Bar Council in their oral evidence, we do not think the draft bill should prescribe how these powers are used. Rather, once set up, the LSB itself should set the rules. We do not think these provisions should be watered down in any way. Approved regulators will have nothing to fear fromthe sanctions if they are regulating eVectively, protecting consumers and not driven by the interests of their members. We do, however, think the draft bill should set out an express duty on approved regulators to split their representation and regulatory functions. At the moment the only reference is in clause 25 (Directions). 10. We do not think the draft bill is suYciently clear about the relationships between the LSB, approved regulators and other regulators in relevant sectors. As we set out on page 4 of our White Paper response, we are concerned that some consumers are falling through the gaps because regulation is focused on the entity and not the service. For example, when selling financial products, solicitors should be regulated by the Financial Services Authority (FSA) and not the Law Society. 11. We do not have any specific views about funding the new arrangements, other than seeking assurances that there will be suYcient resources for the systemto work properly and that the costs will not b e passed on to consumers.

Consumer Panel

12. We support proposals for setting up a Consumer Panel and the roles set out for it in the draft bill. We are particularly pleased the Panel will be able to challenge the LSB. The members of the Panel should be appointed by the Secretary of State, rather than the LSB, to ensure it is robust and independent and not subject to pressure from the LSB. Furthermore, members should be known to consumer organisations to make sure they have the necessary experience and knowledge of consumer issues.

Compensation Fund

13. The Committee’s call for evidence specifically asks for responses to proposed compensation fund arrangements. However, the draft bill doesn’t contain any reference to a compensation fund, other than in respect of practice requirements under the licensing rules (schedule 11). We believe this is a key aspect missing fromthe proposals, although we understand that further work is ongoing as to what formcompensationfunds should take under the new regime. As a general principle, we believe a central compensation fund, rather than approved regulators each running their own, would be the most eVective and eYcient way of securing redress for consumers who are not able to get compensation through other means. It would ensure there was a consistency of approach across all the professions and enable smaller approved regulators to participate, who may struggle to find the resources to set up and maintain their own fund.

Alternative Business Structures

14. Which? remains very supportive of the proposals to end the restrictions on the types of business structures able to provide legal services. Our views on the benefits to consumers are set out in our response to the White Paper. This also set out our concerns about gaps in the proposals, some of which have still not been addressed in the draft bill. 15. Our view is that the role of a licensing authority is to make sure alternative business structures (ABS) have proper ownership, governance and management practices and not to regulate the professionals within it (although they may also have this role as an approved regulator). Therefore, an ABS should not have to apply to more than one licensing authority if it is providing more than one reserved legal activity (as suggested by clause 68, subsection 2). However, as we set out in our response to the White Paper, ABS firms should not be able to shop around for a licensing authority, but have a designated licensing authority, perhaps determined by the predominant professions in the firm. 16. The draft bill is also not clear on what arrangements need to be set up with other regulators to ensure proper protection for consumers. We believe ABS firms should have to specify in their application all the services they plan to oVer so the licensing authority can ensure there are agreements with other regulators, such as the FSA, if the ABS will be oVering financial advice to consumers. 3435523029 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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17. We don’t think there is necessarily any conflict of interest in ABS firms oVering multidisciplinary services and in fact see significant benefits for consumers in such “one-stopshops”. However, licensing rules should set out how firms must make it clear to consumers that they are free to get services elsewhere as well as being able to purchase themas a package fromthe ABS. 18. We do not think that ABS will have a negative impact on access to justice. It is quite possible it will mean a drop in the number of firms oVering legal services, but this will be more than oVset by an increase in quality and diversity of provision with more legal services being oVered via the internet and telephone for example. As the Financial Times of 6 June said “competition delivers results in ways that government bureaucrats cannot anticipate. Consumers can expect more choice, innovative services and lower prices. Familiar brands such as Tesco and the AA have nothing to gain fromo Vering substandard legal services”. Furthermore, by enabling competition and lower prices, liberalising the industry is likely to increase access to legal services for those who have been eVectively priced out of the market by the cuts in legal aid.

Office for Legal Complaints

19. Which? has identified seven key principles for an eVective ombudsman scheme: access, independence, fairness, transparency, eVectiveness, eYciency and confidentiality (details are in the attached briefing The right to redress: a model ombudsman system) [submitted but not printed]. The proposals for the OYce for Legal Complaints (OLC) in the draft bill should meet these requirements. To ensure this is the case, the scheme rules should be drawn up in consultation with the Consumer Panel and other consumer groups. 20. If these principles are to be maintained and if consumers are to trust the new OLC, it must be a completely new and independent organisation and not just a re-badging of the existing complaints systems. Furthermore, it is vital the OLC is not given the power to delegate complaints handling to the approved regulators—there must be a consistency of approach and a recognition that consumers do not want to have to complain to the professional body of the very profession they are complaining about. 21. The fact that the Legal Services Complaints Commissioner recently fined the Law Society £250,000 for having “inadequate” plans and letting consumers down further illustrates the need for a complete culture change in complaints handling. We note from the PWC financial analysis that various sites and structures are being considered for the OLC. We will be urging the government to make sure that consumers needs are at the forefront of these considerations, meaning it should be at a significant distance fromthe Law Society’s Leamington Spa site and should enable face-to-face contact with complainants as much as possible. 22. We welcome the broad definition of the ombudsman scheme’s jurisdiction, which would allow consumers who have had a problemwith a legal professional to complain,even if they we ren’t the client (eg beneficiaries of wills). The scheme should also be able to deal with complaints carried over fromthe previous complaints systemif they are not resolved by the timethe OLC is set up. There is likely t o be a significant number of these—in her interim report, the Legal Services Complaints Commissioner highlighted how 13 per cent of all live cases with the Law Society’s Consumer Complaints Service were over 12 months old and Which? has numerous examples of consumers whose cases have remained unresolved for months and even years. 23. It is not clear from the draft bill whether consumers will be able to make representations on disciplinary matters arising from their complaints. Consumers do not diVerentiate between service complaints and disciplinary matters and they should be kept informed of the outcome of any complaint they make, even if it concerns misconduct and is referred to the approved regulator by the OLC. It is also vital that consumers are entitled to compensation for financial loss whether their case is a service or misconduct issue. 24. We are not sure of the rationale for setting the maximum redress in the draft bill at £20,000. While this is an increase on the current Law Society limit of £15,000, it is still substantially below other ombudsman schemes (such as £25,000 for the Ombudsman for Estate Agents and £100,000 for the Financial Ombudsman Service (FOS)). The White Paper suggested this limit was set to protect suppliers, but we would argue consumers’ needs should be paramount and further research is necessary to determine what this should be. 25. The limit is of particular concern where consumers will be buying products and services fromABS firms and they should not be penalised by the lower level of redress set for the OLC (see below for more details on complaints about ABS firms). The limit is also set too low for the scheme to be an eVective way of securing redress for many negligence complaints. In these circumstances, consumers must be advised about their right to go to court and the time limits involved. 3435523031 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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26. We do not think respondents’ expenses should be included in the redress limit (clause 110 (2)a) as this could penalise consumers. In all cases, the awards made under the scheme should set out how much is for expenses and how much for actual compensation. We are also concerned consumers may have to resort to court to get directions enforced and believe there must be other ways of ensuring respondents comply: for example, approved regulators could step in to ensure compliance. 27. We support the view there should be no external appeals body for decisions of the OLC, providing consumers still have the right to go to court. The draft bill sets out that neither complainants nor respondents will be able to take legal proceedings in respect of determined complaints, but we also want to see safeguards against solicitors bringing vexatious legal proceedings about the subject of a complaint to avoid investigation by the OLC. It is worth noting that people unhappy with a decision of a FOS ombudsman can have their decision assessed by an independent assessor who examines the processes to see if the decision was made correctly. The assessor does not have the power to reverse the decision, but can resubmit it back to FOS where he disagrees. This happened with Mr C in a recent endowment claims time bar case and can be persuasive if the consumer then wants to take the matter to court, which Mr C did and the court found in his favour. 28. The draft bill sets out that the OLC may publish reports of investigations, but we would like to see this clause strengthened so more information can be made publicly available. Consumers should be able to find out which firms have had complaints about them upheld to help them make informed choices. Making this information public also acts as a deterrent to non-compliance. 29. We do not think the draft bill sets out in enough detail how complaints about products and services from ABS firms are dealt with, it simply states the ombudsman may consider the complaint is better dealt with under another scheme. We are concerned there should be clearer guidelines about when complaints should be passed to other schemes so consumers do not suVer fromthe likely lower levels of redress available under the OLC scheme. 30. Furthermore, there needs to be a clear pathway for consumers. We would suggest that once they have exhausted the ABS own complaints procedure, consumers should, in all instances, complain to the OLC, but that their complaint is automatically channelled to, for example, FOS if their complaint is about a financial adviser within the firm. There needs to be a clear system in place to make sure the complaint doesn’t get lost and the consumer is clear about who is handling their complaint and who they should contact for information. Most importantly, the system should avoid duplication of process by ensuring consumers do not have to complain twice to diVerent complaints bodies about the same issue. 31. We would urge the government to set up a shadow OLC board to oversee transition arrangements for complaints handling so consumers do not suVer fromdeclining levels of service in the interimcaused by low staV morale in the existing complaints handling bodies. 32. We are aware of discussions about whether the FOS could take on the role of the OLC, rather than setting up a new structure as proposed in the draft bill. Our initial reaction is that this could deal with some of the issues raised above. FOS would clearly be independent of the legal professions, has expertise in complaints handling a consumer-focused culture, and could handle transition arrangements. It would solve most of our concerns about the complexity of dealing with complaints from ABS firms, as both financial and legal complaints would be dealt with by one body. We look forward to seeing more detail about how this could work. 14 June 2006

Examination of Witnesses Witnesses: Mr James Sandbach, Social Policy Officer inLegal Issues, CitizensAdvice Bureau, M r Steve Brooker, Senior Policy Officer, National Consumer Council; and Ms Louise Restell, Campaigns Project Manager, Which?, examined.

Q130 Chairman: First of all, may I welcome James great assistance to us in meeting the deadlines that we Sandbach fromthe Citizens Advice Bureau; Steve have been set. You may want to say something at the Brooker from the National Consumer Council; and start, but I thought I might just commence by asking Louise Restell from Which? We are particularly you a general question because we are very interested grateful to you for responding at such short notice in your views about the extent to which the draft Bill but we have quite an intensive and challenging meets the consumer interests which you represent. timetable and the fact that you are here today is of What are the advantages and disadvantages of the 3435523031 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Mr James Sandbach, Mr Steve Brooker and Ms Louise Restell new regulatory framework from the point of view of address this problem. The first is to rank the consumers? If you remember, Sir David Clementi, consumer objective above all the rest and the second who will be giving evidence to us later, had is to require that the FLRs have lay majorities in recommended a Model B! system, on which the their governance boards. Bill is based, over the Model A, as he described it, Chairman: I suppose I should have declared my which was very much the financial services model. interest as a solicitor and I know you are about to, I just wondered what your views are, if I might take Lord Bach. you individually first of all, on the draft Bill and the systemthat it proposes. Mr Sandbach, would you Q132 Lord Bach: I amnow, Chairman.I hope you like to start? do not mind me interrupting but it is directly as a Mr Sandbach: I think there was a general consensus consequence of those replies. I ama non-practising about Model B! being the most appropriate for the barrister and I was for a short time a minister in the legal sector, given that there is considerable old Lord Chancellor’s Department. You say that expertise within the professional bodies on the two ways round the problemwith Model B ! regulation, so it was considered that it would be a and its potential lack of independence are the two more appropriate structure for this particular that you have just set out. Some might argue that sector. However, I think there are a number of the best way round that independence argument in issues that arise, particularly under the Bill, which the end is Model A, so why do you and those with is how quickly this structure can adapt and move you argue against Model A? That is what I cannot with the times; how quickly can new regulators be understand for the moment. formed, come under the jurisdiction of the Legal Mr Brooker: I would argue that there are three Services Board, and have the quality control of a advantages that Model B! has over Model A. First market that is moving and developing very, very of all, it does make best use of professional expertise rapidly. The advantage of Model A is that the FSA and incentivises the profession to maintain the can respond quite quickly to perceived detriments to standards to which it aspires. Contrary to James, I the market. They can pass a regulation and bring believe that Model B! can be more fleet of foot in something into scope like that. The Bill does not response to change. The third advantage is that the quite have that sort of flexibility within it. There is cost of regulation is borne directly by the a process of going back to the Secretary of State and professions in Model B!. back to the Board which could take a number of years to be able to amend what the Legal Services Q133 Chairman: I would move on to Ms Restell. Board can regulate. I think that is something that Ms Restell: I think the first thing to say is that does need to be looked at. Broadly, we certainly Which? is very supportive of the Bill in general and support this more flexible approach to regulation as I would just like to put that on the record, we think a whole in allowing the professional bodies who that the three main planks in the Bill—setting up the have their expertise there, so long as they are up to Legal Services Board, the independent complaints standard and fit for purpose to continue doing handling and new models for business practices— their job. are all very beneficial for consumers. In terms of thinking about the regulatory structure, really the Q131 Chairman: Thank you very much. Mr only disadvantage that we can see with having Brooker? Model B! is that there would certainly be some Mr Brooker: I would agree that Model B! is the consumers, and I can completely understand this, most appropriate structure for this particular sector. who would feel that the professions should not have As James indicated, it makes the best use of any role in regulation at all. We think there is some professional expertise. The disadvantage of Model roomfor co-regulation. We are not necessarily B! compared to Model A is that the system is less always pro a heavy-handed regulation approach. I independent. Model B! addresses this risk by think Steve is right that there is roomthere for more requiring the FLRs to separate their representation flexibility, for building on some of the expertise that and regulatory functions. We have some concerns is there. So long as the Legal Services Board is that the Bill does not address this fully; first of all, robust, so long as it has as its primary objective the regulatory objectives are evenly weighted and, access to justice and protecting consumers, and so secondly, the Law Society and Bar Council’s long as it has a range of functions at its disposal and reformed governance structures retain a is independent enough to use those, we do not see professional majority, so if a conflict of interest were there is a problemwith that. to arise between the professional interest and the consumer interest then we do not have full Q134 John Hemming: To move on from there, how confidence that the FLRs will vote in favour of the do you believe the ministerial appointment of the consumer interest. So there are perhaps two ways to Legal Services Board will aVect either the perception 3435523031 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Mr James Sandbach, Mr Steve Brooker and Ms Louise Restell or reality of the independence of the legal service that they are delivering, and there is more of profession? an incentive for themto do that, and we think this Mr Sandbach: I can certainly understand why the will see standards being driven up because there will legal profession have concerns about ministerial an incentive to improve and consumers will see that appointment of a regulator to regulate their the independent governance structure that is there professional conduct because of the ethos of the is supporting their interests and not those of the legal profession of being independent of government profession. I do not think you can divorce the and of having to challenge government decisions service issue at all from what is set out in the and of having a quasi constitutional role of being draft Bill. the guardians of the legal traditions. I do think there Mr Sandbach: I always have particular concerns in is a way round this which I suggested in my this area about the quality of legal advice. I think submission which is that perhaps the chair could be the Legal Services Board is going to have a very big appointed or at least the appointment process could challenge to be able to sign oV the professional rules be scrutinised by the Judicial Appointments of conduct for all the diVerent professions and Commission, which has now been set up with a role scrutinise them, and be able to make judgments of ensuring in particular the independence of the about whether they are fit and appropriate for that judiciary and legal appointments as a whole. particular business and that particular sector, and Perhaps that Commission’s structure in the future that they do engender a culture of high-quality could be broadened to look at this type of advice. I think there are strategic issues that the appointment. I do understand there are concerns Board itself can address about what is meant by about this but, then again, every single public “good” legal advice because certainly what we find regulator is appointed by the sponsoring at the Citizens Advice Bureau, where our clients are department and that is normal Whitehall practice. inter-acting with their solicitors and with their legal advisers, is that often they might be getting the Q135 John Hemming: Does Mr Brooker or Ms highest, most technically accurate legal advice that Restell have anything to add to that? is available to thembut it is entirely inappropriate to Mr Brooker: Not in particular, just to say that it is their particular circumstances as consumers. What I fully in the consumer interest that the professions mean by that is that very poor consumers who are are independent of the state, as lawyers often act on in debt and who have multiple social issues in their behalf of consumers who are in conflict with the lives are often looking for advice that goes wider state. So long as we have an open appointment than what the technicality of a particular legal issue process that ensures we have the right people for the they are dealing with is. We have often found that job, that is what really matters here. some legal practitioners just do not quite pick up on Ms Restell: I would agree with that. some of those issues, so for example we will often Chairman: Lord Campbell? get cases reported to us of solicitors advising on debt issues who will not pick up that a particular client might be entitled to a benefit that will help them. Q136 Lord Campbell of Alloway: It is a very short Sometimes the best they will do is refer them to us, question, but I wonder, with respect to you all, but all these issues can be picked up. There are whether any of you or your organisations have issues about what is good legal advice and this can taken into account the benefits to the consumer of come out in scrutinising practice rules and getting absolutely first-rate legal advice, and that scrutinising how lawyers do their jobs. goes for the patent agents, it goes for the solicitors, it goes for the trademark agents, it goes for everybody. In your reports I have not seen much Q137 John Hemming: Moving further on and also evidence of that concern. in a sense coming back to that, do you believe the Ms Restell: Clearly we would be supportive of the powers of the Legal Services Board as set out in the consumer getting absolutely first-class legal advice. draft Bill find the right balance between “light That is exactly what we want to see. I do not think touch” regulation and protecting consumers if you can divorce that fromany of the reformsthat regulators are failing to performadequately? Going are set out in the draft Bill. For too long consumers on with this question of access to justice good and have been telling us about the second-rate service legal advice and keeping the consumers happy, in that they are getting fromsolicitors, whether that is a litigation case if somebody goes round to lots of service issues or the quality of advice. We think that solicitors and says “Will you take my case?” and you the draft Bill in some way should go toward give themgood legal advice and say, “No, you addressing that. If you have an independent haven’t got a cat in hell’s chance,” they are going complaints system, if you have independent to go and complain to somebody else because they regulatory oversight of the profession, then the onus have not got what they wanted, and there is that is on the profession to improve the standards of element as well. Your comments on that? 3435523031 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Mr Sandbach: In that particular case obviously the he was doing, and there was a considerable sum legal professional has done their job and has given involved, it was pointed out that this cannot be dealt the correct and appropriate advice on the chances with on the merits by anyone who is not legally of success in litigation, but I think there has been a trained and understands what it is all about. You tendency to narrow the scope of what legal advice cannot just expect a lay tribunal to really appreciate is to just issues concerning litigation whereas I think what the situation was. I give it as one example good legal advice takes account of wider issues as which was given to us in evidence. What is your well, such as whether litigation is appropriate in the reaction to that? circumstance, regardless of the merits of the case, Chairman: I think, Mr Brooker, you gave some and whether it is actually an appropriate redress for evidence to say that it must not be a re-badged a particular client. consumer complaints service so I think Lord Campbell is addressing the point you made but so Q138 John Hemming: The question is whether this far as the Bar Council is concerned rather than the is likely to do the job. Law Society. Mr Sandbach: Whether what is in the Bill— Mr Brooker: We said that for two reasons. First of all, consumers cannot have confidence in a Q139 John Hemming: How would this impact on complaints system in which professionals are that? perceived to be judging their own. They simply will Mr Sandbach: I think what is very important in the not have confidence that they will get a fair hearing, Bill, and the way I read it I liked the way it was so the point about independence applies equally to drafted, is that it does set out very clearly in the first all types of legal professional. We also said that to clauses the professional duties and the ethical duties address, frankly, the abysmal track record of the of lawyers to their clients. Those are very clearly Law Society’s consumer complaints service and yes, stated in the Bill and it is very clearly stated that the it is true that the Bar Council’s complaints service regulator will have a duty to encourage and does not have the poor track record that the Law facilitate independent integrity and acting in best Society’s does, although we note that the interests of clients. So I think within the Bill those Ombudsman’s satisfaction with the Bar Council in issues are well dealt with and I amhappy on that terms of complaint handling has dropped from 92 score. per cent in 2001 to 78 per cent in the last year, so Mr Brooker: Could I address the point of light touch I do not think there is any roomfor complacency versus heavy touch regulation. As far we are as far as the Bar Council is concerned. What is concerned, it is not about having either a light touch important, as I said, is the independence of the or a heavy touch; it is about having a proportionate systemand that the Bar Council does not see the touch so that if the front-line regulators are introduction of the OLC as a punishment for poor performing their regulatory functions perfectly well performance but that they are taking part in a then they will have complete freedom to do so but complaints system that is fit for the 21st century and if they are failing to performthose functions well, has the confidence of consumers. it is entirely right that the LSB has a broad range Lord Campbell of Alloway: I forgot to declare my of sanctions at its disposal to address those kinds of interests. I ama retired Queen’s Counsel. problems. The NCC is satisfied that it does have Chairman: Lord Campbell, I think you had one or that broad spectrumof sanctions to redress two other points on complaints? whichever wrong it is. Ms Restell: I have nothing really to add to that. As Steve said, if the front-line regulators are doing their Q141 Lord Campbell of Alloway: It was basically jobs properly then they have nothing to fear fromthat one but on the questio n of complaints is there the sanction in the Bill. really any need for the level of bureaucratic process Chairman: Moving on to the complaints system, that is proposed in this Bill? Is it not possible to Lord Campbell? improve the process, either for the Bar, and at the moment there are proposals to do so, or for the Q140 Lord Campbell of Alloway: On the complaints solicitors, and I think there are proposals to do so? systemwe heard fromthe Bar Council evidence that Is there any need to introduce this centralised there are a lot of complaints certainly as concerns complaints system without any form of appeal from the Bar—and here I do draw a distinction between what is decided at the end of it where the the machinery for complaints for example narrated Ombudsman has no appeal. That verges upon by the Bar and solicitors, but the same principle incompatibility with human rights. You are going nonetheless applies. If there is a complaint, for right beyond in this Bill what appears to be example, as they said, about a settlement, that proportionate and reasonable to achieve a result. counsel had settled it but they did not know what That was the general point. 3435523031 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Ms Restell: To build on the point that Steve made in the Ombudsman of the OYce of Legal about the Bar Council’s complaints handling to Complaints you have a wider jurisdiction to be able start with, the important thing here is that to say that, with a purported safeguard that where consumers complain to an independent party. If you it is simply a professional conduct issue the case think about any independent financial advice you does then go back down to the professional tribunal might have once had, the last thing you would want rather than staying with the OLC, so that protection then to do is to have to go and take your complaint is there. As to whether there should be another to the body that regulates financial advisers. You appeal layer on top of what the ombudsman does, would want it to be overseen by an independent so any decision made can be challenged, you have party. That is why we are very supportive of the the diVerent ombudsman schemes in the UK and OLC taking on all complaints. It is a one-stop shop you do not have that sort of right of appeal except systemand consumersneed to know where to go. in judicial review, and that i s the purpose of judicial Frankly, the fact that the Bar Council has any review as a public law remedy, to be able to complaints from consumers at all is quite challenge ombudsmen and public oYcials’ astonishing because they hardly spend any time decisions. This works with the Financial interacting directly with consumers, so let us not be Ombudsman Service and other similar types of complacent about this. In terms of setting up a regulators that have a role in providing redress. So bureaucracy, we think this would be much more I do not really see that there is a specific need or streamlined than the current arrangements. You can specific requirement under the European build on economies of scale by having everything Convention to have a further layer of appeal above dealt with in one place. It will be independent. the OLC. Consumers are far more likely to trust it than the Mr Brooker: Could I make two brief points, one on current system. They do not like the sense that they complexity and one on appeals. First of all on are making a complaint about the profession that complexity, what I have heard in previous sessions they have a problemto a body that represents, or fromthe Bar Council and Law Society is the need at least has connections with that profession, so it to separate out service and conduct issues. I have a has to be independent, it has to be transparent, and diVerent interpretation of the Bill. Clause 109 of the in terms of having appeals, the system itself has built Bill makes clear that the OLC will have powers to in suYcient levels that we do not think you then make determinations and award redress based on need to have another appeals process. The what is fair and reasonable in all circumstances of Ombudsman under the scheme would be the case, and therefore it can award redress to independent so to appeal against that would be consumers as much for issues of dishonesty as for nonsense, so long as the decision is binding on the poor service. Any complexity goes on behind the industry but that the consumer does have the right scenes if the OLC refers any disciplinary issues to to make a judicial appeal if they really want to and the front-line regulators. Just to add to what my they feel that is appropriate. So we are very colleagues have said on appeals, the Treasury comfortable with the proposals for complaints in recently consulted on whether to introduce an the draft Bill. appeals mechanism for the Financial Ombudsman and did consider the implications of human rights law and concluded that those did not apply, so I Q142 Chairman: Mr Sandbach, have you got think we can rule that one out. anything to add to that? Mr Sandbach: I think it has to be remembered that when consumers are making complaints about a Q143 Chairman: So you think judicial review is the service they have received fromthe lawyer, it is often appropriate course for a consumer or whoever quite diYcult to unpick. There are often lots of wishes to appeal? diVerent parties involved. There might be solicitors Mr Brooker: I do, yes. and counsel. It might be a case that has gone wrong Chairman: I think we could move on to alternative in some way and landed costs on the consumer and business structures and Baroness Henig? that might involve several diVerent parties, possibly including a financial service provider as well. So Q144 Baroness Henig: On these alternative business these kinds of cases can be very diYcult to unpick. structures what advantages and disadvantages do When they go to the professional bodies, often they you think they would oVer to consumers over are not handled terribly well because the present arrangements? Do you think the Bill professional body can only see one aspect, which is contains suYcient safeguards to protect consumers? professional discipline or the professional Ms Restell: Which? has always been very supportive disciplinary code, so it is not really treating the of the proposals to have alternative business consumer problem, which is they received a poor structures. We think one of the reasons why the outcome from a particular package of services, and legal profession has, generally speaking, such a poor 3435523031 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Mr James Sandbach, Mr Steve Brooker and Ms Louise Restell perception among consumers is the fact that it is insurmountable problem; it just needs to be got seen as being very unapproachable, it is delivered in right. a very traditional way, and there have not been Y su cient innovations in the way services are Q146 Chairman: It would be helpful, if you had the delivered to keep pace with the way consumers live time, if you were able to indicate to us the areas that their lives in the 21st century. We think that you would like to see improved. I can see the point alternative business structures will improve you make about the Financial Services Authority competition which will drive up service standards, having a full-scale programme called TCF, Treating make more choice for consumers, and deliver legal Customers Fairly, and that particularly on financial Y services in more e cient ways. We like the idea of advice it needs to read across to what is in place in possibly having one-stop shops where consumers the Legal Services Board. can access a range of services in one place. In Ms Restell: Absolutely. principle, we are very, very supportive of them. There are some issues around making sure that there are proper protections in place for consumers. I am Q147 Chairman: I can see that. If we could rely on particularly thinking, for example, about consumers you to let us know if there are any other areas. Ms Restell: who may buy financial services from one of these We will certainly try to. We think one way of starting to address that is, for example, when new types of business and there needs to be ABS firms apply for a licence they would have to suYciently robust agreement between the regulators stipulate the services they wanted to oVer so then behind the scenes to make sure that there is proper the licensing authority could determine whether protection for consumers. A particular example we these agreements were in place with those have seen at the moment is where solicitors are even regulators. The chances are that they would be with now giving financial advice to consumers and they the FSA because that is the main one that everyone are not able to access redress in the way that they is thinking about, but there may be other services should be able to because the Financial Services as well, and to have that prior approval I think Authority are saying, “That is nothing to do with would help pin some of that down. us; it is the Law Society”, and the Law Society is saying, “It is nothing to do with us because it is financial advice.” Clearly we need to pin that down Q148 Baroness Henig: Can I just follow that up by and, to be honest, I amnot 100 per cent convinced asking do you have concerns that there might be any that the draft Bill does that. That is not an conflict of interest for legal professionals working in ideological opposition to it I think that it is just alternative business structure firms? getting the details right. Ms Restell: I do not think there is going to be any more conflict of interest than there is potentially now. So long as the packages of services or the Q145 Chairman: On those details are you going to referrals that take place within an ABS are have some proposals which you will want to put to transparent, so long as consumers are told exactly us that we might put to the Government as to how why they are being sold a certain package and that to improve the process? they have a right to shop elsewhere for those Ms Restell: I think the details are around things packages and that is disclosed up front, I do not like—and I amnot sure it is implicitin the draft Bill think there is necessarily a problemwith that. at the moment—making sure, for example, that Chairman: Lord Neill? there are memoranda of understanding between regulators to make sure that things like the FSA Q149 Lord Neill of Bladen: I declare an interest. I initiative to treat consumers fairly is rolled down ama practising barrister and Queen’s Counsel. I through these structures. We would not expect to was once a member of the Bar Council and its see prescriptive detail in the draft Bill. That is more Chairman. I want to ask a general question about the role of the Legal Services Board when it comes who are the consumers you represent. Are we into being, and certainly we would want to be talking about disadvantaged what might be called contributing to that. I think it is just to flag up that “poor” people, a pejorative adjective, or are we that does need to be pinned down, particularly when talking about right across the range, people who are you are thinking about how consumers make reasonably well oV? Where do you come from, as complaints about any product or service they have, it were? to make sure that, for example, the redress level Mr Sandbach: We are talking about people right proposed for the OLC is significantly lower than across the range but I think one of the key points that of the Financial Ombudsman Service, so we that is possibly missed here is that legal services have would want to make sure that consumers were not been oVered, structured and delivered for the past losing out because of that. I do not think it is an century as an elite or minority product. The vast 3435523031 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Mr James Sandbach, Mr Steve Brooker and Ms Louise Restell majority of people on average incomes cannot really customer services skills, as Sir David pointed out in aVord to go to see a lawyer to meet their legal needs. his report, could also make legal services more available to the public. Another aspect of access to Q150 Lord Neill of Bladen: I completely agree justice is aVordability. It is quite possible that with you. competition in the market could reduce prices to Mr Sandbach: I think there are people in this room consumers, for example conveyancing services and who would think twice about going to see a lawyer the way those services are delivered could be had they a need to go and see a lawyer. transformed, with an investment in IT. The external capital that would be required to fund that kind of investment programme is not available to Q151 Lord Neill of Bladen: This Bill does nothing partnerships in the same way it is available to banks about that problem. and supermarkets, for example. Mr Sandbach: It does start a process whereby the legal services industry can really quite radically restructure itself to deliver services to the mass Q153 Lord Neill of Bladen: I have only got time for market. If you look at other markets throughout one last question. Ms Restell, perhaps I can put this history, whether it be children’s toys, houses, to you: apparently under the proposals it would be financial services, property, cars, shoes, et cetera, the open to a new business, maybe as with a new market has found a way to be able to deliver those structure, to pick which regulator it wanted to have and those products to a much wider income regulating it. Is that a good idea? spectrum, and there is no reason in just pure Ms Restell: We do not particularly support the idea economic principle as to why that cannot happen of businesses picking their regulator. Our with legal services if the industry is prepared to understanding of how this will work is that adapt. One of the arguments has been that the obviously the professionals within a firmwill be industry has not been able to adapt because it has regulated by their professional bodies, so the Law been rather hidebound by some of the restrictive Society for solicitors and the Bar Council for practices about how you can set up and operate barristers and so on, but that they would apply for business and the alternative business structure is a licence which is checking that the governance really doing no more than catching up with some structures and the heads of legal practice and so on market realities, oVering alternatives, and also are properly in place. The problemwith being able recognising that this is happening already to some to choose your licensing authority is that there is a extent with employed lawyers, employed solicitors chance that you then have a race to the bottom and employed barristers in diVerent contexts. where everyone has minimum standards but nobody tries to rise above that, so we would suggest that you Q152 Lord Neill of Bladen: Can I just follow that may think about ways in which you would designate up and we must give your colleagues a chance; we a licensing authority perhaps based on the are working against the clock all the time here. On predominant professionals within a firm. The restructuring, how does Mr Brooker or Ms Restell important thing is that you get those arrangements think there is going to be some great improvement right. Certainly I would agree with everything that in consumers’ position because they will have more Steve said in terms of access to justice and allowing lawyers and more professionals available to them that external investment and allowing innovative under the terms of this Bill? Where do you see that ways for consumers to access legal services. Just on and could you give a concrete example? We have your previous question, Which? represents all talked about “Tesco law” once or twice and last consumers. We campaign on behalf of all of them. time it was “Waitrose law”. How do you see it? Will Our research shows that 63 per cent of people think you go on after you have done your shopping to an it would be a very good idea to get legal services oYce where all these services are available? from, for example, a supermarket, so there is clearly Mr Brooker: Access to justice for consumers, say, in support amongst consumers out there for this kind rural areas is a concern currently and the Bill is not of move. designed to address those problems, let us be clear about that. Of course, any further reduction in Q154 Chairman: It is an interesting point that is access to justice for rural consumers would be a now being raised. Do you think the increase in cause of concern, but we do think that a more likely consumer choice might lead to new barriers to scenario is that the entrance of the private sector justice as consumers are going to be rather confused into the market will provide increased choice for about all the choices confronting them? consumers, so if supermarkets or banks which Ms Restell: I do not think it is going to lead to already have a wide geographical base were to enter problems in that respect. I think it is probably fair the market, this could provide more lawyers. Longer to say that you will have fewer providers of legal opening hours and advanced telephony and services but that they would be of a higher standard, 3435523031 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Mr James Sandbach, Mr Steve Brooker and Ms Louise Restell and I think the point that Steve made about the processing of complaints, there should also be a networks that supermarkets, banks, the RAC for central point for compensation as well. example, already have means that you would not necessarily have a firmin every town but there Q156 Lord Bach: So the compensation fund would would be diVerent ways of accessing those services. be owned by the Legal Services Board and I do not think consumers have been particularly administered by them? confused about, for example, the diVerent ways in Mr Brooker: Or by the OLC. which they can access other sorts of advice and they have moved ahead of the times and been wanting to Q157 Lord Bach: My last question is a general access things frombrand namesthey trust or over question. What do you think of the Government’s the Internet or through telephones or texting or own estimate of costs that are contained in the whatever it is. We think people would relish the regulatory impact assessment, RIA, in this instance? opportunity to get their legal services in a more Are they conservative or are they just wrong? modern way. Mr Brooker: I do not have the expertise to know Chairman: Can we turn to costs and Lord Bach? whether the costs are conservative or the extent to which they are right or wrong. What I would say is that it is completely in the consumer interest to have Q155 Lord Bach: Just a couple of questions on cost-eVective regulatory systems, since the cost of costs. As you know, the draft Bill currently provides regulation always falls on the consumer at the end for the LSB to require any new bodies seeking of the day through higher prices or through designation as an approved regulator to have in taxation. V place a compensation fund against losses su ered by Ms Restell: Again, it is not really for us, we would anyone because of dishonesty or failure of the not have enough detail and we would not have regulator to carry out the proper reserved legal enough information to comment on the detailed services. There is no provision in the Bill at present costs. The important thing is that this does not get for the LSB to require existing regulators to set up passed on to consumers in the form of higher prices. a compensation fund. Would you support such a power in the Bill? It is a question really addressed Q158 Lord Bach: Do you have a sense of whether to all of you. it is about right? Mr Brooker: Yes, the National Consumer Council Mr Sandbach: What comes over heavily from the would support such a measure. Compensation funds Pricewaterhouse report is that the majority of costs provide an important form of consumer protection are transitional costs in setting up the Board and the in cases such as fraud where indemnity insurance OLC. There are still some unresolved issues about and other forms of redress are unable to help some of the practicalities and management systems consumers. We would like to see all front-line for doing that. In that context, it is very diYcult to regulators contribute to a single, central estimate whether the regulatory impact assessment compensation fund and for reasons of fairness we has got it right when some of those issues about how would like to see the costs to each regulator reflect much of the infrastructure is going to be used, the payout to consumers so, for example, if particularly on complaints, have yet to be fully solicitors accounted for 90 per cent of payouts in resolved. So it is a very diYcult question to answer. any one year then the Law Society should pay 90 per cent of the costs of running the compensation Q159 Chairman: Just coming back, Ms Restell, to fund. A single fund has the advantages of something you said earlier, because we had last consistency and simplicity for consumers and it also week evidence fromthe O Yce of Fair Trading who benefits those smaller front-line regulators who were able to put in context the press report that they would find setting up and maintaining their own had welcomed the closure of small shops and they scheme a burden. were able to explain where that particular report Ms Restell: I would agree with all that. I have had come from. You just a few moments ago said nothing to add. that you expected there to be fewer providers of Mr Sandbach: I agree with the NCC that there is an legal services but of a higher quality. Does that obvious logic to the OLC being able to run its own mean the closure of local and rural firms of compensation fund and so therefore be able to oVer solicitors? more appropriate levels of redress as well. Currently Ms Restell: It could well do. It is not my job at it is quite tied in what it can oVer in terms of redress. Which? to defend the interests of local solicitors. It I think it was not necessary to put it in the Bill is my job to defend the interests of consumers. I do because of existing arrangements but as we are not think necessarily—and I amnot saying across moving now into a new system whereby there is a the board—that having a jack-of-all-trades solicitor central point for complaints and a central in a small town as the only legal service provider is 3435523031 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Mr James Sandbach, Mr Steve Brooker and Ms Louise Restell necessarily delivering the best for consumers. If you Q162 Lord Neill of Bladen: Are you not essentially have provision that is delivered in diVerent ways, a charity? much more through the Internet or through Mr Sandbach: We are, yes. providers like Tesco or the AA, then consumers potentially will have more choice because they will not just feel drawn to that one-man-band that is Q163 Lord Neill of Bladen: You are providing a operating in their high street. It is not an issue of service to as many centres as you can possibly aVord saying definitely lots of local practices will close or across the country. That is not a parallel for people they should close. It is just thinking about what fromnew types of business with new types of funding might happen and what is in the interests of the coming from people presumably putting in their consumer, and it is higher standards and diVerent money in order to get a return on it. It is completely ways of delivering services and providing choice that diVerent. is more important, not whether there is a local Mr Sandbach: It is not that diVerent in the sense that solicitors’ practice at the end of their high street. we are in the same market place. Yes, certainly the Bureaux are not doing it for profit motives and they are getting their funding froma variety of sources, Q160 Chairman: Mr Brooker, is there anything you private public and elsewhere, whereas private would like to add to that? business is running purely fromthe profit-making Mr Brooker: Just that it is not up to the government perspective. The fact is there are only 2,000 firms out Y Y or regulator to protect ine cient firms. E cient there doing legal aid so they are getting public firms, if they are partnerships at the end of the high funding for doing public interest work. There are street, will survive. If access to justice becomes a now consortia being developed to do legal aid work problem, then it is up to government and to the and the proposal of the Legal Services Commission regulator to address that problem. has been to develop those and they are called community advice networks. So there is a lot more Q161 Chairman: You are quite right to highlight interaction and interchange between the profit- access to justice because all Ms Restell has said is making and not-for-profit-making sectors than one quite true and may give rise to a belief that it is better might at first think, and in fact many of our aims in to have a large supermarket than small shops, but it terms of getting the highest quality of legal advice to is this question of access. If there is no longer to be a people are shared and similar, so I am not quite sure local solicitors’ firm, is that going to deny access, and that just for business profit/not-for-profit division you are really saying well, it may, but that is a matter really understands that we are serving the same for the government and others; it is not a matter market and serving the same consumers and we are really for your organisation or the consumer lobby? starting to respond to what the consumers can a) Mr Sandbach: It is also a matter for the market and aVord and b) expect fromthe service provider. how the market responds to demand as well. The regulatory structure does not just cover the profit- making sector. It also covers the not-for-profit sector. Q164 Lord Neill of Bladen: I ama bit worried about This is no special pleading here but Citizens Advice a reduction in the number of practitioners available oVer advice within a whole range of contexts in for people. That is what the Lord Chairman’s outreaches in small market towns and are able to question is. Is that not a fear? keep 2,000 outlets going around the country. How Mr Sandbach: I think that is a fear and it does go back have we done that? We have done that by having to some of the first principles of this Bill as to why economies of scale and a cost and running structure people go into this market in the first place. Is it that supports being able to oVer services in that way simply to make a fast buck or is it to provide justice and be able to get to six million clients a year. So it services, if you like, and legal services to consumers in can be done. There are models out there to be able to a way that is appropriate and fitting to that particular do it. There are others in the profit-making sector market? The regulatory structure is upholding the such as South West Law to All which covers the best values, if you like, of legal practice and spreading whole of the south west and does a significant those and encouraging people to come into this amount of legal aid contract work throughout the market and encouraging better recruitment. One of south west, and does it very successfully, because it the really disturbing things about what has been has the appropriate business model and the happening, particularly in legal aid, is that young appropriate running cost model to be able to do that. lawyers are running away fromit and saying, “No, It is a matter for how the market responds to there is so much debt and diYculty we are going to demand. I do not think we can make very pre- have to cope with in our professional lives that we are determined judgments that all local advice is just not going to do this work any more.” So there is a going to disappear because of these changes. greater drop out fromdoing mo re socially useful 3435523031 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Mr James Sandbach, Mr Steve Brooker and Ms Louise Restell legal work. I think that is something that does need Ms Restell: You have had a draft and you will get the to be addressed. final one before the end of the week, I promise. Chairman: That is marvelous. Thank you very much Q165 Chairman: Thank you very much indeed. I indeed. Perhaps, Mr Sandbach, when you are putting amsorry about the constraints of timebut we are in your written evidence by the end of the week you very grateful to Mr Sandbach, Mr Brooker and Ms could reflect further on some of the questions that Restell. Mr Brooker, you have a little halo over your have been raised. If you have any further advice for head because you have already put in written us before the end of the month we will be very evidence. Mr Sandbach and Ms Restell we are grateful to receive that as well. Thank you very much awaiting yours. indeed for coming in today.

Examination of Witness Witness: Sir David Clementi, Conducted a review of the regulatory framework for legal services in England and Wales in 2004, examined.

Q166 Chairman: Sir David, welcome. Thank you was “outdated, inflexible, over-complex and very much indeed for coming to us. We had hoped insuYciently accountable or transparent”. In fact, I that you would be our first witness because you did not say that. That is what the Government said started this, I suppose the Lord Chancellor too, and essentially in its scoping study that it completed your review has triggered a whole sequence of events. before I was appointed. I was appointed in July 2003 We very much wanted to hear from you your views and I think the scoping study fromthe Government on the present state of play. I too am very sorry about came out a few months earlier and contained that the misunderstanding that occurred last week and I phrase. What I did say was I agreed with it. It is amvery grateful to you for writing to explain, but importantto recognise t hat it was not my original here we are today. Obviously we would like to start phrase, but I did agree to it. In fact, my view was that oV by saying that since your review the draft Legal the current arrangements for the regulation of Services Bill has been published and there are a lawyers were inadequate. They had been built up number of questions we would like to ask you. I do over a number of not years but centuries, they were recall that you commented that the present in part inconsistent and some sort of consolidation of regulatory framework was “outdated, inflexible, them at a minimum was required. The three issues over-complex and insuYciently accountable or which you know I addressed were: first, the transparent”. Against the background of that rather regulatory framework intended to deal with this helpful steer, what major problems did you identify problemof being outdated, inflexible, etcetera; with the legal services sector during the course of secondly, the very specific issues about complaints, your review? which I amsure someof your questions will be Sir David Clementi: My Lord Chairman, thank you addressed to; and, thirdly, the restrictive practices very much. I am delighted to be here and I am sorry which existed in the legal world. I have to say as an about the confusion about last week. I will answer economist the question you have asked some of your your question but I wonder if I might be allowed a previous interviewees is “what is their justification for disclaimer just to start with. The disclaimer is that getting rid of these?” but economists would ask the while many who appear in front of you represent reverse question: “what is the justification for organisations with staV to help them, and in many maintaining these restrictive practices?” That was the cases lawyers, I appear on my own. I am an ex- question I always asked the lawyers: “Why have you regulator, or rather I aman ex-reviewer of a got this restrictive practice? Why is there a restriction regulatory system. I have no staV. While I have on access to capital?” and those sorts of issues. I looked at the Bill it would be false for me to come in approached it fromthat angle. I think that is worth front of you to say that I have mastered that Bill. bearing in mind, since the burden of proof rests not There are some points that I would like to make with the Consumer Association or the National about it and I amsure that at somepoint you will give Consumer Council or the CABXs about these me an opportunity to say what changes I would like restrictive practices; it rests with the lawyers who are to make to it. I must indicate to you that I have not party to them. had a chance to read it in its entirety and, even if I had, fromthe bits I have read I could not say that I Q167 Chairman: Taking into account your lament a understood precisely what it was the parliamentary few moments ago about lack of resources, you have draughtsman, having weaved his particular magic, seen the Bill, what sort of outcomes do you now was seeking to achieve. Your question was you expect as a result of this proposed legislation? To indicated that I had said that the current framework what extent do you think the Government have, as 3435523031 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Sir David Clementi far as one can see they have, followed your Committee’s review of it. I have four points I would recommendations and do they meet the spirit of what like to mention and the first is significantly the most you were hoping for? important. In my view, the Bill does not make Sir David Clementi: I hope in each of the three areas suYcient diVerentiation between representative we will see a significant improvement. Indeed, I have functions and regulatory functions. You will recall some concerns about the Bill and I will come to those, that was at the heart of my review, my first major but overall this is a Bill which will make a significant recommendation. On page 39 of my report, it says: improvement in each of the areas to which I have “The recommendation of this review is that it should referred. In the case of the framework, at the very be a statutory requirement for a front-line regulatory minimum having the objectives of the regulatory body to separate out its regulatory and representative framework laid out clearly must be an advance on the functions but in regard to detailed governance current system: access to justice, promotion of arrangements the body would need to satisfy criteria consumer interest, promotion of competition. All laid down by the LSB”. That was what I said and these, in my view, are to be welcomed. The whole when the White Paper came out it dealt with it in very transparency around what I propose in the similar terms. I have to say the Bill in this area is accountability of the regulator, not least to this rather weak. Practically the only reference to this House, would be important. In the area of major point of principle is in clause 25(1)(d) and it complaints, there has been substantial criticism. comes in a much weaker form. What it actually says Criticismonly in part about how well it was carried is the regulator needs to be comfortable that the out, the criticisms were also levelled at the sheer front-line bodies’ regulatory functions are not complexity of the system. You will know that there is prejudiced by any representative functions. The Bar a Legal Services Ombudsman and there is a Legal Council would argue that has been true historically, Services Complaints Commissioner. She is, in fact, so would the Law Society. I was clear that what was the same person carrying two titles but there is needed to be done was a very clear separation, albeit practically nobody, other than her good self, who not a complete legal separation but nevertheless a really understands the diVerence between these two ring-fencing of their regulatory organisations. By the roles. They are contained under two separate Acts time I had completed my review this was not and need to be brought together. The DCA itself has especially controversial as the Law Society had oversight functions over the complaints area. They agreed, as had the Bar Council, and as you are need to be streamlined. Thirdly, which you did hear probably aware, both of themhave madesteps to earlier today, there has been a deep-felt view among ring-fence their regulatory arrangements. The bar a number of people that there will not be public has set up the Bar Standards Board, Ruth Evans is confidence in a complaints system against lawyers the Chairman of it, and the Law Society has set up the which is actually run by the lawyers themselves. Law Society Regulatory Board, and Peter Williamson is the Chairman of it, and I believe you are taking evidence fromboth of them. Q168 Lord Campbell of Alloway: We are faced with a slight contradiction. The OYce of Fair Trading seems to take the view that the Bill is superb in parts Q169 Chairman: Yes. as it stands. The Bar Council takes the view that Sir David Clementi: I amvery pleased about that without very substantial amendments it will be because I hope the question you will ask is whether wholly unacceptable. Against that background, I they feel that something like clause 25(1)(d) is wonder if I could ask whether you really think the Bill suYcient for their purpose. I plainly intended that as it stands could be reasonably acceptable to the there would be statutory backing and that there benefit of the consumer without very substantial would be criteria laid down by the LSB for achieving amendments if you take into account the quality of this. As I say, in my view clause 25 falls well short of the legal advice, practical advice, other advice they that. There is a very important reason why this needs receive. I did not see much reference to the quality of to be done and that is something that one of your advice in your report. previous interviewees dealt with: if there is to be Sir David Clementi: This is the one question that I confidence in the systemit needs to be light-touch and think is the central question and I have a reasonably seen as independent, independent in the sense of long answer. I shall probably do it very quickly and independent of the lawyers whomit is regulating. If send you a note about it, but at the heart of it is, what that exists and the Bar Standards Board and the Law do I think of this Bill, does it meet the spirit of what Society Regulatory Board are perceived by the public I intended and are there improvements to be made. to be independent, and to meet the criteria for Although I genuinely welcome this Bill and I think it independence laid down by the LSB, then there does do many of the things which I hoped it would should be little reason for the LSB to intervene in its there are a number of areas where I think it does need day-to-day decision making and it seems to me that improvement, so I welcome this particular is to be welcomed. My major point is I amnot happy 3435523031 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Sir David Clementi with clause 25(1)(d) or the way in which this split decision, as the White Paper on page 42 implied, what between representation and regulation appears in the the LSB does is make a recommendation to the Bill. I do not think it is that I amin dispute with the Secretary of State. I think that involves the Secretary DCA, I do not think they spent enough time on it, of State in what is essentially a technical issue as to partly because in a sense there is not much dispute whether the regulator is competent or not. It is not a between the various parties about it, enshrining it in matter of policy as to whether this is a reserved the Bill itself. If I may I have three other points and I service, it is a matter of technical ability. I will put will be much quicker about them. that in writing because it may be a slightly complicated issue, but it is all part of the question as to why the Secretary of State appears as often as he Q170 Chairman: Please. does. My final point appears against the principle Sir David Clementi: The next point relates to that this is an opportunity, and it comes about once appointments. The Bill does not follow my every 15 or 20 years, to have a view right across the recommendation in this regard. I concluded that the legal spectrumand a consolidating Act of the existing appointment of the chairman and the secretary Acts, some of which are anachronistic. I do want to should be made by the Secretary of State after refer to the position of notaries. It is a small part of consultation with senior judiciary and that the legal services firmament but they are reserve legal consultation process has been left out. I think that is functions and they are regulated by someone called a pity and would be a small matter for the Secretary the Master of the Faculties. This person’s regulatory of State to concede upon. I do not think it is a functions are currently overseen by the Archbishop Y particularly practical di culty, these things are of Canterbury and he appoints the Master. The Bill generally done through a Nolan process interview replaces the Archbishop as the existing oversight panel and it seems to me reasonable that the judiciary regulator, it replaces the Archbishop with the LSB, should appoint one of their senior number to that and that is to be welcomed. As far as I can see, and panel. My next point also relates to independence. I would like some guidance on this, it still leaves the One of my concerns, and I have not got to the bottom appointment of the Master of the Faculties with the of it, is how often the Secretary of State seems to Archbishop of Canterbury and the requirement that appear in this Bill as somebody who is making the incumbent must be a practising member of the decisions. I had envisaged that he would set up the Church of England. I have pointed out to the DCA framework, make sure the objectives were there and in the past that I cannot see any case for a statutory then as far as possible stand back fromit, but he requirement that a regulator of a secular activity appears at pretty frequent intervals. I think it would should be appointed by the Archbishop of be appropriate for this Committee and others to ask, Canterbury or should be a practising member of the every time the Secretary of State appears, as to Church of England. Therefore, I would like to put on whether it is a matter of great public policy that he the record for the DCA that they really do need to needs to be determining or whether it is a technical explain why this part of my report has been ignored. matter that the LSB could deal with. I have one Chairman: There are quite a few questions there and particular case in point. The licensing regime is set you are going to follow it up with a paper. We do out on page 42 of the White Paper—I do not know if have the head of the DCA Legal Teamhere, Nigel anyone has it—it is set out also on page 127 of my Reeder, and I just wonder whether you would like to report if any of you have that. What it essentially sets comment, Mr Reeder. out is a tripartite arrangement. The tripartite system works down fromthe LSB through the front-line regulator to the licensed body. The front-line Q171 Lord Campbell of Alloway: I ama Queen’s regulator takes its powers as regards ABS, fromthe Counsel. Thank you very much for your reply. Is it LSB, ie the front-line regulator applies to the LSB for right then that you do not see any real justification for the right to regulate licensed bodies. At the bottomof the intervention of the Secretary of State? the pile the licensed bodies apply to the FLR for the Sir David Clementi: I did not quite say that. right to practise. Once the question of what reserve services are is set out in the Bill, and what is a reserve Q172 Chairman: I think it is the number of times. service I do regard as a matter for the Secretary of Sir David Clementi: Every time he appears in this Act State and Parliament, who is the competent I invite you to enquire as to whether this is a matter regulator, who is the competent FLR to do it, in my of real public policy that should involve himand his view is rather a technical matter. I had envisaged that oYcials, or whether it is a technical matter that can be the front-line regulator would apply to the LSB for dealt with by the LSB in an independent professional the right to regulate certain of the licensed activities. fashion. I think that is what I said. Where an FLR is seeking the right to regulate a Emily Thornberry: My Lord Chairman, I wonder if service beyond that which he is initially passported there is a moment when our advisers might have into the systemto do, the LSB does not makethe something interesting to say. 3435523031 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Sir David Clementi

Q173 Chairman: You are quite right, and you have we were concerned not to set any precedents that now given them advance notice. Mr Reeder, would might have implications for other departments and you like to comment on what Sir David has just other appointments which might be downstream. said, please. Mr Reeder: Thank you. There are a number of points. Q176 Chairman: That is very helpful. Thank you First of all, on the regulatory/representative split, I very much, Sir David, for a very full answer. I think do not think we have any diYculty with what Sir you have said that you are going to let us have a David is proposing and we would be more than paper. happy to look at the wording of what is in the Bill to Sir David Clementi: I think it would be sensible to see whether or not, subject to the Committee’s report, write it down. I will send Mr Reeder a copy, if I may. we can strengthen the wording that the parliamentary draughtsman prepared in that. I am Q177 Emily Thornberry: Sir, David, you suggested more than happy to look at that. There are a number that there should be consultation with senior judges of occasions in the report where the Secretary of State and earlier commentators have suggested that the has some activity, essentially to take forward the Judicial Appointment Commission might be making of secondary legislation. One of those is in appropriate. Would you be content with that? terms of licensing of front-line bodies to approve Sir David Clementi: I amnot that familiarwith the ABS firms. We have taken that approach because we JAC but I think it has been set up as independent of felt that was a matter in which Parliament might want the judiciary itself for good reason and, therefore, some control. The approval of a body to license ABS you take it a step away. It would be important that firms was fairly similar in approach to the Courts and the head of the regulatory board had the confidence Legal Services Act 1990 [Schedule 4] arrangements of the senior judiciary, and I believe they would be where a new body would be authorised. They able to make arrangements to ensure that they followed that sort of approach. If this Committee themselves rather than the JAC, which is slightly considers that the Secretary of State’s involvement is independent of the judges, were able to do it. I would not necessary in that or in other areas, again we prefer it to be with the senior judiciary and I think would welcome that view. I do not think it is one on they would be happy to do it, but they will speak for which we have any particular policy. Finally, the themselves on that matter. point in relation to the appointment of the Master of Emily Thornberry: I should declare my interest. I am the Court of Faculties. a non-practising member of the bar and I am married to a fellow practising member of the bar. Q174 Chairman: The Archbishop. Mr Reeder: Yes. It is a diYcult point on which we Q178 Lord Bach: Sir David, I ama non-practising have had a lot of discussions with the Master of barrister and I was a junior minister in the old Lord Faculties and communication from the Archbishop Chancellor’s Department for a short while between of Canterbury. The Master of the Court Faculties has 2000 and 2001. a number of roles, some of which are ecclesiastical Sir David Clementi: Could I suggest, my Lord and we were told that the Archbishop felt very Chairman, it would be easier for those who are not strongly that he should continue to appoint the barristers to disclose that! Master, but in making the rules which govern the notary’s profession the Archbishop has agreed that Q179 Lord Bach: That has certainly taken the wind the Master of the Court should subject those to the out of my sails! LSB for their approval. The regulatory role of the Sir David Clementi: I amassumingyou all are unless Master is therefore overseen by the LSB but the you tell me to the contrary. ecclesiastical side and his appointment remains with the Archbishop. Q180 Lord Bach: I want to press you for a moment on why you chose Model B!. You talked about Q175 Mr Kidney: Mr Reeder has not mentioned the this as being—perhaps I do not quote you point about the appointment of the Chairman of the appropriately—the once in a generation chance for LSB in consultation with the judiciary. change. Reading as carefully as I can your report, in Mr Reeder: I beg your pardon. Again, we do not see paragraphs 26-32, and I amsure you kno w them adiYculty, and indeed we have discussed with others backwards, you seemto meon first and even second arrangements which might involve consultation with reading to make quite a strong case for Model A. In others, including the judiciary. The Bill is drafted in shorthand, independence, simplicity, flexibility and this way because when a minister generally makes consistency. We have heard today there is the an appointment it automatically attracts the argument that maybe quick decisions could be made Commission for Public Appointments’ rules and by if Model A was used, or quicker decisions. I hope that putting additional measures in on the face of the Bill is not misquoting what we have heard in evidence, 3435523031 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Sir David Clementi although the maker of that statement was in favour the consumer bodies themselves arguing quite a lot in of Model B!. As for Model B!, at paragraph 29, favour of B!. I felt it would carry a degree of the two first arguments that you use talk about consensus. It was not precisely what drove me there, commitment to the legal profession, and I wonder but it is one of the benefits of the proposal. about that, I wonder if they would not be equally committed with A or B!, and, secondly, Q181 Lord Bach: Thank you for that. One of the independence fromgovernment,which we all agree is other arguments you use for B! is the possibility of absolutely vitally important but I certainly do not competition among the front-line regulators think the setting up of the LSB is going to show a lack themselves. I am not sure I understand exactly what of independence fromgovernment,whichever formit competition there might be between them. If there takes. Why, when we have this once in a generation was real competition between them might it not drive chance, do you think it is worth going for Model B! down the standards rather than raise them? when Model A would be the way to deal with this problemfor a generation? Q182 Sir David Clementi: You asked that of Sir David Clementi: Thank you for the question, it is someone previously, if someone could pick their a good question, and arguably the most important regulator. It might be possible to pick your front-line one I faced as I went through my review because they regulator but you cannot pick your regulatory V are very di erent models. I am fairly familiar with framework; the regulatory framework is clearly set both models. Indeed, in my daytime job I am subject out by the Bill. You cannot pick and choose which of to review by a Model A regulator, the Financial those regulatory objectives you seek to meet, there is Services Authority. I should go on to say that I sat on a single framework, albeit within that a number of that board for five years so I ampretty familiarwith front-line regulators. We have had that historically. Model A. I have also seen Model B! work. I The Council of Licensed Conveyancers is a concluded that while there were advantages in A regulatory body, it does license bodies to do there was no question that it would be a much bigger conveyancing; and clearly it is a more specialist group transition fromwhere we were and to a large extent than the Law Society which is much wider. In my would exclude practitioners. The independence issue view, that degree of specialisation and alternative is a question of balance. When you speak to lawyers regulatory framework has worked to the public what they actually mean by independence is benefit. The Council of Licensed Conveyancers’ independence fromthe government.When you speak members do compete in that area and that is to consumers they use it in a very diVerent way, they probably one of the reasons why high street want independence fromthose being regulated. I conveyancing prices have been driven down even in considered that B! was a reasonable balance real terms, certainly relative to other legal services between the two. Essentially under the Bill the LSB which have risen in price. I feel that historically there will have the same sort of powers as a Model A has been some advantage from some “regulatory regulator. It does have the right to intervene but I competition” but I am clear it is only regulatory hope it would only do so sparingly where it felt it was competition within a single consistent framework. absolutely justified. Nevertheless, under the intervention powers it does have most of the powers Q183 Lord Bach: Going back to the words that have of a Model A regulator to intervene and determine been used in relation to how the LSB should work, how the framework should work. It also has the whether it should be light touch or robust or right, in fact, to license individual ABSs. Although it proportionate, which is a word we heard froma is clearly intended by the Bill, and I clearly intended, previous witness, fromwhat you seemto be saying, that should be done by the front-line regulators; Sir David, it is clear, whether we like it or not, that the nevertheless it has the reserve power. In many LSB ought to be pretty robust and it ought to have respects it has given itself the powers of Model A but some pretty considerable powers and be prepared to has said it would be better to work with the grain as use them. Whether that is consistent with the far as possible of a revised current systeminvolving expression “light touch” I amnot sure. What is your practitioners, involving the front-line regulators. I view about that? wrote, and you will see my conclusion, I am sure you Sir David Clementi: I think that I only used the have read it, it is in paragraph 32, if you were starting expression “light touch” once in my review, and it fromscratch you mightprefer Model A, but we are was in the context of the not-for-profit sector, and not starting fromscratch. I think the transition to a then I only said I hoped it would be a light touch B! would be a better one, it would certainly be an regime for the not-for-profit sector. I would not easier one and one which, on the whole, takes with describe mine as light touch or heavy touch. Like you some of the organisations you would like to take others, I hope that it is proportionate. If it is to be with you. Neither the Bar nor the Law Society has light touch it will be light touch because the put up any strong objection to it and you have heard framework is robust, so that the FLRs know that if 3435523031 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Sir David Clementi they do not act according to the objectives set out in Q186 Mr Kidney: Very good. I amstill sticking with the Bill the reserve powers are there for the LSB to the Legal Services Board here. The Bill now provides intervene. On the whole I would like minimal for the Secretary of State to appoint the chair of the interference by the LSB in the work of the FLRs, Legal Services Board, all the members of the board which is why I amso keen on a proper split between other than the chief executive, whomthe board then representation and regulation. It is actually my view appoints and who then becomes a member of the that the Bill is closer to Model B, not Model B !, but board, and that is a diVerent structure fromthe one you have heard me on that particular point. I would you suggested. like minimal interference by the LSB in the FLRs and Sir David Clementi: It is. I would like minimal interference by the Secretary of State in the work of the LSB. I have referred to that Q187 Mr Kidney: Overall, putting aside the merit of point before. If you get that minimal interference your point about consultation over the appointment then the grunt work of regulation really rests with the of the chair, what do you make of that as a structure? front line regulators, and I hope that it will be a Sir David Clementi: I think that it would be better, reasonably light touch regime with the reserve and I am going to repeat myself here, if it followed my powers not needing to be used. report. It would look more independent. I proposed that the chairman should be appointed by the Q184 Chairman: Sir David, fromwhat you are Secretary after consultation and I proposed that saying you sound as if you see Model B ! developing the non-executives should be appointed by a into Model A over a period of time. Is that an unfair nominations committee of the Board. The first board comment? might have to be appointed by the Secretary of State, Sir David Clementi: I think it is an unfair comment, but thereafter a properly constituted nominations my Lord Chairman. I do not, but it has the capacity committee with clear terms of reference should do the to do so if the front line regulators do not perform job. I would have preferred that and I think it would their duties because you can see the LSB has strong have given a clearer case of independence fromthe intervention powers and it does have the right political process. directly to regulate ABSs. I amsure it does not intend to do that and would do that only as a reserve power, Q188 Mr Kidney: The Bill at the moment suggests so it has the capacity to be a strong regulatory regime that the majority of the board should be lay members but if the regulatory boards work well, particularly rather than legally qualified members. Is that a point the Law Society and the Bar Council,—and it is for that you think is important? that reason that I think that your meeting with Ruth Sir David Clementi: I thought that it was appropriate Evans and Peter Williamson is so important; these that the majority should be lay members, and indeed will be absolutely key people in how this system I have thought that the chairman should be a lay operates—then I hope that it will be a light touch member. The Bill actually takes a position which I regime. find slightly surprising. It says that the first chairman must be a non-lawyer but thereafter it does not Q185 Mr Kidney: Sir David, my interest is as a non- matter, and I am slightly surprised by that. It seems practising solicitor; I put my name on the roll of to me either that as a point of principle it is fine for solicitors. First of all I was struck by the comments the chairman to be the best person for the job, or it you made about the draft Bill and the way our Lord should be the best person for the job who is not a Chairman was able to deflect them straightaway to lawyer. Either seems to me a robust position to take. the Bill team and they were able to give an immediate I took the one that it should not be a lawyer but the response, and it leads me to ask you have you not Bill actually drops in the middle and says the first one been involved by the department before today in may not be, and thereafter he may be. themreporting a Bill that reflects your report? Sir David Clementi: They did not show me the draft Q189 Mr Kidney: Given that the first one will be lay, Bill. I think that was probably correct. Most of my and you suggested that the chair should always be points have been met. I have drawn to your attention lay, what is the point of consulting with somebody the small number that have not been met. I have not fromthe judiciary, a legal person, when choosing taken you through all the many points that I have someone who is going to be a non-lawyer? made that they properly reflected in there. Although Sir David Clementi: Because the process will be driven I have been part of why this committee is here; it is finally by the Secretary of State the issues about here to be critical of the Bill and to see how it can be access to justice and the rule of law are ones in which improved before it comes in front of you in the the judiciary are hugely involved. Therefore, to have autumn, so I concentrate on that, but I could sit here the regulator as somebody in whom the senior and tell you all the things which I think Mr Reeder judiciary did not have confidence would be an issue, and his colleagues have done exceedingly well. and it seems to me quite a small win in terms of how 3435523031 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Sir David Clementi the appointment process should be done and not a Q192 Baroness Henig: May I start oV by saying that diYcult thing to agree to. I have not been a barrister ever, nor a solicitor, but I was a former magistrate. How do you respond to the Q190 Mr Kidney: Just thinking of the big picture view that the legal services industry is being unfairly about how this matters, there is the confidence of the penalised for specific problems with the Law legal service providers being regulated, the Society’s complaints procedures? confidence of the consumers who are going to use the Sir David Clementi: The Bar Council have made that legal services, and the Law Society often reminds us point regularly and it is not one that I agree with. It in their submission about the international market in is clear that the reservations about the complaints legal services and overseas users of legal services systemgo well beyond the specific problemswith the having confidence in our regulations. What do you CSS arrangements at Leamington Spa and the rest of say about the importance of getting this right for the it. There are a lot of concerns about the formof the confidence of those groups of people? oversight arrangements and on a point of principle, Sir David Clementi: Your question is essentially as I have indicated, there is a concern that public about the importance of the reputation of the confidence does not exist in complaints systems framework being seen to be independent in terms of which are run by lawyers to deal with complaints our standing internationally; that is the issue. It against lawyers. I sought in my review to propose a slightly begs the question about how independent the framework which met a number of principles. The current framework is. The three Secretaries of first principle is that of independence and I think that State—the Secretary of State of the DTI, the in part answers the question you raise. The second Secretary of State, the Home Secretary, at the Home was simplicity. The current system is far from simple. OYce, the DCA Secretary of State—have quite large If you instruct a solicitor and he in turn instructs a oversight powers at present which I would want to barrister and the barrister appears on your behalf in move to the LSB, so I put it to you that the proposed court and gets it hopelessly wrong, the consumer does systemwould be a good deal moreindependent of not know whether it is the solicitor who was asleep oversight by Secretaries of State than currently. The when you briefed himor the barrister was asleep second point I would make is that it seems to me that when the solicitor was briefing the barrister. You objective (e), which was the one that talked about an would wish to complain against both but currently eVective and strong legal profession, and we can you have to go oV in diVerent directions. My argue about whether it is profession-centric, is an approach is a single systemof complaints,and the objective of the framework and it is important in consumer would not have to concern himself with terms of winning business overseas. I have to say whether the barrister was at fault, the solicitor at finally that in producing my report I worked closely fault or both. He or she would merely send in his or with a variety of lawyers, including some her complaint. The third principle was consistency. representatives of the bigger firms, and none of the The current arrangements are far from consistent. If senior partners of the bigger firms expressed concern a , a member of ILEX, works for a in this particular area, that it would somehow Law Society member, the complaint against the prejudice their ability to win business overseas. ILEX member may go either through the ILEX complaints system or through the Law Society V Q191 Mr Kidney: My last point is that your report complaints system. There are di erent processes and V recommends six regulatory objectives. The Bill they could have di erent outcomes. This is a very contains seven. You already mentioned that unsatisfactory system. We have talked a bit about objective (e) was slightly profession-centric, as you regulatory competition but for the consumer that call it in your report and you have just said it again should be out of sight. In terms of the complaints today, and it seems to me that the seventh one adds there should be a single systemand I put that forward to that feel about the Bill. What is your view of that for consistency. I think the fourth principle I wanted seventh objective? to meet was that of flexibility. I have indicated that I Sir David Clementi: Regulation is in place to protect anticipate that in our ABSs solicitors and barristers the consumers of legal services. It is not there to will work together in single firms and it would clearly enhance the standing of legal professionals. Objective be unsatisfactory if a complaint against that firm (e) is profession-centric. Objective (g) is probably a again should head oV in diVerent directions, or for bit too. I think it is unnecessary. I think if the the consumer to have to concern himself as he enters previous six are met the last one will also be met. the roomas to whether he is talking to a barrister or Having said that, I do not think I can object to it. I a solicitor. As far as he is concerned he is talking to a think it is setting out here what the professional lawyer and if he has a legitimate complaint there is a principles are: putting clients first, confidentiality. I single system. I think the answer to the Bar’s question do not think one could object to it so I have no is that my proposals went far beyond the problems objection to the final one. with the Law Society. They went to those four 3435523031 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Sir David Clementi principles of independence, simplicity, consistency Q196 John Hemming: There is judicial review. and flexibility and it was against that background Sir David Clementi: And there is judicial review but that I proposed a single system. we have not permitted a specific appeals mechanism. In general one would want justice to be fair but also pretty swift. Q193 John Hemming: On the issue of complaints I amtrying to understand someaspects of it. By the Q197 Baroness Henig: In a sense that was the point way, I am not and never have been a member of the we had got to. You said there should not be an Bar. In fact, the closest I have come to law is writing elaborate appeals procedure, I think. That was your computer programmes for conveyancing and debt concern, was it not? collection and other administrative processes. Sir David Clementi: Yes, I actually ducked it. This is Looking at the issue of complaints, obviously, it is quite a diYcult area because it is bound up with the outcomes that people tend to get stressed about. I issue of human rights. But in general for complaints noticed recently in the papers about a building I Ombudsmen can give redress without appeal, the bought about five years ago that actually the local financial Ombudsman service does do that, but where search was for a petrol station. I amnot upset even there is a conduct issue which might impact upon a though it is obviously incompetent because it did person’s ability to continue to trade then this is a not have any eVect. The Ombudsman directions conduct issue and there is a right of appeal on are enforceable, unlike the Local Government conduct matters. Ombudsman and the Parliamentary Ombudsman. What is the reasoning behind that, or is it in Q198 Lord Neill of Bladen: Can I ask you a question accordance with your report to do it for where I think there does seemto be a departure inconvenience and distress, which does seemto be a between the scenario as you have envisaged it and little bit further than most enforceable claims? what the Bill recommends and it relates to the legal Sir David Clementi: The question is? disciplinary practices. One can debate whether that is something that you envisage being formed or permitted immediately the Bill is passed or whether Q194 John Hemming: In terms of directions, the board would have to do that. Leaving that aside, directions can be not just for loss, not when there is I think it is a generalisation to say they will come first. an outcome that has a financial loss, but also You have made a specific suggestion in your report, inconvenience. My only experiences with and I have in mind in particular paragraphs 96 and Ombudsmen in practice are ones which are not 104, that the multi-disciplinary practices are more enforceable and there they may make judgments tricky. If you look at 96 for one moment you can see about, “That was a bit bad, wasn’t it?”, and then at line four in (3) and (4) it says that in connection obviously people can ignore it. In this instance it is with the fit-to-own test the criteria for financial enforceable by the court. soundness would need to take into account activities Sir David Clementi: Yes, that is the proposal I make. to be undertaken, which might be very diVerent from those of legal practice. In 104 you said, and this is summarising what you have been talking about Q195 John Hemming: Which is sensible. I think it is earlier, that there are considerable issues around a very good idea to have a process where there is a MDPs, in particular that of regulatory reach, acts complaints process which is enforceable by the court that a regulator such as the LSB would have no and shuts down any potential negligence claim. That jurisdiction over if they were in the legal sector. What is very good, but it is trying to understand this the Bill seems to do is make both possible and reasoning for covering inconvenience because this is immediate events, in other words both kinds of a question of whether you rely on “fair and practices could come into existence if the Bill were reasonable” to chop out silly inconveniences, but carrying forward proceedings now or very soon what inconveniences should be compensated? thereafter, and I think everybody agrees the LSB has Sir David Clementi: You are into the detail of what got to come first, but that is contrary to your picture, the Ombudsman could give redress for and I did not is it not? really address it in my report. He could have the right Sir David Clementi: I think that it is not entirely to give financial penalties. There are quite a number contrary. I assume that the Bill would facilitate of areas where files are lost, letters are not sent, MDPs, make them possible, and that is indeed what planning permissions are put in late, where there is I think the Bill does do, but it is clear that the specific loss and I think the Ombudsman would have the rules will have to be cleared by the LSB and in turn right to give redress. The issue that many are involve the FLRs, and I hope that the first chairman concerned about is the absence of appeal against of the LSB and his board will take their time about that. MDPs. There is quite a lot of bedding down to be 3435523031 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 Sir David Clementi done in LDPs. He or she, the regulator, has to be have got two conveyancing systems with two certain that the new licensing regime will meet the diVerent oversight arrangements. My arrangement statutory objectives set out at the front of the Bill. I would have one single oversight, the LSB, which think he or she would be a great deal more confident would be clearly charged by the Bill with the duty of about that being achieved in LDPs initially than in ensuring that consumers’ interests were met and MDPs. I described it, the Chairman may remember, therefore would not permit a race to the bottomin as walking and running. I think LDPs are walking terms of regulatory standards. and we should learn to walk before we get into the running and sprinting involved in MDPs, but I think Q201 Lord Neill of Bladen: And presumably its it is right that the Bill does not preclude themand membership would include representatives of various actually the Bill facilitates them. It provides a professional people who were well versed in its legislative framework which would permit them if the practices and have the necessary inside knowledge. LSB felt that the statutory objectives could be met, Sir David Clementi: Yes. You see, in the and here in a sense is, if you like, the beauty of the conveyancing world I do not believe the arrival of the Bill. If the regulator felt that the statutory objectives Council for Licensed Conveyancers, who were right at the front of the Bill could be met by MDPs permitted by the 1985 Justice Act, has led to a race to and he had entered into appropriate memoranda of the bottomin conveyancing. I visited somelicensed understanding with other regulators, for example the conveyancers. I thought they worked to high accountancy regulators, he would not necessarily standards and they have clearly played a part, as want to stop them. My own view is that the chairman I have indicated, in keeping the costs of of the LSB is unlikely for some time to be able to look conveyancing down. you in the eye and tell you the objectives are met as regards MDPs, so I think that in practice my purpose Q202 Lord Neill of Bladen: There is some discussion would be achieved; but I think the Bill is correct to in your report about the problems connected with facilitate it. legal professional privilege but it is a late hour to get involved in the detail of that. Have you got any Q199 Lord Neill of Bladen: I understand that. How general view on whether the Act satisfactorily deals does it work out in practice? I think there will be a with the problems you foresaw there? time lag there. Sir David Clementi: The problems I foresaw were Sir David Clementi: Yes, I think there will be a time largely in MDPs rather than LDPs. Clause 139 of the lag, and the objectives are clear. The LSB is Bill deals with it. I read it as leaving the current accountable to you. It has to lay its annual report in arrangements pretty much in place but it is a very front of Parliament. technical question and I think it should be addressed to a lawyer. Q200 Lord Neill of Bladen: Can I turn to something Lord Neill of Bladen: That is the point of my question. slightly diVerent, the third point made in some of the evidence about there being almost competition Q203 Chairman: Sir David, I think we have covered between the regulatory authorities, one of the factors a great deal of ground, for which we are all very there being that a newly created LDP could, as I grateful to you, but you did spend, I think, some 22 understand it, make a pitch for which regulator it years as an investment banker. There are some wanted to be in charge of that particular practice, and discussions going on in the legal press about law firms it is said there could be competition which, at least the floating on the Stock Market or the AIM and starting argument goes to far as to say, could lead to a to get excited about introducing outside capital by lowering of standards by regulatory authorities to having non-solicitor shareholders. Have you any make themselves more attractive to these new advice for them? practices. What do you think about that? Sir David Clementi: No, I have no advice for them. As Sir David Clementi: I do not think very much of it. I you can imagine, it is rather dangerous to give advice think I have tried to answer it in part already; that in the absence of any detail, so no, and I ampretty while I think there might be some competition neutral about the matter. I approached it fromthe between regulatory front line bodies they are all part point of view I indicated right at the start, namely, of one overall framework and all subject to the same was there any overriding reason why access to capital objectives and all subject to oversight by the same should not be permitted? In practically every other body. I have to say that this is not the case at all at walk of life access to capital is permitted. Doctors do present. The Law Society, whose members may do not have to own hospitals. In general one must conveyancing, are subject to overview by the Master anticipate that higher competition should flow from of the Rolls. The Council for Licensed Conveyancers, access to capital and higher competition generally whose members can do conveyancing, are subject to leads to lower prices, so it seemed to me a consumer oversight by the Secretary of State of the DTI. You good. 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12 June 2006 Sir David Clementi bar on the access to capital but I did indicate that I Q206 Stephen Hesford: Sir David, on the back of thought there should be a “fit and proper” regime as that, one of the drivers behind the Bill as I understand regards who the shareholders should be; and I think it in MDPs in particular, and the OFT gave this that is more or less mirrored in the Bill which does evidence to us, I believe, is that we increasingly have a “fit and proper” clause as regards, I think, operate in a global market and one of the aims of this anybody who owns more than 10 per cent. would be to make sure that the UK is a centre, if not a primary centre, for these sorts of services in a global market, so 43(4)(e) would be entirely reasonable in Q204 Chairman: I think you have exhausted us. the sense that if you are operating in a global market Sir David Clementi: I would like to raise one other with foreign jurisdictions you would want to point which I cannot get my mind around. I do see maintain close contact with them at both a regulatory one of the issues arising under the regime being how and a business level and therefore this would be one it is to be paid for and how the practising fees are to of those facets, would it not, and why is that not be determined. I do see this as quite an interesting reasonable? issue between the regulatory body and the underlying Sir David Clementi: Because I think the practising practitioners. Clause 43 of the Bill sets out essentially certificate is intended solely to cover regulatory how the practising fee is to be charged by the functions of the underlying bodies, I do not think it approved regulator. I had anticipated that clause 43 is appropriate that it should cover representative would give the approved regulator the power to levy issues. I just want to flag this up. That may be the Y a practising fee to cover solely regulatory functions o cial answer but I would like to have a response but it seems to me to go wider than that and I draw fromNigel Reeder in due course. I do see this as being your attention in particular to 43(4)(e) where the quite a tricky area as to how the practising fee is practising certificate could cover the promotion of actually fixed and the interaction between the relations between the approved regulator and bodies regulatory board and the representative council. representing the members of the legal profession. I Q207 Chairman: Sir David, perhaps we might ask can see no conceivable reason why the practising Mr Reeder to respond now on this. certificate should cover representative bodies going Mr Reeder: My Lord Chairman, these provisions are V o to have a chat with other representative bodies. If meant to reflect the current position set out at section the word “representing” was replaced by 46. I think the Act is just about the Bar Council, and “regulating” there might be a case but there is no case in the Solicitors Act, I think, for solicitors whereby it in my view for the practising certificate covering is accepted that as well as purely regulatory functions representative bodies talking to each other. it is right that a professional body should also be able to raise funds for what we might call public interest functions which may be law reform, pro bono work Q205 Chairman: It would encourage sections other and international activities. Whether 43(4)(e) should than England and Wales? say representative bodies or regulatory bodies in Sir David Clementi: Yes, and it may be that some of relation to international relations is a matter I am those legal professions are joint in a sense, but you happy to go away and look at but it does reflect the would go and talk to themin their regulatory statutory instruments which I think are in place for capacity rather than their representative capacity. It the existing arrangements. is all part of my slight concern that the Bill has not Chairman: I amvery grateful. Sir David, thank you made the distinction I would wish to see between very much for coming today. You have promised these two. I will be inquiring of Mr Reeder in the note some further documentation and we are looking in due course why it is not clear that it is not covering forward to receiving it but it has been such a useful just regulatory activities. session. Thank you for coming.

Memorandum by Sir David Clementi (Ev 72) I was very pleased to appear before the Joint Committee on the Draft Legal Services Bill on Monday, 12 June. I agreed to write setting out my main points.

Before I discuss changes I would wish to see, I want to say that I believe the proposals contained in the Bill represent a very significant improvement to the regulatory framework which currently exists, I think that the proposed framework which vests the LSB with oversight powers but leaves much of the daily work with front- line regulators is a sensible structure. The accountability of the framework, with the LSB at its head, against clear statutory objectives is to be thoroughly welcomed. 3435523032 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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As I indicated I do believe, however, that there are changes to be made before the Bill is presented to the House later this year. So I welcome the role that your Committee is playing in looking at areas for improvement. I mentioned four areas in answer to a question from Lord Campbell. The first is that I do not think the principle that regulatory functions should be split fromrepresentative arrangements is clearly enough enshrined in the Bill. The key paragraph in my Report was paragraph 39 on page 39: “The recommendation of this Review is that it should be a statutory requirement for a front-line regulatory body to separate out its regulatory and representative functions, but that in regard to detailed governance arrangements the body would need to satisfy criteria laid down by the LSB.” In the White Paper on page 30 the Government said: “Existing FLRs will need to demonstrate to the LSB that they have appropriate governance arrangements in place. For most this will mean demonstrating a clear separation between their regulatory and representative functions.” The obligation set out in paragraph 25(1)(d) page 11 of the BE is much weaker than this. It merely requires the Regulator to ensure that a front-line body’s regulatory functions are not prejudiced by any representative functions. This is a long way short of my recommendation which was for ring fencing of the regulatory board of FLRs in line with criteria laid down by the LSB. There is a related point on the issue of separation and it arises In Schedule 5 part 1, page 104 of the Bill. The Bill makes the Bar Council and the Law Society the designated regulators. My intent had been that, since the Bar Council and the Law Society would be required to delegate their regulatory functions, the direct regulatory relationship for the LSB should be with the delegated boards. I would still like to see this. Without it the strengthening of Clause 25(1)(d) is even more important. One of the reasons why the split is important relates to the question of whether this Bill will create a light touch regime. If the main front-line regulators set up separate regulatory boards which are independent of their representative councils, and meet criteria laid down by the LSB, there will be a high level of public confidence and less reason for the LSB to intervene. If on the other hand there is a perception that the regulatory boards are the creatures of their representative councils, there will be pressure on the LSB to be more interventionist. In short my major concern is that a key principle of my Report, the clear separation of regulatory and representative functions, is inadequately dealt with. I do not seek to draft a revision to Clause 25 but the instructions I would give to the draftsman would be along the following lines: 1. The LSB must publish a statement selling out criteria which the internal governance arrangements of an approved regulator must satisfy with respect to the performance of its regulatory functions. 2. Such a statement must contain criteria designed to ensure that the exercise by the regulator of its regulatory functions are separated fromand are not prejudiced by any func tions it has in connection with the representation, or promotion, of the interests of the persons regulated by it. 3. An approved regulator must seek to ensure that its internal governance arrangements for the performance of its regulatory functions comply with the criteria set out in such a statement. 4. The LSB may take such steps as it regards as appropriate to monitor the extent to which such criteria are being, or have been, complied with. My second point relates to Appointments. The Bill does not follow the recommendation in my Report. I concluded that in the appointment of the Chairman of the LSB the Secretary of State should consult with the judiciary. In practice this is likely to mean that the senior judiciary would have representation on the Nolan type committee selection process. I regard this as a small concession by the Secretary of State and would help towards the issue of independence. In similar vein, the Bill proposes that the non-executives should be appointed by the Secretary of State. I proposed that, whilst there might need to be diVerent arrangements for the original Board, non-executives should be appointed by a Nominations Committee of the Board. This would again be helpful in ensuring the political independence of the Board. Finally, in the area of Appointments, the proposal in the Bill is that the first chairman of the LSB should be a non-lawyer. I have argued that the chairman should always be a non-lawyer. In the appointments process it Is important that those in charge of the LSB should not only have independence fromGovernment,but also independence fromthose being regulated. 3435523032 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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My third point also relates to the issue of independence. The Bill contains a large number of references to the Secretary of State in connection with the licensing regime. I encouraged your Committee to consider, on each occasion when the Secretary of State’s name appears, whether the matter could not properly be dealt with by the LSB. In general, important points of public policy should fall to the Secretary of State, whilst more technical regulatory matters should fall to the LSB. I gave one example at the Committee meeting. In my Review I proposed that (a) the issue of what is a Reserved Activity should rest with the Secretary of State since I do see this as a public policy issue; and (b) a front-line regulator could apply to the LSB for permission to regulate a Reserved Activity beyond its area of initial licence. Since I regard this latter issue as largely a technical one about whether a front-line regulator is competent in the area for which its application is made, it should rest with the LSB. But the Bill gives responsibility for the public policy issue and the technical issue to the Secretary of State. My fourth point relates to the position of the Notaries. Notarial functions are a Reserved Activity and the front-line regulator is the Master of the Faculties. This person’s regulatory functions are currently overseen by the Archbishop of Canterbury who appoints the Master. The Bill replaces the Archbishop as oversight regulator with the LSB; this is to be welcomed. But, so far as I can see, it still leaves the appointment of the Master of the Faculties with the Archbishop and the requirement that the incumbent must be a practising member of the Church of England. I do not see any case for a legal requirement that the regulator of a secular activity should be a member of the Church of England, or that the appointment should rest with the Archbishop. If my reading of the Bill is correct, I would like to Inquire formally why this opportunity to sort out an anachronismhas not been taken.

The Practising Fee—Clause 43 I also raised concerns at the Committee about the drafting and intent of Clause 43, which relates to the practising fees which are charged, by approved regulators. Under sub clause (5) the fee is payable in respect of the regulatory arrangements, subject to approval by the LSB. Elsewhere, at Clause 16, the Bill sets out a list of the regulatory arrangements, and specifies at sub clause (1)(h) that the regulatory arrangements include arrangements “other than those made for the purposes of any function the body has to represent or promote the interests of persons regulated by it”. At Clause 138 the LSB is disabled fromexercising its functions in relation to any representative function of an approved regulator. It is surprising to see the permitted purposes for which the LSB may allow a practising fee to be raised to include purposes not purely regulatory or even quasi regulatory in nature. I drew your attention in the Committee to Clause 43(4)(e) which refers to “the promotion of relations between the approved regulator and bodies representing the members of legal professions in jurisdictions other than England and Wales’. I see reasons why a regulator would seek to promote relations with overseas regulatory authorities, but amnot convinced it needs to incur costs with “bodies representing the members of legal professions” overseas. At Committee I was advised that the drafting was a reflection of current arrangements for the Bar and Law Society at Sections 46 and 47 Access to Justice Act. But the purpose of my Report and this Bill is to take a fresh view of existing legislation, and one of my central recommendations was the split between regulatory and representative functions to which I have referred. I see no reason why the practising fee should cover more than purely regulatory functions ie why the fee should cover activities over which the LSB has no authority under Clause 138.

The Dual Licensing Regime—Schedule 11 Part 2Clause 6 There is one further point I would wish to draw to your attention and it relates to the licensing regime. Under Schedule 11 Part 2 Clause 6 (page 146) the Bill makes clear that those applying to become licensed bodies must include in their number at least one person who is a non-authorised person (for these purposes, a non-lawyer). A barrister, a solicitor and one non-lawyer businessman may apply for a licence to forman ABS to provide legal services; but a barrister and a solicitor on their own cannot. The argument appears to be that the barrister and solicitor are authorised lawyers and would be able to practice together under their existing authorisations and without seeking a licence as an ABS. This would require significant changes to existing rules, but even if such changes were made ft is not a suYcient argument. Lawyers from diVerent parts of the profession may wish to present themselves as an ABS because of the diVerent practice rules which apply to this type of business; or they may wish to set up in business as an ABS so as to more easily admit someone later who is 3435523032 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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12 June 2006 not a lawyer. In any event I would invite you to look at the necessity of clause 6(3) since I believe it is restrictive for those who wish to set up ABSs. I hope this letter is helpful, but if there are points on which I have not been clear I hope you will get in touch. I amsending a copy to the DCA. 19 June 2006 3435523033 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

106 joint committee on the draft legal services bill: evidence

THURSDAY 15 JUNE 2006

Present Bach, L Mr David Burrowes Campbell of Alloway, L Michael Jabez Foster Falkner of Margravine, B John Hemming Henig, B Mr David Kidney Hunt of Wirral, L (Chairman) Neill of Bladen, L

In Attendance: Mr Nigel Reeder and Mr Sean Langley, members of the Draft Legal Services Bill Team.

Memorandum by the Council for Licensed Conveyancers (Ev 08)

Executive Summary A. The Council for Licensed Conveyancers (CLC) notes that the Joint Committee already has a copy of the CLC’s comments on the Government White Paper The Future of Legal Services: Putting Consumers First. These submissions should be considered as supplemental to the CLC’s comments on the White Paper. B. These submissions do not seek to answer all the issues the Joint Committee has asked to be covered in written submissions. The CLC has confined its comments to those based on its experience as the regulator of the licensed conveyancer profession. C. In summary the CLC’s submissions are as follows: C.1 The Government should contribute to the costs of setting up and running the new regulatory system(paragraph 2.1); C.2 The level of contributions made by practitioners should not be susceptible to unpredictable variations (paragraphs 2.3 and 2.4); C.3 Practitioners should not be required through their regulators to make contributions to the costs incurred by the LSB in carrying out some of its functions (paragraphs 2.2 and 2.5); C.5 The OLC should have power to delegate the determination of service complaints to approved regulators or licensing authorities (paragraph 3.1); C.6 There are inconsistencies and uncertainties as to the way in which the OLC’s powers are framed (paragraphs 3.2–3.4) C.7 There is uncertainty as to how licensing authorities can specify which services they should regulate (paragraphs 4.1 and 4.2); C.8 Will writing and the administration of estates (as well as probate activities) should be a reserved service (paragraphs 5.1 and 5.2); C.9 The establishment of licensed bodies regulated by licensing authorities will create an unnecessary sector of regulation (paragraph 6.10): there are alternative ways in which these issues can be determined more eVectively and economically (paragraph 6.11); C.10 A central compensation fund should be established as a fund of last resort to make grants to those who have suVered loss as a result of the negligence, dishonesty or failure to account of regulated practitioners (paragraph 7).

1. Introduction 1.1 Like the other respondents (and indeed the Joint Committee) the CLC has had a very short period in which to familiarise itself with the text of the draft Bill and determine its strengths and weaknesses. The comments set out in this response have been agreed by the CLC’s Clementi Working Group. In the time available, it has not been possible for the Working Group, as it would have preferred, to have had the Council’s endorsement to these submissions. 3435523033 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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1.2 As the Joint Committee will be aware, the CLC is a body corporate established by the Administration of Justice Act 1985 (AJA). Whilst it is unlikely that the CLC will be disadvantaged if it remains a statutory body, it has yet to have an opportunity following publication of the draft Bill to discuss in detail with oYcials at the Department for Constitutional AVairs (DCA) the amendments which it would wish to be made to those provisions of the AJA and the Courts and Legal Services Act 1990 (CLSA) which relate solely to the CLC. Aside from other amendments to these Acts, it will be essential for provision be made for any further statutory amendments so far as they relate to the CLC to be made by Statutory Instrument, subject to the prior agreement of the Legal Services Board. 1.3 The CLC remains concerned that suitable transitional arrangements should be in place to ensure that the CLC and indeed all other approved regulators are able to continue to regulate eVectively.

2. Legal Services Board 2.1 The Government appears to have firmly rejected the CLC’s submission (and that of other regulatory bodies) that the Government should share the costs of both setting up the new regulatory framework and the running costs on the grounds that those benefiting fromregulation shou ld pay the cost of it. This policy appears to be applied inconsistently. For instance, the Council for Healthcare Regulatory Excellence (established by the NHS Reformand Health Care Professions Act 2002) is fun ded by a grant in aid from the Department of Health. The CLC remains convinced for the reasons set out at paragraph 3.7 of its response to the White Paper that there are compelling public interest arguments for the Government to share the costs of the Legal Services Board. In addition, if it bears some of the costs of the LSB, the Government will also be concerned to ensure that costs are not allowed to get out of control. 2.2 The Legal Services Board (LSB) will have some public interest functions. A number of the statutory objectives (eg improving access to justice, increasing public understanding of the citizen’s legal rights and duties) are clearly in the public interest rather than being confined to those who currently use the legal profession. For example, the LSB will have the power to recommend whether particular activities should become or cease to be reserved activities (Clauses 19 & 21 of the Bill). This function is currently undertaken by the DCA. The CLC does not consider that those costs should be passed on to licensed conveyancers, as well as to the other legal professions. Licensed conveyancers are already fully regulated in the provision of conveyancing services and it seems unfair for them to bear the costs of an assessment as to whether an activity which they do not provide should become, or should cease to be, regulated. 2.3 Although PriceWaterhouseCoopers have prepared a revised estimate of the costs of the new regulatory scheme, to date the CLC has seen no proposals as to the basis upon which those costs are to be met by legal practitioners. As the CLC stated in its response to the White Paper: “The CLC is concerned that it should be able to plan in the medium term if it is required to make a levy against licensed conveyancers for the cost of regulation, since even small variations to that levy could have a significant impact on the profession. Because they provide a narrow range of transactional services, licensed conveyancers are very susceptible to the volatility of the conveyancing market.” 2.4 The CLC notes that there are no specific requirements in Part 7 of the Bill (Financial Provisions) for the LSB to consult on any levy rules (though such rules can only be made with the approval of the Secretary of State), nor is there an express requirement for example for the levies to be fair and proportionate, taking into account the impact on the professions from which levies must ultimately be raised. The CLC would also favour a statutory requirement for the LSB and its costs to be subject to independent and regular review. 2.5 One reason for LSB costs to rise might be if it starts to regulate directly either as an approved regulator or as a licensing authority. The CLC notes that the LSB is designated a licensing authority (Clause 60(1)). Clause 52(2) allows the LSB to be designated as an approved regulator only if an existing approved regulator’s designation is cancelled or if a new reserved legal activity is specified. Before such a step is taken the CLC considers that the LSB should investigate whether any of the other approved regulators are capable and willing to undertake that regulation. Further or alternatively, the LSB’s costs as an approved regulator or licensing body should be met in full by those directly regulated by the LSB acting in that capacity. Clause 56 is not acceptable in its present format since it seems to suggest that, when the LSB acts as an approved regulator, the controls which would normally be applied to an approved regulator by the Board (such as target setting, financial penalties, directions etc) are not exercisable. Acting in this capacity the LSB would not be accountable in the same way as the other approved regulators or licensing authorities. This would seemto be directly contrary to one of the principal policy justifications f or setting up the LSB. 3435523033 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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3. Office for Legal Complaints 3.1 Clause 96 should be amended to enable the the OYce for Legal complaints (OLC) to delegate the determination of service complaints to approved regulators or licensing authorities. 3.2 The CLC is unclear as to the eVect (and intended eVect) of: (a) Clause 102 in prescribing the nature of complaints which come within and are specifically excluded by the scheme; and (b) Clause 103(2) which apparently sets out circumstances in which an employer may avoid liability for the acts or omissions of his employees: the CLC suggests that Clause 103(2) & (4) should be deleted. 3.3 Clause 102(2) of the Bill provides: “The respondent is within the jurisdiction of the [complaints] scheme if, at the relevant time, the respondent was an authorised person in relation to an activity which was a reserved activity (whether or not the act or omission relates to a reserved legal activity)” (emphasis added). 3.4 One of the policy imperatives of the Bill was understood to be to dismantle the regulatory maze. The CLC believes that the eVect of Clause 102(2) may in fact be to make the regulatory structure less clear to consumers. For instance, a consumer may choose to instruct a non-authorised person in the provision of probate services wrongly believing that in the event he has a complaint he may make a referral to the OLC. By contrast, assuming that the CLC does not become an approved regulator for the regulation of probate services, it would appear that the OLC will have jurisdiction to determine the same complaint if the provider of probate services happens to be a licensed conveyancer. The CLC considers that this is further support for its view, expressed in paragraph 5 below, that probate services (as more widely defined by s.119 CLSA) should become a reserved service. CLC is further concerned that the emphasised words in the Clause above are expressed so widely that it could cover any complaint against an authorised person even if the complaint bears no relationship to legal services (reserved or not). 3.5 Clause 106(2) of the Bill appears to provide suYcient flexibility to permit lawyers to have a limited number of free complaints per year (similar to the scheme administered by the Financial Ombudsman Service whereby the case fees for the first two complaints each year are not charged to the service provider). In the CLC’s view, this would make a huge diVerence to small firms. 3.6 The CLC accepts it is important that the Chief Ombudsman should be a lay person in order to establish public confidence in the complaints system. However, the CLC considers there should be no express bar to lawyers being appointed as assistant ombudsmen (Clause 99). Lawyers are required to act independently and have the training to carry out the functions required of an assistant ombudsman.

4. Licensing Authorities:Regulation of All Services Provided 4.1 Clause 59(1) of the Bill provides: “The provisions of this Part have eVect for the purpose of regulating the carrying on of reserved legal activities and other activities by licensed bodies.” 4.2 Clearly, a licensing authority can regulate only those reserved services it is authorised to regulate. By paragraph 20 Schedule 11 the licensing rules must make provision for indemnifying losses and mitigating losses in connection with their activities as licensed bodies. These might range fromlegal services which are not reserved such as advice about employment law (and therefore reasonably contemplated to come within the regulatory scheme) to services which are not understood generally to have any connection with mainstream legal services (such as an optician). The CLC considers there should be an express statutory power for the licensing authority to prescribe within its rules those activities which it could regulate and those which it either does not have the competence or does not for other reasons wish to regulate. Without such power, the authorised regulator could find itself in eVect required by the licensed body to regulate such services. This would not appear to be in the interests of the consumer (nor the intention of the Bill).

5. Probate Services 5.1 Clause 19 of the Bill enables the LSB to recommend whether specific legal services should be designated reserved legal services. However, contrary to persuasive submissions made by a number of diVerent bodies, the White Paper concluded at page 79 “based on the information available, there does not appear to be a compelling argument for statutory regulation of [will writing and estate administration services]”. The 3435523033 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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CLC maintains that it is clearly in the public interest for these services (particularly estate administration services) to come within the regulatory net on the coming into force of the new legislation, rather than being delayed pending an investigation by the LSB. 5.2 As the CLC stated in its comments on the White Paper: “5.3 Currently, any person may oVer legal services which relate to the administration of an estate, with the exception of the application for the grant of probate or letters of administration (prohibited by section 23 Solicitors Act 1974). By the nature of the service, substantial sums of money pass through the hands of the provider. Monies may be wrongly paid, giving rise to loss to the beneficiary. The provider may have no indemnity insurance and insuYcient means to make good the loss. Where the beneficiary is defrauded by the provider, there is no recourse to a grant froma compensationfund. Since he is not subject to any rules, there is no ob ligation (and certainly no incentive) on the provider to advise the executor client that there is no indemnity insurance in place and no grant available froma compensationfund. “5.4 Whilst some will writers may have indemnity insurance in place at the time they prepare wills they may no longer be in practice when the will is proved and found to be defective. So far as the CLC is aware, there are no enforceable arrangements currently in place requiring will writers who have ceased to practise to have run oV cover in place. “5.5 Designation of will writing and estates administration services as reserved services will provide added protection at a time when individuals are likely to be most vulnerable to exploitation by unscrupulous or insuYciently skilled providers”.

6. Alternative Business Structures

6.1 The CLC considers that the establishment of licensed bodies regulated by licensing authorities will create an unnecessary sector of regulation. There are alternative ways in which these issues can be determined more eVectively and economically. 6.2 By section 32(1) Administration of Justice Act 1985 the CLC may make rules: “(a) Making provision as to the management and control by licensed conveyancers (or by licensed conveyancers together with persons who are not licensed conveyancers) of bodies corporate carrying on business consisting of the provision of conveyancing services”. 6.3 The CLC’s Recognised Bodies Rules 2000 (annex 1) [submitted but not printed] have no restriction on the ownership of recognised bodies, although they do require at least one half of the directors and the Chairman of the recognised body to be licensed conveyancers (Rule 4.04). The CLC will consider how the Recognised Bodies Rules 2000 should be amended to allow lawyers to be a minority in number on the Board. 6.4 Sir David Clementi acknowledged in his final report (paragraph 59 page 123): “It should be noted that a further jurisdiction in which outside ownership of certain legal practices is permitted is England and Wales. The [CLC], whose members carry out probably the most common form of regulated legal service, does permit outside investors to own practices within its regulatory area. The practices are regulated by the [CLC] and managed by legal practitioners who are qualified to do the work and who must be in a majority in the management group. Managers and owners must covenant with the Regulator to indemnify losses of client monies by the practice. I have seen no evidence that outside owners have interfered unreasonably. I have seen no evidence that the public has suVered. Indeed it is arguable that, while the market share of licensed conveyancers remains low, they have provided choice and played a useful role in keeping costs down in this important area of the legal services market.” 6.5 The CLC’s Recognised Bodies Rules 2000 do not diVerentiate between those recognised bodies which are owned by their licensed conveyancer managers and those which are wholly or partly owned by external investors. The application for recognised body status requires the owners (and their respective shareholdings) and the managers to be identified. As Sir David Clementi noted (paragraph 6.4) all owners and managers must separately covenant with the CLC (in the terms set out at Schedule 2 to Annex 1) [submitted but not printed] that in the event there is a grant out of the compensation fund the covenantors are jointly and severally liable to indemnify the CLC in respect of any grant made. 3435523033 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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6.6 As at 1 April 2006 the CLC regulated 42 recognised bodies (19 per cent of all practices regulated by the CLC). 11 of those recognised bodies had external investment in excess of 10 per cent (all of these involve investment from non-authorised persons). Recognised bodies with external investment were predominantly volume conveyancers and together accounted for over 40 per cent of the turnover of all licensed conveyancer practices. 6.7 Part 2 (paragraphs 6–16) of Schedule 11 to the Bill sets out the structural requirements for licensed bodies (the equivalent of the CLC’s recognised bodies). Paragraph 6 of Schedule 11 sets out mandatory provisions which must be included in licensing rules made by licensing authorities: at least one of the licensed body’s managers must be an authorised person (paragraph 6(2)) and at least one of the manager’s must be an non-authorised person (paragraphs 6(3) and 6(4)). 6.8 It is not clear to the CLC how in practice recognised bodies are intended to be regulated under the Legal Services Bill. Presumably the CLC will have to be a licensing authority to regulate recognised bodies which will be deemed to be licensed bodies under Part 2 of Schedule 11 to the Bill. Recognised bodies which have no external ownership and no non-authorised persons as managers will be regulated by the CLC as an authorised regulator. 6.9 Some recognised bodies are in eVect family businesses managed by a licensed conveyancer and owned by that licensed conveyancer and members of the immediate family who are not licensed conveyancers. The CLC is concerned that their regulatory status may be changed frequently as a result of changes in the ownership or management which would not have any significant impact on the risks to the consumer. For example, a recognised body may become a licensed body when a spouse takes shares and then back to a recognised body again on a family break up when the shares are bought back by the licensed conveyancer. 6.10 The CLC’s view is that all recognised bodies should continue to be regulated in the same way. It does not accept that there needs to be a separate regulatory regime for legal entities which have external ownership and/or external managers from those legal entities which have no external ownership and no external managers, nor indeed (as appears from Clause 61 and Part 1 Schedule 10 to the Bill) that only certain approved regulators should be licensing authorities. 6.11 The only requirement for an approved regulator to be able to authorise a practice to have external ownership or management should be for it to have rules in place approved by the LSB for that approved regulator to approve and monitor external ownership and management of practices. This would permit a practice to change its ownership and/or management structure without having to be re-designated as an authorised person or licensed body, but at the same time ensuring that the regulator had appropriate checks and balances in place to protect the interests of consumers. 6.12 The CLC agrees there is considerable merit in each legal practice (whether or not it has external owners or managers) being required to nominate a Head of Legal Practice (Clause 75) and a Head of Finance and Administration (Clause 76) provided it is acknowledged that in a number of smaller practices those functions may be carried out by the sole owner/manager. 6.13 The CLC considers that paragraph 1 Schedule 5 to the Bill should be amended so that the CLC is named as an approved regulator in respect of recognised bodies providing conveyancing services. Although it will apply to become a licensing authority it believes that such a provision will provide greater certainty for recognised bodies, rather than relying on the transitional provisions in Schedule 4.

7. Compensation Fund

7.1 During the course of informal consultation with the DCA following the publication of Sir David Clementi’s final report, the CLC advised that in its view consumers were entitled to expect all approved regulators to have in place arrangements whereby grants could be made out of a fund of last resort to consumers who had suVered loss as a result of negligence, dishonesty or failure to account on the part of a legal practitioner. Such provisions apply in the case of the CLC (by section 21(2) AJA) and to a lesser extent to the Law Society (where grants arising out of the negligence of a solicitor are not made). 7.2 Paragraph 20(3) Schedule 11 to the Bill specifically refers to a licensing authority setting up a compensation fund in respect of failures by licensed bodies. In contrast, paragraph 14(2)(f) Schedule 5 requires an approved regulator to have regulatory arrangements in place such that grants or other payments can be made to cover failures by authorised persons, but without specific reference to a compensation fund. 3435523033 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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This distinction is acknowledged by the Minister in her letter to the Chair of the Joint Committee where she says: “While this provision applies to new providers that may seek designation, there is a question as to whether the LSB should have an additional power to set compensation fund/indemnity requirements for existing bodies, and if so what the precise nature of that power should be.” The CLC has asked for, but has yet to receive, a copy of the report commissioned by the Government on the various options to which the Minister then refers. 7.3 Preparatory to making an application (under ss 53 and 55 CLSA) to become an approved body regulating licensed conveyancers in the provision of probate services, the CLC has carried out wide ranging enquiries about the establishment of a compensation fund for probate services. This has given rise to practical problems about the extension of the existing compensation fund or setting up a new fund. In particular it has enquired whether a new fund could be supported in the interimby: (i) an insurance policy—even with a relatively high excess it is unlikely that in the current market this could be funded out of contributions made by those regulated by the CLC; and (ii) a bonding scheme—there appears currently to be no market for an aVordable scheme. To date no satisfactory scheme has been identified which would enable the CLC to set up an independent compensation fund separate from its existing compensation fund established in accordance with s21(2) AJA. 7.4 The way in which the Legal Services Bill is drafted suggests that it will be possible for new regulators to be authorised and for existing regulators to cease to be authorised. In the CLC’s view it should not be possible for new regulators to be recognised by the LSB unless those new regulators and those they regulate have immediate access to an appropriately funded compensation fund. There appear to be two options: (a) there is central funding available to enable each of the aspiring approved regulators to set up separate compensation funds with the aim that those funds should be self financing within the medium term (say a three to five year period); or (b) the Government establishes a central fund to which all legal service providers contribute. This should be administered by a board independent of the LSB, similar to the Financial Services Compensation Scheme Board. The benefit of this scheme would be to maintain maximum flexibility for the entry and departure of individual approved regulators without detriment to consumers. Issues to be determined would include how the level of contributions should be set (and by whom); whether there should be sub-schemes on the financial services model; if so, how they should be divided—by service, turnover, number of licence holders, number of employees etc. These issues, it is suggested, are for detailed consultation. On the basis of current information, the CLC favours the second of the two options, but whichever scheme is proposed it urges the Joint Committee to recommend that Government include in the Bill provisions for the establishment of a compensation fund scheme or schemes for consumers. [Licensed Conveyancers’ Conduct Rule 2005 and Council for Licensed Conveyancers Guidance Notes 1–10 submitted but not printed.] June 2006

Memorandum by the Institute of Legal Executives (ILEX) (Ev 41)

Introduction

1. Following the publication of Sir David Clementi’s report in December 2004, and again in response to the Government’s White Paper “The Future of Legal Services: Putting Consumers First”, ILEX supported the conclusion in both cases that the regulation of legal services should continue to be based on the professional bodies. Neither Sir David, nor the Government, suggested that overall, leaving aside the issue of complaints handling, the five legal professional bodies were failing in their regulatory activities. However, ILEX agreed with the conclusion in both documents that the regulatory framework required modernisation, to make it more transparent to consumers of legal services, to encourage competition within the legal services sector and to give the regulation of legal services a sound basis in modern regulatory principles. 3435523034 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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2. Throughout the consultation by Sir David Clementi, and in response to the Government White Paper, ILEX has made it clear that it would support the establishment of a Legal Services Board (LSB) to provide light touch oversight regulation of Front Line Regulators (FLRs), provided the FLRs are given both the powers and the flexibility to regulate appropriately and eYciently in the public interest.

3. ILEX now accepts that this requires professional bodies to separate their regulatory functions fromtheir representative functions. ILEX intends to have that separation of its responsibilities completed by the end of 2006. However, for a smaller professional body such as ILEX, the cost of regulation will be increased as a result of these internal changes, as well as by contributing to the cost of the LSB. Such governance arrangements may be unaVordable by smaller organisations that want to come into the legal services regulatory market. ILEX hopes that the LSB will operate to enable individual FLRs to structure their internal operations in a way that is proportionate to their size and to the risk to the consumer posed by their activities.

4. Fromthe outset in relation to inadequate professional service complai nts, ILEX has supported the removal of complaints handling from the professional bodies to one OYce for Legal Complaints (OLC). Much legal business already involves more than one type of lawyer in a single transaction or action. The consumer is not best served by having to deal with a myriad of complaints services before finally alighting on the correct one in relation to their own individual complaint.

5. ILEX supports the objectives and principles for the regulation of legal services as set out in the Government’s White Paper and within the Bill, together with the adoption of a risk based approach to regulation.

6. However, ILEX has concerns about a number of aspects of the Bill, and these will be dealt with below.

The Bill Overall

7. As ILEX supports the transformation of the regulation of legal services into one which is headed by a light touch LSB, with day to day regulation delegated to the FLRs, and with all complaints of inadequate professional service being dealt with under one roof, there is no doubt that the broad thrust of the Bill’s proposals are necessary to achieve this transformation. ILEX is also in favour of the development of Legal Disciplinary Practices and other ways in which legal services can be oVered to the public, either with or without a combination of non legal services. ILEX has a number of reservations as to whether the Bill’s proposals will achieve the desired end in the most cost eVective way.

8. Although some of these points will be dealt with in more detail below, ILEX has significant concerns about the structure and powers of the proposed LSB, there being every prospect that the Board will be anything but “light touch” and therefore a potential impediment to eYcient and cost eVective regulation. We welcome the fact that there will be greater transparency in the processes applied by the LSB for dealing with all applications before it, and in particular we welcome the timescales that will be enshrined in primary legislation. One considerable drawback of the current systemis that the L ord Chancellor is advised by his Legal Services Consultative Panel, all of whose members are volunteers, but which has no prescribed access to technical and administrative support, and with no clear and transparent procedures for dealing with applications.

9. Although we are still working through the Bill’s proposals on alternative business structures, we do have concerns that the proposed licensing scheme may be more complex than is actually required to deliver robust and proportionate regulation. If innovative ways of delivering legal services, and groups of diVerent services, are to be developed, the mechanism for regulating new types of entities must be fast and flexible as well as robust. We are doubtful that the Bill delivers this.

10. We have seen the financial analysis undertaken by PricewaterhouseCoopers to support the Draft Legal Services Bill. The Government’s estimate of cost contained in the Regulatory Impact Assessment is based on this work. What stands out quite clearly is that the cost of regulation to the smaller regulatory bodies will increase under these proposals, whilst possibly for the larger bodies it will decrease. This is not an incentive to encourage either competition in the current legal services market, or competition between Regulators. 3435523034 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Regulatory Objectives 11. ILEX agrees that the regulatory objectives set out in Clause 1 of the Bill are appropriate for the legal services sector. However, ILEX is concerned that there is no attempt to prioritise the regulatory principles as set out in Clause 1. At the very least the objectives of supporting the constitutional principle of the Rule of Law, and encouraging a strong, diverse and eVective legal profession should take precedence over promoting competition in the provision of services.

The Legal Services Board 12. Sir David Clementi posited three working models for an oversight LSB. This ranged froma model whereby a LSB would take over all regulatory functions fromthe front line p ractitioner bodies, to one where responsibility for regulatory functions would be given to front line practitioner bodies, and where a LSB would provide consistent oversight in respect of all the bodies. The proposed structure and powers of the LSB as set out in the draft Bill give rise to concerns that the LSB may operate much more like a Model A monolithic regulator, rather than a light touch oversight Regulator. The proposals in the Bill have allayed some of ILEX’s fears by demonstrating that the current Regulators will take with theminto the new scheme the regulatory responsibilities that they currently hold. However, unless the LSB operates in a manner suggested by the structure and the financial framework contained in the Price Waterhouse Coopers report, ILEX has concerns that the new regulatory framework will not operate in a way compatible with flexible, proportionate and risk based regulation. If the FLRs find themselves being second guessed by the LSB on matters within their remit and areas of expertise, and have to spend time looking over their shoulder as they conduct their day to day regulation, the systemwill grind to a halt. ILEX has particular concerns about how the Board will exercise its oversight functions and utilise the powers it has been given within the Bill (Clauses 24 to 34, and Clause 43). 13. ILEX also has concerns that the LSB may view itself as much more than a light touch oversight Regulator because it is so closely involved with the Government through the Secretary of State. As currently proposed, the Secretary of State will appoint all members of the LSB. ILEX recognises that ultimately the Secretary of State must be involved in the appointment of the Board. However, there must be an intervening independent Commission responsible for the recruitment of members of the Board, using modern recruitment methods and utilising a similar framework to that used for appointments to the new Judicial Appointments Commission. It would seem appropriate that the judiciary should be involved with the appointments to the Board, again a precedent set in relation to appointments to the Judicial Appointments Commission. This is particularly so as the Bill includes the senior judiciary at so many points in the work of the LSB. 14. ILEX would like to see the provisions relating to consultation with the Secretary of State significantly reduced so that he/she is not automatically consulted at the commencement of the Board’s consideration of applications, (see, for example, Schedule 5, paragraph 5 and Schedule 7 paragraph 3(2)). We recognise, of course, that he/she will need to have a role in relation to matters where secondary legislation is needed to give eVect to a recommendation of the Board, but the Secretary of States role really should go no further. 15. Furthermore, ILEX is concerned that the Bill fails to recognise how the professional bodies have themselves moved forward to separate their regulatory functions from their representative functions, bringing in independent lay dominance to their regulatory work. The LSB should not interfere with the day to day regulation conducted by such bodies unless the LSB has reason to believe that a FLR is seriously flouting or breaching the regulatory objectives by the way in which it is carrying out regulation, or there is a serious regulatory failure. Thus, the provisions at Clauses 23 and 24, in relation to target setting and the setting of directions should only apply where there is a risk of serious damage to the regulatory objectives, or there is a serious regulatory failure, and should be used as a power of last resort. Competition between regulators cannot flourish if the LSB is directing the detailed process and performance of each or any of them. 16. What is also striking is that the LSB is not obliged by the provisions of the Bill ever to consult with the FLRs on any issue, even though the FLRs will be the organisations with the best information and experience about day to day regulation. The 5 principles of Better Regulation which the Government supports expect “eVective consultation to take place before proposals are developed, to ensure that stakeholders views and expertise are taken into account”; and that “Proposals should be published and all those aVected consulted before decisions are taken”. These principles should be established for the LSB on the face of the Bill. 3435523034 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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17. There is also nothing in the Bill that gives an indication that the LSB will refrain fromcalling in rules for consideration except in circumstances where a proposed rule might seriously undermine the regulatory objectives. It is clear that the Board is not obliged to call in a rule for consultation. However, if responsibility for day to day regulation is being passed to bodies that are dominated by independent individuals, and which are by statute obliged to act in a way compatible with the regulatory objectives (Clause 23(2)(a)), it should be rare for the LSB to need to spend time considering rule changes as a matter of course.

18. ILEX believes strongly that the Government should be partly responsible for the funding of the LSB. This will give the Government an interest in ensuring that the LSB remains appropriately “light touch”. ILEX can see no justification for the activities that the LSB will be undertaking on behalf of the Government, such as responding to the Government’s request that it investigates a particular regulatory gap, being paid for by those currently being regulated. Such an issue is one of Government policy, currently carried out by civil servants within the Department for Constitutional AVairs.

19. Funding of the LSB as between Regulators should also be driven by the regulatory principles of proportionality and risk. Currently, apart fromsome27 advocates, ILEX w ill be the statutory FLR for 7,000 Commissioners for Oaths, almost all of whom are employed within solicitors’ oYces or other legal departments. The regulatory risk that these individuals pose should take up very little time on the part of the LSB.

20. ILEX also retains some concerns about the provisions in the Bill in relation to the Consumer Panel. ILEX does not object to Clause 8 whereby the Board must consider any representations made to it by the Consumer Panel. However, this wording indicates there is considerable scope for the Consumer Panel to be very pro-active. ILEX is concerned that there will be no rein on the Consumer Panel’s ability to incur costs, require increased staYng, and seek thereby additional funding fromthe FLRs to support their activity.

Alternative Business Structures (ABS)

21. Where an ABS is a partnership or other business structure wholly owned and managed by diVerent types of lawyer, it is diYcult to see why such a business would need to go through the regime for licensing as set out in the Bill. All lawyers work, broadly speaking, to the same Code of Conduct, embrace the same ethics and, of course, adhere to the professional principles as set out in Clause 1(3) of the Bill. Such businesses face no greater conflicts of interest or diYculties with legal professional privilege than firms of solicitors or Licensed Conveyancers presently.

22. The ability to access external funding for both large and small legal services businesses should enable businesses to develop and innovate at a much faster rate than is currently possible. That must be to the benefit of consumers and the legal services market generally. However, with structures that enable external funding, or external ownership, or mixed ownership, there will be a need to address the potential for conflict of interest both internally and externally. Internal conflicts may arise for example between the work of a lawyer and the work of an auditor and their diVerent approaches to the confidential nature of information that comes their way from and about clients. It may well be that certain combinations of professions may not be able to work together in an ABS where there are fundamental diVerences of approach to issues that lie at the heart of the professional principles. The draft Bill goes some way towards demonstrating in Schedule 11 that it is addressing these issues. ILEX is still considering whether the licensing regime detailed in Schedule 11 is the most eVective and proportionate way of addressing potential areas of genuine concern and diYculty, and will supply further detail to the Committee.

23. Where the ABS is provided through a very large entity such as the Co-Op or the AA, their members or external shareholders, on an individual basis, are unlikely to be at all interested in the day to day working of the legal professional work in a way that would give rise to a conflict of interest. It is in the groupings of smaller businesses that the potential for conflicts of interest will need to be addressed. The licensing structure proposed in the draft Bill is one approach, but is not the only approach. If the licensing approach is considered to be the best approach for dealing with potential conflicts, it is essential that the legal services part of any ABS is regulated in the same manner and to the same standard as non ABS legal services providers. 3435523034 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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The Office for Legal Complaints 24. ILEX has been a strong supporter of the establishment of an OYce for Legal Complaints (OLC) as a single point of entry for complaints for all consumers. It is imperative that a new complaints handling body revolutionises the approach to complaints handling from that which has traditionally been seen at the Consumer Complaints Service and its predecessors. If the OLC can function in a manner similar to that described by Price Waterhouse Coopers in their report and on which their costings are based, there is a real chance of improvements for consumers, and improvements that can take place without an overall increase in the cost of complaints handling. 25. ILEX has no objection to the concept of a Compensation Fund being established for the protection of consumers when FLRs are regulating individuals who undertake regulated activities. The size and operation of any individual Compensation Fund must be proportionate to the risk to the consumer of the particular regulated activity. Additionally, ILEX has concerns that small and new entrants to the market for regulating legal services may find it impossible to establish a Compensation Fund of an appropriate size without some form of Government assistance, at least in the early years. 26. ILEX is of the view that an appeals process, limited to new information or breach of process, and not in the nature of a “rehearing” is necessary. It should not be an elaborate process, such that it actually invites disappointed complainants, or disappointed legal services providers, to re-run their arguments. An internal appeals process such as that operated at the Financial Ombudsman Service would seemto be appropriate. For the most part, ILEX envisages cases being dealt with in a less detailed legalistic fashion than is currently the case. This should give rise to a reduced expectation of the need to argue every small point in a complaint for a response, and this in itself will reduce the scope for appeals. 27. ILEX does have a concern about Clause 103, concerning acts and omissions by employees. This Clause states that any omission by an employee will be treated by the OLC as an omission on the part of the employer as well as the employee, unless the employer can demonstrate that they have taken all reasonable steps to prevent such an omission. From the consumer’s perspective, this leaves themwithout redress. ILEX believes that in principle it is undesirable for employers to hide behind an employee’s failings. The establishment of the OLC is about service complaints. It is the business—the legal service provider—who is oVering the service. The consumer is not interested in supervision levels. The consumer only knows he/ she had a poor service fromthe firmor organisation they consulted. This Cla use, read with Clause 127 whereby approved Regulators cannot make provision for redress, means that in such circumstances where the employee is a member of a professional body, that professional body may not provide redress even though it finds its own member to be guilty of professional misconduct. 28. ILEX supports the part funding of the OLC through a “polluter pays” mechanism. However, there are areas of legal work that are particularly prone to vexatious complaints, family and criminal defence work being cases in point. ILEX thinks it is important that the OLC has the flexibility given to it in Clause 106 to make diVerent fees in diVerent circumstances, and indeed to waive fees entirely.

Conclusion 29. ILEX will be pleased to provide the Joint Committee with further information and views on the draft Bill both in giving oral evidence to the Joint Committee, or in responding to issues raised by the Joint Committee at a later date. June 2006

Memorandum by the Institute of Trade Mark Attorneys and the Chartered Institute of Patent Attorneys (Ev 12)

1. Introduction and Summary 1.1 The Institute of Trade Mark Attorneys (ITMA) and the Chartered Institute of Patent Attorneys (CIPA) between themrepresent approximately2,300 legal professionals. In addi tion to representation, our roles are to administer and examine for entry onto the Registers of Trade Mark and Patent Agents; to train new attorneys; in the case of ITMA, to administer Continuing Professional Development courses; to regulate the conduct of Institute Members; and to examine, authorise and regulate Patent/Trade Mark & Design Litigators. Our members make a unique contribution to innovation in industry and to the economy of the 3435523035 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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UK. Compared to Barristers and Solicitors, we are small in number. However, our members are highly skilled professionals in a highly specialist field. 1.2 The Institutes are delighted to submit written evidence to the draft Legal Services Bill and welcome the opportunity to contribute to the scrutiny being undertaken by the Joint Committee. We look forward to developing our submission in the oral evidence hearing on Thursday 15 June and in any future submissions. 1.3 The members of both Institutes are engaged primarily in obtaining and enforcing intellectual property (IP) rights, chiefly patents, trade marks and designs, domestically and internationally before the relevant courts and registration authorities. The members of the two Institutes constitute one of the the largest groups of practitioners in the intellectual property attorney profession across the globe. Many practitioners are dual qualified as Patent and Trade Mark Attorneys and have membership of both professional bodies. Currently, 535 registered Attorneys are dual qualified, the vast majority as both Patent and Trade Mark Attorneys. 1.4 Our members are amongst some of the most experienced and highly trained professional service experts in the world; as a result, whilst both Patent and Trade Mark attorneys can and do represent individual UK consumers of the kind principally contemplated by the legislation, the majority of our clients are national and multi-national corporations for whom we act in IP matters throughout the world. Our highly technical background, specialist skills and client base distinguish us fromthe majorityof our fellow legal professionals. 1.5 The professional and client care history of both Institutes historically has been excellent. The number of client Complaints received by CIPA per annum is typically less than 10. ITMA has received only three client complaints since 2001. It is extremely rare that these are not settled by amicable means through conciliation. In contrast to legal service providers in other areas, the resulting “regulatory burden” is so small as to be de minimis. 1.6 Given our specialised professions and the nature of our clients, a “one-size-fits-all” regulatory approach would not be appropriate and we hope that the new regulatory model will be suYciently flexible to recognise our excellent past record. The comments below follow the structure of the questions posed in the Call for Evidence issued by the Committee which we have included for ease of reference.

2. The Bill—Overall

Are the draft Bill’s proposals necessary, workable and sufficient; could the Bill’s proposed outcomes be achieved by better means? 2.1 The Institutes consider that, subject to the specific views and reservations expressed below, the proposals set out in the draft Bill are workable and suYcient. We fully believe in providing a service where our clients come first and where any regulation is proportionate, risk-based and evidence-based. As regulators of a specialist area of legal services, we act at all times within the principles of better regulation established by the Hampton Review and the Better Regulation Task Force. We strongly feel that any regulation proposed by the Bill should be targeted and focused so as to ensure a “light touch” approach where appropriate and a minimal regulatory burden. 2.2 We would hope that the level of regulation and the costs imposed are proportionate in order to ensure that the specialist services provided by members of CIPA and ITMA are not burdened by an overwhelming amount of regulation, cost and bureaucracy. The proposals at the moment appear to oVer a “one-size-fits- all” regulatory solution which is not appropriate for the business model of CIPA and ITMA and which seeks to focus on the larger regulators without due consideration for how the smaller professional bodies will be aVected.

Views on the Government’s estimate of costs contained in the Regulatory Impact Assessment. 2.4 The Institutes are concerned that the Regulatory Impact Assessment which has been undertaken has not fully taken into account the actual costs to the professions. We have noted, in particular, that the anticipated “start-up” costs are already more than double the original estimates.1 2.5 Currently, the direct regulatory cost to Registered Trade Mark Agents is £75 per year. Registered Patent Agents pay £66 per year. The total regulatory income of ITMA in 2005 was £67,232 and that of CIPA approximately £98,802.

1 The White Paper referred to Clementi who said LSB start-up would be 4 million and OLC 9 Million (See White Paper p 69). PWC say (at p 14 of the Summary and elsewhere) set-up/transition will be 27 million. 3435523035 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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2.6 Part of the reason these costs are so low is the excellent record of client care within the two Institutes. A further factor is that the majority of front-line regulatory activities are carried out by unremunerated volunteers, including lay persons who are not attorneys, all of whomhave b usy working lives. This form of self-regulation has worked well with minimal levels of complaint. 2.7 We have looked at various costings, and these suggest that the combination of a Regulatory levy and the frontline regulators’ (FLRs) own operating cost is likely, even on modest estimates, to increase the annual regulatory costs to £750–1,000 per head assuming numbers of registered agents remain at current levels. 2.8 However, we forecast the impact will be worse. For most attorneys, the bulk of their UK work is the representation of others before The Patent OYce. This activity is unreserved and does not require any formal qualification/regulated status. Since membership of CIPA and ITMA and/or qualification is not a pre-requisite to allow persons to practice and represent clients before The Patent OYce, any significant increase in the regulatory fee could well lead significant numbers of practitioners—particularly sole practitioners—to question the merit of being, in eVect, “punished” financially when neither they nor their professions have committed any regulatory wrong, and to their opting to leave the regulated sector altogether. 2.9 In addition, significant numbers of practitioners are “dual qualified”. Over 500 are members of both ITMA and CIPA, and will opt to keep their costs down by choosing to remain only on one of the two Registers. The basic costs of the Legal Services Board (LSB)/our FLR will remain the same, however, and those attorneys remaining will have to bear a bigger proportion of the already high costs. This will inevitably impose financial strains on our proposed FLR arrangements, joint or otherwise. 2.10 Thus, it is clear that the IP Attorney professions may well suVer a disproportionate cost burden. On the basis that Regulation should be risk-based and proportionate, it follows that regulatory costs should be assessed similarly. We therefore believe that our status as a low-risk profession with an excellent conduct record should be recognised by an ongoing weighting of the regulatory levy that recognises the low burden our Members place on the regulatory system.

3. Regulatory Objectives

Are the regulatory objectives set out in Clause 1 of the Bill appropriate? 3.1 We believe that the regulatory objectives in Clause 1 are appropriate. However, we reiterate the views expressed in our response to the “Clementi” Review (Part 2, Paras 1.2-1.3) that Consumers should be encouraged by the Legal Services Board (LSB) and OYce of Legal Complaints (OLC) to understand what they can reasonably expect fromthe law and fromlegal professionals. In ad dition, we hope the LSB, in pursuing objective (e), will stress the positive aspects of the professions as much as any shortcomings it identifies.

4. Legal Services Board

Are the proposals for the regulatory body fit for purpose, in particular, the proposed structure and powers of the LSB; the funding of the LSB; the relationship between the LSB, OLC, Consumer Panel and the Government; the proposed compensation fund arrangement?

LSB structure and powers 4.1 We are content with the basic structure. However, we believe that the Chair and Ordinary Members should be appointed independently of the Secretary of State, preferably by an independent appointments commission. A wholly independent legal profession is a characteristic of all advanced democratic societies. The LSB will have enormous power over the legal profession and the Chair should therefore be wholly independent of the Executive to avoid any perception of bias or influence and to ensure maximum confidence in the regulatory systemfromconsumersand FLRs. 4.2 We are also concerned that Clause 6, “Supplementary Powers” is too broad and should be limited to the power to do “anything reasonably calculated” to carry out the Board’s functions. The same comment applies to the OLC’s powers under Clause 96. 3435523035 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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LSB funding 4.3 This is a major issue for our professions. Clauses 131 and 132 provide for the introduction of a levy payable by FLRs to fund the LSB and OLC but do not give further details of how it will be set or recovered. Clause 132(6) states that the levy rules must require the Board to “calculate the amount of the levy payable by each approved regulator” but do not state how these calculations will be made. 4.4 IP attorneys currently account for less than 0.25 per cent of the total cost burden, most of which relates to training rather than complaints/conduct and none of which is passed to the State. We understand that solicitors, in contrast, account for 80 per cent of the cost burden. It would be wholly inappropriate for the IP professions to be levied at the same rate as solicitors—this would amount to a subsidy to solicitors, and a penalty for good performance. We believe any contribution should be assessed pro rata against the regulatory record and size of the professions. 4.5 We feel strongly that the case has not been made convincingly for a regulatory regime fully funded by the industry. In particular, it is not obvious to us that the cost burden on the FLRs has been suYciently thought through, with the implications which this has for driving up costs for small practices and finally for consumers. We have concerns, in particular, about the way that the levy for the LSB will operate and would welcome some assurance that it will be proportionate rather than a flat rate for all FLRs. We would also raise with the Committee the need for a mix of private and public funding for the LSB/OLC. We would suggest, perhaps, some input in the form of Government funding to cover the set up and transitional costs. In other respects, we support the submission of the Council for Licensed Conveyancers (CLC).

Inter-relationship of LSB, OLC, Consumer panel and the Government 4.6 We have no comment on the inter-relationship of the various bodies other than to stress the need for independence fromthe Government,and the need to consult with all regulat ed interests.

Compensation Fund 4.7 At this time, we have not been advised of the plans for a compensation fund. Furthermore, neither CIPA nor ITMA is currently required to maintain one. Going forward, given that (after weighting for those who are currently dual-qualified but who will opt for a single qualification in the future) there are only some 1,800 IP practitioners, to create a fund of any meaningful size would require a wholly unrealistic levy or expenditure fromreserves that is not justified by the low level of ri sk (as yet there are no recorded instances of loss that have not been met by insurance). Similarly, making the FLR the primary guarantor would make it non-viable—we simply could not generate reserves or pay for insurance suYcient to cover even anything other than routine defaults. Also, the knowledge the FLR has a “long-stop” fund might discourage firms from seeking proper protection of their own. We therefore believe mandatory professional insurance will suYce. Alternatively, a common fund to which the Law Society also contributes proportionately might be a way forward, but as with the LSB levy the contribution of IP attorneys would have to reflect the minimal risk they pose. 4.8 We have concerns about the proposed compensation fund which we would urge the Committee to consider further. In particular, there are questions surrounding the practical details of establishing compensation funds for FLRs. It has been suggested that in an environment where Regulators may come and go, there are practical diYculties in requiring them to set up and maintain compensation funds A further issue is whether, in our case, it is appropriate that the fund should be accessible to commercial consumers or limited to private, more vulnerable consumers. We are currently unclear about how any proposed fund might operate and believe that the case for a compensation fund and the details of how it would function need to be explored in more depth. 4.9 We do not support any suggestion the IP FLR should be responsible for guaranteeing OLC awards in the event a regulatee defaults. This would result in the regulator taking responsibility for professional malpractice within the industry rather than individual companies having ultimate liability for their own actions. We do not believe that this is proportionate or necessary, given the high client care history and compliance within the trade mark and patent attorney sector. 4.10 We are also extremely concerned that there should be a right of appeal against a public censure of a FLR and also against financial penalties. Clause 32(1)(b) appears to provide a right for a FLR to make an application to the court if it is aggrieved by the amount of a penalty imposed. However, the grounds for appeal are qualified by subsection (4) which allows an appeal only if the imposition of the penalty was not within the power of the Boards, if the proper procedure was not followed or if the penalty imposed 3435523035 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 is due to be paid in an unreasonable amount of time. Subsection (7) would appear to restrict any possibility of judicial review. We believe that this is unacceptable and that a regulator should have the right of appeal against a financial penalty on the grounds of the amount payable. At the very least, we believe that any decision on financial penalties should be open to judicial review. Building in such protections would give FLRs more confidence in their relationship with the LSB and allow recourse to the courts, should it be felt that a financial penalty was disproportionately large. We urge members of the Committee to scrutinise this clause closely to ensure that the necessary safeguards are in place to allow an appeal on financial penalties.

5. Alternative Business Structures

What are your views on the ability and desirability of the proposed new ABSs in opening up the market for legal services and delivering consumer benefits?

5.1 Subject to operational issues, we consider the proposal is, in principle, commendable and will do much to put the UK legal professions at the forefront of the world legal services market. 5.2 However, Patent and Trade Mark Attorneys have practised as Mixed Practices (typically as Partnerships) for many years and we have been concerned to ensure that such bodies do not automatically become ABSs under the Act. In an earlier version of the Bill, we were pleased to see a paragraph in Part 3 of Schedule 11 that specifically addressed the issue to our satisfaction. This paragraph did not survive into the Draft now before you. We understand fromthe DCA that it is felt the p rovisions will, nevertheless, allow existing mixed IP practices to continue without requiring—for the most part—ABS licensing. However, we feel the provisions are ambiguous and need further clarification. 5.4 It is also the case that some Patent and/or Trade Mark practices already enjoy external “non- authorised” ownership, ranging fromtypical “familybusiness” sharehol ders to companies with fully tradeable shares. Such external ownership has never been problematic nor prohibited. Since there is no obvious “wrong” to be addressed here, we believe that these arrangements should be permitted to continue without further licensing if the management continues to satisfy the provisions of SI 1994/363 & SI 1994/ 362. At the very least, the legislation should provide for a transitional period allowing such existing bodies to seek ABS licences. 5.5 In other respects, we feel the procedures, both to become a licensing authority and a licensed body, are complex and are likely to be costly to operate. 5.6 Finally, we note that, whilst ABSs are contemplated by the Bill, there are no provisions which require existing restrictions on business form(such as Rule 7 of The Solicitors’ P ractice Rules) to be lifted or which prevent new competitive restrictions being imposed. We would suggest to the Committee that the draft Bill might be the appropriate place to explore some of these issues.

Are there any potential conflicts of interest under the new structures, both internally and externally, and as regards legal privilege?

5.7 Regarding conflicts, we believe existing practices are well established and that in a properly run ABS no particular diYculties should arise. 5.8 Our concerns as regards the “privilege maze” will be known from our response to the White Paper and nothing has changed our view. We are unable to reconcile the Government’s concern that consumers should come first with its unwillingness to introduce clear and consistent rules of privilege across the legal services field. We consider that absent clarification is likely to be a serious operational problemthat will detract from the ABS proposals and which may disadvantage consumers. 5.9 ITMA also points out that in contrast to the reluctance in this Bill to extend privilege to any degree, under SI 1027/2006 S11, the Government extends Legal Professional Privilege (LPP) in trade mark and design matters to an international, wholly unregulated body of persons whose sole qualification can be a mere five years self-certified “relevant” experience. The same rights for Trade Mark Attorneys require stringent examination and a submission to regulation, experience being irrelevant. Apart frombeing discriminatory, (and possibly oVering all other unqualified providers of unreserved services a claimto see k equal treatment) this is manifestly inconsistent with the approach to privilege in this Bill. 3435523035 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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6. Office of Legal Complaints

Is the OLC fit for purpose, in particular its structure and powers; its compensation arrangements and limit; the need for an appeals process; the conditions and level of respondents’ fees? 6.1 The basic model for the OLC would appear to be fit for purpose. However, we consider there should be a power to delegate the OLC’s functions to FLRs in certain circumstances, particularly where on a risk- based analysis the cost of providing the service would be less. 6.2 For example, the IP professions have an excellent record of complaints handling. In the last five years CIPA has had only 16 consumer complaints which went before a Disciplinary Board, This includes complaints against all members of CIPA ie regulated Fellows and non-regulated Associates. The total Membership of CIPA is about 2,500 people. Mathematically, therefore, the complaint rate is a mere 0.00128 complaints per member per annum. 6.3 ITMA has received only three consumer complaints since 2001. All three were settled by conciliation or other amicable means. 6.4 The cost of setting up and running a section of the OLC to deal with such a low level of complaints— all of which, given our field of work, are specialised in nature—will clearly be entirely out of proportion with the benefit to the consumer. We suggest that where an FLR has a good record of complaints handling, and where the level of complaints is inherently low and the FLR can oVer the service more cost-eVectively, the LSB/OLC should have power to delegate the Ombudsman function to the FLR, waiving the portion of the LSB levy attributable to the OLC or remunerating the FLR for the provision of the service. This will help to keep the regulatory costs fair and proportionate. 6.5 We would also draw the attention of the Committee to the 2004–05 annual report fromthe Legal Services Ombudsman for England and Wales, where Zahida Manzoor CBE, the Legal Serivces Ombudsman commented: “Overall I amsatisfied that CIPA has in place su Ycient systems for handling complaints that are fit for that purpose and appropriate for the size of its operations.”2 6.6 Regarding appeals, we consider it fundamental that there should be a basic right of appeal for a Respondent as well as for a Complainant. Tribunals make mistakes and there is no good reason why a Respondent should be denied the possibility of review. It could, of course, be subject to a permission filter to ensure only appropriate cases are taken forward. We also believe that the Bill should provide that, if a Complainant neither accepts nor rejects a determination, the Respondent should have the opportunity to accept it and close the matter. A Complainant has a responsibility positively to pursue his case. In view of the need for all parties to resolve disputes speedily and cost eVectively, it should not be left to himto leave his options open simply by inactivity. 6.7 We share the CLC’s concern that Clause 102 (2) should be limited to relate to complaints concerning legal services activities (reserved or not).

7. Additonal Thoughts

7.1 Consultation As two of the smaller professional bodies, we are very concerned that the LSB/OLC should be specifically required to consult with us and similar bodies about its proposals and policies. Our fields are highly specialised and the LSB/OLC cannot expect to be able to discharge their functions against our professions without proper input to informtheir decisions. We believe that this struc ture might cause confusion and that it would run contrary to the principles of subsidiarity. 7.2 Ultimately, regulation is a partnership between the regulator and the regulated. It can only be eVective if there is mutual confidence. As a smaller branch of the legal profession we need to be certain our voice is heard, just as much as that of the consumer and the bigger regulators. We therefore believe that the creation of a professional panel is just as important as a consumer panel, and that this should listen to representative bodies as well as regulators.

2 Annual Report of the Legal Services Ombudsman for England and Wales, In the Consumers’ Interest, 2004–2005, p 50. 3435523036 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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7.3 We note that in contrast to the absence of a consultation requirement for FLRs, the Secretary of State is to be consulted in respect of many of the Regulatory measures to be taken by the LSB. We are concerned that this may compromise the independence, or at least the perception of independence, of the LSB.

7.4 Effect on Representative bodies The Bill should not have the unintended eVect of undermining the representative role of the professional bodies. We have already highlighted the huge increase in professional cost that regulation will entail. It is inevitable that many regulatees will decline to pay both that and a “representative” fee, which will greatly reduce the ability of the profession to be heard. Furthermore, so many fundamental roles will move to the regulatory side that the role of the representative side may be reduced beyond the point of viability— particularly if it has no guarantee of a voice in the process. Objective (e) requires that there should be a healthy representative sector and we believe it would be appropriate for the LSB to have power to support that sector financially or otherwise in furtherance of the overall objectives. Philip Harris President, ITMA Mike Harrison Past President, CIPA 13 June 2006

Examination of Witnesses Witnesses: Mr Simon Blandy, Solicitor to the Council, Council for Licensed Conveyancers, Ms Diane Burleigh, Chief Executive, Institute of Legal Executives, Mr Philip Harris, Institute of Trade Mark Attorneys and Dr Michael Harrison, The Chartered Institute of Patent Attorneys, examined.

Q208 Chairman: First of all, welcome to Simon The Legal Services Board can start issuing targets to Blandy, Diane Burleigh, Michael Harrison and regulators—I hesitate to say “by whim”—but it Philip Harris. Thank you very much indeed for could do if it so wished. There are also other clauses coming at such short notice. You will have seen that relating to, for example, complaints handling. Quite this Committee has got a very tight schedule, and the rightly, on the face of the Bill, it says that the fact that you are assisting us in meeting our virtually regulators must ensure that those they regulate have impossible task is much appreciated by every in-house procedures for dealing with complaints, but Member of the Committee. What I thought I might the Board has the right to tell themexactly what that start oV by doing is asking a general question. If I should look like. If you have regulators that have might, Diane Burleigh, direct it to you, because we been approved, that are appropriate regulators, that have some early evidence from ILEX really level of detail really is not necessary. So it is the explaining that you are concerned that there should combination of those sorts of clauses that give us a be a light touch method of regulation (and the others concern over the potential for rather heavy-handed may want to comment after you have answered), I regulation. just wondered is there anything in the draft Bill which makes you think that the level of regulation which is proposed will be over-intrusive or unnecessary and, if Q209 Chairman: In asking this question I should so, why? point out that I ama Memberof the Law Society and Ms Burleigh: Thank you, my Lord Chairman. The I have a practising certificate fromthe Law Society Bill itself, as it is drafted, has all the potential (and I which is current. May I ask the other witnesses emphasise the word “potential”) for heavy-handed whether you share the concerns of the ILEX? May I regulation. There are a group of clauses which give start with Mr Blandy? the Legal Services Board a range of powers which Mr Blandy: Fromthe CLC’s point of view it does they can exercise on what we would say is quite a low share those concerns but I have read the evidence that test (I think what I amsaying you and your Sir David Clementi gave earlier this week, where he colleagues have probably heard fromthe Law Society said that his intention had been that the powers of the and the Bar Council) but those powers can be LSB would be exercised proportionately. I think the exercised at quite a low level which falls short of an CLC would agree with that, and it is a question of adequate standard, whatever that might mean. framing the Bill in such a way so that that intention Indeed, in target setting there is no standard at all. would be met within the legislation. 3435523036 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Q210 Chairman: May I ask Dr Michael Harrison? suYce because it would be a much more open process Dr Harrison: I think we share those views. I think we with open job descriptions and modern recruitment recognise that an appropriate level of regulation methods included, and, really, where it would be very should be present but we are quite concerned that it diYcult for the Secretary of State not to say: “Yes, might be a little bit too heavy-handed. here is my signature on the appointment”. Mr Harris: In the past the intellectual property professions have been subject to, I think, what could Q213 Lord Campbell of Alloway: I know I amgoing properly be described as light touch regulation. We ahead fromanother question, but surely the are primarily business-to-business service providers Secretary of State ought not to have a veto as to as opposed to providing services extensively to licensing. Surely you all agree that you are totally private individuals and we are subject to an competent and the situation of licensing should be appropriate and fit level of regulation by the Patent left to you, who understand your diVerent OYce, and so on. That is more along the lines of what professions which all relate, in a way, to the due we would like to see in terms of the light touch administration of law. Surely you do not accept that regulation going forward. there is any veto on that, as proposed by a Secretary Chairman: That is all very helpful. Shall we move on of State. to more particular questions, first about the Legal Ms Burleigh: It is one of the areas where we have some Services Board? concerns, generally, about all of his powers. The point you make is certainly one that we do make, Q211 Michael Foster: Perhaps I could address the which is that on the whole, as we see it, the purpose of ILEX, as they were the only people today who have having approved regulators is that the Legal Services expressed some reservation about the Secretary of Board itself has said: “Actually, you are pretty good State appointing the Legal Services Board and its at what you do; away you go and do it.” We do not independence in consequence. Would you like to say think it would be right for a Secretary of State who, something more about that? in the future, may have no connection with the Ms Burleigh: Yes, it is not just actually in relation to lawyers at all—in fact, may have quite diYcult views the appointment of the Board but there are various about lawyers—to have a veto. other places in the Bill where the Secretary of State has powers to do this, that and the other, particularly Q214 Michael Foster: Perhaps I misled the when the Legal Services Board is consulting about Committee by using the word “veto” because I various applications. When you combine the power appreciate it was not your word. I was suggesting it of the Secretary of State in relation to appointments, may be an option but I think you have explained that how he will be consulted immediately at the well. Perhaps I, also, ought to declare an interest, as beginning of every application process, how he does a former Member of the Institute of Legal Executives not have to agree with the outcomes of processes and and now a practising solicitor. Having declared that how he can direct the Board in various ways, we do interest, perhaps I could ask Mr Blandy as to what his start to see the head of regulation not really being the thoughts are about the Secretary of State having this Legal Services Board but the Secretary of State. particular power of appointment. What we would like to see, therefore, is, starting from Mr Blandy: I think the CLC does not have a the top, fromthe appointments,an open process and particular diYculty with the idea of appointment by a much more simple process. Clearly, the Secretary of the Secretary of State. Where we have issues are State has to be involved in actually finalising the about the actual powers which are exercised by the appointment—we do not object to that—but we Secretary of State in the consultation process. would seek a great deal more independence and using Lord Campbell of Alloway: I have to declare an what we would call modern recruitment processes for interest. I was at one time, for many years, an adviser recruiting members of the Board, and we would like to the Council of Europe on intellectual property. to see a bit of a pulling back of the Secretary of State’s involvement in so much of what the Board does. Q215 Michael Foster: Do other witnesses have any comment to make on that particular aspect before we Q212 Michael Foster: Are you suggesting that the move on? Secretary of State should have a veto, but not be the Dr Harrison: I think we would align very much with initiator of the appointees? Is that the suggestion? the views of Diane Burleigh on this. Ms Burleigh: Not even so much a veto. I think, at the Mr Harris: I think that is absolutely right. Primarily, end of the day, if you had an independent given that this is a Bill that aims to put the consumer appointments commission of some form, perhaps in first, a large part of this is about consumer the way in which the Judicial Appointments perception. A lot of what lawyers do is giving Commission has all been appointed, then that would individual consumers advice and legal services in 3435523036 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 Mr Simon Blandy, Ms Diane Burleigh, Mr Philip Harris and Dr Michael Harrison connection with their rights in a number of areas, Q218 Lord Neill of Bladen: You made the point that including sometimes rights against the State, and I one member of a partnership can be representing one think most consumers would want to see that the side and another is allowed to represent the other ultimate regulator of the people giving them advice side. was, in fact, one removed from the Secretary of State. Mr Blandy: That is correct. We would certainly support some form of independent commission involvement in the Q219 Lord Neill of Bladen: Has that ever been tested appointments process. in the court? There is a lot of recent case law aVecting the legal professions, particularly solicitors—Prince Jefri1 is the famous case. Has it been tested? Mr Blandy: It has not been tested in the courts but it Q216 Michael Foster: Mr Blandy, I wonder if I could has been dealt with through our disciplinary process. ask you about this question of competition between The stance taken is that provided, at the outset, the regulators. It is an odd concept but do you see any parties are advised in writing that the firmis acting benefit in it at all and, more especially, if there is some for both parties and they agree in writing about it benefit can you actually see that competition could then the CLC does not have any problems about it. actually be created amongst the various professions? If a conflict arises then the licensed conveyancer has Mr Blandy: Personally, I would not characterise it as to cease acting for both parties and the rules have direct competition. To an extent CLC and the Law been tightened up so that they cannot even get their Society have been in competition for the last 15 or 20 costs if they act for both parties and a conflict arises years because the CLC regulates conveyancing after that. So the risk is all with the licensed services, the Law Society regulates conveyancing conveyancer. services and there are a number of solicitors who have Lord Neill of Bladen: I declare my interest in that I am become licensed conveyancers because they are a practising barrister. attracted by some diVerent aspects of the rules that the CLC has. The first one is about external Q220 Michael Foster: Can I move on further on this ownership, the second one is that there are diVerent issue of competition. In practical terms do any of you rules concerning the payment of referral fees and the have expansionist plans? Do you intend to be looking third one is that members of the same firm may act for other professions to join your particular for opposing parties in a particular transaction. association? Those are instances where we have been at odds with Mr Harris: There is a possibility we might seek to the Law Society. To some extent the Law Society has oVer a home to solicitors who specialise in come towards us. At the minute, they are intellectual property services. We have not looked at investigating, and have been for some years, the idea this in any depth yet but, obviously, it is something of having external ownership of firms, so we think that, as time goes on, we might be interested in there is, in fact, considerable merit in there being pursuing. diVerences in the rules, and, to some extent, there is Dr Harrison: I think very much the same. We would competition, but certainly it is not the type of imagine that if ABSs are formed between patent competition that you would understand as between attorneys, trade mark attorneys and solicitors then commercial organisations. the regulator might attract those solicitors.

Q221 Michael Foster: Are we going to get into a free- Q217 Michael Foster: I amslightly worried about for-all, with everyone putting leaflets in the back of what you say because it seems to me that what you The Solicitors’ Gazette oVering the best deals? are suggesting is that there could be a conflict of Mr Harris: I think that is probably unlikely. My own interest between the professional who wants to take view is that better regulation would probably be in the lowest possible regulation and the client who the consumer’s interest and so regulatees will go to really needs to have the highest possible standards of the place where regulation oVers himthe best service regulation. Is that not the problem? package overall. I think, instead of it being a race to Mr Blandy: I think Sir David Clementi talked about the bottomit will be a race to climbto the top. having competition within a defined regulatory framework, and we would go along with him on that Q222 Michael Foster: You say “better regulation” point. There are minimum standards; they are clearly but we have already had examples where lesser set out. Any rules that are made have to be made with regulation has benefited the licensed conveyancers the agreement of the Legal Services Board, so I think against the Law Society. the question of risk to the public and to the consumer 1 The full title of the case is HRH Prince Jefri Bolkiah vKPMG. are minimised in that way. A report of the case is [1999] 1 All ER 517. 3435523036 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Mr Harris: That, of course, is the function of the moment the issue goes to litigation you have to competition, and at the end of the day it is for the hand it oV to a firmof solicitors. They have not been consumer to choose where he takes his services. I able to understand the one-stop-shop issue. would like to think there is quite a strong pressure that consumers will choose the service provider who Q227 Lord Campbell of Alloway: Could I ask you a is better regulated and provides the best protection generic question, to which some of you may respond for themoverall as part of the package. I think they in a diVerent way? Do you wish to retain your will encourage people to go to see the better independence, and if you do, do you think it is in the regulator. interests of the consumer to do so, rather than to be associated in some form of composite partnership Q223 Michael Foster: Do any of you believe that with the Bar or solicitors, accountants, or whatever, there will be higher standards as a result of which appears to be on the cards at the moment? I am competition, or lower standards, or will it make no trying to get away fromthe technicalities of this Act. diVerence? A multiple choice question, really. Where do you feel you stand? Do you wish to retain Mr Harris: I think it will lead to higher standards your independence and do you not think it is in the myself. interests of the consumer to a certain extent? Dr Harrison: I think if this becomes law then this will Q224 Chairman: Higher standards. Does anybody give us the opportunity that we have not had so far. demur from that? I do not think necessarily all firms of patent and trade Dr Harrison: I think higher standards will emerge, mark attorneys will join firms of solicitors or take in not necessarily for that reason but because of the specialist IP solicitors, but some will. My own firm overall regulation framework that is set out. would very much like to do that and I know a number Ms Burleigh: What I would hope, I was about to say, of others that do. Equally, I think there are plenty of is that it should lead to diVerent standards but I think other firms who will not wish to go down that path. I would probably adopt Sir David Clementi’s term, Mr Blandy: We have tried, over a number of years, to which is “proportionate standards”. When you are start discussions with other organisations with a view looking at specialised services, particularly away to partnership. We have not been able to make any fromgeneral practice, I think that is where you might headway with the Law Society. We would certainly find competition between regulators in how they open it out. regulate that and choice for diVerent firms of lawyers Ms Burleigh: ILEX would take the same view. We are and legal services. aware not only of our members who would seek partnership or other business arrangements with Q225 Mr Burrowes: Just to pick up a question from solicitors but of solicitors firms who would like to Michael, I obviously declare an interest as a take legal executives into partnership. For us it is practising solicitor. You seemfairly tentative in actually all about running your business, using the terms of the proposed new structures perhaps for very best people to run your business, and if the very solicitors. Has there been much demand up to now? best person is not a solicitor but is otherwise qualified Have you had fromyour own body people it is silly to prevent thembeing of assistance to the demanding: “This is what we want. This is going to firm. be future”?, or is it just something which you think perhaps may happen? Q228 Lord Bach: This question is probably mired in Mr Harris: I amalso a solicitor as well as a qualified ignorance. My interest is as a non-practising barrister trade mark attorney and it has been a source of and an ex-Minister at the Lord Chancellor’s diYculty in most trade mark practices that we cannot Department. It is this (and David Clementi spoke a also oVer solicitor style services. There has been a lot lot about this as well): are all of you in your diVerent of pressure to try and explore that area and try to get ways sure that the representational role that you together solicitors and trade mark attorneys to be deliver and the regulatory role that you want to able to practice together. So we think the potential continue to deliver are separate? for our businesses to get together with solicitors and Ms Burleigh: At the moment they are not. We intend oVer composite services is definitely there, yes. having that separation in place by the end of this year. Q226 Mr Burrowes: You think there is a justifiable Mr Blandy: For the Council for Licensed demand? Conveyancers it has never been an issue because the Mr Harris: One of the biggest problems we have had Council has always been purely a regulatory body. is selling our wares, as it were, to international clients. Dr Harrison: I think, at the moment, we have a single It has historically been that they come to us for the body which is representational and regulatory. I basic advice on intellectual property protection but think the diYculties we see are purely at the division. 3435523036 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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We are happy to divide those into two separate Midlands or indeed Leamington Spa would enable functions but in the areas, for instance, of education, the transfer of experienced staV? It is making a training and examination it is a little bit diYcult to similar point to Joshua Rosenberg that there is an work out right now how they should be best handled, expertise that should be transferred. Would you but in areas of complaints, on the one hand, and agree? broadly lobbying, representational functions, yes, it Ms Burleigh: Yes, ILEX would take, again, a is easy to see how they can be split. pragmatic view and practical view. We are not Mr Harris: We do not see any particular diYculty in starting with a blank sheet of paper and there is separation in theory. Some of the implementation certainly expertise at the current Law Society might cause us a few issues, but we are working with premises that should not be lost. To start a scheme CIPA to see if operationally we can oVer the that will need to employ 200 or more people from regulatory side through a single, joint body, if you scratch really is not on the cards. However, we do like. In fact, we already do oVer our educational take the view that even if the OYce was to be placed services jointly through a joint examination board, in the West Midlands it really should not be in the and there have been moves towards a joint same building that it is now. There is going to have to disciplinary board as well. So we are working on that. be a tremendous change of ethos and culture within Chairman: I am sorry we have taken up so much time the organisation, and if you take the staV you really on this aspect but it is because your answers have ought to start that change in new premises because been very interesting and it is such an important you are going to have to change their attitude as well issue. Let us deal with complaints for a moment. to processes. Dr Harrison: I think we very much share that view. V Q229 Mr Burrowes: This is a question to Simon We can see the sense of taking on the existing sta but Blandy. You have been beating the Bar Council’s the main thing is to change that ethos and make sure drumin relation to the CLC delegation of complaints it works properly under the new regime. handling to approved regulators. Would that not, Mr Harris: I concur entirely with that. though, defeat the aimin Sir David Clementi’s submission to us of a simple, speedy complaints Q231 Mr Burrowes: Moving on, Simon Blandy, to process that will meet the concerns of consumers? the compensation fund, do you think the requirement Mr Blandy: Fromthe CLC’s point of view we take a for such a fund could act as a significant deterrent to pragmatic rather than a principled approach to this. extension of the regulatory regime to new regulated We believe that we can provide a very good service legal activities? If you do would you think the Bill for consumers at the moment, and as it happens for needs to be amended to that eVect? the last six months I have been dealing directly with Mr Blandy: We have had experience because we have the complaints handling at the CLC. We have a small been investigating the possibility of setting up a volume—we have about 200 a year. I am able to take separate compensation fund in order to support an ’phone calls directly fromcomplainants,I amable application to regulate probate services. We have to ’phone up licensed conveyancers and to tell themfound that it is not prac tical to do it on the open there is a problemand then leave it to the licensed market, and a very simple way of getting round the conveyancers to resolve that problem. When it comes problem, in order to allow new regulators in and to actually determining complaints they are perhaps for regulators to move out easily, is to have determined, at the minute, by the investigating a compensation fund which is centrally administered committee. That investigating committee comprises to which all the professions contribute in one way or five people: three of those are non-licensed another. That would solve that problem. I do notice conveyancers and two of those happen to be licensed that within the Bill itself there seemed to be diVerent conveyancers. What I think should happen is that we provisions depending on whether you happen to be should look to see what is likely to be the eVect on someone who is approved to regulate or someone consumers of having a diVerent scheme. If it is going who is a licensed body. If you are a licensed body then to be better, well, move to the better scheme; if it is you must contribute to the compensation fund, but going to be worse then think very hard before you those provisions do not seemto be as clear if you are, move to that other scheme. in eVect, an existing practitioner. There is a slight mismatch there. Q230 Mr Burrowes: Looking at the practical side of the complaints process (perhaps other witnesses), Q232 Chairman: Does anybody else have any would you agree with the Law Society that concerns comments about the fund? in relation to the transfer of staV fromtheir Ms Burleigh: ILEX may not have exactly the same complaints service to a new structure for the OLC view as the CLC but we share the same concern. We and whether the benefits of situating the OLC in the are currently developing a scheme to enable us to 3435523036 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 Mr Simon Blandy, Ms Diane Burleigh, Mr Philip Harris and Dr Michael Harrison grant rights to conduct litigation to our members, years with the CLC, and I do not see why it cannot be which means they will be in a position to set up their rolled out to other regulators. own businesses. The real sticking point for us is development of a compensation fund from scratch Q236 Chairman: I think, Dr Harrison, Mr Harris, that would be appropriate to give appropriate you have already said that you think these structures consumer cover. So the issue is a real one in terms of create an unnecessary layer of regulation. Do you bringing new people into the legal services market. want to add anything in answer to Lord Campbell? Mr Harris: I think that would also be a serious Mr Harris: I believe, but do correct me if I am wrong, problemfor us; with only 2,000 practitioners between that our original comment in that regard was the two institutes, putting together a compensation primarily directed to our own experience, which is fund of any meaningful size would require a wholly that we have run, in eVect, ABSs for many years unreasonable levy on the membership. If there is to (mixed patent and trade mark practices) and we were be any scheme at all I think we would prefer to see the concerned that those would be treated as ABSs with common fund that Mr Blandy was discussing. all the attendant regulation under the new regime. Dr Harrison: I would share that view as well. We are not entirely convinced yet that that is not the Chairman: I think we probably have time to move on case, and we are seeking clarification fromthe DCA to Alternative Business Structures. on that point. We have operated these business Lord Campbell of Alloway: If I could rather cheat and structures for many years without diYculty, both as ask a general question, as we are coming to the end, regards external ownership and management. So I does it come to this: that you would not be happy to think it is fair to say we think the licensing regime that accept this Bill as an Act without very substantial is in place is a little heavy-handed for the task it is amendment? being set up to deal with.

Q233 Chairman: This is in relation to Alternative Q237 Baroness Henig: What is your view of the Business Structures. Government’s estimate of costs which is contained in Ms Burleigh: Forgive me if my answer is slightly the regulatory impact assessment? vague because we are still working our way through Dr Harrison: I think the worry that we have is the way the concept of Alternative Business Structures as they those costs are apportioned. We think that the record are in the Bill. However, I think the answer is likely of the two institutes is such that the proportion of to be yes, we will be looking for some substantial costs that apply to our members should be relatively changes. We are not, at the moment, convinced, low. We think that not only on fairness grounds but partly because we are still getting through that part of without that we fear very much that some of our the Bill, that the licensing structure is the most members will step outside the regulatory framework. appropriate way of enabling alternative businesses They can do most of what they currently do without diVerent ways of oVering services to be done. I being regulated at all. This is not, in general, a understand from my colleague, Simon Blandy, that reserved profession. the CLC already are going down this route in a much Mr Harris: There are also some concerns about how more straightforward fashion. There certainly are the figures have been arrived at. They have grown problems that need to be addressed but whether substantially since the publication of the White Paper licensing, with all its complexities of having to, first of and, obviously, there is a tendency for these figures to all, be a licensed regulatory authority and then increase. handing it down again—I think it is probably rather more complex than it needs to be. Q238 Chairman: In answering this question do you have anything further, as we have reached the end of our time, that you feel has not been covered? Q234 Chairman: Mr Blandy, I think you are Ms Burleigh: Just in relation to both the Legal responsible for the regulation of 42 bodies? Services Board and the OLC and, ultimately, costs, Mr Blandy: Forty-two recognised bodies, some of our view is that if those organisations actually which have external ownership, yes. operate in the way that PricewaterhouseCoopers envisages that they will—eYcient, light touch and Q235 Chairman: What is your answer on that? looking at service complaints as service complaints, Mr Blandy: Our answer to that is that we do not think not a lot of detail—then the costs are probably about there needs to be a separate regulatory regime for right, but if they decide to go into a lot more detail, a that. The problem can be resolved by the LSB lot more monitoring and all the rest of it then costs agreeing to rules made by an approved regulator will be way up. which makes specific provision for external Mr Blandy: On that point I agree with what Diane ownership. It has worked for, certainly, the last six Burleigh says. 3435523036 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Chairman: Thank you very much, and thank you all evidence, but if there are any further points you think for coming today. There were one or two references you should bring to our attention, particularly so far you made to the fact that you are still doing some as the amendments to the Bill are concerned, we continuing work. Do, please, keep us closely in touch would be very willing to hear fromyou before the end with that. I think today is the deadline for written of the month, if that is possible. Thank you very much for coming today.

Supplementary memorandum by the Institute of Legal Executives (ILEX) (Ev 41a) 30 June 2006 Dear Miss Lawrence Following our attendance at the Joint Committee on 15 June 2006, and at the invitation of the Chairman Lord Hunt, I attach a document setting out the Institute’s views on Part 6 of the Bill, Alternative Business Structures. I am also attaching a second document which I hope the Committee will find of interest when they are considering the question of permitting the OLC, or the LSB, to delegate complaints handling to Approved Regulators and whether this will defeat the aim of meeting consumer concerns that complaints against the professions are dealt with independently of the professions and in a simple speedy way. Yours sincerely

Alternative Business Structures

1. This paper sets out ILEX’s views on the type of Alternative Business Structures (ABSs) which should be permitted, and whether the structure for regulating ABSs as contained in the Draft Legal Services Bill is the most appropriate form of regulation. 2. Sir David Clementi in his report identified Legal Disciplinary Practices (LDPs) (in which non solicitor lawyers could be partners with solicitors in entities providing legal services to the public), Multi Disciplinary Practices (MDPs) (in which the practice could provide some services which are not permitted for solicitors’ firms at present, such as auditing services), externally owned LDPs, and externally owned MDPs. ILEX supports the development of all these forms of ABSs. 3. The Government in its White Paper acknowledged the benefits for consumers of ABSs as a component towards new ways of meeting consumer needs. Both reports acknowledge the need for robust safeguards to ensure that standards of legal practitioners remain high and that consumers are protected. The White Paper proposed for the first time that there would be a robust licensing regime under which Front Line Regulators, which have been approved to do so by the Legal Services Board (LSB), would license ABS entities. The Draft Legal Services Bill expands upon the process for licensing ABS firms. 4. Clearly, all ABSs must be subject to a regulatory regime. What the Bill purports to do, in our view, is to set out in far too much detail the process for the regulation of ABSs. An approved Regulator will already have had their fitness to regulate the delivery of reserved legal services (either in whole or in part) confirmed by the LSB. Surely the same process can be used to approve the rules of any approved Regulator by which an ABS entity will be regulated. 5. Those rules will need to deal with the novel and distinctive features of ABSs. For example, approved Regulators will need to make rules to ensure that non lawyer partners in law firms are “fit and proper persons”. Similar rules to establish the test for external owners being “fit and proper persons” will be required. Rules will be required for the management of potential conflicts of interest. However, in principle these rules should be the responsibility of the Approved Regulators subject to oversight by the LSB. 6. ILEX sees the Legal Services Bill as an opportunity to encourage the development of new and diVerent ways of better meeting the need by individuals and businesses for legal advice and representation. ILEX considers that the detail in Part 6 will quickly act as a restraint upon potential developments for the delivery of legal services. This level of detail of process is not appropriate for primary legislation with the attendant diYculties there are in amending primary legislation. 3435523037 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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7. All lawyers, whether Solicitors, Legal Executives, Barristers or Licensed Conveyancers, work to broadly similar rules, and certainly to the same professional and ethical values and standards. There is no greater risk to the public from firms owned and managed by more than one type of lawyer than there is froma firmowned and managed by one single type of lawyer. In our view, for those sorts of ABSs, Part 6 is wholly inappropriate and amounts to considerable over regulation. 8. If the LSB is to have power to regulate all types of ABSs (as it has the backstop power to regulate providers of regulated legal services in the absence of any other Approved Regulator), clearly that must be provided for within the Bill.

The Office of Legal Complaints 1. It has been ILEX’s view throughout the consultation by Sir David Clementi and in relation to the Government’s White Paper, that there should be a single complaints handling body to investigate and determine complaints of inadequate professional services, with the professional bodies, through their regulatory activities, dealing with matters of professional misconduct that are referred to themby the single complaints handling body. 2. Our reason for taking this view at an earlier stage was that, as a professional body whose members are almost entirely employees, we are aware of the problems that can arise for consumers where more than one body is involved in dealing with their complaint. From the consumer’s point of view, if they believe they have experienced an inadequate professional service, they should not have to work out which professional was responsible for that inadequate professional service, perhaps making false starts with one or more complaints handling bodies before finally alighting on the appropriate one. Furthermore, for the most part, the complainant’s interest will be in the remedy for that inadequate professional service. Once that has happened, there should be few cases in which they would have to pursue further a professional misconduct complaint and remain engaged in the process with the relevant professional body. 3. ILEX is aware that a number of other professional bodies have argued for the retention of their complaints handling function in relation to their members. We believe you may find it helpful to read a few examples of complaints that ILEX has had to deal with when considering those arguments. These cases demonstrate the problem of multiple complaints handlers from the consumer’s point of view. If a single OYce of Legal Complaints was in place, we believe these cases would have been concluded, fromthe complainant’s perspective, at a much earlier stage and with far less personal eVort and persistence than the current system requires a complainant to demonstrate.

Case A The complainant was the husband of a beneficiary under a Will. The ILEX member wrote the Will and was administering the estate. The complainant made allegations that the member failed to carry out the deceased’s wishes to change the Will and made errors in the administration of estate. Most complaints were of an inadequate professional service nature. The complaint had also been made to the Law Society which had rejected it. The complainant referred the matter to the Legal Services Ombudsman who ordered the Law Society to re-investigate. The Law Society reconsidered and reprimanded the senior partner and the supervising partner for lack of supervision. The Law Society also made some findings against the ILEX member but did not make any order in relation to those findings. ILEX decided to admonish the member and seek an Undertaking that she would exercise due care and attention in her work in future. This is an example of a case where the OLC could have dealt with the matter as a whole, rather than the complainant being obliged to complain to ILEX and the Law Society, and the Legal Services Ombudsman. Once the OLC had dealt with the issue of inadequate professional service, the OLC would be able to refer any conduct matter to ILEX and the Law Society, without the complainant having to personally pursue this issue.

Case B The complainant made a number of complaints about the handling of his file. He complained to the Law Society which told himto direct his complaintto ILEX. The complaints were about poor service (failing to undertake work) and conduct (continuing to act for the client after leaving the firmwhich the client had instructed). 3435523037 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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The ILEX Investigating Committee found that there was no prima facie case to substantiate the allegations. This is an example of a case where the Law Society should have dealt with the matter as it related to an inadequate professional service, rather than direct the complainant to ILEX. A single point of entry and determination would have avoided dual complaints to ILEX and the Law Society. A single point of entry would have made the process more straightforward for the complainant.

Case C This was a complaint about inadequate professional service. The complainant made complaints to ILEX and the Law Society. The Law Society would only deal with the conduct of the partners (in relation to their supervision of the ILEX member). ILEX dealt with the inadequate professional service issue as a conduct matter against its member. We referred the matter to the ILEX Disciplinary Tribunal which ordered the member to pay a fine and costs. The charges were that the member failed to advise the client that she was a legal executive, failed to carry out her clients instructions, failed to keep the client informed on progress of the case and failed to secure the safety of client’s documents. This is a case which would have benefited froma single point of entry and dete rmination. From the complainant’s point of view, the service received was inadequate. The OLC would deal with that. The OLC could have referred any conduct matters to ILEX. In this case it is unlikely that the complainant need have been further involved, as the OLC would have gathered the evidence on which the ILEX disciplinary process would proceed.

Case D The client complained both to ILEX and the Law Society. The primary nature of the complaint was inadequate professional service, but there was an allegation of misconduct relating to the ILEX member. ILEX decided to wait for the Law Society investigation to be concluded before considering the complaint it had received. The firmhad o Vered to compensate the complainant and the Law Society found that this oVer was satisfactory and therefore took no further action. The complainant then asked ILEX to consider both the conduct and inadequate professional service issues against the member. The ILEX Investigating Committee made similar findings of inadequate professional service as the Law Society, but found that there was no evidence to support a finding of misconduct. No order for compensation was made as the complainant had already been compensated by the firm. This is an instance where it should not have been necessary for the complainant to run dual complaints with ILEX and the Law Society. If there had been an OLC, it would have dealt with this complaint as one matter of inadequate professional service. The OLC itself would have identified that there was no evidence of misconduct, so ILEX would not have been involved at all. The case also demonstrates how the current system enables a complainant to have multiple attempts to complain, thus increasing the cost of the systemas a whole. 30 June 2006

Memorandum by the Legal Services Commission (Ev 75)

About the Legal Services Commission The Legal Services Commission looks after the provision of legal aid in England and Wales. We are also responsible for ensuring that people get the information, advice and legal help they need to deal with a wide range of problems. Established in 2000 following the Access to Justice Act, the Commission replaces the Legal Aid Board. The Legal Services Commission (LSC) works in partnership with solicitors and not-for-profit organisations to provide information, advice and legal representation to people in need. Research has shown that legal aid clients are often vulnerable and socially excluded people who may have a variety of problems such as debt, housing or welfare benefits or issues related to crime. Our job is to ensure these people can access the help they need to address their problems. We deliver legal services through two schemes: the Community Legal Service and the Criminal Defence Service. 3435523038 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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The Community Legal Service (CLS) The Community Legal Service is a network of organisations which funds, provides and promotes civil legal services, fromgeneral informationto advice and representation. The LSC has a responsibility to develop and maintain the CLS. Other key players include local authorities and central government departments, the solicitor and advice sectors, and clients—those who actually receive services. In 2005–06 we spent £831 million on civil and family legal help, advice and representation, and provided 996k acts of assistance. Over 500,000 calls were made to our Community Legal Service Direct telephone line. Of these, some 73,000 received specialist advice.

The Criminal Defence Service (CDS) Unlike the CLS, the Criminal Defence Service is run solely by the LSC in partnership with criminal defence lawyers and representatives. The CDS guarantees that people under police investigation or facing criminal charges can get legal advice and representation. It also ensures the fair, eVective and eYcient operation of the criminal justice system. Our main activities involve: — managing the duty solicitor schemes for police stations and magistrates’ courts so that those who need advice and representation can see a solicitor; — providing criminal defence services directly to the public through the Public Defender Service; — controlling high cost, criminal legal aid cases (those lasting 40 days or longer at trial) by working closely with defence teams; and — contributing to the development of the criminal justice system, working closely with the OYce of Criminal Justice Reform and other criminal justice organisations. In 2005–06 we spent £1.2 billion on criminal legal advice and representation, and provided 1.6 million acts of assistance. A small proportion of advice in police stations was delivered through our CDS Direct phone line which is currently being piloted in specific areas for certain oVence types.

Maintaining and Improving Quality The LSC has driven improvements in the quality of publicly funded legal services over the past decade or more. Prior to the introduction of Franchising in 1994 any firmof solicitors coul d deliver legal aid services and claim payment. Franchising limited the provision to those who had agreed the level of service to be provided with the then Legal Aid Board. Contracting and the introduction of the Specialist and General level Quality Marks were further ways to drive up the quality of advice for publicly-funded clients, and providers are unable to hold an LSC contract unless they meet the requirement of the Quality Mark. In general terms, the Specialist Quality Mark ı which is law category specific—is held by solicitors and others providing specialist legal advice. The General level Quality Mark is applicable to agencies where general advice is available. These can include libraries, community centres and Jobcentre Plus oYces amongst others. In 2005 we began to introduce Peer Review which is our ultimate measure of quality of advice. The Peer Review process entails us commissioning a practicing legal aid lawyer to scrutinise the work of a peer and award a rating of one (excellence) to five (fundamental failure and breach of contract). We have just completed formal consultation over our Preferred Supplier scheme which proposes that by 2009 all advice must be provided at Peer Review level 2 (Competence plus) or higher. After the decade of driving improvements in quality, we are disappointed to find, through Peer review, that some 22 per cent of firms are providing advice below level 3 (Threshold Competence). Lord Carter of Coles is currently carrying out an independent review of legal aid procurement for the Lord Chancellor. Lord Carter’s interimreport on the CriminalDefence Service , published in February 2006, suggests that in due course responsibility for the Peer Review process should transfer to the regulatory authority (The Law Society). Although we support this in principle, there are significant practical issues to resolve before this could happen. These include the responsibility for payment of peer reviewers (currently funded by the LSC), the implications for private practice (it appears anomalous that a publicly funded client should know that the quality of their provider’s work has been assessed and what that assessment showed, whereas a private client might not), and the need to guarantee the maintenance of the standard. We would argue that the LSC has driven the quality agenda almost single-handedly, and that the progress which has been made must not be allowed to wither on the vine. 3435523039 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Memorandum by the Legal Aid Practitioners Group (Ev 02) 1. This is the evidence of the Legal Aid Practitioners Group (LAPG) to the Joint Committee on the Draft Legal Services Bill. 2. LAPG is an independent membership body representing organisations undertaking specialist level legal aid work under Legal Services Commission contracts. Our approximately 600 members are mainly firms of solicitors in private practice, covering all the main and niche areas of law and the whole country, as well as a number of Law Centres and other not for profit agencies. 3. LAPG has a policy of positive engagement with the LSC and the Government. We respond to consultations, and have regular discussions to try to find appropriate ways forward that meet the needs of clients and the interests of the taxpayer while recognising the needs of those providing the services. We provide information and training to the profession. We are the co-organisers of the Legal Aid Lawyer of the Year Awards, whose panel of judges is chaired by Cherie Booth QC. 4. We addressed the issues of concern to us at length in our response to the White Paper. A copy of that response is annexed hereto. So far as we can see, the only significant change in the Bill is an amendment to the approach to legal professional privilege. [Submitted but not printed] 5. There has been a trend in recent years towards only setting out a general, permissive, framework in a Bill, and setting out the detail in secondary legislation. We deplore this trend, which we believe results in the passing of bad laws. 6. This Bill follows the current trend. This is no ordinary Bill. It aVects fundamentally the relationship between the Executive and the legal profession, in ways that have profound constitutional implications. In this context, it is vital that much more detail appears on the face of the legislation. It is not acceptable for the legislation to provide virtually unlimited authorisation to Ministers to do whatever they wish through secondary legislation. 7. Our two major specific concerns both relate to the independence of the legal profession—fromboth Government and big business—and the threat to that independence from the proposed Legal Services Board (LSB) and fromthe introduction of Alternative Business Structures (ABSs ). The lip service paid to independence in this Bill is limited; but even if the word was used more often, the threat to independence runs through the substantive provisions. Merely saying that independence exists does not make it so. We believe that as it presently stands, this Bill oVends against the United Nations principles on the role of legal professions. 8. We would have no objection to a Legal Services Board that was appointed entirely independently of Government, (for example, by the Master of the Rolls) and whose powers were strictly limited to the powers currently vested in the Lord Chancellor, the OFT and other Government and judicial figures. Tidying up the regulatory structure by transferring all these oversight provisions to a single independent body would make sense. But the powers proposed for the LSB go well beyond these existing powers. As drafted in the Bill, they could theoretically extend as far as the Secretary of State requiring the Law Society to discipline an individual solicitor. It is diYcult to imagine a situation in which this might happen, but it is less diYcult to imagine, for example, the Board, under political pressure, requiring the Law Society to amend professional rules relating to the conduct of criminal defence work in ways that lessen the protection available to defendants. Moreover, the mere fact that such things are theoretically possible will inevitably colour the approach the Law Society (and other front line regulators) takes to its professional obligations. The threat of such action will always be hanging over the Society. The fact that the proposed regulatory structure could permit such things to happen is anathema to a democratic society that believes in the rule of law. It would be dangerous in the extreme to accept assurances that such things will not be done: we urge the Committee to settle for nothing less than an unequivocal “cannot”. 9. On the subject of alternative business structures, the Law Society does not speak for our members. We strongly oppose the press comment from the Society on this subject. We do not welcome these structures. We do not believe the regulation proposed for themshould be lighter than is cu rrently proposed. We do not believe that any benefits to consumers outweigh the undermining of the integrity of legal services provision that is likely to result, or the damage that will be done to the legal aid network and the ability of individuals to secure justice as against the Government and big business. We have heard no support fromthe legal aid profession for the sort of changes this bill envisages. On the contrary, such changes are seen as a potentially catastrophic threat to the network of high street solicitors, with the damage to access to justice for ordinary people that this would cause. 3435523039 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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10. Moreover, the underlying argument for the Legal Services Board appears to be a belief on the part of Government that the regulation of legal services has been inadequate. We therefore find it diYcult to understand why the Government is simultaneously proposing a measure that is widely expected to undermine the regulatory protection currently available to clients. The CCBE, for example, concluded after examining this issue in depth that “It can generally be said that the existence of organisations combining professionals with diVerent professional rules, or not being subject to regulatory supervision at all, is calculated to make the supervision of the rules applicable less eVective, and in due course to erode both the regulatory framework and its eVective supervision.”3 11. There are a number of reasons why regulation will be less eVective. The following is a list of the concerns we have identified: — We have not seen what formthe fitness to own test will take. The Lord Chancel lor claimed that Nicholas van Hoogstraten and Kenneth Noye would not be able to own law firms, but how many less well-known individuals of similar character would slip through the net? Will it stop companies suppressing litigation by taking over law firms acting for clients who are suing them? It takes six years to qualify as a solicitor, and a further three years before an individual can own a law firm. This process tends to weed out the unethical because of what an individual has to achieve in order to be able to own a law firm. Under the new rules, it will only take so long as it takes a regulator to process an application. — How can clients or regulators untangle webs of interrelated companies, so as to identify ownership and conflicts of interest, and ensure that professional standards are maintained? Would a corporate owner be able to evade regulatory sanctions by dissolving the company? What about the Enron question? Under current structures, a lawyer’s only obligations are to his client and to his professional rules. Adding in new duties to non-lawyer owners and to shareholders can only weaken a lawyer’s one-sided dedication to the interests of his client (see the example of cross-selling loans to clients below). — What will count as inappropriate cross-selling of services? Will the structure stop a divorce lawyer from selling his client a commercial loan to cover the costs of her ancillary relief proceedings? — There will be little incentive to become a solicitor under a flexible ABS regime. Why bother training for six years at considerable expense (and with the uncertainty of a ) if you can simply get a job and work your way up to being an unqualified partner in an ABS? Under an ABS regulation is of the entity, which has the eVect of shifting the consumer protection away from the individual personal responsibility of the professional to the commercial/business level. Disincentives to breaches of the rules are unlikely to be as eVective with an ABS as they are with an individual lawyer and the firmhe owns and runs. A solicitor’s career, livelihood, busi ness and life savings are at stake. An ABS faces no such risk, and will be constrained only by commercial considerations. If the commercial benefits of a breach of rules appear to exceed the likely penalty, then the breach will occur. We believe that this is a key part of what the CCBE means in saying that the ABS approach is “calculated to make the supervision of the rules applicable less eVective, and in due course to erode both the regulatory framework and its eVective supervision”. To those who say that such breaches already occur, we reply that if they already occur given the high level of regulation we currently have, it is liable to be much worse if that regulation is loosened. 12. It may be that there are answers to some or all of these issues. But at the moment, the only answer that has been provided is that the Legal Services Board will answer these questions in the next year or so. 13. It is worth restating who the people are who will be undertaking this phenomenal task that has defeated the OFT in 2000–01,4 the Lord Chancellor’s Department in 2002–03,5 Sir David Clementi during 18 months of research and reporting, the Law Society in a series of attempts to develop Legal Practice Plus and alternative business structures, and the Department of Constitutional AVairs in a further several months of considering the Clementi report and drafting the White Paper and now this Bill—not to mention the lawyers and legislatures in just about every developed democracy in the world. 14. There will be no more than 12 people. Over half of them will not be lawyers. They will be appointed personally by the Secretary of State, and removable by him. They are unlikely to be full-time. The protection of clients and the preservation of the integrity of legal services in this country will be in the hands of this group

3 Position of the Council of the Bars and Law Societies of the European Union (CCBE) on integrated forms of co-operation between lawyers and persons outside the legal profession, adopted in Athens on 12 November 1999. 4 Competition in Professions, OYce of Fair Trading report OFT328. 5 “In the Public Interest?” Lord Chancellor’s Department consultation paper CP07/02. 3435523040 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 of people. They will be working under the influence of the financial and political might of the Government and the biggest businesses in the country, none of whomhave at the heart of t heir concerns the protection of the rights of ordinary people against Government and big business. 15. This is quite simply not an acceptable answer to questions of the most fundamental importance. LAPG believes that unlimited alternative business structures should not be authorised in legislation unless and until a comprehensive and satisfactory answer has been provided to all of these concerns. 16. We believe it is wrong in principle for legislation to authorise forms of legal practice that may be deeply damaging to the public interest. This is a situation where protection of the public demands that limits be placed in the primary legislation. 17. We fully support the introduction of an independent complaints-handling body. This is a measure we consider long overdue. We have no particular views on the structure and funding of this body, save that it is important that any “polluter pays’ principle does not provide a disincentive to act for clients who are or may be perceived as more likely to make unwarranted complaints, such as those with mental health problems, or those who have already complained about a previous lawyer. Legal Aid Practitioners Group June 2006

Examination of Witnesses Witnesses: Mr Jonathan Lindley, Executive Director, Legal Services Commission, and Mr Richard Miller, Legal Aid Practitioners Group, examined.

Q239 Chairman: May I welcome Richard Miller and community that this was being proposed and the Iraq Jonathan Lindley. Thank you very much indeed for Government backed down. It seems to me that this coming today at very short notice. You probably Bill gives a Government-appointed committee the heard, I have already said, how much we appreciate power to do exactly that and I think that is the way in which people have responded to our completely unacceptable. requests to come and give oral evidence. In declaring my interest as a practising solicitor and a member of Q240 Chairman: That is a very helpful steer! the Law Society I would be interested to know your Jonathan Lindley? answer to the question about what constitutional Mr Lindley: I come from a perspective that says if the implications between the Executive and the legal front-line regulators do their job eVectively and in the profession might arise from provisions in the draft consumer’s interests then there is much less of a Bill. Mr Miller, would you like to let me know your problemin the termsthat Richard has defined than views on that? otherwise and that it is completely right and proper Mr Miller: Certainly. The position that I start from therefore to give those front-line regulators that is the United Nations basic principles on the role on opportunity. However, if they fail I think the the legal professions. Those principles state quite Government, as well as responsibilities to the clearly that governments should respect an independence of the legal profession, has independent, self-regulating legal profession, and it responsibilities to protect citizens and consumers of seems to me that the undermining of that the service and therefore I do not think there is the independence goes through every line of the Bill, same constitutional diYculty in that position. I think particularly with regard to the Legal Services Board it all comes down to the transparency of the that is supposed to be set up. I fully agree with appointments and the transparency with which any Dominic Grieve, the Shadow Attorney General, who Legal Services Board took powers away fromthe said that this Bill drives a coach and horses through front-line regulators. the independence of the legal profession. I think having the Secretary of State involved in the Q241 Chairman: Mr Miller, you have given us a very appointment of this Board, giving this Board the clear view there but, of course, we are looking at the power ultimately to take over all of the detailed provisions of the Bill. What provisions responsibilities of the Law Society and the Bar would you have us recommend should be included, in Council is anathema to a democratic society that particular to give more detail on the face of the Bill to respects the rule of law. I was very struck by the safeguard the position you have outlined? reaction when the Iraqi Government proposed to Mr Miller: First of all it seems to me that the disband the Bar Association in Iraq in January of this appointments should not involve the Government at year and there was outrage fromthe international all and my preference would be for appointments to 3435523040 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 Mr Jonathan Lindley and Mr Richard Miller be by a judicial figure. I suppose ultimately if it was the police, I understand the concern about a non- jointly with the Lord Chancellor that might be independent complaints handling process and I have acceptable but I cannot see any grounds for political fromthe outset been in favour of complaintsbeing involvement in that. It also seems to me that, as handled independently, but I think that has others have suggested, if the Board is going to be completely blurred the issues as far as the broader given these powers they have to be set at a very high issue of regulation is concerned. level. There must be a very clear test of serious failure, of very serious concern and very serious detriment to Q244 Baroness Falkner of Margravine: Going back consumers before the Board would be entitled to take to the Chairman’s earlier question, what provisions powers against a front-line regulator. It has got to be would you include in the Bill to ensure that the an extremely high test because of what a serious appointments and powers of the LSB did not aVect constitutional position it would be to take that sort the independence of the professions? of action. Mr Miller: For one thing, as well as the appointments needing to be independent, preferably in the hands of Q242 Baroness Falkner of Margravine: Mr Lindley, a judicial figure, possibly the Judicial Appointments in your consultation paper to Sir David Clementi you Commission, that might be an acceptable approach. favoured Model A for the Legal Services Board. The other issue is the other end of the process, the What is your view of this particular model, which is removal of people from the Board. At the moment akin to Model B!? the Bill provides for the Secretary of State to have the Mr Lindley: In our response we did say that Model A power to remove people and that again I think is was our favourite but that we could see that all three inappropriate. I think if you have an independently models proposed could work. Model A is our appointed Board it should then be the responsibility favourite because it has more visible independence of the Board to remove any members who are not than the other models. Model B ! or the proposed acting appropriately. model we think could work perfectly well as long as the power to take power oV the front-line regulators Q245 Baroness Falkner of Margravine: Mr Lindley? remains. I do think that the bar for that needs to be Mr Lindley: As I said in my first answer, I do not have set very high, I agree with Richard on that, or against the same constitutional position as Richard on the persistent less significant failure, so as long as that Bill and I amnot sure that a Board which is intended power remains then we would be happy with the to act in the interests of the consumer, which is where model that is proposed. Sir David Clementi came from on this whole review, would necessarily only be served best by a judicial Q243 Baroness Falkner of Margravine: Mr Miller, I appointment or the appointment by the judiciary of amslightly confused by the position you are taking the chair. I can see that that would give a degree of because on the one hand you have been very clear independence that would satisfy Richard but I would about your concern about the powers of the Legal also quite like to see some representatives of Services Board. On the other hand, in your written consumer interests in the appointments process. In evidence you said at one point in paragraph 13 that terms of the actual provisions of the Bill, the key for even if the Legal Services Board were to be appointed me is about a guarantee of independence of action independently you would have serious concerns post-appointment, that there is not political about it, so in any event, it would appear, you would interference in the action of the Board, and also a be dissatisfied with the Board as it is envisaged in the slightly more significant concern for me is in how the Bill; is that correct? diVering regulatory requirements of the multi- Mr Miller: To a certain extent I think it is just a disciplinary partnership could be made to work degree how how dissatisfied we are with what comes eVectively without dramatically increasing the out of this, yes. I have to say that throughout this regulatory burden on any part of that partnership. whole debate over the five years or so it has been going on I do feel there has been a serious conflation of issues to do with complaints and issues to do with Q246 Baroness Falkner of Margravine: Would you regulation. Most of the problems I have heard agree with the earlier part of that response in terms of expressed are actually about the complaints handling the composition of the Board, Mr Miller? Mr Miller: and not about the standards that are set for entry into Yes, I think I would. the profession, management of firms, checking of financial probity of firms or any of the other aspects Q247 Lord Campbell of Alloway: In your written that make up regulation. It seems to me there is an evidence you say that the Alternative Business awful lot being done on the back of legitimate Structures are likely to undermine the integrity of concerns about the complaints handling which I legal services provisions, damage the legal aid think, having in practice dealt with actions against network and the ability to individuals to secure 3435523040 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 Mr Jonathan Lindley and Mr Richard Miller justice. This is a very important matter. Could you practice that would just deal with the legal services elaborate upon this? and would be separate fromany other part of these Mr Miller: Certainly. First of all I should say that my businesses, but it seems to me that if you go down organisation represents firms doing legal aid work so that route you have removed all of the supposed I amtalking fromthe perspective of criminaldefence benefits put forward by those who say that work, public law, Children Act proceedings. Mainly Alternative Business Structures will provide benefits it is people who are in dispute with the state or with to consumers and it does seem to me that either you big businesses or occasionally each other. DiVerent have that protection for consumers or you get these issues may apply in respect of non-contentious work, wider services and cross-subsidies and all the rest of commercial work, so that is the perspective from it that the proponents of Alternative Business which I amcomingon this. The first thing is that it Structures say would result. seems to me that there are numerous issues that have to be resolved if you are going to have Alternative Q248 Lord Campbell of Alloway: Could I declare my Business Structures. The first is that you have to have interest? I had forgotten to do that. Before the war I some sort of fitness to own test, and that has been worked at the Cambridge House legal advice centre acknowledged. At the moment we have the fitness to in the East End of London and taught boxing. own test that covers the knowledge of the individual, Whether that is relevant or not I do not know, but I it covers their skills and experience and it covers their would like to ask you, in view of your evidence today, probity and integrity, and it is called qualification as would you be content with this Bill without a solicitor or a barrister. So far as regulating substantial amendment? individuals is concerned, I have not seen any Mr Miller: No, I would not. Both on the Legal explanation as to why we need to reinvent that Services Board side and on the Alternative Business particular wheel. The other side is that there is this Structures side I think there is substantial work that talk of regulating companies rather than individuals. needs to be done. There is too little protection for When you start regulating companies you run into all consumers in what is proposed here. sorts of diYculties. There is the problemof the corporate web where you have a mix of companies with mixed ownership and it is very diYcult to Q249 Chairman: Mr Lindley, would you like to identify who owns the company and what its various comment on this aspect? interests are. There is then the question of what is to Mr Lindley: On the second question, I and we as an stop a company being wound up if disciplinary action organisation favour Alternative Business Structures is being taken against it? When you look around the as outlined. We do not agree that you have to, of world this issue has been considered widely necessity, have legal knowledge that a solicitor or throughout the various American states, it has been barrister has to be able to own a legal practice. There considered by the CCBE, and the conclusion that all are others who have expertise in other areas who of themhave cometo, even those who were in favour could quite competently run an organisation of some liberalisation, is that it would be providing legal services and indeed do so to some inappropriate to have organisations where the degree when permitted to do so through a waiver lawyers are not in control because the duties the prescribed by the Law Society. There is no evidence lawyers would have to non-lawyer owners, to as far as we can see that the quality of advice given in shareholders and to other parties would conflict with those circumstances is lower or that any conflicts their duties to their clients and would inhibit their have not been satisfactorily dealt with, so we support ability to serve their clients absolutely and Alternative Business Structures. I particularly unconditionally. I have not seen any answer to those support outside ownership and investment as a questions. It is a matter of great concern to me after necessary way of modernising some of the legal five years of debate we still have not got answers to practice that currently takes place, particularly that, and in fact what is proposed is that the Legal publicly funded legal practice, where we all know that Services Board over the next 12 months should come rates are not as generous as in private practice. The up with the answers that have eluded all these other outside investment that would be possible under the people. I think there is a strong case for having legal proposals I think would be extremely beneficial and disciplinary partnerships. I also support the Law could help to maintain the access that we currently Society’s model of legal practice plus, which is where have alongside increased access through alternative there would be additional people as well as the delivery channels such as a service we currently have lawyers providing a business that provided legal called Community Legal Service Direct, a telephone services. I think when you get to wider general based service, which we had to get a waiver fromthe businesses that are owned by non-lawyers there are Law Society to deliver parts of, and that is proving some real concerns. One of the solutions I have heard extremely valuable and popular with the users of the proposed to this is that you would have a ring-fenced service and is getting very good quality outcomes. 3435523040 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Q250 Chairman: May I follow up by asking you this checking themdoes not of itself guarantee that the point about the more vulnerable users of legal quality is at the right level. services because there has been concern expressed that people who are actively seeking social advice or Q252 Michael Foster: We have to declare an interest welfare advice will find it more diYcult? We heard each time and I declare my interest as a practising fromthe OFT that if the high street solicitor (albeit not very often) solicitor. Can I take you one disappears that will be the market aVecting the way stage further on that? What about continuity of in which legal services are delivered, but what about advice for the sorts of people you deal with? Is it not the more vulnerable users? the nature of more commercial organisations,—I am Mr Lindley: I think there are two aspects to the not suggesting solicitors are not commercial but they question. One is, do you need to get social justice do take the rough with the smooth very often—the advice, to have a solicitor provided all the time, and average Tesco-type organisation, to operate on the I think the answer to that is no, you do not. We basis of profit only; that is it? That wider already have citizens’ advice bureaux which do not by responsibility for the community is not always so and large employ solicitors but provide a good deal obvious. I amnot suggesting that Tesco is a bad of social welfare advice to clients, and the second part example but that is the way it is felt. Is not the risk of of the question is, does the advice always have to be these sorts of organisations just pulling the rug from face to face? My view is no, it does not. There are services greater if they are not held by professional certain categories of case, certain very vulnerable people? individuals, perhaps mental health cases and the like, Mr Lindley: It depends what level of advice is being where face to face is clearly a very desirable way of given. There is a whole raft of advice that we are delivering the advice, but it is by no means solely true responsible for commissioning the provision of that you have to have either face to face or solicitor through third parties ranging froman almost provided advice to get justice. educational role to educate people as to what their rights are through to representation and advocacy Q251 Michael Foster: I wonder if I can take you up in the highest courts. Clearly, at that highest level on that. One might say you are suggesting dumbing you want extreme expertise, you want hugely sophisticated expertise, to get the best possible result. down of the advice available to the poor, but if one Some of the general advice and information, as I have did not say that should one at least say that good said, is provided by very dedicated people who know advice should at least be supervised by lawyers who enough to give the right advice in things like citizens’ are properly qualified and able to determine whether advice bureaux and other advice agencies day in, day the standard of advice being given by particular para- out throughout the country. Those people who seek legals, as an example, was along the right lines and that advice get it and get justice for themselves are you not suggesting that some of these multi- through the advice. My view is that if Tesco, they are disciplinary types of practice might avoid that the one usually quoted, were to come into this market completely and the management would be outside they would perhaps be interested in segments of the the lawyers? advice, and in terms of the arrangement we would Mr Lindley: I am saying that the management could have to have with themwe would contract with them be outside the lawyers. I do not believe that the to provide the range of services for individuals that supervision and the management are necessarily the was necessary in any particular location. It would be same thing because checking that the quality of the a contractual requirement on them and we would advice is appropriate does not necessarily need to be have to manage that relationship with them done by the manager of the undertaking. I am appropriately to ensure that they conformed with absolutely not saying that we support the dumbing that contract. down of advice; quite the contrary. Our drive over Lord Campbell of Alloway: On this question of legal the past 15 years has been to raise the quality of advice that is being given without supervision, I was advice through many initiatives that we have involved in this years ago at Cambridge House before introduced, and Richard’s organisation fully I was qualified. Those of us who were reading law supports something called peer review that we have were sent down by Professor Winfield, who was a introduced recently, in which context we pay a legal very grand lawyer, and told, “You have to do the best aid solicitor to check on the quality of work of you can for people. What legal advice you give is another legal aid solicitor. Unfortunately, we are always related to social advice. The two are totally finding, after having operated this for about a year, involved. What you have to do is to do your best.” If that around 22 per cent of the peer reviews that are it was a question of the Rent Act or something like done are finding that the advice given by qualified that you could deal with it but if it was a question solicitors is less than competent; it is below the you could not deal with all you had to say was, threshold of competence, so simply having a solicitor “It is beyond my competence”. Those were our 3435523040 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 Mr Jonathan Lindley and Mr Richard Miller instructions. That was the way we did it, but I always per cent of the matters that firms were contracted to remember one of my first cases was a woman who start. The more general point I want to make is not came in in total fury and said, “My husband has related to the legal aid issue here. My fear is also with stolen my false teeth. What am I to do?”. I will not tell Alternative Business Structures, if you are talking you what I told her to do but it was not to go to the about “Tesco Law” or “Waitrose Law”, whatever we police. You have to keep a social legal basis and it is are going to call it, that those organisations are more not a question of being supervised; it is of being than likely going to cherry-pick the more profitable instructed, if you cannot tell the law, to put it to work and, let us face it, some of the clients that are somebody else. dealt with under legal are convicted shoplifters who are barred fromTesco. They would not be able to go Q253 Chairman: Finally, on Alternative Business and access these services. The important issue is that Structures, I wonder if we could ask you how might Alternative Business Structures taking over the more you expect to intervene in the legal services market to profitable work will undermine the economic promote access to justice, sustain legal aid provision viability of businesses currently providing the legal and cover any gaps in provision? I amreally talking aid services. I have my doubts whether, at least at to you, Jonathan Lindley. current rates of remuneration, these Alternative Mr Lindley: I have already said that the outside Business Structures would take on the legal aid work. ownership and investment can provide opportunity If they do, take the example of post oYces: post to continue to deliver coverage and access for people oYces are being closed in rural areas across the with needs across the country. I also think that as country. I cannot see that a large national business is technology advances and increasing numbers of going to maintain the network in rural areas that we people have access to things like the internet we need currently have. to be able to make more general advice available so Chairman: You have been very good, Mr Miller, in that people can identify whether they really have a sharing some very strong views with us, but I think problemthat can have a justiciable outcomeor not. we have had a little time to react and if I can return What I amvery keen to see fromthe Bill is that any to the Legal Services Board for a moment, Lord Bach waivers to the operating requirements that are has a question. granted by the regulator in future are granted in the customer’s interest, in the consumer’s interest, rather Q257 Lord Bach: I will declare my interest. I am a than, as sometimes feels the case at the moment, in non-practising barrister but when I practised it was the interests of protecting the profession. I think that very largely legal aid defence work, but I was also a is the key thing that I would like to see fromthis. minister for a short time in the Lord Chancellor’s Department. I want to come back; I think you have Q254 Chairman: We are not quite sure whether you got oV too lightly, if I may say so, in your general are going to give us a written submission on all of attack on the Bill. Your position is the ultimate this. Are you? Are we expecting something from you? producer position, is it not? You do not actually see Mr Lindley: We were not intending to but if that is a that there is any need at all for the Legal Services requirement by Friday I will do my best to do so. Board to be set up. I cannot see fromwhat you have told us that you see anything wrong with the present Q255 Chairman: No, there is no requirement, but is systemas far as regulation is concerned. One of the it something that you might consider letting us have things that David Clementi found wrong and some further details on because it is such an emphasised it to us the other day—he was concerned important point? that the draft Bill did not cover it satisfactorily—was Mr Lindley: Yes. the splitting up of representational functions and regulatory functions. It is something that both the Q256 Chairman: Is there anything else you want to Law Society and the Bar Council have almost, I add? imagine, come to at about the same time as this Bill Mr Lindley: I think the other issue is that we believe comes before Parliament. I am sure we will be told that the market will be sustainable once the reforms that it is coincidental rather than anything else, but that have been proposed by Lord Carter of Coles do you really believe that there has ever been after his review are implemented. We have a stable, anything wrong with the regulatory position as far as publicly funded legal aid market and we will act to try the legal profession is concerned or do you not agree and maintain that sustainable market in the that in fact there is a concern that as long as consumer’s interest and in the interests of justice for representational and regulatory performances are individual clients. conducted together by the same people there is a clear Mr Miller: I dispute that it is necessarily stable. We view fromthe consumer’spoint of view that the have just reached another year end and another 120 regulations will be based on self-interest? Why can firms have given up legal aid, accounting for about 8 you not accept the existence of the Legal Services 3435523040 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Board and welcome it with open arms, particularly told what you currently do. With that background, what some of us perhaps consider the rather generous Mr Miller, can I ask you my question on the curate’s Clementi view that it should be Model B !?. egg basis—you know the story of the curate and the Chairman: Could you possibly answer all five egg, that, trying to be polite, he said there were some questions? nice bits in it. Your nice bit in answering that Lord Bach: I am so sorry, my Lord Chairman. question is complaints, is it not? You say that one Mr Miller: Fromthe outset, as I say, myview has good thing in the Bill is the provision made for been that the issues raised and the legitimate independent scrutiny of complaints. complaints made—and there were legitimate Mr Miller: Yes, I think that would be fair comment. complaints undoubtedly—were about the complaints handling. As I say, I have not seen anything anywhere in the OFT report at the outset, Q260 Lord Neill of Bladen: And you think that is a in the Clementi report, in the White Paper or in this positive virtue; it is a gap in the present system? Bill or the papers that have come out with it to Mr Miller: I think it is. As I say, when I dealt with explain what it is about the setting of the standards complaints against the police it was the police for entry to the profession that is a problem. What is investigating the police. I had no trouble at all it about the requirements for continuing professional therefore in understanding this argument that when development that is a problem? What is it about the consumers are complaining against solicitors they do admission of foreign lawyers that is a problem? What not feel confident in getting a fair result froma system is it about the maintaining of the probity and that is run by solicitors, so it seems to me absolutely analysing the accounts of firms that is a problem? right and self-evident that complaints handling has to What is it about managing the practising certificates be independent of the profession. that is a problem? No-one anywhere throughout the five years of this debate has said that there is anything wrong with any aspect of this. There have been Q261 Lord Neill of Bladen: You accept that there comments from time to time that it is regulation and would have to be some knowledge on the body representation combined and that consumers will not adjudicating of the procedures, how lawyers and like that. All I have heard relates to complaints and I barristers act and what their professional rules are? have always been in favour of complaints being dealt Somebody has got to be on the tribunal. with separately because I think that is a legitimate Mr Miller: Yes, I think that has to be the case. concern and there is a real public interest problem where complaints against solicitors are handled by solicitors. I fully support the setting up of the Q262 Lord Neill of Bladen: But you want a very large independent complaints handling body but I have yet independent element, is that right? to see anyone anywhere saying why there is a Mr Miller: That is right, yes. problemwith these other issues that makeup regulation as opposed to complaints, that there is actually a problemthat this is going to solve. Q263 Lord Neill of Bladen: I put that to you, Mr Lindley, as well, to get it on the transcript. Q258 Lord Neill of Bladen: I ama practising Mr Lindley: I would not argue with that at all. I barrister and so declare an interest. I want to ask a would say that the balance on any membership had question I amgoing to direct to Mr Miller and ask Mr to be lay membership rather than professional Lindley a question, when you do write a paper, and membership because if it is acting in the consumer’s I very much hope you take up the Lord Chairman’s interest that would obviously have precedence. The suggestion to put in a paper, could you just explain in other two points that I would make about legal it how you exercise your jurisdiction? What I amtold complaints is first that people have to know they can is that you replaced the Legal Aid Board but you also make a complaint and how to do it, so the access to have a very wide supervisory jurisdiction over all the complaints process has to be very transparent. sorts of other legal aid providing institutions, for People have to be very aware of that and it has to be example, youth clubs apparently come within your very accessible; it has to be relatively easy to do scope. Is this right? You look puzzled. because a lot of people, particularly in the publicly Mr Lindley: I amvery puzzled. funded legal services world, are very uninformed consumers of legal services, are often very frightened Q259 Lord Neill of Bladen: Then all the more need of in some respects challenging oYcialdom, however for a paper, but do not waste time on it now. Tell us they perceive it. What I would like to see is that they exactly what you do and if it goes beyond solicitors to do not see this as another piece of oYcialdombut other bodies like community organisations what do something that is helping them to bring something you do if you get a complaint? We would like to be that is concerning them to a conclusion. 3435523040 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Q264 Chairman: Just on costs, it might be helpful if Q265 Chairman: That has been very helpful. Mr you were able to tell us your views on the Lindley, I think we are quite fascinated by a number Government’s estimate of costs contained in the of points about the Legal Services Commission and regulatory impact assessment, Mr Miller. you have very kindly agreed that you will let us have Mr Miller: My organisation does not have the some written evidence to include not only the resources to do detailed analysis on this so I cannot jurisdiction point which Lord Neill mentioned but really forma view as to whether the estimateis likely also perhaps some of these figures you have been to be accurate. The thing that does concern me throwing up, putting theminto context, that if there though is that legal aid practice is very fragile at the are 120,000 additional acts of assistance by the team moment and I would be concerned to ensure that if what that brought the total up to and the number of there is any additional cost I would certainly want firms there are now, and also whether you do extend Gordon Brown to give Mr Lindley the money to be to youth clubs and law centres et cetera, just so that able to pass on to solicitors to be able to aVord it. we see it all in context because you are a Mr Lindley: The legal aid practice may be fragile but comparatively new body to some of us who go back we did, in spite of the 120 solicitors firms leaving legal far too far and it might be helpful if you were able to aid practice last year, deliver about 120,000 extra acts of assistance to individuals, or the remaining let us have that, if possible before the end of the solicitors did. In terms of the cost, as far as I can judge month. the costs appear to be appropriate and reasonable. Mr Lindley: Oh yes, that is possible. The point that I would make is how much of the cost Chairman: That is very kind of you. Thank you both is currently met by subscription fees to bodies such as very much indeed for coming. We much appreciate the Law Society and to what degree that ought to be your assistance. allocated elsewhere by the people who are paying those subscriptions.

Memorandum by the Legal Action Group (Ev 40) Legal Action Group (LAG) broadly welcomes the proposals set out in the Legal Services Bill. We see the establishment of the Legal Services Board as a great improvement on the current systemfor regulation of legal services. We also welcome the new OYce for Legal Complaints and the framework in which it will operate. We agree that the existing systems for regulating the legal profession and complaints-handling are too diVuse and complex, and do not operate in the interests of users and potential users of legal services.

Regulatory Objectives

We agree with most of the regulatory objectives underpinning the bill, although we would not see themas having equal weight. We do have concerns over the objective to promote competition, particularly in relation to legal aid services. The proposals to introduce managed competition and price competitive tendering as suggested by the Carter review and Legal Services Commission are likely to have a damaging impact on legal aid services by driving down quality and reducing choice for clients.

We believe the independence of the legal profession is such an important principle that it should be explicitly included in regulatory objective (1)(e) rather than included in the professional principles set out in (1)(3)(a).

Appointment of the Legal Services Chair,Board and Consumers Panel

We take the view that the independence of these individuals and bodies is crucial if they are to be eVective in promoting clients’ interests. We would therefore suggest that the Secretary of State should not appoint the entire Legal Services Board in the first instance. We think it is appropriate that the Secretary of State appoints the first Chair, although we hope there will be an open appointments process for this. We would also like there to be an open and non-political appointment system for other Board members and the Consumers panel. 3435523041 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Regulation and Complaints-handling for Non-reserved Legal Activity S9(3)(b) implies that non-reserved legal activities will not come within the remit of the approved regulators. However, they seemto be covered by the provisions dealing with alternativ e business structures (ABS) set out in Part 5 of the Bill as section 59 (1) refers to “regulating the carrying on of reserved legal activities and other activities by licensing bodies.” However, the provisions in Part 5 refer throughout to “reserved legal activities” and we feel it is very important that there is adequate regulation, and an eVective complaints procedure, where organisations carry out both reserved and non-reserved legal activities. Otherwise there is the risk that certain activities may slip through the regulatory net. Section 83(3) refers to referrals to an appropriate regulator. Para (b) states that in the case that the person carries on non-reserved activities, the referral will be to “any body which regulates the carrying on of such activities by the person”. However, it is not clear that there will necessarily be a regulator of such activities. We feel clarification of these provisions is necessary to safeguard the users of non-reserved legal services.

Not for Profit Organisations Section 88 provides that there must be a complaints procedure for such bodies,butapartfromthis,thereis a lack of detail about regulation of not for profit organisations. Again, while these presumably come within the sections referred to above, we feel there should be a clear statement setting out the regulatory requirements for not for profit organisations. Although they are subject toregulationbytheCharity Commission, this is a very diVerent formof regulation, and would not provide protection in relation to legal activities. Users of legal services should receive the same protection whoever the provider of the service is.

Alternative Business Structures (ABS) In our response to the White Paper on legal services, we expressed concern that the development of ABS might reduce access to justice for the poorest in society. This is more to do with the economics of legal aid practice rather than regulation. Many solicitors firms who do legal aid work subsidise the least profitable areas of social welfare law either fromprivately paid work, or moreprofita ble legal aid work (such as criminal defence work). We think it is highly likely that there are some areas of legal work that can be commoditisedorcarriedoutinhighvolumewitheYciency savings, through ABS. In these circumstances we are concerned that the ABS will eVectively creamo V the work that currently subsidises legal aid, leaving some high street firms with a core of uneconomic legal aid casework which is unsustainable in the future. We do not see how the Bill can, however, deal with this issue, as it is really a question of remuneration rates for legal aid work.

AFurther Concern in Relation to ABS is that of Safeguards to Protect Clients and Maintain High Standards.This is also Related to Issues of Conflict of Interest and Client Confidentiality ABS as referred to in the final report of the Clementi review (Review of the regulatory framework for legal services in England and Wales, December 2004) This discussed in depth the various aspects of ABS, represented by legal disciplinary partnerships (LDPs) and multi-disciplinary partnerships (MDPs). The report favoured the establishment of LDPs, where diVerent legal professionals would work together. In LDPs it was proposed that there should be a nominated Head of Legal Practice (HOLPA) with overall responsibility for the conduct of legal business in accordance with regulatory rules. A Head of Finance and Administration (HOFA) was also proposed, not necessarily a lawyer, to be responsible for accounts and management of client money. It was further suggested that non-lawyer managers might sign a code of practice agreed with the regulator, that would include a binding commitment to act in the clients’ best interests, and would be registered with the LDP regulator. Qualified lawyers would be a majority of the management group for the legal practice. In relation to LDPs, the report regarded the issue of ownership as an important one, and proposed that for prospective outside owners there should be a “fit to own” test. The criteria suggested for this test included such principles as honesty, integrity, reputation, competence, capability and financial soundness. The report 3435523041 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 concluded that the combination of these safeguards should be suYcient to ensure the LDP acts in the best interests of the client. Nevertheless, the report went on to discuss possible conflicts of interest, and proposed that an LDP “may not take instructions on a case where the owner has an adverse interest in the matter” (p121 para 53)and stated that “It should not be permissible for the owner, under the terms of the LDP’s regulatory conditions, to interfere in any client case or to have access to any individual client files or client information.” (p 121 para 54).

The report finally considered MDPs, but proposed that a regulatory framework be set up for LDPs as a first step, with further progress towards MDPs taken in the light of the LDPs’ experience.

ABS Safeguards in the Legal Services Bill

We refer to the Clementi report in some detail, as it grappled with the issue of safeguards for clients under ABS. The Bill refers to disclosure of ownership, where an interest of a non-authorised person must be identified in an application for a licence. It proposes that a Head of Legal Practice must ensure compliance with legal regulatory requirements, and a Head of Finance and Administration will ensure compliance with accounting requirements.

We do not feel that these safeguards establish the necessary degree of protection for clients. We agree with the concerns set out in the Clementi report about “regulatory reach”—the degree to which the regulator can be aware of issues within ABS. We also agree with the comment made that “It would be onerous for a single person such as the HOLP to define the culture of a firmor be expected to bear the entire weight of upholding the legal ethics of the practice” (p115 para 32). We think it is inevitable that a commercial ABS will put pressure on the HOLP to take account of the business’ interests as much as theclients’andtheexampleof financial services suggests this isa realistic concern. Without the sort of safeguards proposed by Clementi, we think there is a real risk that an ABS will not act in clients’ best interests, particularly where there are bundles of services to be sold. For an ABS formed with a bank or insurance company, it is not diYcult to imagine that in, say, divorce cases, there would be pressure to sell financial services as part of an ancillary relief package. Similarly, this could arise in all cases where a financial settlement or damages are obtained through legal action. We would therefore suggest that further protection for clients be imposed in relation to regulation of ABS.

ABS and Regulators

In our response to the White Paper, we were concerned that an ABS may “shop around” for a licensing authority and would prefer the regulator who would be least intrusive or least expensive—neither necessarily in clients’ best interests. We do not think that a low price inevitably means inferior regulation, simply that there is a risk. If it is possible to define appropriate criteria for selection of regulator—or a standardised formula for calculating the fee—these would go some way to reduce the risk of inconsistent regulation. We also feel the best protection is more likely to come where there is a close fit between the regulator and the ABS.

Office for Legal Complaints

We support the complaints system set out in the Bill. We do however have some concerns over the lack of an appeal process. We note that the National Consumer Council opposes such a process on the basis that it would not be in the clients’ interests. However, we are not sure that this is necessarily the case. Complaints about legal services sometimes raise issues about access to justice. If the client making the complaint is not satisfied with the outcome, it seems that the Bill does not provide a way of resolving this. S112 suggests that in this situation the ombudsman’s decision is to be treated as rejected. This would leave a dissatisfied complainant with no further process to bring the complaint to a conclusion, other than through judicial review litigation—which is very unlikely to be the remedy of choice in this situation.

On the question of financial redress for complaints, we consider the figure of £20,000 on the low side, and suggest it should be brought into line with that for the financial ombudsman service. 14 June 2006 3435523043 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Memorandum submitted by the LawCentres Federation (Ev 19) LCF is grateful for the opportunity to give oral evidence before the Committee. We also wish that the following written submissions are considered by the Committee. The Law Centres Federation (LCF) is the national body for a network of Law Centres in England, Wales and Northern Ireland. The Rules of Membership of the LCF state that all Law Centres must employ at least two solicitors. The solicitors, and all the work carried out in the Law Centre under the remit of the solicitors, are regulated by the Law Society. Law Centres also have individuals in the Centres whose responsibility it is ensure that financial and administrative functions are carried out professionally and in accordance with company rules etc. Law Centres provide specialist legal services in the areas of social welfare law. They provide expert diagnostic services, advice, assistance and representation in the higher courts. Law Centres are charities and hence members of the not-for-profit sector. LCF generally supports the Legally Services Bill as we believe it will assist in strengthening consumer confidence in legal services, particularly around complaints mechanisms. LCF believes that the proposals to permit new business structures will widen choice, but we would stress the importance of maintaining professional standards and independence in this context. We share the concerns of others, including the Law Society, about proposals for the appointments to the Legal Services Board to be made by the Secretary of State for Constitutional AVairs. In our view, this will not give suYcient confidence in the LSB’s independence fromGovernmentand we would sug gest that the legislation provides for a mechanism for appointment that is independent of Government. We strongly support the provisions outlined in clause 72, “OVence to pretend to be a licensed body”, as without it unscrupulous individuals and organisations could pose as licensed bodies to trade on the good name of a licensed body. This is currently a problemfor Law Centres, as while sol icitors cannot describe themselves as a “Law Centre” none legally qualified persons can. While we would accept that the NfP sector is diVerent in ethos than the private sector we would stress the importance of ensuring that there are not substantially diVerent standards of service and regulation between the two sectors. It is around this issue that our specific comments requesting changes to the Bill as drafted are addressed. On clause 18 “Transitional Protection for not for profit bodies”, while we support the principle of a transitional period we would suggest though that this is specified in the legislation and would suggest a period of 12 months. Not to do this could lead to potentially an indefinite period of time lapsing while diVerent standards would apply to the sector. Under Licensing Rules clause 66(5) LCF believes that some minimum provisions need to be specified pursuant to schedule 11 in keeping with the principle that the public is entitled in broad terms to the same level of safeguards whether a service is provided in the for profit or not for profit sectors. As it is currently drafted none or all of the terms could be applied to the NfP sector. We would suggest as a minimum that the follow provisions of section 11 should apply equally to both NfP and private sector organisations: 1. Head of Legal Practice (section 13) 2. Head of Finance and Administration (section15) 3. Practice address 4. Licensed activities must be carried on by through entitled persons (section 18) 5. Disqualified employees and oYcers (section 19) 6. Indemnity cover and compensation (section 20) 7. Accounts (section 21) Points one and two follow the recommendations of Sir David Clementi’s report and give a clear division of responsibility within an organisation, though in smaller organisations both roles could be combined. Points 3, 4, 6 and 7 are intrinsic to the provision of any legal service, and all currently apply to NfP organisations providing reserved legal services. As an NfP organisation is usually managed by a board of trustees they are the employer and not the solicitor or other person authorised to carry out reserved legal activities. For this reason persons excluded due to misconduct from working in a legal practice in the private sector can currently be employed in the NfP sector, though LCF is aware that some Law Centres do check the status of individuals with the Law Society prior to 3435523044 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 oVering them employment. The inclusion of section 19 as one of the minimum requirements for NfP organisations would ensure that disqualified persons are not permitted to be employed in NfP organisations providing reserved legal services. Please do not hesitate to contact me if you require any further information or clarification on the above points. 14 June 2006

Examination of Witnesses Witnesses: Ms Alison Hannah, Director, Legal ActionGroup, andM r Steve Hynes, Director, Law Centres Federation, examined.

Q266 Chairman: First of all may I welcome you, sector to leave social welfare law, so I cannot see it Steve Hynes and Alison Hannah, to the Committee. having a massive impact on our particular client Thank you very much for coming, particularly at group, though the way that I read the Act and the such short notice. We would be very interested indeed way it has been drafted, even though there is quite a in the evidence you are going to give to us but I lot of talk around legal services it is primarily around thought I might just start oV with a question, the reserved legal services that you are legislating, so declaring my interest as a solicitor and member of the they are quite restricted and the bottomline will be Law Society with a current practising certificate. I that our client group is people wanting access to just want to ask you both what diVerence you think litigation services and so generally they will need to the provisions in the draft Bill will make to see people who are legally qualified. Transaction consumers accessing legal services. costs are quite often set by the market already. I Mr Hynes: I think it is more evolution than cannot see a dramatic change coming with ABS, revolution, a very British way of doing things which though there will be some change perhaps in some I approve of, but there has been a lot of banding segments. about of “Tesco Law” and “Waitrose Law”. I think Ms Hannah: The complaints system is obviously that there will be a gradual opening up of services and going to be of benefit; that is definitely our view. In the Alternative Business Structures will enable that terms of the regulation, I tend to agree with Steve. I process. Certainly I do not perceive fromour do not think it is going to create a new market of perspective that people in the commercial sector will providers of legal services for people who are too be champing at the bit to get into the market place. I poor to pay privately. I can see it operating the other rather suspect that there will be some that do and way, which I do not think is a regulatory issue, and they will get involved in areas of law where you can this is something that we put in our evidence, that we do volume case work and you can ensure that your think there is a risk of cherry-picking which has been transaction costs are kept to a minimum with good mentioned before, that legal services that currently admin systems, good information systems around the subsidise legal aid work may be taken away from legal advice, and there will be a gradual shifting of current practitioners and that would make legal aid some business into ABSs. work even less profitable but that is not a regulatory issue; that is an economic argument. Q267 Chairman: We are particularly interested, of course, as you look after the poorest and most Q268 Lord Bach: The Legal Action Group in its disadvantaged sections of society in social welfare publication welcomed the proposals set out in the Bill law inter alia and I just wonder whether you see what and saw the establishment of the Legal Services is going to be the eVect on your client group. Board as “a great improvement” on the current Mr Hynes: To an extent law centres are an ABS. systemfor regulation of legal services. Why do you David Clementi visited law centres and the structure see it as a great improvement? in his report reflects the law centres that he visited. I Ms Hannah: Simply because we accept the Clementi cannot see ABSs having a great impact on our client diagnosis of it. I think he talked in his evidence earlier group of socially excluded people. The contradiction this week, though it was not his phrase, about the of our situation is that we rely on the state to fund our regulatory maze but certainly there is a regulatory services and whichever way you cut it it comes from maze and therefore I think this does simplify the either central government or local government and I structure and that will be of benefit. cannot really see many commercial providers wanting to provide services to our communities Q269 Lord Bach: Do you see the continued existence mainly because it probably would not be profitable. of front-line regulators as an appropriate way of Certainly there has been a trend over the last number setting up the new regulatory system, and do you of years for legal aid practitioners in the private agree that there should be a light touch as far as the 3435523044 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Legal Services Board are concerned or do you think Clementi recommendations are you referring to that it should be a slightly heavier touch? we ought to consider putting into the Bill? Ms Hannah: No, I would agree it should be a light Ms Hannah: He did go into quite some detail about it. touch. I tend to accept what Richard has said about The provisions that he suggested for the head of legal the regulatory systemitself, that it does not seemto practice and the head of finance and administration have thrown up a great many problems. I think it is are both in the Bill, but he, rightly in my opinion, did more to do with the complexity of it than the fact that make the point that it was a great responsibility for it is shown to be inadequate. the head of legal practice to carry the entire burden of ensuring that the service is in the client’s best interest. Q270 Lord Bach: Can I turn to the appointment of In terms of practicalities that is going to be almost the chairman of the Legal Services Board and the impossible to police through the regulatory structure. Board itself? How do you think, both of you, the The Clementi report made other recommendations ministerial appointment of the Legal Services Board about non-lawyer managers being subject to might aVect its status or perception as an regulation and there being a majority of lawyers in independent organisation? charge of the practice. It is the bundle, if you like. I Mr Hynes: It is not just a matter of getting to the also recognise that there is reference in the Bill to brink of a dictatorship because the Government somebody having an interest in an ABS as being a fit wishes to appoint people to the Legal Services Board. and proper person. I think that is quite a diYcult What I would say is that it is a matter really of thing to define and it will be hard to know how that perception I amvery conscious that the rule of law will operate in a positive rather than a negative way. and the institutions that support it need to be seen to It is fairly easy to see how it might eliminate people be separate fromthe state and so I think it is a matter as not being fit and proper, but I think the Clementi of perception. I can see there are a number of possible report had quite a lot of very positive criteria for how compromises around this issue and the Law Society you would assess somebody who was fit and proper, suggested one. I just would emphasise the fact that it and they are not included in the Bill. There are a should be seen to be independent of the state. range of things that were in the Clementi report that Ms Hannah: I would agree with that. We have said would bear further examination. that in our evidence as well. It may be inevitable that the Secretary of State appoints the first chair but I do Q273 Mr Kidney: You specifically mentioned not think there is any need for the Secretary of State conflicts of interest as one of the possible dangers. to appoint the whole Board. Can you just explain to us what you feel the conflicts Lord Bach: I ought to have declared my interest as a of interest might be and whether what you have just non-practising barrister and as an ex-minister in the said would be suYcient safeguards to protect against Lord Chancellor’s Department. a conflict and ensure high standards, or whether there is something else you would recommend in the Bill to Q271 Mr Kidney: I declare an interest as a non- deal with conflict of interest? practising solicitor with my name on the roll of Ms Hannah: Going back to the Clementi report, this solicitors. Ms Hannah, if I may start with you, in is something that he did specifically address and your paper to us you remind us that in responding to made quite proscriptive comments about it the White Paper you said that Alternative Business eVectively involving cross-selling services really. I Structures might reduce access to justice for the cannot remember the exact phrase that the Clementi poorest in society, and you say those pressures might report used, although I think I have mentioned it in be economic rather than regulatory. Having seen the the written evidence. I think the issue arises as a Bill as it is are your fears as strong as they were matter of practicality. You can certainly envisage before, stronger or slightly lessened? circumstances in which a legal practice or a reserved Ms Hannah: I would be more concerned on the area activity would involve obtaining damages for a larger of safeguards for clients than I was before, but I personal injury claim, medical negligence, a divorce would compare that with the Clementi report settlement, and we now seem to be in the area of probably rather than the White Paper because it did extremely expensive divorce settlements. You can seem to me that the Clementi report went into a great foresee quite clearly if a bank or an insurance deal of detail about how to protect clients from company were operating as an ABS there would be conflicts of interest within legal disciplinary quite a lot of commercial pressure to cross-sell partnerships. It seems to me that aspect is much services, insurance services, pension services, as part weaker in the Bill than it was in the Clementi report. of a bundle to deal with that financial settlement. The evidence that we have had fromfinancial services is Q272 Mr Kidney: You say, in eVect, that you want that these things have happened, it is not simply to get back to the Clementi recommendations on this theoretical. There are real practical issues that would but, just for the benefit of our transcript, which of the bear further examination. 3435523044 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Q274 Mr Kidney: Are there any further safeguards Mr Hynes: I think that the recommendations around against those kinds of abuses that you have just the head of legal practice and the head of finance and mentioned that you would recommend on top of the administration need to be strong and it needs to be ones you have already commended to us? understood that those figures within the organisation Ms Hannah: I amsorry, I cannot find it instantly. have powers of recourse to the regulator ultimately There is a recommendation in the Clementi report of that goes beyond their commercial, and if they work a business not being permitted to supply a service and in the not-for profit sector funder, interests. That is I think it is that sort of criteria where you need to what I would emphasise. Certainly in a Law Centre have ring-fencing so there would be steps beyond setting, since our inception we have had what we refer which you could not cross-sell within the same to as a senior solicitor, which is a figurehead solicitor, organisation. who supervises the legal casework and on occasions the solicitor within the Law Centre would have to Q275 Mr Kidney: Steve Hynes, do you recognise draw a line in the sand, so to speak, with the those dangers of conflict of interest and, if so, what management committee or the trustees who run the recommendations would you make for us to Law Centre. I can imagine analogously a similar strengthen the Bill to protect consumers against situation happening in the commercial environment, them? although I have no experience of or expertise in that. Mr Hynes: I do, and I very much go along with the point Alison was making. I would emphasise—this is Q278 Mr Kidney: We had this debate in just the something I perhaps should not be saying—I know session before you—I saw you arrive but I amnot Sir David’s report recommended a soft touch for the sure if you missed this part—with the Legal Aid NFP sector— Practitioners Group saying that ABSs will lead to a loss of provision of legal services to poor groups, Q276 Mr Kidney: Do you mean a light touch? hard-to-reach groups, rural groups and so on, and Mr Hynes: A light touch, sorry. The point I would the man from the Legal Services Commission was make on the light touch is that in the NFP sector saying “No, no, no, this will improve the access to there is a tendency to see us as pure and unsullied by services in poor groups because of the introduction of commercial interests, and of course we are, but there new sources of capital”. You have got practical is still potential for conflicts of interest, particularly experience, so tell us will the new ABS proposals help around funding. I think the Bill needs to be stronger or hinder the establishment of new Law Centres in around this. In the paper I have submitted I just areas of need? suggest on behalf of LCA the minimum Clementi- Mr Hynes: It would assist in this regard: it would sort style provisions, a head of legal practice, for example, out the regulatory position of Law Centres. There because I think it does need to be strengthened, there have always been some ambiguities in the regulation need to be minimum safeguards, particularly around of Law Centres. It would be helpful in that respect. I conflicts of interest but also around structures for amneutral on the access to justice issue, to be frank, both the not-for-profit and the private sectors. I because in the communities we serve in civil law suppose the bottomline in this is even in the particularly there has not been a strong history, apart commercial setting or the NFP setting you need a fromsomevery good exceptions within private lawyer who is qualified under one of the seven practice, of providing these services, for example reserved areas to be able to say to a manager in an welfare benefits, money advice and debt services. It is organisation, “Look, that is beyond my professional really the paralegal services and, to a lesser extent, ethics to do that. I have recourse through a Law Centres that are taking the lead in developing regulatory system”, in essence to have the power to those areas of law. If you look at poor communities, be able to whistle-blow. There needs to be a strong those areas of law are vitally important for them to be membrane between the two sides of any organisation, able to access services. That said, there is certainly a whether it be in the commercial or private sector. need for services with a legally qualified spine within them and in the sorts of communities we serve quite Q277 Mr Kidney: I think that is helpful. Staying with often that is missing. I have got some sympathy for you, Mr Hynes, I suppose that Law Centres could be Richard Miller’s argument, although I think it thought of as embryonic multi-disciplinary practices mainly an economic argument and not a regulatory already: you have non-lawyers working alongside argument, which I think is Alison Hannah’s take on solicitors for whomthe rules against advertising that. It might well aVect the economics of small and are relaxed and barristers for whomthe rules medium sized legal practices, the stereotype being the against advocacy are relaxed. Are there any small market towns, that pushes them over the edge recommendations from your experiences that you to not being as viable as they might possibly have can give to us about improving the eVectiveness of been in the past; I think competition in conveyancing the Bill in regulating the ABS of the future? to a large extent already did that. The types of areas 3435523044 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 Ms Alison Hannah and Mr Steve Hynes of law that impact on our client group have not passed saying, “Steve, we can do you a deal on the tended to be the areas of law that those types of firms practising certificates”, but I amnot really holding are specialised in. my breath on that.

Q279 Mr Kidney: My last question is back to you, Q281 Lord Campbell of Alloway: That is very Alison Hannah. It is about another debate that is helpful. In view of what you have said, and using going on in front of us about ABSs choosing who to your terminology, do you seek any restructuring of seek their licence fromamongstthe front-line the Bill in that context? regulators, and will this lead to competition amongst Mr Hynes: We do not seek any restructuring. In terms the front-line regulators to lower their prices, and will of the front-line regulators we think the structure is that mean they will lower their standards. What is right, although it would be fair to say that we would your position on that and, if it is a fear, how can we try and appeal to the good oYces of the front-line guard against it? regulators when it comes to structuring their charges Ms Hannah: It is interesting that you put it that way for the not-for-profit sector, let us say. because I had taken the issue the other way. You seemto be suggesting that the regulators themselves Q282 Chairman: Mr Hynes, earlier you said that you will be, as it were, competing for the business and it did not think commercial interests would show very will drive prices down. I see it more from the point of much interest in alternative business structures view of the body wanting to get licensed shopping servicing the legal needs of the poor, but we are all around for which would be the lightest touch or the aware that some of the best firms, whether it is in the cheapest cost to them. I just do not know whether or whatever terminology you use, there is going to be a lot of competition for the currently fund or support Law Centres, sometimes regulators in order to take over ABS. It is terribly through pro bono and often directly in order to assist diYcult to really envisage what the ABS market is with training of new recruits, et cetera, and it is a very going to be, so I amnot sure I can be very muchhelp popular way of engaging their lawyers in a wider to you on that question. context. Might this interest not be further developed Mr Kidney: That is a shame. to encourage investment in Law Centres as an ABS? Mr Hynes: That is certainly thinking outside the box, Q280 Lord Campbell of Alloway: I want to ask you and it is not a thought that had occurred to me. You an open question which is not at all loaded. Are you are right, particularly in London we do receive concerned in any way—item11 on our list—about substantial support fromthe larger firmsfor pro the disproportionate burden of costs of additional bono, in kind help, delivering services to clients, but regulation? also some of the costs within the Law Centres, and Mr Hynes: It has always been a problemwithin Law there are some training seats in Law Centres from Centres and the NFP sector when one comes to city firms. We do look at developing those finding the finance to pay for practising certificates. I partnerships and you might well be right that there have been in a position where we have had to refuse could be some potential. a solicitor finance for a practising certificate because Chairman: If you were to give it a little more thought the organisation cannot support it. We have a rule, it might be interesting to see if it can be fitted into the we have two solicitors, a senor solicitor and a spare, existing structure of the Bill or whether it might so to speak, in the organisation. Economically there require some sort of amendment. If you could come could be a problem. Certainly in our sector there back to us, that would be helpful. always has been a problemin paying for regulation and representation services with the Law Society. I Q283 Michael Foster: Can I declare my interest as a amquite confused by this potential issue of licensers member of the Law Society and a solicitor with a vying for our business because I amnot aware of practising certificate. Hav ing done that, can I ask the people queuing to do this. Certainly in the way the representative from LAG to comment on a particular Bill is structured it will have a great advantage in issue that they have raised but not many others have, terms of supervision within an ABS, that that and that is the appeals process against the decision of supervision will be able to come from anybody who the OYce of Legal Complaints. Which? magazine, for is legally qualified to undertake the seven reserved example, seem to think it is quite a good idea that we areas. It has certainly been a problemin Law Centres can just have one shop b ut you take a diVerent view. that we have quite a lot of non-practising barristers Is there any particular reason for that? who actually are practising, except they are employed Ms Hannah: I certainly read that was their view. I within a Law Centre, who are not allowed to think they were coming at it from the angle of the supervise under Law Society rules. I amanticipating lawyer exercising th e appeals process. That is why that the Bar Council and Law Society will come they were saying they were concerned that it would knocking at my door when this Bill is eventually cause delays and uncertainty for consumers. 3435523044 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Complaints about lawyers often get tangled up in the primary problems of that is the fundamental access to justice issues. I do not know whether conflict of interest because in local government very anybody here went along to some of the Clementi often in the services which have been funded, whether road shows but certainly at the couple I went to there it is housing benefit or the provision of housing were often people who had had very unfortunate services, you need to litigate ultimately to get redress. experiences with their lawyers and it all got tangled You can understand the reluctance, perhaps, of local up in this much bigger issue about access to justice. I government to fund services with lawyers ultimately amslightly concerned that there is provision in the that litigate. Many of the complaints over the years Bill, I think it is section 112, where it says if the which have come around Law Centres are clients complainant accepts the finding of the Ombudsman trying to access the service who have not been able to, then that becomes a binding decision, but if they do they have been living in the wrong area. We have not accept it then I think it is treated as rejected, and received many calls across the country frompeople in that situation there does not seemanywhere for complaining that they cannot get access to a Law that dissatisfied complainant to go other than the Centre because they are told by the Law Centre “We judicial review route and I would be 100 per cent sure only serve this particular local government area”. I that having had an unfortunate experience with a believe that it is correct for legislation that we should lawyer they would not want to go to another lawyer establish a separate complaints system which should in order to seek judicial review. I think it is left as a be a one-stop shop, so to speak, for our clients; I rather unsatisfactory loose end. support it. There will be problems no matter who administers the complaints system for lawyers Q284 Michael Foster: What sort of structure would because ultimately, certainly at our end of the you be proposing we put in place for that? business, the complaint is “We cannot get access, Ms Hannah: I have to say I have not considered what they won’t take our case on because you say you are an appropriate proposal would be. I amnot sure too busy or you say my case is not strong enough”. what the alternatives are because I know in the Financial Ombudsman Service there is not a final Q286 Lord Neill of Bladen: Is it really a funding appeal either. I think there has been some discussion question you are talking about or a conflict of interest about whether there should be, but I have not question? followed it so I do not know what the proposal would Mr Hynes: That can be a problem. I would go back be. It may be that there will be an appeals panel. It to when David Kidney asked a question along these may be that we will need to have an appeals panel lines. One of the classic conflicts of interest within that will be able to re-hear or reassess the case or publicly-funded legal services, particularly in the not- review it. I can just see that there might be for-profit sector is around housing. You will have a dissatisfaction that there is only one process and no situation very often where the service, it could be a further process after that. Law Centre, is funded by local government and you Michael Foster: If you did give further thought to it might have to judicial review the local authority that in the next week or two, perhaps you could write in funds you. It might have to do with a housing case or and let the Committee know what your thoughts are. another matter, discrete and otherwise, pressure can be put on not-for-profit agencies by funders. That is Q285 Lord Neill of Bladen: I declare an interest as a one of the points I wanted to emphasise today before barrister. Mr Hynes, in relation to law Centres I have this Committee because I do believe it has to be got a very simple question. If somebody went out recognised that because of funding problems there there to make a case against Law Centres, what can very often be conflicts of interest. It can be subtle. particular things have gone wrong? Has it been bad I will give you an anecdote. An anecdote is a solicitor advice or embezzlement of the funds, or not enough in a Law Centre asked me for advice one time saying Law Centres? What is the mischief that any that a council oYcer rang her to say that there was a legislation is required for in the case of Law Centres? local councillor in her oYce at that moment in time Mr Hynes: We have an interesting history. We were and they were not very pleased about the fact that established just over 30 years ago. Our main problem that particular Law Centre judicial reviewed a has always been that we have been mainly reliant on number of housing cases. I said to the solicitor local government funding to become established. It involved “Well, first of all, you are a good solicitor, has only been in the last six years that we have taken you have actually said ‘No way amI going to accept substantial funds fromthe Legal Services that sort of pressure’” but also the person made the Commission, or the Legal Aid Board as was. Our mistake of leaving the message on the answer funding is something like £15 million from the Legal machine, so the tape went in the safe. That is one Services Commission and around £15 million or so extreme. The other extreme is a situation, perhaps, fromlocal authorities. To establish a network, we where a manager of a legal centre is told “Well, in have primary local government funding and one of diYcult cases we have ADR—alternative dispute 3435523044 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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15 June 2006 Ms Alison Hannah and Mr Steve Hynes resolution—send all the cases to that, there should be Ombudsman there should be another appeals a matter of policy, send them all there.” That is fine, process? I would fully support ADR, but the bottomline is Ms Hannah: Yes, that is the issue that I was looking that a lawyer will have to say sometime “Well, you at. If the Ombudsman makes a finding which is not have another remedy” or “That remedy of ADR is accepted by the complainant then there is no further exhausted, you have to take legal action”. Sometimes appeals process. I would say the pressure is more subtle than overt in the anecdote I told, but it is there and it has to be Q289 Mr Kidney: Are you representing that only the recognised. complainant should be able to appeal further because the Bar Council thought that the person complained against ought to be able to appeal? Q287 Lord Neill of Bladen: When the advice is given, Ms Hannah: I amnot saying that only one side would you have tried ADR, it does not work, you have to have to appeal but I was looking at it fromthe side of take legal remedies, does the centre then try to find the complainant in these issues because they are not money to support the individual litigant? straight forward complaints quite often. A complaint Mr Hynes: Invariably in a court we would be about a lawyer often gets mixed up with a complaint about the case. obtaining certificated legal aid. One has to do so in the county court and higher courts to protect the Q290 Mr Kidney: Which are you urging on client’s position on costs. We might have public Parliament? funding fromanother source to do that. Ms Hannah: I do not see how it would be fair to have Chairman: I think the final question is fromMr only one side with an appeals stage, I think it would Kidney. have to be for both sides. I have some sympathy with the National Consumer Council for their objection on that basis but I do not see how you could have an Q288 Mr Kidney: Alison Hannah, if you do not appeal simply for one party. mind me just going back to the appeal to understand Chairman: Thank you very much indeed. It has been what you have just said to us. The appeal as I most interesting. Mr Hynes, I think you indicated understand it, a complaint is made, the case worker you might give some thought to one or two of the appointed investigates, possibly trying to sort out a problems that we have been discussing and Alison settlement with the aid of mediation if necessary and Hannah might like to do the same if you feel you can if that is not successful then it goes to an let us have any further comments. Thank you very Ombudsman. Are you saying to us that after the much indeed for coming today. 3435523045 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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MONDAY 19 JUNE 2006

Present Bach, L Mr David Burrowes Campbell of Alloway, L Michael Jabez Foster Falkner of Margravine, B John Hemming Henig, B Mr David Kidney Hunt of Wirral (Chairman) Emily Thornberry Neill of Bladen, L

In Attendance: Mr Nigel Reeder and Mr Sean Langley, members of the Draft Legal Services Bill Team.

Examination of Witnesses Witnesses: Rt Hon the Lord Phillips of Worth Matravers, a Member of the House of Lords, Lord Chief Justice, and Rt Hon Sir Anthony Clarke, Master of the Rolls, examined.

Q291 Chairman: My Lords, thank you very much consultation should best operate. I am very familiar for coming to give evidence to us today. You will with the consultation of the senior judges in relation have seen fromthe schedule that we have a rather to regulation. What happen s, of course, is that there challenging timetable and that is why we are is consultation between the judges, and I amnot particularly grateful to the Lord Chief Justice and the aware of any situation in which there was not a Master of the Rolls for coming in at very short notice unanimous response in the time that I was Master of to guide us as to the provisions of the draft Legal the Rolls. I wonder whether it would not be better Services Bill. I thought I might, if I may, start by simply that the Lord Chief Justice should be the asking a general question about the constitutional consultee where the judiciary were involved, leaving implications for the relationship between the it to the Lord Chief Justice to decide what internal Executive and the legal profession which might arise consultation to take. Some of the circumstances fromprovisions in this draft Bill. where there is going to be automatic consultation Lord Phillips of Worth Matravers: I did not see this Bill could be pretty onerous. I have particularly in mind as having constitutional implications provided that Schedule 7. It is not entirely clear what matters might the Board was truly independent. It seemed to me, be referred under Schedule 7, but on one reading of that was where the crux in the constitutional question the Bill they might be relatively insignificant. raises questions, perhaps about the appointment of Sir Anthony Clarke: I agree with that. There are a the Board, but providing the Board is truly number of provisions, and Schedule 7 is one, in which independent it did not seemthat it had such there is a provision that each of the senior judges implications. must give such advice as the judge thinks fit. I agree Sir Anthony Clarke: I entirely agree. As they say in the with the Lord Chief Justice that it is really Court of Appeal, there is nothing I could usefully unnecessary to impose that duty on each individual add. judge. If the duty was imposed on the Lord Chief Justice he could then consult and take such advice as Q292 Chairman: May I explore this just a little he thought fit. That has worked pretty well in the past further because as well as the whole question of the and I would have thought it would work well in this independence of the legal profession there are various Bill too. other provisions in the Bill where the judiciary might have a wider consultative role, for example having new reserved activities. Is that an issue? Q293 Chairman: One of the points that have been Lord Phillips of Worth Matravers: I think the role of put to us on several occasions is that this country has the judiciary is undoubtedly an issue. The particular an international reputation for dispute resolution role that you have there suggested is the only one and we are concerned to ensure that none of the where we do not have an automatic provision for provisions of this Bill would aVect in any way that consultation. It seems to me that this is probably the reputation. Lord Chief Justice, are you reasonably most important of the various circumstances in relaxed? which we might be consulted and there ought to be Lord Phillips of Worth Matravers: I amreasonably automatic consultation of the judiciary there. Who relaxed about that, yes. should be consulted is more a nuts and bolts Sir Anthony Clarke: So amI, subject to the point question. I have concern about the burden that this made earlier about the importance of the might impose upon the judiciary and about how independence of the LSB. 3435523045 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Rt Hon the Lord Phillips of Worth Matravers and Rt Hon Sir Anthony Clarke

Lord Phillips of Worth Matravers: I think there is only wonder whether that particular aspect of the Master thing I would say. It is important that those who are of the Rolls’ powers is entirely a suitable one for the involved in dispute resolution should be of high Master of the Rolls, but that is not to say it has not calibre. It is very diYcult to see how one ensures that worked perfectly well in the past. In fact, although they are. Obviously if you have a disciplinary fault the Master of the Rolls has a whole series of powers that can be dealt with, but in an ideal world you under the Solicitors Act and a number of sets of would have some machinery for making sure that regulations, what in practice the Master of the Rolls people who were involved in dispute resolution were mostly does is to hear appeals fromdecisions of the really competent. Law Society wearing its regulatory hat in which it imposes conditions on practising certificates of Q294 Chairman: That is an interesting point. solicitors. For some bizarre reason you have to apply Lord Phillips of Worth Matravers: Insofar as one can for your practising certificate every year and achieve that, it is highly desirable. sometimes people who have not complied with the Sir Anthony Clarke: I agree. rules in one way or another have conditions applied Chairman: Shall we therefore move on to the Legal to their practising certificates and those appeals come Services Board itself. Lord Neill has a question. to me. Again, I do slightly wonder whether that is really something the Master of the Rolls should sensibly be dealing with. In answer to your overall Q295 Lord Neill of Bladen: I have a question for the question, the systemdoes work perfectly well. For Master of the Rolls if you would be kind enough to myself, I see no objection to any of the proposals that address it. I think we all have to declare an interest there are for streamlining the system for the future. and I am a practising member of the Bar. It may not be an unknown fact to you but for the public record I declare it. I want to ask you about some of the Q296 Lord Neill of Bladen: Would you go further proposals which would lead to the new Board having than that? You said just then that you see no a direct involvement. If I can give a little explanation objection but would you go so far as to say you see an of what I amleading into. Currently the Master of the improvement in what is proposed? All you have said Rolls by tradition, certainly a tradition I have grown is a couple or three rather odd things that you have up with, has a very close relationship with the managed to do. solicitors’ profession. You formally admit them to Sir Anthony Clarke: I have so far. It seems to me that practise, you deal with their professional rules and there is something to be said for simply having an regulations and with appeals against rulings by the appeal to the High Court rather than fromthe Solicitors’ Disciplinary Tribunal. The Bill would Master of the Rolls on decisions of that kind, which transfer the approval of the professional rules to the is what I think is proposed under the rules. At the new Board, it would make amendments to the moment, as I understand it, I can be judicially existing rules of the Disciplinary Tribunal, also reviewed. I do not think that has happened very subject to approval of the Board, and the Board can often, certainly not in my time, but I have only been issue directions under the Bill to the Solicitors’ doing it for nine months. Disciplinary Tribunal if they are failing to meet their Lord Phillips of Worth Matravers: There has certainly functions. I want to ask a very basic, simple question. been an application to judicially review me. First of What is not working in the existing systemin the all you sign a list approving candidates to be placed relationship between the Master of the Rolls and the on the roll of solicitors. I thought this was very solicitors’ profession? Is there anything that you see questionable because it was quite plainly a pure as calling for reform? formality. You would have this very long list and you Sir Anthony Clarke: I do not think one can point to had no idea whether they were suitable; or not, that anything in the present systemwhich is not working, would have been investigated by the Law Society. it seems to me. As far as I can understand it, it works That was simply a formality. So far as regulations are now in the same way as it has worked for very many concerned, they would come to you after they had years. The Master of the Rolls does have a number of been discussed and approved by the council of the disparate and slightly odd functions, perhaps. One Law Society. It seemed to me that only in extreme you mentioned is the approval of the regulations. circumstances was one individual Master of the Rolls When I met Sir David Clementi he asked me what I likely to decline to approve such regulations. There would say if I was asked by, perhaps, the Home was only one occasion on which I was in real doubt, AVairs Select Committee to say what criteria I which was in relation to referral fees, and I personally adopted before deciding whether or not to approve a was not enthusiastic about this proposal but I had particular regulation. I must say I was a bit stumped quite strong representations being made to me that by that question and I had to say I was not awfully this had all been hammered out by the Law Society sure but that I would have found out by the time I had and in the end I agreed, subject to there being a reached the Select Committee. That did make me review of how this had worked after the first 12 3435523045 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Rt Hon the Lord Phillips of Worth Matravers and Rt Hon Sir Anthony Clarke months. It does not seem to me that really the Master made in accordance with a code the statute should of the Rolls is in a position to second-guess what the provide for that. At the moment it only seems to be council of the Law Society has done. Appeals, usually in the guidance notes, which might or might not have in relation to interlocutory orders pending any legal eVect. disciplinary proceedings, can be very important. It can stop a solicitor fromexercising his or her Q299 John Hemming: Can we go just a little bit vocation. Very often the condition would be you further on those points. Would you see merit in there would have to continue to practise in an approved being on the face of the Bill some constraint to ensure partnership, and nobody would be willing to enter the independence of the appointees such that they into partnership with you. These were important. I would then potentially be subject to judicial review think there needs to be some form of right of appeal were that not to be adhered to? against decisions such as that which have such serious Lord Phillips of Worth Matravers: I think that could implications, but not I think to the Master of the well be valuable. One would not be at all surprised to Rolls. find express provisions for the appointment of the Board. Q297 John Hemming: In terms of declaring interests, Sir Anthony Clarke: I agree. the absence of one implies I have never been a solicitor or a barrister. Coming back, in a sense, to Q300 Baroness Henig: Can I move on to complaints. the first question, the constitutional question, which I amnot sure whether I should declare an interest or in part you have answered: it has been suggested the not. I am a former magistrate. There is some division appointment and powers of the LSB may threaten of view about complaints and whether it is right to the independence of the legal profession. Firstly, do separate the responsibility for handling complaints you have any concerns about this? If so, what frommisconduct.I wonder if you could give us your provisions could be included to ensure that the views on that. independence of the legal profession is preserved? Lord Phillips of Worth Matravers: I think there is a Lord Phillips of Worth Matravers: Providing the very strong case for separating the two. Complaints proposed machinery works properly I am not can cover a very wide area. It can cover matters which concerned about the independence of the legal do not call for the sledgehammer, if you like, of profession. disciplinary proceedings that should be dealt with, maybe informally, with advice, maybe by directions. Q298 John Hemming: It was the issue of If one keeps complaints separate from disciplinary appointment that was raised. proceedings I think that is salutary. Lord Phillips of Worth Matravers: That is the proviso, Sir Anthony Clarke: I agree with that. One of the of course. It all depends upon the quality of the perceived problems is that one case can involve a Board. The Act does not say anything about the whole series of diVerent aspects. It can involve a appointment but the notes tell one that it will be consumer complaint on the one hand, it can involve appointed in relation to the now standard procedure a regulatory matter on the other, and it can involve for public appointments. Provided that is properly serious misconduct. As I understand the scheme of carried out I have no reservations. Query: would it be the Bill, it is that the complaint would first of all be a good idea that the Act should provide that the made to the OYce of Legal Complaints, and there is appointments should be made by the Secretary of an Ombudsman scheme set up in the Bill to deal with State with the concurrence of, say, the Lord Chief those essentially consumer complaints. If there are Justice simply by way of constitutional safeguard? regulatory matters they would be remitted, as it were, That is not one which one would hope would ever be for the relevant regulator, perhaps the Law Society, necessary. to deal with. If a serious disciplinary matter was Sir Anthony Clarke: I entirely agree with that. Who involved it would come before, in the solicitors’ knows what is going to happen in the future? It would profession at least, the SDT—the Solicitors’ be a valuable safeguard to have a provision that the Disciplinary Tribunal—which is an entirely Chair and perhaps the members of the Board also independent body. That seems to me to be a perfectly should be appointed by the Secretary of State, (or the sensible scheme. Unfortunately, at the moment it is Law Society I think, would say the Lord Chancellor, contemplated presumably that there will be some but that is diVerent), with the concurrence or consent amendments to the Solicitors Act which are not of the Lord Chief Justice. That would give a valuable presently in this Bill at all. There are some quite independent perception and reality to the position. I important amendments that will have to be made to think there has been quite a widespread concern that the Solicitors Act in order to make this whole scheme the present proposals are not perceived to be as work. I know that is something that the SDT—the independent as they really should be. One footnote: Solicitors’ Disciplinary Tribunal—are particularly it does appear to me that if the appointment is to be interested in, but I think perhaps the draughtsman 3435523045 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Rt Hon the Lord Phillips of Worth Matravers and Rt Hon Sir Anthony Clarke has not so far got round to drafting the relevant Lord Phillips of Worth Matravers: I amslightly schedule. concerned about this. This opens up questions of law on Article 6 which certainly the Bar dealt with in some depth. It does not seem appropriate that we Q301 Baroness Henig: So in terms of the separation should be attempting to give legal advice on a diYcult you think that the principle far outweighs issues area but it is certainly an area that needs to be very about duplication and delay that might arise from the carefully considered. If you are imposing a fact that these things have been separated? requirement to pay compensation, maybe of £20,000, Sir Anthony Clarke: On this basis, one would be there are arguments for saying if that is going to be trying to avoid duplication because there would be imposed then you have got to comply with Article 6 the Ombudsman, the scheme which would be because it is aVecting the rights of the solicitor who is involved in essentially consumer complaints and the required to make this payment. Could I just say a like, and then regulatory and disciplinary matters, word about complaints? My concerns about which are perhaps much more serious, could be dealt complaints are essentially pragmatic because over with separately. five years I saw the Law Society struggling very hard to deal with the enormous volume of complaints that Q302 Chairman: If I may just interrupt. Sir come in and it is not very easy because clients of Anthony, we do have the Head of the Bill teamhere, lawyers, rather like being the client of a doctor, do Mr Nigel Reeder. We might just ask him for a not have the knowledge to judge whether they have moment to respond to your point about the got cause for complaint or not, very often. Sometimes amendments that would be required to the Solicitors you can see very well you have got cause for Act to give us an idea of when we might hear that complaint; on other occasions you simply do not those amendments are going to be announced. know. There is a very wide variation of complaints Mr Reeder: My Lord Chairman, thank you. There that come in, it is very expensive to deal with them are a large number of proposed amendments which and it does seemvery importantthat there should be we have received fromthe Law Society and, indeed, proper financial constraints on any independent Y some from the Council for Licensed Conveyancers. o ce that is set up. At the moment the Law Society For the primary part of our exercise we have has to meet the bill directly so they have a strong concentrated on the main body of the Bill. We are motivation to try to ensure that complaints are dealt working through the amendments which have been with economically. If there is going to be a completely put forward, and others we feel we may need to make new body for all complaints then there is going to be as consequential amendments, but I think it is a danger that this turns into a very complex unlikely that we will be able to get anything to the bureaucracy which is expensive and slow. The really Committee before you finish your evidence sessions. important thing is first class management of We may be able to get something to you in time to whatever body is dealing with complaints. consider, but at the moment I could not promise that, there is a lot of work to go through on this. Q305 Lord Campbell of Alloway: My Lord, I have to declare my interest as a Queen’s Counsel, which you Q303 Chairman: Mr Reeder, I think what might probably well know, retired at 85. I only want to ask assist the Committee is if you were not necessarily to two things. One is in the context of your Lordship’s detail the actual amendments but just to give us the reference to judicial review, which is a wholly various items which are going to be covered in the discretionary remedy. Would it not be preferable to repeals to the various provisions. That might be of have safeguard provisions drafted into the Bill rather assistance. than leaving it to discretionary remedy? In any event, Mr Reeder: My Lord Chairman, would it be possible as regards the first question that was put forward for me to write to the Committee to set these out? where your Lordship raised the question of Would that be helpful, and maybe even some qualification, provided that the appointments are preliminary views for you. properly made judicial review will be wholly Chairman: Yes, that would be very helpful. inappropriate to enforce that. Should not some more provisions be made in the Bill to support your qualification? That is the first question. The second Q304 Baroness Henig: The draft Bill, as I amsure question is this: on the question of complaints, surely you know, does not provide for an appeals procedure one has to draw a distinction between the Bar, the against decisions made by the OYce of Legal solicitors, patent agents, trademark agents and the Complaints, but they would be open to judicial rest of it? I am concerned, rather naturally, that with review. Do you think that is suYcient, that there the Bar which, after all, is the founding face of the should be no right of appeal other than judicial judiciary by and large, there is no other way. review? Complaints against the Bar have caused no problem 3435523045 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Rt Hon the Lord Phillips of Worth Matravers and Rt Hon Sir Anthony Clarke at all, in fact. There is always a lay assessor, I think it awful lot of layers. It has investigators, panels, review is a General, a Scots Guardsman or something, and panels, appeal panels, quite a lot. One of the purposes the whole thing is properly conducted. In your of all of this is to simplify the complaints system and Lordship’s opinion, is there any need to alter that hopefully make it as reasonably priced, as possible. systemor, indeed, to require that complaintsare sent The position is a bit diVerent in relation to regulation, not to the Bar but to some centralised body, as I and in particular discipline, because where you can be gather is the proposal in the Bill? If I amwrong about struck oV or something of that nature, it is very this perhaps it could be explained. important that the system should be entirely Article Lord Phillips of Worth Matravers: Those are two very 6 compliant, as I believe the SDT system is at present, diVerent questions. First of all, insofar as one but it is quite a complex problem. identifies the need for an appeal, and I suggested that Chairman: Turning for a moment to alternative one would probably need to have an appeal, in business structures, which is another part of the Bill, relation to a decision which has a serious impact on Michael Foster. the ability of someone to earn their living, better that it should be spelt out in the Act. Judicial review is not Q306 Michael Foster: First, can I declare my interest a substitute for such an appeal. The courts are quite as a member of the Law Society and with a practising good at expanding the scope of judicial review to certificate. As to the question of alternative business meet injustice where it is necessary, but it would be structures, it is a strange animal this one. The much better to have a statutory right of appeal which Government seems to believe it is going to create does not rely upon judicial review. Question number more access to legal services particularly for two is quite diVerent: if the Bar is doing everything vulnerable groups. Do either of you have any views perfectly already, why change it? That is a strong on that hope? argument and I would not comment on the premise. Lord Phillips of Worth Matravers: This is an area Certainly the handling of complaints by the Bar has where the Bill is going beyond Clementi in a fairly been much more successful, so far as consumer dramatic way. Most people when they discuss this satisfaction is concerned, than by solicitors. I think talk about “Tesco law” and it seems to me what they the argument for having a single system for have in mind is a kiosk in Tesco’s where you go and everybody is really treating everybody the same. It is get a bit of legal advice for £5 or vouchers fromyour meeting consumer points. Although you say there cereals or something, and that is going to open up has been no complaint in relation to the way the Bar legal services to people who would not normally be deals with its complaints, I think the consumer getting them. Of course, anyone can give legal advice organisations would still say that it is much better to and at the moment we are only dealing with have a completely independent body dealing with the regulation of those whose activities include reserved complaints. I think it is perfectly obvious if the Bar is activities and that is limited, and so you ask yourself dealing with it in a satisfactory manner already you what new bodies are going to come into existence have not got the strict requirement to change it. which are going to be seeking to carry on these Sir Anthony Clarke: Could I just add a footnote to reserved activities, and litigation is the strongest. that? It seems to me that, again, one has to draw a Claims management companies, I suppose, would distinction between what to my mind are three like to be able directly to provide services in relation diVerent kinds of situation. There are the complaints to litigation whereas at the moment they have to to the OLC which are going to be dealt with by the engage solicitors or barristers. I think by and large Ombudsman, which are essentially the consumer you would be looking at maybe combinations of complaints, although the Ombudsman does have accountants and lawyers, estate agents and lawyers power to give quite considerable directions in and so on. So far as a wider picture of these bodies, is relation, for example, to putting matters right, and concerned I do not find it very easy to envisage them can award compensation of up to £20,000 under the nor to see how they are going to improve access to Bill as it stands at the moment. I entirely agree that justice, diversity and so on. It is trying to identify proper advice should be taken as to whether or not a what is actually going to happen which I find diYcult. proceeding which gives the Ombudsman power to award compensation of £20,000 has to comply with Q307 Michael Foster: Do you see any diYculty Article 6 of the European Convention. It seems to me particularly with this choice agenda of the alternative that it is very important that some advice should be business structures being able to determine their own taken about that because that will informthe kind of regulator? tribunal you have to have. Having said that, it does Sir Anthony Clarke: It is very curious that. It appears appear to me that it is very important not to have too there are going to be a whole series of possible ABS many layers. If there are any areas of dissatisfaction regulators as far as I can tell. I do not know whether with the systemas it has proceeded in the past, one is there will be, rather like the shipowner who goes to that the Law Society’s present systemdoes have an register his ship under a flag of convenience, 3435523045 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Rt Hon the Lord Phillips of Worth Matravers and Rt Hon Sir Anthony Clarke competition amongst ABS regulators and it is rather relation to litigation and so on, in circumstances worrying. It is not quite clear to me why the scheme where there is a conflict of interest, there is obviously is not for a set of rules or for a scheme to be set up for a real challenge to see these are properly regulated. a body such as an ABS regulator, so there will be one Sir Anthony Clarke: Could I add a footnote? One of scheme which anybody setting up a particular ABS the things which worries me in relation to civil justice systemwould have to complywith, or at least the is the whole problemof access to justice in these days general principles of which one would have to comply when we all know that legal aid is not really available with. I must say, it is far from clear to me how this will for the vast array of civil disputes. It is very diYcult improve access to justice. It may be that it will, I am to see how this suggestion is going to improve access not contradicting the whole idea of it, but it is far to justice for those who cannot really aVord it fromclear. There is a lot of speculation about it I because, as Lord Neill says, anybody who is going to think. invest money into it is going to be looking for a return, quite unsurprisingly. It has not been Q308 Michael Foster: One of the issues which has explained at any rate very clearly how access to been put to us is the idea of dumbing-down justice for those who cannot aVord it is going to be regulation by some sort of competition. Would that improved. worry you? Do you see a solution to that? Sir Anthony Clarke: It is diYcult to see a solution Q311 Michael Foster: One other question to finish unless you have one basic regulatory scheme, oV the issue of regulation and it is this, if there are otherwise I suppose there will be competition complex situations arising out of choosing one’s between the regulators. Some might say, “Why not, regulator, I wonder if either witness would feel there competition is a good idea”, others might say, “No, it is any roomfor the Legal Services Board becominga will cause dumbing-down.” It has not been very well direct regulator for alternative business structure thought out so far I think. organisations, or would that be a step too far? Sir Anthony Clarke: I must say I had not really Q309 Lord Neill of Bladen: Could I ask a follow-up thought about that and I would not like to answer question on this. What interests me is what sort of that irrevocably now, but it is one of the possibilities. people will come forward with a lot of money and Lord Phillips of Worth Matravers: It would not say, “We are going to finance a legal body.” Keep out necessarily be a step too far. It is what Sir Anthony the accountants and all those, take the simple form of was suggesting, that maybe you have only one LDP, at the top end of the market you will have these regulator for all these bodies. If it was a branch of the grand solicitors in Canary Wharf with some Board that was in charge of regulating all these Y merchant bankers opening o ces all round the bodies, I do not see why it should not work. world, but bringing it down to the lower end, what improvement is there going to be in possibly rather sinister people coming in and financing a legal Q312 Mr Kidney: Good afternoon. I declare my practice which only, let us suppose, deals with interest as a non-practising solicitor with my name on defence cases, has a particular class of clientele? What the roll. If there were lawyers and non-lawyers are the controls here that one would want to see in working together in the same business then clause 139 place to make sure this was really top drawer and the of the draft Bill deals with legal professional legal practitioners would not be subjected to the privilege, extending the privilege which applies commercial interests of the people who are actually currently to barristers and solicitors to other funding the practice? authorised persons and it is for the Legal Services Sir Anthony Clarke: I think this is a very serious Board to consider whether they should further worry and it needs considerable thought. It is not consider extending that, and clauses 141 and 142 obvious what the answer is. I amafraid I do not have preserve the paramount obligation of advocates and an immediate answer. I agree it is a serious worry. those conducting litigation to comply with their rules of professional conduct and their duty to the court to Q310 Lord Neill of Bladen: You agree it is a serious act with independence in the interests of justice. May worry? I ask you both, perhaps Lord Phillips first, do you Sir Anthony Clarke: Yes. think there could be any conflict of interest for legal Lord Phillips of Worth Matravers: I do not think I professionals who work in these kinds of firms? have very much to add. This is a completely new area Lord Phillips of Worth Matravers: It is obvious you in which I have no personal experience. I think one could have conflict of interest because the interest of would need to look at other parts of the world where the person consulting, or the client, might well be in these bodies do exist to see where there is a diYculty conflict with some commercial interest of the overall in the system. If you allow a body which is not made body, so there is a potential conflict of interest. But up of qualified lawyers to be taking decisions in that is only a variation of the theme and all lawyers 3435523045 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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find themselves in positions of conflict of interest on whether or not that would be something which occasion. should be included. Lord Phillips of Worth Matravers: It is a very big topic, professional privilege. Having been reversed by the Q313 Mr Kidney: Sir Anthony, would you agree? House of Lords in Three Rivers on this topic, I am Sir Anthony Clarke: I certainly agree with that. I well aware of the issues which can arise. If you go to suppose that the duty of the professional to the client an accountant and ask for legal advice about some might conflict with the interests of some other part of tax scheme, you will not have professional privilege; the business, for example, taking a simple case an if you go to a lawyer, you will. Why? Put the undertaker or a florist, say, but one could think of accountant and lawyer together and you get some very many examples. But, on the other hand, as Lord pretty diYcult questions arising as to whether or not Phillips says, the conflict of interest is something you have legal professional privilege in relation to which solicitors and indeed barristers and advice which has been given on the law. Does it professional people have to have in mind all the time matter whether it was given by the accountant or the in their business. lawyer? Are you going to extend this privilege to Lord Phillips of Worth Matravers: An estate agent anyone in one of these bodies which is giving legal now with a legal department would be advising on advice? If so, why not give the privilege to the transaction, and obviously it is in the interests of accountants who are not working together with the business that the transaction actually goes ahead solicitors? but you may well need advice that you should be very careful going into the transaction. Some of these transactions add an enormous amount of Q316 Mr Kidney: Just on Sir Anthony’s point, commission to the organisation. So that is just an clause 139 of the draft Bill talks about example of the conflict of interest situation. communications and not advice. Do you, Lord Phillips, think that is a weakness of the draft Bill? Lord Phillips of Worth Matravers: It is certainly a Q314 Mr Kidney: Would you think anything weakness if you say it is desirable for the legal additional would be needed in this Bill to satisfy professional privilege extended under the Bill should clients when the conflict of interest would be be co-terminous with that which is available at the determined in their favour in protecting their rights moment, because it will not be. It seems to me to be of confidence with their lawyers, and with judges in opening the door to the kind of very expensive the cases which are in court that the duty to the court interlocutory legal proceedings that one is only too would be paramount and not those commercial well aware of at the moment. pressures? Mr Kidney: Thank you both very much. Lord Phillips of Worth Matravers: We have a bit about duty to the court in the Bill. I think it would be nice to have that right upfront under clause 1, “Professional Q317 Chairman: Finally, this Joint Committee has to look at the Bill as a whole, what is going to be the principles are . . . .”, and you would include the V professional principle that anyone who is involved in e ect of this Bill on the integrity, independence and a transaction which involves a court owes a primary impartiality of the legal profession. If I can just come duty to the court. back, declaring my interest again of course because I receive my admission from one of your predecessors, Lord Denning, far too long ago for me to remember Q315 Mr Kidney: So, if I understand that right, the the exact circumstances, but one does have to reflect seventh regulatory objective is to uphold the on the impact of this Bill as a whole, speaking as a principles and then the three principles are solicitor with a current practising certificate. I just enunciated at the moment and you are saying there wondered whether you can look into the future and should be a fourth? see for us or share with us your view of the overall Lord Phillips of Worth Matravers: Yes, I would like to eVect of this Bill on the legal profession given Sir see that right upfront as one of the cardinal Anthony’s comment—I do not think you quite said principles. If you are going to have an ABS where “flags of political convenience”—but there is an there is an obvious risk of conflict of interest, then increasing tendency, which I must say I always you need some kind of regulatory code to address managed to resist when I was in government, of that. commenting on actions of the legal profession and Sir Anthony Clarke: I agree with that. Could I just the judiciary and it seems to have become quite a sort add a postscript on clause 139 which is about legal of contagious disease amongst ministers and we have professional privilege? It seems to relate at the to make sure that although the head of the Legal moment only to communications, it does not seem to Services Board may be a political appointment we refer to privilege of legal advice, and I wonder have the right provisions to safeguard the whether some consideration should not be given to independence of the profession in the future. 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19 June 2006 Rt Hon the Lord Phillips of Worth Matravers and Rt Hon Sir Anthony Clarke wonder whether, looking at the Bill as a whole now, Clementi Report identified, is that regulation at the you can guide us as to the additional provisions we moment is an extraordinary morass of diVerent should be seeking to entrench that independence? regulations and so on; it needs to be simplified. Lord Phillips of Worth Matravers: I do not think I can Sir Anthony Clarke: I would certainly agree with that. add to the point I made at the outset, that what is It seems to me there is a good deal of common sense really at the essence of the independence is how it is in the underlying ideas of the Bill but the crucial point working in practice. If your appointments system is is the importance of the independence of the Board working as it should in practice, so that those who are and its members, (particularly its Chair). That is the appointed to the Board and to be the Chair of the key thing. Postscript: I do not think I really meant Board are obviously very well qualified to do that, flags of political convenience. and they are people of integrity, of high standing, and Chairman: Thank you very much indeed. We are there is no question of the appointment being very grateful to you both for sparing so much time at political, then that is fine. If you want to build in a short notice. If there are any other points—and safeguard then you do not just leave it to the several times you have referred to other issues—on Secretary of State to make the appointment, relying which you would like to give some further thought, on himto do it properly, you could require the we would be very interested in hearing further from concurrence of somebody else. The great merit, I you by the end of the month if that proves to be the think, of what is being attempted here, as the case. Thank you very much indeed for coming.

Memorandum by the Legal Services Ombudsman for England and Wales and the Legal Services Complaints Commissioner (Ev 20)

Introduction This document is submitted in response to the Joint Committee’s Call for Evidence as part of its pre- legislative scrutiny of the draft Legal Services Bill. The evidence is being submitted to the Committee by Zahida Manzoor CBE, in her capacity as both the Legal Services Ombudsman for England and Wales (LSO) and Legal Services Complaints Commissioner (Commissioner).

Responses by the LSO and Commissioner to the Issues raised by the Joint Committee

The Bill—Overall

1. Whether the draft bill’s proposals are necessary, workable and sufficient; and whether the bill’s proposed outcomes could be achieved by better means. 1.1 The Bill’s proposals for reforming legal services are necessary in order to refocus the systemmore towards the needs of consumers. By bringing about an end to the dual representative/regulatory role of the professional bodies, creating a new oversight regulator, allowing for alternative business structures and creating a new independent complaints handling body, the Bill will deliver necessary change. 1.2 The proposals in the Bill appear on the whole to be workable and suYcient to deliver the proposed outcomes. However, the proposals for Alternative Business Structures (ABS) may benefit from some piloting before full roll-out.

2. Views on the Government’s estimate of costs contained in the Regulatory Impact Assessment. 2.1 The revised cost estimates that accompanied the draft Bill would appear to support the revised complaints handling arrangements and regulatory framework described. 2.2 With regards to the projected costs and staYng levels of the LSB, my view is that the level and type of activity it needs to performwould be towards the higher end of the Pricew aterhouseCoopers (PwC’s) range (ie requiring nearer to 57 staV than the 39 staV projected for “base” level activity). This view is based in part on my current experience as a regulator for the complaints handling by the largest professional body, the Law Society. While my Commissioner’s OYce was set up on the basis of lower level activity, I have found that much more detailed work with the Law Society has been required. Functions such as “increased requirements for investigations’ as suggested by PwC as options, would in my view; represent a definite requirement for the LSB. 3435523046 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Regulatory Objectives

3. Whether the regulatory objectives set out in Clause 1 of the bill are appropriate. 3.1 The seven regulatory objectives as set out in the Bill are appropriate. It is accepted that at times a degree of balance between themwill need to be achieved. It is understood th at they are not listed in the Bill in any order of priority, however in the consumer’s interest, highest priority would go to the objectives (b), (c) and (f) as listed in the draft Bill (access to justice, protecting and promoting the interests of consumers and increasing public understanding of citizens’ rights and duties).

Legal Services Board 4. Overall, whether proposals for the regulatory body are fit for purpose; and in particular: (a) The proposed structure and powers of the proposed Legal Services Board (LSB); (b) Funding for the LSB; (c) The relationship between the LSB, the OYce for Legal Complaints, the Consumer Panel and the Government. (d) The proposed compensation fund arrangements. 4.1 With regards to the proposed structure of the LSB, my main concern remains that the legislation states that only “the first” Chair of the LSB will be a non-lawyer. As stated in my response to the White Paper, I would advocate that the non-lawyer criteria also be applied to all future Chairs. This would act to clearly demonstrate the independence of this role from the profession it regulates. 4.2 I amcontent that the legislation provides for the Secretary of State to make this appointment. As a statutory post—holder whose appointments have been made by the Secretary of State, my experience is that it is perfectly possible to act independently of Government, whilst reporting to Parliament through an Annual Report. 4.3 I was keen to see that the powers to regulate the profession were initially vested in the LSB who would delegate to the FLRs having first satisfied itself that the FLRs’ arrangements were sound. The draft Bill’s list of Approved Regulators at Schedule 5 suggests that the approval is automatic. While it is of course likely that the professional bodies will meet the approval criteria, and for practical reasons it will be necessary to have regulators in place as soon as the legislation is enacted, the arrangement described is not ideal. My view is that the LSB should first be assured that the FLRs’ governance arrangements are satisfactory (particularly in relation to the regulatory/representative split). 4.4 In terms of the LSB’s powers, I was pleased to see that my suggestion of a range of proportionate sanctions and powers over the frontline regulators has been provided for in the draft Bill. 4.5 A balance needs to be struck between appropriate use by the LSB of its powers only when needed and its ability to act swiftly and decisively in the event of a major failure in regulation by a FLR. My concern is that the processes for the LSB to take action outlined in the draft Bill each contain statutory periods of notice, consultation and appeal at the various stages. I would support the principle of this, but would have preferred to see this less prescribed in legislation, with more ability for the LSB to develop the detail itself of its mechanisms (of course working with the FLRs to settle them). My concern is that the unwieldy nature of some processes (for example that for censuring a FLR) may in practice diminish their impact. 4.6 In my view, the funding for the LSB outlined in the Regulatory Impact Assessment appears to be adequate (although I believe it would need to support the higher level of activities and staYng estimated by PwC). 4.7 I have previously stated and still believe that some element of government funding for the LSB would be desirable in order to preserve some independence from the profession. My reading of the draft Bill suggested that a provision for this might exist in Clause 130. 4.8 My response to the White Paper suggested that legislation should provide for closer governance links between the OLC and LSB at Board level. For example, I suggested that the legislation should provide for the Chair of the OLC to be a member of the LSB Board so that the OLC does not become strategically isolated from the LSB. Similarly, I recommended that the Chief Ombudsman should be a statutory ex- oYcio member of the LSB Board. 3435523046 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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4.9 I welcome the statutory role of the LSB Consumer Panel and note that this panel will be consulted (alongside variously, the OFT, the senior judiciary and the Secretary of State) on key decisions. This will clearly demonstrate that consumer interests have been considered when key decisions are made by the LSB. However, I was clear in my response to the White Paper that while the LSB should act under its powers in relation to consultation, that the ultimate decision rests with the LSB. Legislation must make this clear. 4.10 It is right that the draft Bill requires new bodies seeking designation to have in place adequate compensation and indemnity arrangements. I consider it to be important in the consumer’s interest that this requirement also covers the need to maintain current arrangements for all the existing regulators. The LSB should be given the power to review these arrangements, make recommendations to the FLRs in relation to them and enforce compliance with those recommendations.

Alternative Business Structures 5. The ability and desirability of the proposed new Alternative Business Structures in: (a) opening up the market for legal services; and (b) delivering consumer benefits. 5.1 With regard to the ability and desirability of ABS to open up the market for legal services, I remain hopeful that this might be the case, however, I would suggest that it might take time for such a traditional market to open up to substantial changes. For example, there has been much speculation regarding the Bill creating the potential for large retailers to enter the legal services market. While the major retailers might be considering whether this fits well with their strategy, factors such as the complexities in regulation, would have to be considered and may deter some from early entry. 5.2 Legal professionals (especially in the commercial sector) may welcome the increased flexibilities over business structures, the availability of external finance and the chance to practice together with other professionals. However, some smaller firms may find they have to weigh up the potential benefits with some of the complexities which doing business in new ways might require (for example, see my comments relating to conflicts of interest at paragraph 6.1). 5.3 In theory, ABS could deliver benefits to the consumer—primarily by oVering increased choice in the way in which services are delivered. In addition, the possibility of increased competition, particularly from branded services, may serve to invigorate the sector and could drive an increased focus on customer service and value for money. 5.4 ABS would produce a very good outcome for many people if aVordable options were developed for those who are above eligibility levels for publicly funded services, but who currently find the private sector services too expensive or intimidating to access. This creation of a new market would be positive for consumers and professionals alike if people who may have been in need but who previously did not seek advice could be brought into the market. 5.5 However, I have also previously expressed a concern that ABS could facilitate increased competition for what is regarded as the most profitable work, which could then become “commoditised” and unbalance the market. Currently practitioners are able to cross-subsidise in many cases due to careful management of a mix of work. The consumer could face a reduction in choice and access if too much work was “cherry picked” by new entrants. This could also lead to increased pressure being placed on not for profit providers.

Alternative Business Structures 6. Potential conflicts of interest under the new structures, including: (a) Internally—any potential conflicts of interests in firms providing multidisciplinary services. (b) Externally—any potential conflicts of interests between the demands of legal professional work and external shareholders. (c) The impact on legal professional privilege. 6.1 In my view, firms would have to take great care to minimise potential conflicts of interests in multidisciplinary practices so that, for example, information provided by a client in relation to a legal matter was not (even involuntarily) shared with other non-legal parts of the practice. This may involve setting up strict “information barriers” within firms in order to avoid such conflicts. Such safeguards would require management and technological controls which may prove costly to implement, especially for smaller firms. 3435523046 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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6.2 Firms may well view that it is desirable to have increased options under ABS with regards to access to capital so as to potentially grow the business. External funding might also encourage a focus on aspects such as eYciency. However, there is a concern that highly geared legal businesses could be skewed towards satisfying short-termshareholder needs at the risk of client care or a com mitment to pro bono work, for example. 6.3 The impact on legal professional privilege is largely unknown, but professionals would be concerned about the potential for loss of privilege in contentious work if information were to be shared with another professional. As with the internal conflicts (in 6.1 above) ABS firms would have to adopt strict barriers in order to protect legal professional privilege.

Office for Legal Complaints 7. Overall, whether the proposed OYce for Legal Complaints (OLC) is fit for purpose; and in particular: (a) The proposed structure and powers of the OLC; (b) Compensation arrangements and limits; (c) Whether an appeals process is required; (d) The conditions and level of respondents’ fees. 7.1 The independence and impartiality of the OLC is paramount. My response to the White Paper was supportive of the proposals for the OLC, but I did recommend that the powers would need to be vested in an independent individual (ie an Ombudsman), not necessarily in the entity of the OLC Board. It is therefore welcomed that this suggestion has been taken up in the draft Bill with the vesting of powers in the Chief Ombudsman role. The term “Ombudsman” is understood and trusted by the public, so it was also pleasing to see that there will be an option for the OLC to use this termi n the eventual name of the organisation. 7.2 The new OLC needs to be truly independent in order to restore public confidence in the complaints system. This independence needs to be demonstrated not just in its structure and funding, but also extends to factors such as its location. In my view a fresh start OLC is needed—one that consumers and the profession can see is suYciently distanced fromthe current professional bodies’ complaintshand ling arrangements. A re-badging of what currently exists is unlikely to succeed in delivering the government’s objectives. The principles of the Lyons Review regarding the movement of staV outside London and South East should also be fully taken into account. It is important for consumers and new suppliers of legal services that there is an individual, identifiable organisation which will have the public support to deal with any legal complaints, particularly novel ones, which will undoubtedly occur within the new structure. 7.3 I was also concerned to see that the current LSO’s powers be translated fully into the new legislation. My review of the draft Bill shows that this is the case, except that the current powers of the LSO which are expressed explicitly in the Courts and Legal Services Act 1990 as being equivalent to that of the High Court, are only implied in the draft Legal Services Bill. A previously explicit power being made implicit gives the appearance of this power being made weaker. 7.4 I have stated that the Secretary of State should make the appointment of the OLC’s independent Chief Ombudsman and that this should be a non-lawyer. The draft Bill states that the Chief Ombudsman should be a lay person, but suggests that the OLC Board would make this appointment. 7.5 In other respects, I consider that the OLC’s powers appear fit for purpose in delivering a fair and impartial complaints service. I was particularly pleased to see the powers widely drafted in terms of the OLC making determination of complaints. 7.6 With regard to compensation arrangements and limits, I was pleased to see the proposed raising of the limit, but unclear as to how the figure of £20,000 had been reached. My view is that an upward review of this limit to at least the Estates Agency Ombudsman limit of £25,000 is desirable. It is my view that the powers to enforce the payment of compensation described in the draft Bill are appropriate. 7.7 My response to the White Paper supported the government’s proposal that there should not be a separate, external appeals process for decisions of the OLC (except for Judicial Review). However, I stated that a final internal review stage would be desirable. The provision of a Chief Ombudsman role in the OLC would seem to me to create the ability to have a final Ombudsman review—the final internal review stage I was seeking—that may reduce the occasions on which Judicial Review becomes necessary. In the last 3435523046 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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financial year (2005–06) there were eight legal challenges against my decisions as LSO, averaging £5,8901 per challenge. Each case was unsuccessful. My OYce obtained orders for costs totalling £12,256 where the Court deemed it appropriate to make an order. 7.8 My reading of the draft Bill is that there is flexibility on the OLC’s ability to place a general levy on the profession with regards to complaints alongside the ability to set fees for individual respondents. I also read (and was in favour of) the OLC’s ability to set respondents fees regardless of whether or not the complaint is upheld. This flexibility is necessary for the OLC’s planning and negotiation of its budget with the LSB. If its collection of fees fromrespondents was only fromthose uphe ld, it would be very diYcult to predict the level of funding this would generate at the start of the year. Fromthe practitioner’s point of view, OLC flexibility in setting fees (relating, for example, to diVerent types of legal work which may be subject to higher or lower volumes of complaints) is likely to be welcomed. The OLC would need to devise an appropriate charging regime and may wish to conduct research and consult with providers in doing so. 13 June 2006

Memorandum by the Financial Ombudsman Service (Ev 18)

Introduction 1. This memorandum is submitted on behalf of the Financial Ombudsman Service (FOS). It relates to Part 6 and Schedule 13 of the Bill, concerning the establishment of the OYce of Legal Complaints (OLC). 2. The OLC proposal is unmistakably modelled on the Financial Ombudsman Service and the draft Bill draws heavily on the provisions of the Financial Services and Markets Act 2000 under which the FOS was established. 3. In keeping with the wider developments in administrative justice, the OLC proposal is consistent with the Government’s objective of extending the range of independent alternative dispute resolution schemes (including ombudsman services). 4. We therefore support: — the concept of an OLC to be established as an independent ombudsman scheme, working within the principles of the British and Irish Ombudsman Association; and — the objective that the OLC should provide a service to resolve disputes quickly and with the minimum formality.

About the FOS 5. Our remit includes complaints about bank accounts, insurance policies, investments, mortgages and professional financial advice. In addition to dealing with the major financial institutions, many of the firms who have complaints referred to us are small practices—professional firms oVering financial advice. Complaints vary from relatively minor administrative matters to more complex cases which involve an analysis of the rights and liabilities of the parties against a heavily disputed factual background. 6. We are required to decide cases on the basis of what we consider to be the fair and reasonable outcome in all the circumstances of the case, as is paralleled in Clause 109 of the Draft Bill. In reaching a view about what is fair and reasonable we must take account of a variety of factors including the law, regulatory rules and the codes of professional/industry bodies. Overall in around a third of the cases we handle we uphold the consumer’s complaint in whole or in part. 7. As is envisaged for the OLC, the FOS is funded by a combination of levies (paid by all firms) and case fees (paid by firms with complaints referred to the FOS). We have found it helpful to have wide consultation with practitioners and their representative bodies about how the balance should be struck. 8. We aimto resolve disputes at the earliest possible opportunity. In over 90 per cent of the complaints we receive, we are able to settle the dispute without recourse to our formal powers to make binding decisions. Overall 80 per cent of those who referred complaints to us said that they were satisfied with our service, and even amongst those who regarded themselves having “lost” their complaint, two-thirds expressed themselves as satisfied with our handling of their complaint.

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9. The relationship that we have with the Financial Services Authority has a close parallel with that envisaged for the OLC and the LSB. Whilst recognising the separate roles each has to play, an eVective partnership in the overall regulatory architecture is important, particularly when individual cases have wider implications or suggest a need for regulatory action. 10. Since the legislation came into eVect on 1 December 2001, the demand for our services has grown. Our workload now comprises more than 650,000 front-line enquiries and over 120,000 formal disputes per year— handled by 1,000 staV, including 30 ombudsmen. 11. In managing this workload, we have found how important back-oYce systems are in securing a modern and eVective service to stakeholders. We have made substantial investment in IT, management information, training and knowledge management, quality assurance, satisfaction research, publications and website, external liaison and communications. These provide an important underpinning, enabling us to oVer fair and consistent decision-making and dispute resolution to consumers and practitioners. 12. The analysis fromPricewaterhouseCoopers which accompaniesthe draf t Bill points out that the FOS: — “is widely regarded as an example of good practice for bodies dealing with complex complaints such as the proposed OLC”; and — “benefits from economies of scale that have enabled it to invest in some functions, such as communication with providers, to a greater extent than might be feasible in a smaller organisation.”

Suggested Way Forward 13. Our discussions with PricewaterhouseCoopers included how we overcame the challenges of establishing a new ombudsman scheme that would face, from “day one”, a significant demand for its service. If the OLC is to be the success that consumers and legal practitioners will rightfully expect, then it will need to have overcome these challenges. 14. Set against this background, we are satisfied that the FOS itself could well operate the OLC service— almost certainly under a separate brand. We see advantages in this for the legal profession and for the financial sector, as well as for consumers themselves: — We have the experience of operating successfully a large scale ombudsman service underpinning consumer confidence in a vital service sector. — We have established a reputation for independence and impartiality. — We have put in place a robust and fit-for-purpose infrastructure for handling large volumes of complex disputes. — There would be eYciencies of scale and scope, particularly in sharing back oYce systems. 15. This proposal would be consistent with one of the themes of the recent review by Philip Hampton of regulatory structures2 which urged that new structures should not be created if the work of existing bodies could be extended. There is the precedent of the Parliamentary Ombudsman and the Health Service Ombudsman being provided by one and the same body, although deriving powers fromtwo separate statutes. 16. The Bill provides for lawyers to operate in multi-disciplinary business structures. Consumer commentators have expressed concern about how complaints could be managed in respect of a firmregulated to provide both financial and legal services. A jointly-managed ombudsman service would help address this.

Transition 17. We note that the Committee has already raised concerns with other witnesses about the transitional arrangements. Managing the transition to the new service was indeed a key issue for the FOS and will be a key issue for the OLC. It is desirable to provide stability for the existing complaints-handling bodies through a period of uncertainty, whilst at the same time making preparations for the new body to be fully eVective from vesting day. 18. The FOS itself replaced a “patchwork quilt” of six former dispute-resolution schemes. Although the FOS did not acquire its legal powers until 1 December 2001, it started discussions with the governing bodies of the six existing schemes in September 1999, took over the staV and operations of the schemes from 1 April 2000— under service level agreements with their “owners”—and ran them in accordance with their existing rules for the 20 months before vesting day.

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19 This minimised uncertainty for existing managers and staV, and ensured that the various existing dispute- resolution schemes continued to operate eVectively right up to the time they ceased to exist. It also meant that early decisions could be made on infrastructure—including a common IT systemand new premises—allof which was in place well before vesting day, so that the FOS was able to oVer an eVective service on day one. We were empowered by transitional provisions to handle the run-oV of complaints that were in the pipeline on vesting day, as well as those complaints that were made after that date but which referred to acts or omissions that occurred before it. 20. If the OLC service were to be provided by the FOS, we would want to provide a similar early implementation programme. We would then launch an early programme of active engagement with practitioners, specialist associations and other stakeholders as part of the development of the new arrangements.

Conclusion 21. If this way forward commended itself in principle to the committee and key stakeholders, we would be happy to investigate the practicability in greater detail. In any event we have a strong interest in the emergence of a successful and eVective new ombudsman service in the legal sector, and we are committed to giving as much assistance as we can to those involved in the process. Walter Merricks Chief Ombudsman June 2006

Examination of Witnesses Witnesses: Ms Zahida Manzoor, Legal Services Ombudsman for England and Wales, and Mr Walter Merricks, Chief Ombudsman of the Financial Ombudsman Service, examined.

Q318 Chairman: First of all, may I welcome both potential conflict of interest between the legal Zahida Manzoor and Walter Merricks to the profession or the legal professional bodies in their Committee and thank you both very much indeed for role as both representative and the regulatory arm. coming to give evidence today. I thought I might just So there is this perceived conflict of interest by many. start by asking the Legal Services Ombudsman, in I think it is right and appropriate there is a new view of your experience in that post, what lessons you independent oYce for legal complaints established. have learnt during the time you have been regulating legal services so far as complaints are concerned Q319 Lord Bach: May I declare my interest, I am a which would now be valuable to us in working up a non-practising barrister and I was a minister in the mechanism for setting up the OYce for Legal Lord Chancellor’s Department for a short while Complaints? I would just add I am a practising some years ago. I want to ask you about the Legal solicitor. Services Board, if I may, both of you in turn. The Ms Manzoor: Thank you, my Lord Chairman, for draft Bill of course provides that the Secretary of giving me the opportunity to appear before the State will appoint the chair and members of the Committee today. Before I respond to your question, Board. Do you think the ministerial appointment of could I also thank the Committee for changing the the entire Legal Services Board will aVect its status or time I was going to appear before the Committee due perception as an independent organisation? What to personal circumstances—as you are aware, the would your view be if the chair and members of the sudden and unexpected death of my 37 year old LSB were appointed jointly by the Secretary of State sister—and I hope members have not been put to any and perhaps the Lord Chief Justice? additional inconvenience. In relation to the question Ms Manzoor: I see no problemwith the government which you asked me, Lord Chairman, I do support appointing the Legal Services Board if the Nolan the establishment of the OLC. I think it is absolutely principles are followed and adhered to. It is my view right that a new independent organisation which the consumers will still have confidence in the new deals with complaints is established and that it is a oYce because it is independent of the legal single entry for all legal complaints. I have in my role profession. However, I do have a concern that only as the Legal Services Ombudsman personally dealt the first chair of the Legal Services Board will be a lay with over 5,000 complaints which have come to my person, I think it is absolutely essential that all future oYce and it is evident fromthe cases I have appointments to the Legal Services Board are lay investigated that many consumers feel there is a people. I have worked in the public sector for a very 3435523048 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Ms Zahida Manzoor and Mr Walter Merricks long time and it is my experience that it is usual for Ms Manzoor: I think there are benefits to both Model public regulators to be appointed by the sponsoring A and the B! model. In the evidence I submitted to department; that is normal Whitehall practice. I see Sir David Clementi’s review I did not advocate no reason why one would divert fromthat. I amvery Model A or the B! model, I indicated an oversight clear that should the Secretary of State wish to regulator for legal services and a new independent consult the Master of the Rolls and indeed the Lord oYce for legal complaints. Of course, in my view I Chief Justice that is right and proper but the final think it is absolutely essential that the pragmatic decision in my view must rest with the Secretary of solution in having a B-plus model at this stage is State. absolutely right and proper. I agree with what Walter Mr Merricks: I would echo what Sir David Clementi Merricks said that perhaps in the future we do move said to you, that independence is seen by diVerent towards Model A but I think it would be a step too people in diVerent ways. Lawyers seemto be more far at this stage. I think it is absolutely right and concerned with independence fromgovernment, proper that the legal profession is part of the consumers are interested in independence from the regulation and therefore a pragmatic solution with legal profession I think. So this word “independence” Model B is the right one. is thrown about in a number of diVerent ways and contexts. I have great sympathy with what my colleague, Ms Manzoor, has already said but I also Q323 Baroness Falkner of Margravine: I wanted to see no particular objection to the suggestion that the take you back to the earlier point about the Lord Chief Justice has just made. independence of the appointment process and indeed your comments in that regard, Ms Manzoor, and your written evidence where you say you are content Q320 Lord Bach: Do you agree with the other point with the legislation provided the Secretary of State that she makes in her written statement to us about makes the appointment a statutory postholder and the chair of the LSB always being a non-lawyer? with those appointments being made by the Secretary Mr Merricks: I would not necessarily think it is right of State it is perfectly possible to act independently of to write that into the Bill. I think some of those who government while reporting to Parliament through have been lawyers—and I amby background a an annual report. Do you think your perception of lawyer myself—can play very useful parts in the that, and personal experience of that, is coloured by regulatory role. the fact you were the first postholder to be appointed, you being the appointee, and do you think that is a Q321 Lord Bach: Can I move on to a related formof practice which would ensure the necessary question. You both know very well about Model A independence which might be needed in a complex which Sir David looked at, Model B and Model B! and potentially controversial new regulatory regime? which he eventually came down in favour of. Would Ms Manzoor: Of course I amnot the first you have come down in favour of Model B or A, appointment as Legal Services Ombudsman, but as given your background? Legal Services Ombudsman I am independent, I am Mr Merricks: My background is both as a lawyer— impartial. I certainly say what I mean, I call a spade and perhaps I should follow all your examples and a spade, I ama Yorkshire woman.I amvery clear I declare my interest—somebody who is a non- do not work for the Government, I report through practising solicitor but I did work for the Law Society the Secretary of State to Parliament. I do undertake for over 10 years and most of my working life has annual reports, my accountability is very clear. Yes, been involved in legal services improvement in one I ama statutory appointmentand I think you will see way or another. I think Sir David almost hinted— that successive Legal Services Ombudsmen have been perhaps he would deny it—that the model which is independently minded. You have to have a process of now emerging which he recommended had the making appointments as long as it is fair, it is potential to emerge into something which was nearer impartial, there is transparency and you are to Model A. I quite understand why he started at the following proper Nolan procedures. Somebody has point where he started and I think that is a very to make it. The other point you made in terms of the sensible way to have started. I think he would have Legal Services Complaints Commissioner, of course provoked a great deal more controversy if he had when I was appointed as Legal Services Ombudsman gone straight in with Model A and it would not have my appointment was made on merit, through commanded anything like support, but I can imagine independence, transparency, I responded to an in 20 or 30 years’ time there might be a role for a advert, I went through a very complex and rigorous Model A. appointment process and the final discussion was with the Lord Chancellor. I was not appointed Q322 Lord Bach: Thank you. Can I ask you the without due process in isolation as the Legal Services same question with your experience? 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Q324 Baroness Falkner of Margravine: Forgive me, some of the changes that we are just beginning to see, I was not impugning your integrity at all. What I was even though, I have to add, they are not at the pace possibly suggesting was there has been a happy that I would like. constellation of post-holding appointees in this regard and in terms of good practice that possibly a Q326 Lord Campbell of Alloway: I wanted to ask more independent and seen-to-be independent you on two matters, Mr Merricks. In written process might be helpful. In that sense, if you think evidence you propose that the FOS could manage the the systemis so robust, why would it particularly OLC service under a separate brand. You have matter in the future that the chair needs to be a lay experienced a four-fold increase in the workload over member? the past five years. It has been suggested the same Ms Manzoor: I think you have to get the right person increase in legal complaints would occur once the and I concur with the suggestion which has been OLC has been established. Given this, how could made by colleagues before me here, you have to get your organisation provide the expertise and capacity the person with the right skills and right expertise; the to handle the needs of this sector? Is it realistic? best person for the job. That is absolutely clear. The Mr Merricks: We think so, my Lord. It is very likely process has to be right and I amnot advocating that we are going to have a reduction in the number anything else. At the end of the day somebody has to of our complaints because a lot of them come from a make the appointment. The lay appointment in terms single source, that is complaints about mortgage of perception froma consumerissue is very endowments, but the underpinning that we see that important. Here you have a chair and the Board might be suitable for both bodies is really related to regulating, acting as a regulator for the legal the operational management. This is where we see profession, and there could be issues of conflict of that there is really a synergy, if you like, or similarity interest, and I think you have to be independent, you in the underpinning that is going to be needed for the have to be seen to be independent, and that is why I OLC and which we have already developed in the amadvocating it is right and proper that the chair of Financial Ombudsman Service. The Financial the Legal Services Board should be a lay person. That Ombudsman Service, as you say, has had to cope is not questioning anyone’s integrity, or any member with a very substantial increase in workload. It is not of the legal profession, far fromit. I amsaying that entirely clear what kind of increase in workload the we have the opportunity, let us get it right now. OLC might inherit from the Law Society and the other bodies. I think what we are trying to focus on Q325 Lord Bach: In your capacity, as I understand is the great similarity between the scheme that is it, as Legal Services Complaints Commissioner you proposed in this Bill and that which is already in have the power to fine the Law Society, set targets existence in my scheme. There is a straight lift, and request action plans. What diYculties do you frankly, in the statutory provisions so this scheme is foresee, what diYculties might there be if you did not going to have a great deal of similarity. I think it is have those powers? really important that the legal services world should Ms Manzoor: These powers were first advocated back have a body which is dedicated to it but I think it is in 1999 during the Access to Justice Act, but the also extremely important that it should be one that is powers were not activated until 2004. It is important going to be demonstrably an enhancement on what to realise during that period the Law Society’s we have now. It is very important, therefore, that performance in its complaints handling was not at the both the transitional arrangements from what we level it should have been; in fact it was poor. I was have now and the new body—which I hope will start appointed as the Legal Services Complaints with a new culture and a new attitude, given that it Commissioner because the Law Society was seen to will be independent fromthe professional bodies— be failing in its complaints handling. It is evident to are going to be able to serve both consumers, whose me that had I not been appointed as the Legal interests it must primarily serve, but also the legal Services Complaints Commissioner a tremendous profession and do credit to both. It is really amount of work would not have taken place by the important that happens. What we are suggesting as a Law Society to bring about some improvements in way forward is that we could play some part in that V Y their complaints handling. If I did not have those by o ering the infrastructure back o ce systems and powers, (and previous Legal Services Ombudsmen operational management which we have built up and did not, and they made lots of recommendations to which might be useful for the new body. the Law Society in terms of where the Law Society needed to improve, indeed the then Lord Chancellor Q327 Lord Campbell of Alloway: I amgoing to ask also set targets for the Law Society which the Law Ms Manzoor in a moment for her views on this but it Society did not meet, he did not have the power to sounds a bit like a hope fostered out of aspiration. impose any sanctions), I do not think that without There is no real satisfactory basis, is there, for your my powersI would have been able to bring about proposal? 3435523048 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Mr Merricks: I think the new body is going to need to complaints oYce, to be structured in a way that was be set up somewhere somehow. We have given some appropriate and fair both for the profession and for thought to the problems of how this new body would the consumers, the users of legal services. Of course need to be set up. The Bill does not say much about my powers currently, as Legal Services Ombudsman, it, the Bill just simply says there will be. But actually will be transferred to the new OYce for Legal to make a success of it—and this was a point that I Complaints. It will simply mean that the new OLC is think the Lord Chief Justice made—the new body is going to be a larger organisation. I have got concerns going to need first class management, so it is the about how the consumer and the legal sector will management that’s critical, not just the actual react to the Financial Ombudsman who is determination of the legal complaints which will need accountable to the Financial Services Authority to be done by a dedicated staV who are appropriate handling complaints about the legal sector. I think on for that function. They will need to be supported by paper the proposals may well have some attractive a management that has enabled the cases to be elements but the devil will be in the detail. For processed at appropriate speed and with an example, what will be the relationships between FOS appropriate degree of technical ability. All of that I and the OLC boards, the FSA and the LSB boards think is an area in which we could oVer some and, of course, there is also the interesting question of assistance. We are not trying to push ourselves on to the Legal Services Ombudsman being overseen by the an unwilling area. If nobody wants the assistance that Financial Services Ombudsman. There are some real we think we might be able to oVer and if our issues also regarding governance, accountability, suggestion does not commend itself to the Committee reputation of the legal sector and potential conflicts or, indeed, to consumer bodies or to other of interest which of course will all have to be stakeholders then, of course, it need not be pursued. addressed. These are all issues which are very We thought it was right that we should put it forward important and I do not think at this moment, time as an oVer to see whether or not it commended itself and opportunity has been given to consider them to those in this area. carefully. As I have said, I have seen no detailed proposals but I will be very happy to provide any written evidence should you require it once and if Q328 Lord Campbell of Alloway: Thank you. Before these proposals become available. asking Ms Manzoor a question about this, I have to declare an interest as a Queen’s Counsel who is no longer in practice. Could I ask you, first of all, how Q329 Lord Campbell of Alloway: Thank you very you respond to the realities of this situation from much. Is it right, putting it in just a sentence, that your point of view and what lessons of the Financial your view is that the idea is a reasonable idea and one Y has to have it approached with considerable caution? Ombudsman Service and the O ce of the Legal 1 Services Complaints Commissioner, these grand Ms Manzoor: Yes. bodies, can be applied to the establishment of the OYce for Legal Complaints? It is a form of Q330 Michael Foster: First, I have to declare my bureaucracy we are entering into. Can you help us interest as a member of the Law Society with a with this, how it works? practising certificate. I want to ask you a practical Ms Manzoor: I will try my best, my Lord. The issue and that is about the location of the OLC Financial Ombudsman Service proposals are because the Law Society already had the show. It interesting but it is not a model which has been does not always work perfectly but it is there, there is considered or put forward previously and, therefore, expertise, why would we want to reinvent the wheel? it is diYcult for me to make an informed judgment. Can it be improved? I know the CSA is an example However, in my view, other than the fact that the of can these things be improved but can this one be Financial Ombudsman service may have some spare improved? Could we create an OLC? Should it be capacity, I amnot clear why the complaintso Yce for sited where it is or do you feel strongly that it should the financial sector should oversee the complaints be somewhere completely new and diVerent and oYce of the legal sector. If this is to be the route to be elsewhere? travelled then I think there may well be other Mr Merricks: If I start by saying how I would organisations that may be putting forward proposals approach it if we were invited to look at the long-term and I think it would be wrong to consider the FOS operation of the OLC and more particularly at the proposal in isolation. The legal profession has a transitional arrangements which are going to be worldwide reputation and why would they not want needed. Those transitional arrangements, I know their own complaints handling oYce? We currently that the Committee have probed this in some detail have what is considered and what is regarded as an with other witnesses, how are they are going to work? excellent Legal Services Ombudsman’s OYce. I did I would think that it would be crazy to set up the not advocate a self-serving solution, I wanted the new oYce of the OLC anywhere other than in a place system, the Legal Services Board and the new 1 Note from Witness: Yes—caution is required. 3435523048 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Ms Zahida Manzoor and Mr Walter Merricks where it could maximise the opportunity of taking on satisfaction from firms in dealing with matters from the majority of the staV who are doing that work at a central location where we can maintain a degree of the moment, and that is in the West Midlands; on the consistency with the decisions which are made and other hand, the building in which most of them work training of staV as well. That is much more diYcult to is in Leamington Spa. First of all, that building has do in a multi-site situation if you envisage lots of been given a number of labels over its time, and I oYces. think probably in order to start with a new culture Chairman: We have just got about five minutes left. somewhere else it would be important for the OLC to Did you want to ask Ms Manzoor if she had any have a new home. It is also a practical matter comment? actually. I think the labour pool in the Leamington work area has probably been exhausted and, Q332 Michael Foster: I do not know if you have got therefore, it is probably sensible to move it nearer to anything to add to that. It is a pretty comprehensive a bigger conurbation, Birmingham, Coventry, response. somewhere like that. If we were given the task we Ms Manzoor: It is a comprehensive response. I concur would do pretty much what we did in setting up the with much of what Walter has said. It is absolutely Financial Ombudsman Service, we would try and right that the new OLC is situated where there is identify a location, a suitable building and then enough of a pool of people available for the V gradually move the sta , as many of those who could workforce. I think it is absolutely right and proper be moved, and were willing to move, simply because that there are eVective and eYcient systems in place, the show has got to be kept going—you are including IT, as well as ensuring there is suYcient absolutely right. Nobody would want, in this expertise in complaints handling. We must not transitional period—which is going to be very rebadge simply what is currently there, that would Y di cult for the Law Society—to manage, to retain its mean that the last few years that everybody has gone V V existing sta and to recruit any new sta , unless through implementing, consulting, debating and somebody can give them a clear sense of direction. In discussing, will have simply been a waste of time V this transitional period that is what we are o ering as because if we are just going to rebadge what is there a way forward. We could give a clear sense of we could have done that in a much more cost- V direction for the existing sta of the Law Society and eVective way. I think it is right, as Walter says, if you other complaint handling bodies as to what their look at complaint handling, much of complaint future is going to be, where it is going to be, what handling can be done froma central location but if management they are going to work under, what you are wanting to change the culture and you are business process, IT, all the rest of it, is going to be moving to a location that is not too far from needed. All those decisions are, I suspect, urgently Leamington Spa then you have to take that into needed in order to underpin some certainty for the consideration, whether that is Birmingham or, operation of the new scheme. That is what I think indeed, anywhere else. You must think about would be really important, whether it is we who do consumers that are disadvantaged, consumers who that or an early appointment of the OLC board. I are vulnerable, they cannot all read, write or are think those things are going to become increasingly indeed middle-class people who can put forward their pressing. complaints in a way that is understood by all. There must be something within the service delivery which Q331 Michael Foster: Can I just ask, given the two makes access and equity a real central issue for stage system, the casework assessments and so on consumers. and the desirability of more face-to-face work with Chairman: In the three or four minutes which caseworkers, is there an argument for having branch remain, I think we have got one or two more oYces of the organisation to spread it around? There questions and perhaps we can just run through them. will be a head oYce but could more of it be done much more locally? Q333 Baroness Henig: I would like to ask either or Mr Merricks: I do not think so, frankly. Most of this both of you what you think the impact would be of sort of complaint handling work is inevitably going separating the responsibility for handling complaints to be done at a distance, mainly on the papers, mainly frommisconduct? by telephone and other types of communication. You Mr Merricks: Very quickly. That is the model that we would have to have an oYce in every town, frankly, have and it works extremely well and easily. Basically in order to be able to get face-to-face contact, or so the question anybody who is making a complaint is many that I think it would become very diYcult to asked: do you want money or do you think this manage and very expensive as well. I think the practitioner ought to be slapped on the wrist or hung, balance that certainly we have found in the Financial drawn and quartered? Whichever it is, if you want Ombudsman Service is that we can get a high level of money and redress, this is your entry, and if you want customer satisfaction—and a relatively high level of to draw attention to a practitioner who needs to be 3435523048 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Ms Zahida Manzoor and Mr Walter Merricks disciplined in some way then there is a diVerent the potential for conflict and inconsistency and the model for that. It is quite easy for people to risk of complaints falling between two stools. What understand that. do you think of this idea? Ms Manzoor: I think it is an excellent idea, indeed as Q334 Mr Burrowes: I declare an interest as a Legal Services Ombudsman I do have memorandum solicitor with a practising certificate. Concerning the of understanding with, for example, the Immigration appeals fromthe OLC, you both experience Services Commissioner. I do not think it is something respondent’s judicial review applications, I amnot which needs to be legislated for in the Bill. Certainly sure of the numbers to the Financial Ombudsman I think it is a formof good practice because often by Service and the success rate. Perhaps you could the time you put something in the bill and activate reflect briefly on your experiences and the eYciency that process that gap has moved on to something else. of that process and particularly the case you have I see it as a good formof practice, yes, and I think been making for an internal review stage. memoranda of understanding are a very good way Ms Manzoor: I think it is absolutely essential that forward. I think, indeed, our two oYces2 work closely there is an internal appeals mechanism within the together where the solicitors have been involved with OLC that is independent of the original decision. selling endowment policies or giving advice in that This year as Legal Services Ombudsman I have dealt area, so we work closely together. I think that is with just over 1,900 cases that have been dealt with by absolutely right and appropriate as a model of a good a legal professional body first. Therefore, potentially, way of working. all those 1,900 cases that have been referred to me Mr Merricks: Between the Ombudsman and the could, if we did not have the Legal Services regulator I think it is really important that there is Ombudsman, be referred for judicial review. Out of such a memorandum, particularly for the cases that those cases I have had eight cases go to judicial review at first blush may not appear to the Ombudsman to and each one of those cases on average cost just under have any wider or regulatory implications but £6,000. I hasten to add all were successfully defended, gradually you see that perhaps they do. Then it is in fact the Legal Services Ombudsman was awarded really important that the regulatory bodies are over £12,000 costs. If you did the maths you would capable of being brought in. We have put in place a find that £12 million may well have to be made transparent structure for that so that where regulated available to the OLC for judicial reviews if we did not bodies or consumers think the Ombudsman is about have an internal review mechanism of the first to deal with something which really ought to be dealt decision made by the OLC. with by the regulator, or oversight of the regulator Mr Merricks: Just to say that is the model that we ought to be attached to it, then that can happen. That operate. The first decision is made, a provisional was a result of a Treasury review of our scheme which decision, and then there is an appeal against that if I think has been very widely welcomed by the people want to make it. But only 10 per cent of people stakeholders in our scheme. I think it has proved a want to make that further move. useful addition to it. Chairman: Thank you very much indeed. That has Q335 Mr Kidney: I declare an interest as a non- been exceedingly useful and you have given us a lot practising solicitor. Zahida Manzoor, we had to think about. We would like to thank you both for suggested to us that the OLC and the LSB should coming to give evidence. enter into memoranda of understanding with other 2 Note by Witness: Referring to the oYce of the Legal Services regulators or complaints bodies in order to minimise Ombudsman and the Financial Ombudsman Service.

Supplementary memorandum by Financial Ombudsman Service (Ev 18a) Introduction This supplementary memorandum is submitted on behalf of the Financial Ombudsman Service (FOS) following: (a) the Minister’s evidence to the Committee on 26 June and her request that the Committee assess our proposal and (b) Lord Falconer’s announcement on the same day of the location of the OYce of Legal Complaints (OLC) service. In the context of our oral evidence to the Committee on 19 June and the subsequent comments of other witnesses we feel it may be of assistance to the Committee for us to provide a brief supplementary memorandum that provides more detail on how the OLC service might work and the role we could play if wished. 3435523049 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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AUnified Service in Practice

In response to questions from the Committee we confirmed during oral evidence that we supported the option of basing the OLC service in the West Midlands. We therefore welcome the Lord Chancellor’s announcement. This decision confirms the importance of securing the independence of the new service, establishing a new customer focused culture and providing if practicable for an early transition to the new service. Bringing together the OLC service and FOS would assist in this. A unified service would have access to better resources and would benefit fromthe economieswe described in our in itial evidence to the committee. In practice, it seems likely that caseworkers and ombudsmen would concentrate on one sector or another, much as our present staV concentrate on specific financial service product areas. But the caseworkers would benefit from common systems, corporate management and support services. In this way joint working would secure valuable benefits and economies for complainants and practitioners. For example our outreach programme to consumers and their representatives, work with practitioners on complaint avoidance and management information systems could all be adjusted for use with good eVect in the legal services context. In addition to these added value services, a single point of entry for consumers with legal and financial complaints would provide an important additional safeguard for consumers/clients of ABS. Service complaints could be readily referred by the unsatisfied customer to a single service, leaving the ombudsman to resolve in accordance with the detailed regulatory provisions how the matter should best be resolved or which regulator should be involved should that be necessary.

Governance Issues

The draft Bill sets out governance arrangements for the OLC (sections 92–94 and schedule 13). As noted these closely mirror the arrangements for the FOS under the Financial Services and Markets Act. We very much agree that it will be essential for the new OLC to have strong links with the LSB and the front line regulators and indeed with the wider profession itself. In particular the LSB will have a proper interest in the operation and funding of the OLC. Similarly the OLC will present its report to DCA Ministers and through themto Parliament. At the same time the FOS will of course need to retain similar links and accountability to the FSA and the wider financial services sector for the handling of financial services complaints. It is not a feature of our proposal that the FSA should have any responsibility for legal services complaints (nor indeed that the LSB should have responsibility for financial services complaints). Similarly on funding it will be necessary to retain two clear funding streams that allocate costs in an open and accountable way between the legal and financial sectors and ensure that the benefits and costs savings we see in our proposal are shared equitably between the sectors. There should be no scope for one sector subsidising another. If our proposal was endorsed as worth of further consideration then the precise structural arrangements for the service would need further consideration. But the importance of retaining those distinct lines of accountability for legal services complaints whilst also providing for a strong and independent ombudsman service will need to be borne firmly in mind. The governance of the schemes are matters for Government and Parliament to determine but it appears to us at first sight that there are a variety of structures that might in principle be considered. It might be helpful for the various structural options to be assessed against the extent to which they would: — provide clear and distinct lines of accountability to the two sectors; — be understood by and command the support of consumers/clients and practitioners in both sectors; and — enable the eVective management of operation of the unified service so as to secure the best economies of scale and scope. Whilst some options might require adjustments to be made to the legislative framework for the schemes, such considerations will only need to be considered if the Committee sees potential benefit for customers in our proposal for a jointly operated service. 3435523050 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Supplementary memorandum by the Legal Services Ombudsman for England and Wales and Legal Services Complaints Commissioner (Ev 20a)

Introduction The Legal Services Ombudsman (LSO) and Legal Services Complaints Commissioner (Commissioner), Ms Zahida Manzoor CBE, submitted written evidence to the Joint Committee on 14 June 2006 for consideration as part of its pre-legislative scrutiny of the draft Legal Services Bill. Ms Manzoor was also called to give oral evidence to the Joint Committee on 19 June 2006. This supplemental memorandum, submitted to the Joint Committee provides further views fromthe LSO and Commissioner on the complaints handling aspects of the draft Bill, particularly in light of the Government’s announcement on 23 June 2006 of the decision to locate the new OYce for Legal Complaints (OLC) in the West Midlands.

Supplementary Information

The Office for Legal Complaints 1. The Joint Committee will be aware that the Government announced on 23 June 2006 that the preferred location for the OYce for Legal Complaints is the West Midlands. I refer the Committee to views expressed in my written evidence (paragraphs 7.1 & 7.2) and to views given in oral evidence with regards to the importance of the independence of the OLC, the dangers of re-badging and the need to restore consumer confidence in legal complaints handling. 2. I must re-iterate that I am supportive of the Government’s aims and objectives for complaints handling as expressed in the draft Bill. However, I believe that the decision to locate the OLC in the West Midlands, in close proximity to the Law Society’s Consumer Complaints Service (CCS), will compromise those objectives. 3. If the OLC is based in the West Midlands, it is likely to have as the overwhelming majority of the organisation, the current staV and management of the Law Society’s CCS, which is based in Leamington Spa. The Government has informed all the organisations currently involved in complaints handling that TUPE will be applied to the transfer of their staV. In reality this will simply lead to a relocation to new premises of the Law Society’s CCS, as staV employed in other complaints handling organisations such as the Bar Council and the OYce of the Legal Services Ombudsman (based in London and Manchester respectively) are unlikely to be able to transfer to the West Midlands. Therefore, the current Law Society CCS culture will dominate the OLC. 4. Apart from a perception of re-badging that some may form, there are performance issues relating to the current Law Society CCS, which are a cause for concern. As Commissioner, I have recently announced a penalty of £250,000 on the Law Society for failing to submit an adequate Plan for complaints handling for 2006–07. As Commissioner I am also considering whether the Law Society handled complaints in accordance with its complaints handling Plan for 2005–06. 5. Until the Law Society’s own CCS can show that its complaints handling is at least at an eVective and eYcient level, the decision to locate the OLC in the West Midlands, allowing for a wholesale transfer of the CCS’s current staV, management and culture, seems premature and indeed may be very costly. 6. The Government’s plans to create the OLC will involve incurring around £27 million in start-up costs, where there is no evidence, that if based on the Law Society’s CCS, that this will deliver a more eVective service than currently exists. 7. Consumers would lose the independence and excellent performance of the Ombudsman’s OYce and the quality of the complaints handling service oVered by the Bar Council (the body handling the second largest number of complaints). If the decision on a West Midlands location for the OLC proceeds, I can begin to understand why the Bar Council proposes that those organisations that are authorised by the Legal Services Board as being competent to handle complaints about their members should retain their ability to do so. However, this will mean that the Law Society CCS becomes the OLC, the Bar Council retains its own complaints handling, therefore what has changed? What has the £27 million expense achieved? 8. It is my belief that the announcement of the OLC’s location in the West Midlands poses questions about whether this would merely be change for change sake and not deliver the anticipated level of consumer or legal practitioner benefits. I have grave concerns and consider that there are too many unresolved questions at this stage, for it to be prudent to move forward with this aspect of the reforms. As stated in my oral evidence to the Committee, if this is merely to be an exercise in re-badging, it can be done in a much more cost-eVective way. 3435523050 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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Internal appeals mechanism for the Office of Legal Complaints 9. I would like to clarify, if I may, a point raised in oral evidence and in my written evidence to the Committee (paragraph 7.7) with regard to an internal review mechanism for the OLC. It is my view that the OLC should have within its organisation, provision for a review mechanism that is demonstrably independent fromthe first decision made on the complaint. It would be desirable that this review section of the OLC is located separately and apart to ensure an impartial and objective view of the first decision. The statutory oYce of the Legal Services Ombudsman currently fulfils this role. 10. I believe that the decision that is the outcome of the review should then be final and binding on the practitioner and on the consumer (if they accept that decision). That would leave the Judicial Review route still open to the consumer, but I would hope that its use would be infrequent. 11. I envisaged that the process would operate much as it does within the Financial Ombudsman Service (FOS) and that in eVect the OLC Chief Ombudsman (employed on terms that would preserve their independence) would provide suYcient scope for internal review. 12. A number of other witnesses to the Committee have expressed concerns regarding Article 6 of the European Convention on Human Rights. As a non-lawyer, I would think that other witnesses are better qualified to determine the extent of the OLC’s compliance with that legislation.

Complaints and Misconduct 13. A question asked of my co-witness at the oral evidence session, but that there was not time for me to answer, related to the separation of responsibility for handling complaints frommisconduct.I would like to briefly address that subject here. 14. I support the draft Bill, in that the OLC has the ability to look at all aspects of a complaint and therefore can deal holistically with it. However, consumer complaints can have intertwined within thema mixtureof the need for redress and a need for disciplinary investigation about the practitioner. 15. Clearly where misconduct is evident, the responsibility regarding any disciplinary action will fall to the Frontline Regulator (FLR). 16. The OLC will be closely identified with all legal complaints, it is therefore important that the OLC oversees the timeliness and outcome of conduct cases referred to the FLRs. The OLC will want to protect its own reputation by ensuring that any disciplinary action through misconduct is dealt with by the FLRs eVectively and without undue delay. 17. It is right that the OLC can make reports to the Legal Services Board (LSB) where it feels there are diYculties with the FLRs dealing with misconduct issues appropriately and the LSB should be prepared to ask searching questions of the FLR if this is the case. 18. In my view it is also important that the OLC should use the information it gains fromcomplaintsto help to improve the overall customer service delivered by lawyers. The OLC needs to have an industry education role.

Appointments to the Legal Services Board 19. In oral and written evidence I addressed the Committee’s questions regarding who should appoint the LSB Board and Chair. My written evidence also addresses the issue of who should appoint the OLC Chair and Chief Ombudsman. I would like to add to my previous responses that regardless of who makes the appointments, it is my view that interim or shadow appointments of at least the LSB Chair and Chief Executive should be made as soon as possible. Direction, leadership and high level programme management are needed at the earliest opportunity in order to ensure the best possible implementation of the Government’s reforms.

The powers of the Legal Services Board 20. I would refer the Committee back to views expressed on this matter in my written evidence (particularly paragraphs 4.3 to 4.5 inclusive). It is important that the LSB is given suYcient powers to take appropriate action where a FLR is failing. 21. These powers need to be proportionate, graded according to the severity of failure and importantly, need to include access to evidence. As stated in response to the Committee’s questions during oral evidence, my powers as Commissioner have brought about change. I doubt that change would have manifested itself in the professional body without a Commissioner with those powers having been appointed. 3435523050 Page Type [O] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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I hope that the Joint Committee finds this additional information helpful to its scrutiny of the draft Bill. Zahida Manzoor CBE Legal Services Ombudsman for England and Wales Legal Services Complaints Commissioner 12 July 2006

Memorandum by the LawSociety Consumer Complaints Board (Ev 68)

Introduction 1. The Consumer Complaints Board (CCB) welcomes the provisions in the draft Legal Services Bill setting up for OYce for Legal Complaints. As we said in our response to the White Paper, a successful OLC will be a key component of the new regulatory framework, as it will be the primary interface with consumers. 2. We also said in that response that in our view a successful, risk based complaints handling service will have a range of functions: (i) the swift and fair resolution of individuals’ complaints about solicitors; (ii) the provision of information and guidance to consumers about what to expect fromsolicitors; (iii) trend analysis to educate solicitors and raise standards of consumer service; (iv) analysis to informthe developmentof policy on standards, rules of pr ofessional conduct and compliance activity; and (v) a suitable framework to identify and respond appropriately and eVectively to consumer detriment. 3. The Board has considered the draft Bill in the light of whether the provisions will deliver an OLC that can provide these functions. We have a number of concerns: — The ambit of the proposed ombudsman scheme is not clear. There is a lack of an explicit statement of purpose, to guide those subsequently drafting secondary legislation or rules to achieve the purposes of the scheme. This is particularly important as the draft Bill contains no definition of who will be eligible to complain to the OLC, or who it is there to help. — The wider role of the OLC, beyond individual complaints handling, should be made more explicit. In particular, we are thinking about the role of the OLC to educate and assist consumers. — Equally, we do not feel that the draft Bill suYciently recognises a role for the OLC to use the information it has to educate lawyers and help approved regulators raise standards of service and provide regulatory solutions to the causes of complaints. There is an important role both for the OLC and approved regulators to develop a free flow of information between them. In particular the OLC, where it sees possible new forms of consumer detriment must be able to have eVective dialogue with approved regulators to find the right approach to solving the problem, and to report to the LSB if the regulator has, in the OLC’s opinion, not adequately or eVectively responded to prevent further such consumer detriment. — We consider that enforcement mechanisms should be available directly to the OLC with less emphasis on enforcement through approved regulators, or by the individual consumer. This applies both to the enforcement of requests or directions for information, and in relation to the payment of compensation awards. — We believe that the current draft Bill contains what we assume are erroneous provisions which we believe will operate against consumers’ interests. These relate in particular to the financial powers of the OLC and the liability of employers for acts or omissions of employees.

Ambit of the Scheme 4. Clause 92(i) states that the draft Bill provides for a scheme under which “certain disputes” may be resolved quickly and with minimal formality by an independent person. However, no further guidance is given in relation to what type of disputes should fall within the ambit of this scheme beyond the fact that the complainant wishes to have the complaint dealt with under the scheme, is not ineligible and that the complaint is not excluded from the jurisdiction of the scheme by scheme rules. We consider that this gives little clarity or guidance to the OLC in developing the focus of its work. 3435523051 Page Type [E] 31-07-06 10:23:55 Pag Table: LOENEW PPSysB Unit: 1PAG

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5. We support the fact that the scheme should be flexible, but too wide an ambit will cause diYculties. In general, ombudsman schemes exist to provide a quick and informal alternative to legal proceedings, in particular where there is some imbalance in the relationship between service provider and consumer and where the delivery of a poor service may cause distress and inconvenience for which redress would not be readily available through the courts.

6. The Regulatory Impact Assessment report (paragraph 6.38) is based on the assumption that the “underlying nature and volume of complaints . . . would not be substantiallydiVerent” and throughout refers to redress being available for “consumers”. This is not reflected in the draft Bill. The Law Society’s current complaints system, and we believe those of other legal service regulators, provides redress, broadly, to those who have received services fromtheir lawyers. The Bill focuses on the natu re of the complaint rather than the relationship of the complainant with the service provider. This is a shift fromthe current approach and could lead to increased workload, unless the scope of the scheme is better defined.

7. It is interesting that although the draft Bill (Clause 154(i)) defines “consumers”, the word “consumer” is not used in Part 6 of the draft Bill. The word “complainant” is used. We may have some concerns about the definition of consumer (which we believe is that used in the Financial Services and Markets Act) but at least it gives an indication of who the scheme is intended to help.

8. The reason we are concerned is because of the distinct nature of legal services from, for example, financial services. It would be extremely unlikely that a third party, remote from the provision of services by a financial services provider would make a complaint against that provider. We do not believe that the Financial Ombudsman Service would deal with such a complaint if it were made. However, it is in the nature of legal services that third parties—such as opponents in litigation—who have no relationship with the legal services provider can be aVected by their actions. This will often be in circumstances where there is no duty owed by the legal services provider to the third party, either in law or conduct. We do not believe that it was the intention of the drafters of the Bill to give the OLC a jurisdiction extending far beyond the boundaries of the current consumer complaints schemes (although we do agree that there should be some flexibility).

9. We think that it was probably the intention of the drafters that scheme rules could allow for the definition of an “eligible complainant”. However, we are concerned that there may be a nice legal argument as to whether “excluding complaints of a specified description from the jurisdiction of the ombudsman scheme” (105(5)(a)) could be interpreted to allow for rules which in eVect exclude particular types of complainant from the jurisdiction of the ombudsman’s scheme, particularly where Clause 102(3)(c) appears to give the power (only?) to the Secretary of State to prescribe a person, or class of persons as ineligible.

10. We consider that in line with other ombudsman schemes, it should be possible, for the scheme rules to exclude complaints made by businesses above a certain size. It would be highly desirable if the Bill were to indicate that the scheme is set up to provide speedy access to redress to consumers who might otherwise suVer hardship but, in any event, we believe the OLC should be empowered to make rules, after consultation, to refine the ambit of the scheme.

11. We believe that any unplanned increase in the number and nature of complaints which arises fromthe lack of definition which we have identified might work against the interests of those on whomthis schemeought to be focused: consumers who need a quick and informal resolution to their complaints about those who have provided themwith legal services, and who could not reasonably be expecte d to have recourse to alternative legal remedies.

Role of the OLC to Educate/Assist Consumers

12. Apart fromClause 92, requiring the OLC to, so far as is reasonably pract icable, act in a way which is compatible with the regulatory objectives, there is little reference to the OLC’s role in proactively providing information and guidance to consumers about what to expect from solicitors and on how to make a complaint. We think that the lack of explicit reference to this role may lead to a statutory scheme that is inward focused and solely concerned in dealing with individual complaints. While that is important, it would be a sad waste of the experience and knowledge that the OLC will gain were it to be its only role. 3435523051 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Role of the OLC to Educate Lawyers and Assist Approved Regulators to Raise Standards of Consumer Service and Avoid Consumer Detriment

13. While the draft Bill provides satisfactory gateways for the sharing of information, specific provisions relating to the relationship with approved regulators are narrowly concentrated on requiring information in the formof reports fromapproved regulators in cases where there has been a referral by the OLC in relation to an individual case. The OLC has an important role in providing information to approved regulators on the causes for complaints, and information on the volume of complaints relating to specific firms so that the regulator can consider appropriate action where there is concern about the competence of such firms (whether or not there are any specific allegations of misconduct). It is important to provide for a two-way free flow of information between the OLC and approved regulators to assist each in discharging their diVerent but complementary functions. This will support the legitimate expectation that the OLC would have to receive information from regulators about action they are taking in response to information provided.

14. The Board can see that there is some force in the concerns expressed in the Law Society’s preliminary submission that there is some muddying of the roles of the OLC and approved regulators. We would anticipate a healthy relationship with approved regulators who will recognise that the OLC has vital information to assist them in their role. The OLC should develop memoranda of understanding with the approved regulators to ensure that it can have eVective, informed discussions with them about individual firms or new forms of consumer detriment that the OLC may be the first to notice. We would expect those memoranda of understanding to allow the OLC to make strong suggestions where it has particular cause for concern about consumer detriment, but we recognise that it is the role of the approved regulator to take appropriate action in line with better regulation principles. The current draft Bill provides for reports to the Board on individual cases. There is a need to extend this reporting power to cases where the OLC has identified broader issues of consumer detriment than those occurring in one-oV cases, and where, despite the exchange of information with the regulator, there still exists the risk of consumer detriment and regulatory gaps which may require changes in regulation.

Enforcement Mechanisms

15. Because we do believe that the primary roles of the OLC and approved regulators are diVerent, we do not believe that it would be in the interests of consumers for the OLC to rely on approved regulators enforcing decisions, or for consumers to have to enforce decisions personally through the courts. We believe that the OLC should have the widest range of enforcement mechanisms possible itself.

16. The OLC should be given a wide range of powers it can choose to use in various circumstances to assist consumers and/or encourage compliance. This should include being able to make payments itself to consumers in some circumstances and to have the power to recover those payments from solicitors through the courts. Having the right to publish the names of those who do not comply with the OLC’s directions will encourage compliance. Enabling powers should be provided to the OLC so that it can publish the outcome of complaints, but the OLC should be free to make its own policies and rules on the extent to which it is necessary or appropriate to use such powers.

Possible Errors

17. Clause 110 in limiting the total amount of redress to £20,000, puts consumers in a worse position than they might be under existing schemes. In the current Law Society scheme, the power to reduce a bill is not taken into account in relation to the current limit of £15,000. There have been circumstances where the reduction in the bill (for example, where the poor service has resulted in the consumer receiving no service) has exceeded the limit, and an award for distress and inconvenience has been made as well. We think the limit should apply to compensation only, and should not include the reduction of costs, or the costs of rectification.

18. Clause 103 is, we believe, included in error as the result of a misconception. Where consumers have suVered poor service froma legal service provider it would be quite wrong for t hemto be denied redress simply because the breach has been caused by an employee acting in breach of the firm’s procedures. 3435523051 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Appeals 19. The OLC’s procedures will have to be compliant with the Human Rights Act as a matter of law. We do not believe that the legislation should lay down any specific appeal mechanisms.

Prescriptive Requirements 20. We don’t understand why the draft Bill only allows OLC Board members to sit on its committees and sub- committees. We think the Board should be free to make the choice for itself. 21. Similarly, we believe the OLC should be tasked with appointing as Ombudsman those who have appropriate skills. In excluding lawyers from appointment as ombudsmen, the draft Bill fails to recognise that the OLC’s Board will be an independent body with a majority of lay members. This exclusion would have the perverse eVect of denying the OLC access to a source of legal knowledge and adjudicatory experience that it is likely to need to undertake its role eVectively, and that almost every other ombudsman scheme finds useful.

Location 22. We said in our response to the White Paper that there would be a risk to consumers if a gap in service opened up as a result of the transition to the OLC. This will be minimised if advantage is taken of the considerable investment in consumer complaint handling in recent years. The current workforce is consumer focused, and has the knowledge and experience to deliver transition with minimum additional disruption to consumers. It is possible to take full advantage of this experience if the location is within the West Midlands.

Cost 23. The Regulatory Impact Assessment assumes that there will be significant cost savings for complaints- handling as a result of the transition to the OLC. There is nothing in the Bill that would reduce the processing time that currently exists in the CCS, and there are additional functions proposed, regarding information exchange with regulators and educational information for consumers. On that basis, the assumption of significant cost saving is questionable. June 2006

Memorandum by the LawSociety Regulation Board (Ev 67)

Summary 1. The Law Society Regulation Board welcomes the publication of the draft Legal Services Bill, and supports the principles of regulation upon which it is based. 2. The Regulation Board particularly supports the following elements of the Bill: — the reference to the duty to have regard to better regulation principles; — the creation of an overarching Legal Services Board, to harmonise the existing patchwork of supervisory arrangements now in place in relation to the provision of legal services, and to provide a proportionate quality assurance role; — measures to permit new forms of legal business such as Legal Disciplinary Practices, including non-lawyers as partners or owners, and Multi-Disciplinary Practices; and — the establishment of a new OYce for Legal Complaints, wholly separate from approved regulators, to deal with consumer complaints about lawyers. 3. The Regulation Board considers that the Bill needs to be amended as follows, if the objectives of the Clementi reforms are to be realised: — there must be greater clarity about how professional bodies that are also approved regulators should ensure the separation of representation and regulatory functions. Existing and potential approved regulators should not have to second guess what might or might not be adequate separation; — the provisions setting up the LSB are over-elaborate, compromising the LSB’s role as a quality assurer of regulation and potentially turning it into a front-line regulator. The Bill concentrates too heavily upon the LSB’s role in relation to individual regulators, and omits the LSB’s vital function of providing horizontal analysis and appropriate harmonisation of the sector as a whole; 3435523052 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— the Regulation Board is keen to become a regulator of alternative business structures, but considers that the provisions in the draft Bill require substantial amendment to avoid the significant pitfalls of creating an unnecessary separate regulatory regime; — the Regulation Board supports the concerns of the Law Society on whether the draft Bill appropriately defines the relationship between the OLC and approved regulators; and — the Regulation Board stresses the need for the Bill to contain an additional schedule amending the Solicitors Act 1974. The Regulation Board needs modernised regulatory powers to protect consumers and promote high standards. The existing statutory provision is deficient.

The Regulation Board’s Comments on the Draft Bill

The Regulation Board

4. The Regulation Board is responsible for all the Law Society’s regulatory activities except for consumer complaints. All members of the Regulation Board were appointed on merit under Nolan principles—rather than elected—and nobody can serve simultaneously on the Council of the Law Society and on the Regulation Board. 5. The Regulation Board was established by the Law Society to separate its representative and regulatory responsibilities, as far as legally possible, and to ensure that there is no improper representational influence on regulatory decision making. The separation of such functions was a key element of Sir David Clementi’s report.

Preliminary submission of the Law Society

6. The Regulation Board has seen the Preliminary Submission from the Law Society to the Joint Committee and broadly supports the thrust of that submission.

The separation of regulatory and representative functions within an approved regulator

7. The need for the proper separation of regulatory and representative functions within an approved regulator was an essential feature of Sir David Clementi’s report. The Regulation Board’s existence demonstrates that the Law Society has already made substantial progress on this. However, in contrast to the over-elaborate intervention provisions (discussed below), we consider that the Bill is inadequate in promoting appropriate and transparent separation of functions. 8. It is true that Schedule 5 Part 2 requires the LSB to make rules requiring it to be satisfied that various bodies applying for authorisation to become an approved regulator have arrangements to ensure that the regulatory functions are not prejudiced by any representative functions. However, those provisions do not appear to apply to existing regulators listed in Part 1; nor do they require the LSB to formulate and publish criteria. Approved regulators are therefore in a position that they will not know, perhaps until a direction is made under Clause 25, that their arrangements are deficient; while potential regulators may be uncertain about how to formulate their proposals. 9. The Regulation Board wishes to ensure that its relationship with the Law Society, and in future its relationship with the Legal Services Board, will satisfy requirements for separation. Other front line regulators are likely to require the same clarity. The Regulation Board considers that the Act should specify the minimum criteria which the LSB must take into account in being satisfied that there are eVective arrangements to prevent improper influence, and that these should include: — that all regulatory rule making and decision making is wholly delegated to a separate regulatory body and that any body with a representative function should have no concurrent powers; — provisions to ensure that the regulatory body may raise the funds it requires to regulate. Representative bodies should have the right to make representations to the LSB if they consider that the regulatory body’s expenditure is excessive, but should not have a power of veto; — that the membership of the regulatory arm of a front line regulator should be appointed independently, and must not include members of the representative arm; and 3435523052 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— that the regulatory body should be able to deal directly with the LSB, OLC and other approved regulators without having to direct those communications through any body with representational functions. (This would preserve the principle that regulatory functions should not be improperly influenced by representative ones, and free the representative arms of front line regulators to exercise their proper role in making representations both to the regulatory bodies and to the LSB.) 10. The Regulation Board would prefer these criteria to be set out on the face of the Bill, to allow all current approved regulators to know what arrangements to put in place as far as possible in advance of the setting up of the LSB. Alternatively or additionally, the LSB could be required to consult upon and publish its own criteria in relation to separation, at an early stage.

Provisions relating to the Legal Services Board

11. The Regulation Board welcomes the LSB as a supervisory regulator to provide quality assurance, consistency and harmonisation where required across the legal services field—in the public interest. We consider that this primary role has become submerged in the draft Bill beneath provisions which focus on the LSB’s default powers, powers which it should only need on a temporary basis when the action or inaction of an approved regulator risks seriously undermining the regulatory objectives. 12. New statutory bodies inevitably take their lead fromthe legislation s etting themup. We would like to see more emphasis on the LSB’s positive role, seeking to encourage and share best practice through mediation and facilitation, with simplified powers of direction and enforcement as a fail-safe measure. 13. In the draft bill, the LSB is required to consult with approved regulators only when it is about to exercise a quasi disciplinary power. We think there should be a general provision, such as Section 8 of the Financial Services and Markets Act 2000, giving the LSB a general duty to make and maintain eVective arrangements for consulting approved regulators and practitioners. 14. It would be helpful if, in addition to the duties specified in Clause 3 of the Bill, the LSB could be placed under an explicit duty to keep under review the state of the legal services market as a whole, and the rules, regulations and methods of the FLRs. This would enable the LSB to identify best practice and inconsistent practices that hamper the market—tasks which it is uniquely well-placed to undertake. 15. The Regulation Board considers the intervention powers of the LSB to be over-complex and unnecessarily heavy-handed. Given the LSB’s power to go to the High Court to enforce directions, and its ultimate power to recommend the removal of a regulator’s approval, the provisions for financial penalties appear unnecessary and perverse. 16. While we recognise that the LSB will need default powers, requiring it to intervene and take on direct regulatory powers, we think this should only be in emergencies and for the shortest time possible, as we consider that the LSB’s role as quality assurer would be compromised by giving it activities as a front-line regulator. We are also concerned that the LSB’s powers of partial deauthorisaion of an FLR could lead to serious confusion and loss of credibility in the regulatory system. 17. The Regulation Board believes that some of the provisions relating to the LSB are unnecessarily prescriptive, may significantly add to the start-up costs of the LSB, and may cause some delay to its start-up. Examples include the requirements in Clause 41, which appear to be over-prescriptive given the provisions in Clause 3 which in eVect require adherence to better regulation principles, including transparency. We consider that the “must” in this clause could be replaced with “may”. 18. We are particularly concerned that the definition of “regulatory arrangements” is too wide. This could significantly add to the workload of the LSB and have a significant impact on approved regulators’ ability to flex and change their processes. The words “any other arrangements” should be deleted fromClause 16(i)(h) for the reasons set out in the Law Society’s preliminary submission. 19. We are concerned that the Bill, through the role of the LSB and the regulatory objectives, focuses only on the provision of legal services in the UK. The Law Society regulates significant international firms. The genesis of the Bill lies in a review relating to competition in the provision of legal services. There is no mention, as there is in the Financial Services and Markets Act 2000, to the fact that the LSB should have regard to the international character of the legal services market and the desirability of maintaining the competitive position of the United Kingdom in its functions. We think there should be. 3435523052 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Licensing regime for alternative business structures

20. We strongly support all the comments made in the Law Society’s preliminary submission on alternative business structures. The Law Society has already produced detailed proposals to the DCA on how the Law Society’s powers should be amended to allow the Regulation Board’s powers to apply to alternative business structures. We are also working on more detailed proposals which we will submit to the DCA on how the current draft provisions could be amended to allow existing approved regulators to regulate alternative business structures under their own rules and powers approved by the LSB, without the need for an unwieldy, complex separate licensing regime. 21. It is more eVective for a regulator to regulate under a single set of powers. The Regulation Board starts fromthe proposition that ABSs are not in principle very di Verent fromcurrent modelsfor the delivery of legal services. While our powers are limited by aged statute, other regulators (such as Licensed Conveyancers) already have more flexibility and regulate ABSs under one set of powers. 22. Our own experience fromregulating around 10,000 practices is that the re is increasing mobility in the profession. Firms change their make up from year to year. We see one of the most likely forms of ABS to be a relatively traditional solicitors’ practice wanting to make a non-lawyer business/finance/practice manager a partner or director. A non-lawyer practice manager may readily be replaced by a legally qualified one, or vice versa. If there are two licensing or authorisation regimes we would have to develop complicated transition provisions to transfer one to the other in those circumstances—or the firmwould just simply cease to be authorised. This could be anti-competitive if as a result it tends to restrict mobility. 23. If a firmmovesin and out of di Verent regulatory regimes, and each regime has slightly diVerent powers, that can lead to regulatory gaps and challenges to regulators’ actions. A small example on the face of the current draft Bill relates to intervention powers. The draft Bill does not allow for an intervention without notice, even on grounds of suspected dishonesty. This is something the Law Society does relatively frequently but, on the current proposal it would not be able to do so in relation to a licensed ABS. 24. The principles we think should apply are: — Approved regulators should be able to regulate ABSs through the use of their own powers. A separate licensing regime is therefore only necessary (if at all) to enable the LSB to become a licensing body (as a matter of emergency) if no other approved regulator seeks to regulate ABSs. This should be clear on the face of the statute. — The rules of approved regulators relating to the regulation of ABSs will need LSB approval. The Act could set out provisions (similar to those in Schedule 12) stating what the rules of all approved regulators must cover and any other factors of principle that the LSB must bear in mind before approving an approved regulator’s rules relating to ABSs. 25. We also believe that some of the provisions in Schedule 12 are over-prescriptive. While we fully understand the thinking behind the requirement to have a HOFA and a HOLP we think that the LSB should be required to make rules defining the circumstances in which ABSs require a HOFA or a HOLP, rather than the requirements being set out in primary legislation. That would allow for greater flexibility moving forward and would allow the LSB through its rules to accommodate the many diVerent types of businesses providing legal services that might arise. Large firms have branches or international networks, and sometimes distinct divisions dealing with diVerent areas of work. In those circumstances, it might be more appropriate to have a number of heads of legal practice rather than one. A less prescriptive primary legislation with a clear requirement on the LSB to make rules in relations to HOLPs and HOFAs would be wiser.

The relationship between the OLC and approved regulators

26. We support the Law Society’s preliminary submission on the relationship of the OLC and approved regulators. The Regulation Board believes that the OLC should be given all the powers it needs to enforce its powers directly in relation to the provision of information and the enforcement of awards. 27. Requiring the OLC to refer matters to an approved regulator for further enforcement action, rather than taking enforcement action itself, will cause unnecessary delay for consumers. The OLC needs suYcient powers to both enforce and/or encourage compliance with its directions. 3435523052 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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28. We consider that the thrust of the provisions relating to the OLC’s role diminishes an aspect of Sir David Clementi’s report, which envisaged a more positive free flow of information between the OLC and approved regulators. His report recognised the importance of the information that would be in the hands of the OLC above and beyond enforcement issues arising in individual cases.

29. EVectiveness can be impaired if functions are confused. The OLC’s role should be clearly defined as providing speedy and informal redress to consumers who have suVered frompoor legal services. In addition, it should have a role which ensures that it shares the valuable information it has with all approved regulators.

30. The draft Bill appears to ignore this vital role of the OLC. The free flow of information is also something that will ensure that approved regulators work in partnership with the OLC rather than, as clauses 114, 117 and others suggest, under some sort of separate supervision by the OLC.

Amendments to the Solicitors Act 1974 (as amended)

31. The Regulation Board understands that the Law Society has been actively seeking amendments to the Solicitors Act powers since at least 1991. The Society has submitted detailed proposals to the DCA on those amendments to the Solicitors Act which are required to allow the Regulation Board to improve eYciency and eVectiveness of its regulatory activities.

32. The amendments are needed to: — remove unnecessarily prescriptive details that are currently in primary legislation. The detail should be taken out of primary legislation and be made subject to a rule making power—such rules to be approved by the LSB. As examples, provisions relating to the issue of practising certificates and the requirements for accountants’ reports, etc, are overly prescriptive and prevent the Society from changing its procedures to become more eVective and eYcient and in line with modern conditions of practice; — allow the Society to develop regulatory powers that apply to the entity providing the services as well as to individual solicitors. Sir David Clementi’s report recognised that entity based regulation was required in order to allow for the regulation of ABSs. By imposing certain regulatory requirements on the entity rather than individual practitioners, regulators can deliver more eYcient, eVective and proportionate regulation; and — give the Regulation Board up-to-date powers. New regulators have more modern regulatory powers in particular relating to inspection and enforcement activities. The current Solicitors Act sets the regulatory tools available to the Regulation Board as those seen as being appropriate thirty years ago, with some improvements being made in the Access to Justice Act 2000. More is required to allow the Society the power to cope with new challenges to regulators (money laundering, etc) as well as to develop powers to enable it to properly regulate alternative business structures and non-solicitors without having to rely on a separate set of powers.

As we have indicated, detailed proposals on all of these have been submitted to the DCA. We understand that the Government is minded to include these provisions in the Bill, but await confirmation. The Regulation Board does not consider that any of its proposals are controversial and, in the future, these and all such new powers will be subject to the supervision of the LSB, as well as the courts.

Technical amendments

33. The provisions relating to reserved activities in current legislation are complex. The draft Bill has made a valiant attempt to make sense of these and to provide for appropriate transitional arrangements. However, we have noticed a number of technical points which we will separately draw to the attention of the DCA as we do not believe that they represent significant policy issues for the Joint Committee, save that it is important to get it right. The Bill should take the opportunity to clarify and simplify the provisions so that businesses and individuals know what they are permitted to do with or without authorisation. June 2006 3435523053 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Examination of Witnesses Witnesses: Professor Saggar, Law Society Consumer Complaints Board and Mr Peter Williamson, Law Society RegulationBoard, examined.

Q336 Chairman: May I welcome Mr Williamson Mr Williamson: The Regulation Board intends to and Professor Saggar very much indeed. We have develop its own proposals consulting with the only got 20 minutes, I am afraid, so let us steam representative side of the Law Society and others, ahead. I was just going to ask you, Mr Williamson, including the Legal Services Board. If the regime in first of all, are there any changes which you think the draft Bill were to remain as it is, the final would further enhance the ring-fencing of the Law application might have to be made by the Law Society Regulation Board fromthe representational Society because it is the Law Society that is described role of the Law Society and thus ensure your as the front-line regulator. However, the Law Society independence? could delegate this function to the regulator, though Mr Williamson: Thank you very much, Lord under the draft Bill it is not required to do so. Chairman. We very much welcome the thrust of the Bill and are committed to modern targeted and Q338 Lord Bach: A brief question about appeals accountable regulation but we do think there are fromdecisions of the LSB. You know the Bar changes in relation to the separation of the Council have argued that limited avenues for appeals representative functions of the Law Society fromthe against such decisions are they believe unacceptable, regulatory functions and they are, in fact, outlined in indeed they consider that “It is wholly inadequate for paragraph nine of our written submission. We believe the kind of decisions to be taken by the LSB, many of V that it is important that there is clarity on the which will a ect the livelihoods of thousands of requirements of separation on the face of the Bill. At people”. Do you agree with the Bar Council in their the moment, as Sir David Clementi pointed out in his judgment? If you do, what amendments would you evidence to you, there is clause 25(1)(d) which we do suggest? If you do not, please explain why. not consider is entirely suYcient for these purposes. Mr Williamson: I do agree with that. We consider that We believe that the minimum elements of separation the limited grounds for appeal currently in the Bill are should, as I say, be clearly set out in the Bill and that far too narrowly drafted and that the front-line in particular those elements should include: first, that regulators should have the ability to appeal on the regulatory rule-making and decision-making should general ground of unreasonableness. I do not think I want to elaborate further than that but we do agree be in the hands of the regulatory armof the front line with the main thrust of what the Bar is saying at this regulator: second, ensuring that the regulatory body particular point. may raise the funds it requires to regulate: third, that membership of the regulatory arm of a front-line Q339 Lord Bach: Professor Saggar, do you want to regulator, such as the Law Society, should be add anything? appointed independently: and finally, that the Professor Saggar: We would concur with that reply. regulatory body should be able to deal directly with Lord Bach: I should have declared my interest as a the LSB, the OLC and other approved regulators non-practising barrister, briefly a Government without having to direct those communications minister for the now Lord Chancellor. through the representative side of the front-line regulator. We believe that those points and clarity in Q340 Mr Burrowes: I ama practising solicitor. relation to separation is extremely important and I Professor Saggar, concerning Part 5 of the Bill which repeat that we would very much like to see them creates an OYce for Legal Complaints, do you included specifically in the Bill. consider that Part will give adequate powers to ensure that the poor record of dealing with complaints will improve or be a thing of the past? Q337 Chairman: As you will know I am a member of Professor Saggar: I would first of all say that as the Law Society with a current practising certificate Chairman of the Consumer Complaints Board we but even for those with inside knowledge it is welcome the provisions for the establishment of an sometimes diYcult to separate the regulatory from OLC, for many of the reasons that we rehearsed in the representative functions. I just wondered, in the the discussion this afternoon. Specifically we would new structure through what process will the decision draw the attention of the Committee to a couple of be made on whether or not to apply to the Legal potential gaps which perhaps could be strengthened Services Board to become a licensing body, say, for at the legislative stage, the most important, of course, the alternative business structures and who will make would be the question of ambit of the OLC, in other the decision, would it be the Regulation Board or the words who gets to complain, “the complainant”, and Council? specifically the question of whether or not third 3435523053 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Professor Saggar and Mr Peter Williamson parties can see a complaint, for example beneficiaries into each and every case as it comes in; the regulator in the case of wills. In addition, since we are talking looks at cases on a proportionate risk-based basis, so about the power of the OLC, we would like to see we can understand the ones that are of high priority some possibility of recasting the OLC to make it as opposed to the ones that are not. much more of a proactive organisation, an organisation that has some capacity both to educate Q342 Mr Burrowes: So you are not aware of any lawyers and consumers but also proactively trying to Y look for areas where there may well have been examples of any particular di culties or delays by the consumer detriment and making an appeal to splitting up of the two types of complaint? Professor Saggar: We have not encountered many constituencies, groups of people, who are not well- Y equipped to make complaints themselves, who may di culties of that kind. Again, it goes back to face barriers including social exclusion, social understanding what consumers want. To extend an disadvantage, in allowing the OLC to be proactive in answer that was given earlier on to a similar question selling its wares in that sense. Thirdly, we are it is, of course, true that many consumers do not just concerned about the questions of the enforcement of want redress or regulation in a sense they are a awards that the OLC may well give. We think there hybrid. They do not know exactly what they want. is some scope for the OLC itself to make awards and They know something has gone wrong and they are then recover those costs oV the solicitor in due appealing to the OLC to try and begin a process to course. Finally—and this was the point raised in the unpick what has happened to them. They may not earlier discussion, if I could just use this opportunity fully understand the detriment that they have to return to it—there is this question of the interface experienced. But subject to that caveat we are still between the modern redress organisation, the OLC supporting the split you have described. on the one hand, and the regulatory body on the other. We think this is very crucial indeed. Many Q343 Mr Burrowes: Moving on to Bar Council’s lessons can be learned from so many cases, so many proposition in relation to the OLC that they should files, as it were, building up where you can begin to retain the power to delegate complaints handling to spot patterns and trends and that information needs approved regulators, what is your view on that to be conveyed quickly, in a very focused way, and in proposition? a prioritised way, to the regulator so that, as Walter Professor Saggar: Our view is that it is an interesting Merricks was saying earlier on, in relation to the idea; it is very important that the consumer faces a FOS/FSA model, there is an opportunity for the single point of entry and a so-called single portal, and regulator to think about what the regulatory that if the OLC feels confident enough and so minded implications are of what we are seeing in terms of to delegate that power in that way, then we would not cases and files and consumer redress. Those are the stand in its way. But I would stress that the Law four main areas we would like to see strengthened if Society would not be seeking that sort of delegation possible in the legislation. for itself. They would want the power exercised directly by the OLC in respect of solicitors. Q341 Mr Burrowes: As you probably know, the Bar Council have argued there will be diYculties arising Q344 Mr Burrowes: Should the Legal Services fromthe splitting of service complaintsand Board have the power to require existing professional complaints in respect of misconduct. What is your bodies to create a compensation fund similar to that view? currently operated by the Law Society, particularly Professor Saggar: We think the current arrangements being mindful of the fact that some of the smaller whereby the redress is oVered to the consumer first professional bodies have expressed concern about and that being separated out fromthe question of such an obligation upon them? regulation works quite eVectively, and I think this is Professor Saggar: This is tricky in the sense that we guided very much by a sense of what it is that the already have a functioning, quite successful consumer is looking for, so we can deal with their compensation fund in respect of solicitors. There concerns and their requirements and not be would be a caution going into that and wanting to hampered or hindered in any way. Now, there is often tear that up when it is not obviously or overtly a misconception, particularly in the world of broken. There is no evidence whatever for that. It complaints against solicitors, that somehow all of would not prevent the LSB encouraging other this negates the need to look at the regulatory parallel compensation funds to be established implications of a particular complaint, and we do not alongside the ones that already exist with solicitors, perceive that to be the case. One thing certainly you and certainly we would support that. Whether the would want, and I would defer to the Chairman of LSB wants to look in due course at the possibility of the Regulation Board on this, is a risk-based having a single compensation fund is a possibility, regulator in the future to make sure it does not delve but at this stage the compensation fund for solicitors 3435523053 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Professor Saggar and Mr Peter Williamson clearly is there and works well, and there is no case, Professor Saggar: The answer to this is a combination on the basis of evidence, for starting that again. of being pragmatic in relation to what we have as well as using a once-in-a-generation opportunity to get consumer redress sorted out in the world of legal Q345 Mr Burrowes: But given that in the world we services, and it is really these two principles that are are living there are other small professional bodies driving the discussion. On the former it is clearly the concerned about themselves administering that case that we have in excess of 300 people located in compensation fund, if it was to be administered by the West Midlands in Leamington Spa who are very the Legal Services Board what do you think would be close to the business and with their operational the pros and cons of such a scheme? experience it would be a strange thing to set that to Professor Saggar: I will just defer that to Peter one side, given the fact that the case workers have Williamson. that degree of expertise around what it is we are Mr Williamson: I agree with nearly everything trying to achieve. It is also true that no one is in Professor Saggar has said on this. I do not think that favour of a rebadging of any organisation and at the the Legal Services Board itself should become same time, as a previous speaker said, it is terribly involved in running a compensation scheme, if that important that we use the OLC’s creation as an was what was implied in your question. It may well be opportunity to create a step change both in its in the situation that it requires frontline regulators, in internal culture and also the way in which it projects addition to the Law Society, to run a compensation itself and positions itself with regard to consumers, scheme similar to the Law Society’s, but I certainly and that relates to the points I think I was trying to do not see, at the risk of repeating myself, that the develop earlier on, namely in relation to those who, LSB itself would become involved in running any frankly, cannot complain, or are not in a good compensation schemes. I can see merit in its requiring position to do so if they were so minded. Now, I think other frontline regulators to run such schemes as it really is both of those things, and the West appropriate to their fields of legal services. Midlands option allows us the closest thing to keeping that show on the road operationally whilst, Q346 Baroness Henig: How much does it cost to run at the same time, thinking about how we reposition your complaints mechanism, and are those costs the OLC in cultural terms. reflected accurately in the figures produced by the Government in their revised estimates and the report Q348 John Hemming: On the question of appeal and prepared by PricewaterhouseCoopers for the risk the process of either Article 6 or fair hearing type assessment? appeals within the process, what you do say is that Professor Saggar: The Consumer Complaints Service you want to be able to appeal on the basis of has an operating cost of about £19 million on top of reasonableness. Would you perhaps want to go which we carry a number of overheads for services further and appeal on the basis of proportionality? fromthe Law Society giving an approximatefigure of Mr Williamson: Yes. £28 million, as reflected in our written evidence. And on top of that you can add, if you so wish, up to £6 Q349 John Hemming: Because judicial review is now million, that takes us to £34 million which are the looking at proportionality, but the word that goes on resources that are an overhead within the Law the face of Bill will make a big diVerence, so it is Society that are not directly accountable back to the proportionality you are looking for, is it, because Consumer Complaints Board. The issue that is of within the context of regulation proportionality is importance here is to make sure that the new OLC is crucial? cost-neutral, and on that basis we furnished you with Mr Williamson: It is indeed. It is one of the main figures that I think illustrate the transition questions tenets of regulation. in front of you. Q350 John Hemming: So you would basically want Q347 Baroness Henig: What are the benefits, do you to be able to appeal on the basis of proportionality think, and the drawbacks of these diVerent options of and reasonableness? either situating the OYce of Legal Complaints in the Mr Williamson: Yes. West Midlands and taking on some of the staV currently there at the Law Society Consumer Q351 Lord Bach: I amquoting you, Mr Williamson, Complaints Service, or setting up the oYce in a as I did to the Law Society a couple of weeks ago, in completely new organisation? Obviously it is not just your article in the Solicitors’ Journal of 30 May, a matter of refinancing—we have heard about the where you said: “We need new powers to make us a importance of rebadging, starting afresh; it is partly modern regulator along the lines of a body such as finance and partly other issues. How would you the Financial Services Authority. The Legal Services respond? Bill provides a golden opportunity for new powers 3435523053 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Professor Saggar and Mr Peter Williamson that we now need and we are hopeful that we will get been my position that model B! was the right one them”, and the Law Society through its President because it is not the profession abrogating entirely said they “have no diYculty with that at all”. responsibility for regulation, but is eVectively a move Mr Williamson: I hope the powers we need are fromself-regulation, as we know it, to profess ion-led uncontroversial within the solicitors’ profession and regulation, which I think is the right way forward and the Law Society, and I was very pleased to hear what the right step at this stage. Nigel Reeder had to say earlier when you, my Lord Chairman, asked him the situation with regard to the Q354 Lord Bach: Does it depend on representation powers. We understand there is to be a further and regulation facilities being absolutely separate? schedule which will deal with these. Most of the Mr Williamson: Yes. regulatory powers that we have at the moment derive fromthe Solicitors Act 1974, and at the timethat was Q355 Lord Bach: And do you think that is what the in gestation in the early 1970s I was an articled clerk. Law Society is going to do? They are very outmoded and, frankly, not fit for Mr Williamson: I do, indeed, and it has shown all the purpose for the 21st century and need to be signs of doing that by having taken the decision to strengthened quite considerably. There is a long list separate the representative side of the Law Society of themand I have, as you have heard, written to the and the regulatory side. We had already moved Lord Chancellor asking for his assurance that a towards becoming two parts, before Sir David schedule detailing themwill be produced. Many of reported and, in fact, in response to a governance the current provisions in the primary legislation are review that the Law Society had during the course of too prescriptive, preventing modernisation of the the Clementi review. I believe that the Law Society administration of regulation—practising certificates, has taken very seriously the need to separate the two accountants’ reports and the like—and the powers functions and has done it. I amnot saying there will that focus mainly on individuals do not allow not be teething diYculties or problems along the way complementary regulation of the business entity but they can be dealt with and addressed. I amquite which can make regulation more targeted, eYcient certain that subject to the points I made in answer to and proportionate. We also need some investigation the first question from my Lord Chairman, that is and enforcement powers modernising in line with that the elements of separation must be clearly set out those available to the newer regulators, and that is on the face of the Bill, then we will have a systemthat what I was particularly referring to in the article to will work in the interests of the public and also the which you have referred, my Lord. If you wanted me profession. to give you some examples of the powers we need then I can, but I amvery conscious of the timeand the DCA oYcials do have a very comprehensive list. Q356 Chairman: On the final question, Professor Saggar, do you want to add any other words about the interface between the OYce for Legal Complaints Q352 Lord Bach: My question was slightly and the approved regulators? Or is there anything V di erent—and I should declare my interest as a non- else you wanted to say to the Committee? practising barrister and as having been a Minister in Professor Saggar: I may be at the risk of repeating the Lord Chancellor’s Department some years ago— myself but it has not been something I have noticed and it is really this. Your use of the expression “along that has cropped up in the discussion very much so the lines of a body such as a Financial Services far. The prevention agenda for consumer complaints Authority” might be taken as a preference for model is terribly important, and includes two things. One is A as opposed to model B!. what it is the complaints handling organisation can Mr Williamson: No, it was not. It was referring not to learn and feed across to the regulator to encourage the type of regulator but to the type of powers that themto change rules or regulations to allow solicitors the Financial Services Authority has in relation to the to deliver better service thereby, as it were, preventing financial services industry. We do not have similar mess occurring in the future, and the other is what the powers because their powers came into existence OLC can do in terms of strengthening the in-house much later than 1974. Ours are just outmoded, that complaints handling systems of firms themselves. was the point I was making. It was not a point at all This goes back to Rule 15 that the Law Society about any preference between model A, B or B plus. adopted many years ago, and the real weakness is, having got the requirement for firms to have that in- Q353 Lord Bach: You are happy in your position to house system, there has been no further support model B!? strengthening of what that is supposed to deliver in Mr Williamson: Very happy. It has always been my practical terms. What we have in the Consumer position fromthe very beginning. Fromthe day Sir ComplaintsService, and I fear sometimes the OLC David Clementi was appointed in June 2003 when I may end up in the same position, is too great a big became President of the Law Society it has always box of consumer complaints and disappointments, 3435523053 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Professor Saggar and Mr Peter Williamson and solicitors falling out with clients and vice versa, Mr Williamson: It has been a pleasure. If there is any which, frankly, could have been dealt with further other information we can provide to the Committee upstream, and this is again an opportunity to make we will be happy to do so. sure that is strengthened and got right for the long- termfuture. Q358 Chairman: I certainly think we would like to Q357 Chairman: That is very useful and very come back to you on the amendments to the helpful. Thank you both very much indeed in your Solicitors Act. busy schedules for finding time to come and talk Mr Williamson: We would very much welcome that to us. opportunity.

Further supplementary memorandum by The LawSociety Regulation Board (Ev 67a)

Introduction 1. The Law Society Regulation Board makes this further submission (additional to its original submission of 16 June 2006 and the oral evidence of Peter Williamson on 19 June 2006) to draw the Committee’s attention to a few additional points.

Relationship between LSB and Front Line Regulators, and Separation of Regulatory from Representative Functions 2. The Board reiterates the importance of rebalancing the LSB’s powers to concentrate upon its role as quality assurer of regulation across the legal services sector. As drafted, the Bill gives the LSB over elaborate powers to act as a quasi front line regulator. A rebalanced set of powers, coupled with explicit criteria for the separation of regulatory fromrepresentative functions (as argued by Sir David Clementi in his evidence, and as set out in our earlier submission) would better protect the public interest.

Alternative Business Structures 3. The Regulation Board urges the Joint Committee to pay particular attention to the points about alternative business structures made in its previous submission. The points we have made are not merely points of operational diYculty. The Regulation Board believes that, as a matter of principle, legislation should provide for eYcient, eVective, consistent and coherent regulation. The Regulation Board believes that will only be achieved if those who want to regulate ABSs can do so using the same regulatory processes and powers that they use when regulating traditional practices delivering the same services. 4. The Regulation Board believes that there could be one immediate advantage of adopting this course. It will take time to consult on and agree the more diYcult policy issues relating to external ownership and fitness to practise of non-lawyers. However, if the Law Society Regulation Board’s own powers were amended to allow it to regulate partnerships of diVerent types of lawyers, we believe it would not take long for the Regulation Board to amend its rules to take at least that step forward promptly. We are concerned that the resource implications and timing delays inherent in the licensing regime as set out in the draft Bill will not meet the public interest in swiftly reducing some of the restrictions that currently exist. 5. On a more technical point, we are concerned that in Clause 90 (Schedule 11, paragraphs 8–12) the concept of interest and material interest should not be confined to ordinary share capital. It should be clear that either the Secretary of State by order, as suggested, (or the LSB, by rule) should have the widest possible discretion to define what constitutes an interest or material interest. We are concerned that otherwise the provisions may easily be evaded. 6. The Regulation Board is also concerned about the lack of provisions relating to the potential insolvency of a licensed ABS. We believe that the Financial Services and Markets Act, which gives the FSA the ability to make rules that apply in the event of insolvency, provides a good model. 7. For the avoidance of doubt, although we believe this has been accepted as a mistake in the draft Bill, Clause 13(5) and (6) are wrong as they do not appear to allow a partnership of mixed lawyers (without non-lawyer partners or owners) to become an ABS. 8. In the Law Society’s previous submission it was suggested that the requirement for all ABSs to have a single Head of Legal Practice and a single Head of Finance and Administration may be insuYciently flexible. 3435523054 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Compensation Fund 9. The Regulation Board supports the Law Society’s argument that the Compensation Fund for solicitors should be allowed to continue as a separate Fund, and not compulsorily merged into any central fund which might be established.

Transitional Provisions 10. We believe that the transitional provisions require careful consideration. The explanatory notes refer to the whole of Schedule 4, including Part 1, in setting out transitional arrangements. The wording of Clause 17 and Part 1 of Schedule 4 appears to give rights into the indefinite future to certain lawyers (not solicitors or barristers), legal partnerships and conveyancing partnerships. Part 1 of Schedule 4 appears to permit regulatory bodies to authorise new individuals and partnerships not only for the transitional period but also into the indefinite future. We would appreciate a more detailed explanatory note on how the transitional provisions are intended to work and, in particular, what happens at the end of the transitional period.

Additional Powers for the Law Society Regulation Board 11. It is essential that the modernised regulatory powers, requested by the Law Society, should be included in the draft Bill. Copies of these proposals have now been provided to the Committee. Without these powers, the Regulation Board will have to rely upon inflexible and outdate procedures, and will be hampered in its ability to regulate eVectively.

Miscellaneous Points 12. Clause 38—we believe that the cancellation of the designation of a body as an approved regulator (particularly a body listed in the table in Schedule 5) should be by order under the aYrmative procedure rather than the negative procedure. 13. Clause 18—transitional protection for not for profit bodies. It is our understanding that a not for profit body currently is only entitled to carry on an activity which is a reserved activity if it is provided by qualified persons. We are concerned that Clause 18(1) may go further than intended and imply that these organisations may carry out reserved legal activities without using qualified persons. 14. Clause 44—provision of information to the Board. This Clause is widely drafted but does not make mention of the Board’s duties for itself to keep confidential any confidential material (such as that relating to individual complaints or client matters). 29 June 2006

Memorandum by the Bar Standards Board (Ev 56)

Introduction 1. The Bar Standards Board came into existence on 1 January 2006 to regulate the Bar. The Board has a lay Chair, Ruth Evans, and seven of the Board’s 15 members are lay persons. All the members of the Board were appointed on merit in accordance with Nolan principles. The Chair and many of the other lay members have extensive experience of regulation and corporate governance. The barrister members are not and may not be members of the Bar Council. A brief biography of the Chair and a list of the Board’s members is at Annex 1 [submitted but not printed]. 2. The Bar Council has delegated all of its regulatory functions to the Board including, without limitation, responsibility for: (1) qualifications and conditions for entry to the profession; (2) all aspects of training; (3) the setting of standards for those practising at the Bar; (4) the determination, amendment, monitoring and enforcement of rules of professional conduct; and (5) investigation and prosecution of complaints against barristers and students. 3. The Bar Council and the Inns of Court have agreed that, although entitled to be consulted, they will not have the right to review the decisions and regulatory arrangements made by the Board. 4. Reporting to the Board are four new regulatory committees. These committees also have significant lay membership. They are: — The Rules Committee. 3435523055 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— The Conduct Committee. — The Qualifications Committee. — The Monitoring Committee. Details of the roles and terms of reference of these committees are at Annex 2 [submitted but not printed]. 5. In regulating the Bar, the overriding aimof the Board is to act in the publ ic interest and to protect the interests of the consumers of barristers’ services. 6. Since its inception, the Board has focused on establishing its own identity and in developing its principles, working practices and strategy. Among other matters: — The Board has resolved to adopt an evidence-based approach to regulation and to follow the principles of good regulation recommended by the Better Regulation Task Force. — The Board has endorsed the regulatory objectives set out in the draft Bill, and has already adopted themfor the purpose of its own work. — The Board is in the process of setting up a Consumer Panel, to represent the interests of users of barristers’ services and informits decision-makingprocesses. — The Board is currently commissioning a survey of attitudes to the Bar held by consumers and barristers, which it intends to repeat at regular intervals using the initial survey as a benchmark to monitor changes over time. — The Board has decided to consult on the question of whether or not call to the Bar should be deferred until after completion of training, in order to resolve this issue on which there has been long-standing controversy.

The Board’s Attitude to the Bill 7. In general the Bar Standards Board supports the proposals reflected in the draft Legal Services Bill. In particular, the Board supports: — The proposed regulatory objectives; — The model under which regulation is to be carried out by approved regulators, subject to oversight by the Legal Services Board (LSB); — The requirement that the regulatory functions of an approved regulator must be clearly separated fromits representative functions; and — The requirement that the LSB and any approved regulator should have regard to the principles of good regulation and best regulatory practice. 8. The Board has no comments to make at this stage on the provisions of the draft Bill relating to Alternative Business Structures. 9. There are some respects in which the Board believes that the draft Bill can be improved. The Board’s main concerns relate to: — The need to ensure that the LSB exercises its powers sparingly and in a proportionate way; and — The proposed arrangements for handling complaints about barristers, which the Board believes to be unsatisfactory. 10. We develop each of these two points below.

(1) The Powers of the Legal Services Board 11. The Bar Standards Board considers that the “Model B!” statutory framework recommended by Sir David Clementi in his Review is the appropriate model for the regulation of legal services and will best serve the interests of consumers. In particular, the Board believes that this model has the ability: to combine the advantages of lay input and scrutiny with utilisation of the knowledge and practical experience of members of the profession; to provide regulation of a higher quality at a lower cost than any other model; and to sustain both the support of the profession and the confidence of the public. 12. In order to ensure that these benefits are achieved, however, the Board believes that two points are critical: — The LSB should have the power to satisfy itself that an approved regulator has governance arrangements in place which are suYcient to ensure that it is independent and will regulate in the public interest; and 3435523055 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— The LSB should allow the approved regulators to regulate and should interfere with their performance of their functions only if absolutely necessary. 13. The Board further believes that these points are closely connected. As Sir David Clementi wrote in his report:3 “If the LSB is to remain an oversight regulator, and have only a small staV itself, it has to have confidence that the underlying regulatory boards are satisfactorily constituted.” Conversely, if the LSB is satisfied that an underlying regulator is satisfactorily constituted and has appropriate governance arrangements in place, the occasions when the LSB would be justified in interfering with the substantive decisions and regulatory arrangements made by that regulator ought to be correspondingly rare.4 14. The Board has considered the draft Bill with these points particularly in mind.

Proportionality 15. The draft Bill confers on the LSB a wide range of powers and sanctions. The Bar Standards Board accepts the need for the LSB to have these powers, but only on the basis that they are to be exercised only where absolutely necessary. 16. The draft Bill contains some very limited safeguards in this respect by providing that the most extreme powers available to the LSB (taking over the exercise of a regulator’s function by making an “intervention direction” or cancelling a body’s designation as an approved regulator) may not be exercised unless the LSB is satisfied that a regulator’s failures cannot be adequately addressed using other powers available to it.5 There is also a general duty on the LSB to “have regard to” principles which include the principle that regulatory activities should be proportionate.6 But the Board does not consider that these provisions are suYcient to ensure that any use of the LSB’s extensive powers is matched to the severity of the harmwhich necessitates intervention, and is targeted appropriately. 17. The Board suggests that the Bill should include an express duty on the LSB to exercise each of its powers in a proportionate manner and only when necessary.

Clause 24 18. The Board agrees that the powers of the LSB should include a power to set performance targets. However, the draft Bill does not require the LSB to consult the regulator concerned before this power is exercised—in contrast to the provisions relating to the exercise of other powers.7 There should be an obligation on the LSB to give formal notice to an approved regulator and consider any representations made before any performance target is set which the regulator is to be required to meet under this section.

Clause 25 19. Clause 25 is an important provision of the draft Bill since it specifies the circumstances in which the LSB may give a direction to an approved regulator requiring it to take particular steps. The Bar Standards Board has two concerns about this clause as it is currently drafted: — that (1)(a) is too wide; and — that (1)(d) is not wide enough. 20. Taking the latter first, the Board is concerned that clause 25(1)(d) as drafted does not give the LSB suYcient power to make sure that the governance arrangements of an approved regulator are satisfactory and comply with best practice. 21. If, for example, the Bar Council were to permit barrister members of the Bar Standards Board to be involved in the representative functions of the Bar Council, then it is clear that clause 25(1)(d) in its current formwould give the LSB the power to issue a direction requiring the Bar Coun cil to remedy the position. But if, for example, the LSB considered that the Bar Standards Board was too large or too small to carry out its

3 Clementi final report, p 39, para 39. 4 As Sir David Clementi has said in his evidence to the Select Committee, if regulatory boards “meet the criteria for independence laid down by the LSB, then there should be no reason for the LSB to intervene in its day-to-day decision making”: see transcript of oral evidence given on 12 June 2006 (uncorrected and unapproved) at p 29 (Q 169). 5 See clauses 34(4) ! 38(7). 6 See clause 3(3). 7 Compare eg clauses 29 and 31 which set out the procedure which must be followed before, respectively, the LSB engages in public censure or imposes any financial penalty. 3435523055 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 functions eVectively, or had an insuYcient number of lay members, or that it was inadequately resourced, it is far from clear that the LSB would have the power to make any remedial direction. 22. The Board suggests that consideration should be given to amending this provision so that it corresponds to Schedule 5, paragraphs 14(2)(a) and 14(3), by inserting the additional words underlined below: “to ensure that it has appropriate internal governance arrangements in place for the performance of its regulatory functions and in particular that the exercise of its regulatory functions is not prejudiced by any functions it has in connection with the representation, or promotion, of the interests of the persons regulated by it”. 23. We also consider that the Bill should provide for the LSB to publish a statement setting out the criteria which the internal governance arrangements of an approved regulator should satisfy with respect to the performance of its regulatory functions. Consideration should be given as to whether or not, if the change recommended above is made, this point will then be suYciently covered by clause 41. 24. Provided that the regulator has satisfied the criteria for independence and good governance laid down by the LSB, then the LSB should be permitted to interfere with the detailed regulatory arrangements made by that regulator only in limited circumstances. The Board does not consider that clause 25(1)(a), as currently formulated, is suYcient to achieve this. 25. The Board agrees with the Bar Council that clause 25(1)(a) ought to be qualified so as to make it clear that the power to make a direction may be exercised only if the failure to perform to an adequate standard is of such a degree that it has caused or is likely to cause substantial harmto the regulatory objectives. 26. The same point applies to clauses 28(1)(a), 30(1)(a), 34(3)(a) and 38(6)(a).

Alterations of regulatory arrangements 27. Provisions concerning alterations made by an approved regulator to any of its regulatory arrangements are set out in Schedule 5, Part 3 (pp.111–115). As this is drafted: — Every alteration of whatever kind, and however trivial, to any of the “regulatory arrangements” of an approved regulator requires approval fromthe LSB, unless the LSB decid es to exempt the alteration fromthis requirement; 8 — Unless the LSB decides to approve the alteration within an initial decision period of 28 days (or fails to deal with the application), an elaborate decision procedure will ensue which may take up to 12 months (or 18 months if the period is extended) to complete. 28. The Bar Standards Board believes that these provisions are unduly cumbersome and liable to impede or delay change and innovation. They are also inconsistent with the policy of allowing properly constituted and independent front line regulators freedomto regulate. A perverse result of the legislation as currently framed is that the LSB has much greater power to intervene if a minor rule amendment is proposed than if existing rules are simply left unchanged. 29. The Board considers that the powers of the LSB to restrict amendments which an approved regulator decides to make to its regulatory arrangements ought to correspond to the LSB’s powers to require an approved regulator to alter its existing regulatory arrangements (and to be similarly circumscribed).

(2) The Handling of Complaints 30. From1 January 2006, the Bar Standards Board took over fromthe Bar Counc il the handling of complaints about barristers. The Board has appointed a new lay Complaints Commissioner, Mr Robert Behrens, who took up his post on 1 June 2006. Mr Behrens was formerly a senior civil servant in the Cabinet OYce, and most recently (since 2003) served as Secretary to the Committee on Standards in Public Life.9

The Board’s complaints system 31. A description of the current complaints system is at Annex 3. The Bar Council has in the past achieved high satisfaction ratings from the Legal Services Ombudsman.10 However, the Board is concerned to ensure that the system complies with best practice and has asked its new lay Commissioner to undertake a comprehensive review of the current system and to make recommendations as to how it can be improved.

8 The term “regulatory arrangements” is extremely broadly defined and includes all practice rules, rules of conduct, disciplinary arrangements, regulations relating to qualification, education and training, and “any other arrangements, which apply to or in relation to regulated persons” (unless made by the body in exercising any representative function): see clause 16. 9 This is the independent watchdog which advises the Prime Minister about necessary measures to maintain and improve the standards of conduct of public institutions and all public oYce holders. 10 For example, the satisfaction rating of the LSO in relation to cases referred to her oYce in 2005–06 was 88 per cent. 3435523055 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The proposals in the draft Bill

32. The Board has focussed on whether the OYce of Legal Complaints (OLC) can be expected to provide a service for handling complaints about barristers that operates in the best interests of consumers. Notable features of the Bill as presently drafted are the following: — Approved regulators are to be forbidden fromincluding in their regulato ry arrangements any “provision relating to redress”—including any provision which is even connected with the provision of redress for the acts of the persons whomthey regulate (clause 127); — The ombudsmen who will be responsible for the investigation, consideration and determination of complaints are not permitted to have any legal qualification or experience (clause 99 ! schedule 13); — There is no provision for any professional or legal input into the decision-making process. — Matters of conduct and discipline raised by a complaint are to be dealt with separately by separate bodies (the relevant approved regulators) fromthe only body which will be able to provide redress (the OLC). — Clause 125 requires an ombudsman who is of the opinion that a complaint raises an issue of possible misconduct to send a report to the relevant regulator—which may then be required to report back what, if any, action, it has taken. But there is no mechanism designed to coordinate or achieve any consistency between the two procedures.

Characteristics of complaints about barristers

33. There are two general characteristics of complaints about barristers which should be borne in mind when considering the proposals in the draft Bill.

34. First, most complaints about barristers involve issues of professional misconduct as well as consumer dissatisfaction. This reflects the nature of barristers’ work, most of which is court-related. Because a barrister’s conduct in court is closely regulated both by rules of law and by rules of conduct, issues of misconduct are particularly likely to arise in this context. It may be helpful to give some examples of some common types of complaint about barristers’ services: — A settlement is agreed “at the door of the court” or during a court case. One of the parties later complains that his barrister pressurised him into agreeing to the settlement. — A person involved in litigation complains that a barrister acting for an opposing party acted improperly—for example, by making allegations in court about her which were without foundation and intended merely to vilify her. — A defendant in a criminal case (or a party in a civil case) complains that his barrister conducted the case in court in a way which was not in his best interests—for example, by failing to adduce relevant and available evidence, by pursuing a line of questions in cross-examination which resulted in his previous convictions being put in evidence, or by addressing the jury on a basis ruled inappropriate by the judge.

35. In these and many other situations which give rise to complaints about barristers, issues both of proper professional conduct and potential redress are involved (and often are inextricably interlinked). Under the system administered by the Board, both aspects are determined through a single process. Where a complaint is upheld, the appropriate disposal is likely to involve both ordering redress to the complainant and disciplining the barrister concerned.

36. Second, if the OLC deals with all legal complaints, complaints about barristers will represent a tiny fraction of its caseload—less than 3 per cent on present figures.11 In these circumstances it may be diYcult for a large organisation, which is dealing with many thousands of complaints, as the OLC will be, to achieve the same expertise and eYciency of performance in dealing with complaints about barristers as an organisation which is dedicated to handling such complaints.

11 For example, in 2004–05 the number of complaints made by members of the public about barristers was 455, compared with 17,299 complaints about solicitors and other lawyers: see Annual Report of the Legal Services Ombudsman for 2004–05, p 14. 3435523056 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Questions

37. In considering the complaints system proposed in the draft Bill, the Bar Standards Board has focussed, in particular, on three questions: — Will the proposals in the draft Bill deliver a systemfor handling complai nts about barristers which serves the interests of consumers better than a system administered by the Board? — Can Parliament be so confident that this will be the case that it is right to remove any possibility that a regulator approved under the Act may be authorised to handle any complaints or provide any redress to consumers? — How could Part 6 of the draft Bill be improved?

The appropriate criteria

38. To answer these questions, the Board has first sought to identify the criteria which a systemfor handling complaints about barristers should meet. It has then considered the systemproposed in the draft Bill against these criteria. 39. The Board has identified the following criteria: — Independence: any organisation handling complaints needs to be independent of both complainants and respondents. — Consistency: decision-making must be consistent—and in particular, if matters of redress and discipline are to be dealt with through separate processes, it is essential to avoid inconsistent determinations of the same case. — Expertise: in order to reach fair decisions, a combination of lay input and legal and professional knowledge is required. — Speed: complaints need to be investigated and determined without delay. — Cost: any systemshould not be unduly expensive and should deliver value f or money. — Simplicity: the system should be simple for complainants. — Flexibility: the systemshould be flexible so that the procedure is approp riate for the type and nature of the complaint. — Proportionality: any regulatory intervention should be proportionate to the perceived harmto the relevant objectives.

40. For the reasons explained below, the Bar Standards Board believes that the systemproposed in the draft Bill, as currently formulated, fails to meet these criteria in a number of significant respects.

Independence

41. As can be seen fromAnnex 3, the complaintssystemwhich the Board has tak en over fromthe Bar Council makes provision for substantial lay input into the determination of complaints about barristers. For example, all complaints are considered initially and investigated by a lay Commissioner; and no complaint may be dismissed by the Conduct Committee without the agreement of a majority of the lay members. However, Sir David Clementi concluded that the system current at the time of his report, under which the representative professional bodies (such as the Bar Council) were responsible for handling complaints, did not provide suYcient independence fromthe legal practitioner. 12 We agree with that view. At the same time, we see no reason in principle why the necessary independence cannot be achieved by a regulator approved under the Act.

42. Provided that an approved regulator is able to satisfy criteria for independence and best practice laid down by the LSB, we see no reason why such a regulator should be disqualified fromh andling complaints—any more than it should be disqualified from performing other regulatory functions.

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Consistency

43. As mentioned, most complaints about barristers raise issues of misconduct as well as consumer dissatisfaction. To separate the determination of complaints from the determination of questions of misconduct, as proposed in the draft Bill, therefore creates a risk of inconsistent decisions.

44. For example, in determining a complaint the OLC might decide that the barrister’s conduct was improper and not in accordance with the Bar’s Code of Conduct and grant redress on this basis. There may then be a disciplinary proceeding in which a panel decides that the barrister’s conduct was in fact appropriate under the Code of Conduct. If this happens, the barrister and the complainant will both have a justified grievance and the systemwill be brought into disrepute. 45. No attempt appears to have been made to grapple with this problem in the draft Bill.

Expertise

46. It is vital for the fair disposal of complaints that lay persons should play a substantial part in the determination of any legal complaint. Indeed, the Bar Standards Board considers that a strong case can be made for requiring any final decision about a complaint to be taken either by a lay person or by a body which contains a majority of lay persons. But it is also essential to have input fromknowledgeable practitioners. There are many cases in which it is diYcult to judge whether the reason given by a barrister for his or her actions is a good or a bad reason without relevant knowledge. Sometimes the relevant knowledge is about where a barrister’s professional duties lie in particular circumstances (eg when conducting a case in court or in relation to conflicts of interest). Often knowledge of legal procedure, or of a particular field of law, is required.

47. The Board is concerned that no provision is made in the draft Bill for any professional or legal input into decisions of the OLC. Even if the OLC decides to seek external advice in some cases, it will almost certainly have to pay for such advice and we doubt whether it will obtain advice of the same high quality as the Board obtains (at no cost) frombarristers of high standing who are expert in part icular areas of law and practice. We are concerned that in consequence the OLC will make poorer decisions—for example, failing to recognise when a barrister has fallen below proper standards of professional conduct or legal competence.

Speed

48. The current systemfor handling complaintsabout barristers has a good record of dealing with cases swiftly. For example, in 2005–06, 56 per cent of cases resulting from external complaints were completed within 3 months and a further 21 per cent within 6 months. There is no back-log of cases. There are no delays on the part of the Board in investigating complaints or in dealing with correspondence. The main cause of delay, where it occurs, is the failure of respondents and third parties to respond timeously to requests for information (which, in the case of barristers, is itself a disciplinary oVence).

49. The Bar Standards Board is concerned that the OLC will not deal with complaints about barristers as speedily as the Board—particularly when such complaints will represent a tiny proportion of a much larger caseload. It would be disappointing if the result of the legislation were to provide a slower and less eYcient service for consumers.

50. A further, and still greater, concern is that the separation of complaints-handling fromdisciplinary processes will cause delay in disposing of those complaints about barristers which raise issues of misconduct (as most such complaints do). Under the proposed arrangements, complaints will first be investigated and determined by the OLC before they are referred to the approved regulator for possible action. If the evidence obtained by the OLC is considered insuYcient to prove a charge of misconduct in a disciplinary proceeding, further investigations will need to be made by the Board. But by that time many months may already have elapsed. Evidence may be stale. In addition, both the complainant and the respondent (and any relevant witnesses) may be required to give evidence twice. There will be no final resolution of the matter from the point of view of either the complainant or the respondent until the eventual conclusion of the disciplinary process.

51. The Board does not consider that such a duplicative process will be in the interests of consumers or in the general public interest. 3435523056 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Cost 52. It is in the interests of consumers that any system for handling complaints should deliver value for money—since increased practising costs resulting from increased costs of regulation will inevitably be borne ultimately by consumers—either through higher charges or, in the case of publicly funded work, by a reduction in the quality of service. 53. The Board believes that its complaints system provides excellent value for money, delivering a good quality of service at a comparatively low cost. 54. The Board has seen the Bar Council’s submissions on the costs of setting up and running the OLC and is concerned about the likely burden of those costs if complaints about barristers are handled by the OLC. This concern is all the greater since it will be necessary for the Board in any event to retain its own systemin order to deal with all complaints that raise conduct and disciplinary issues—as most complaints about barristers do—whether those complaints are handled by the OLC as well or fall outside its jurisdiction. The Board believes that, as the draft Bill is currently framed, the result will be substantially to increase the overall costs of regulating the Bar without any corresponding benefit to consumers.

Simplicity 55. An advantage of a system under which all complaints are made to the OLC is that it would provide a single point of entry, which is clear for consumers. For example, if a client wishes to complain about both her solicitor and her barrister, the complaint can be made to the same body. 56. The Board sees a potential advantage for consumers in such a system. However, this seems to the Board to be entirely compatible with an arrangement under which a particular category of complaints—for example, complaints about barristers, or all such complaints which raise issues of misconduct—is referred to another body following receipt.13

Flexibility 57. The Board believes that it is an important requirement of any system for handling complaints that it should be flexible, and should adopt procedures which are appropriate to the nature and seriousness of the particular complaint and to the issues raised. We are concerned that the draft Bill adopts a “one size fits all” approach, under which all complaints about barristers—however minor or serious they may be, and whether or not they raise issues of misconduct—are required to be dealt with by the same mechanism, with no flexibility built into the proposed legislation which would allow for other methods of determination.

Proportionality 58. It is a principle of better regulation not to introduce regulatory solutions which go further than is really necessary and, as an application of this principle, not to create new institutions if existing ones are capable of being modified in line with required objectives. It is always a danger that the additional burdens and unintended consequences of intervention are found to outweigh any benefits obtained. 59. Two options have been suggested for setting up the OLC: — taking over staV from the Law Society’s Consumer Complaints Service; or — setting up the OLC as a completely new organisation. 60. Neither option in the Board’s view would be at all satisfactory for dealing with complaints about barristers. While the Consumer Complaints Service has experience of handling complaints about solicitors, it does not have experience or expertise in dealing with the particular issues that arise in relation to barristers and the Bar’s Code of Conduct. By the same token, a completely new organisation would have no experience in dealing with legal complaints.

Summary of Key Concerns 61. In summary, the key concerns of the Bar Standards Board are that: — To separate the handling of complaints about barristers from matters of misconduct in the way proposed will result in duplication, delays and substantial additional costs, and will create a risk of inconsistent decisions;

13 The draft Bill already contains a limited provision to his eVect in clause 105(5)(e). 3435523056 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— Unless provision is made for professional and legal input, which the Board believes that it is uniquely well placed to provide, the quality of decisions in the many cases where complaints about barristers raise issues of professional duty and/or of law is likely to be poor.

Suggested Amendments to Part 6

62. The Board believes that Part 6 of the draft Bill would be improved by the following changes: — A provision should be included which makes it possible for any function relating to the handling of a particular complaint, or a category of complaints, to be delegated to a regulator which has been approved for this purpose by the LSB. — Clause 125 needs to be strengthened so as to require, where any complaint is determined by the OLC, a greater degree of liaison between the OLC and the responsible regulator. In particular, there should be a requirement, where a complaint raises a question of proper professional conduct, for the OLC to consult with the regulator on that question before the complaint is determined. — Clause 127, which prohibits an approved regulator fromincluding in its r egulatory arrangements any provision relating to redress, should be removed. 63. If there is no delegation of complaints-handling, the Board considers that confidence in the eYcient operation of the new systemwould be increased if undertakings were given t hat the OLC would set up specialist small units to deal with complaints against barristers (and any other specialist categories) which would have access to appropriate expert advice and could develop the necessary experience in handling such complaints. However, while this would address some of the Board’s concerns, it would not provide a solution to the problems of duplication, additional cost, and potential inconsistency of outcomes which are identified above. 5 June 2006

Annex 3

BAR STANDARDS BOARD’S COMPLAINTS SYSTEM 1. Following the decision to separate the Bar Council’s regulatory and representative functions, the Board has responsibility for dealing with all complaints, both service and conduct, against barristers. It delegates that responsibility to the independent Complaints Commissioner, who is a lay person, and the Conduct Committee. The Board, however, retains overall control of the function. 2. The Complaints Department of the Board receives around 550 complaints each year fromthird parties (members of the public, solicitors, members of the Bar etc). In addition, approximately 200 complaints are raised of its own motion for such oVences as practising without a practising certificate. The majority of complaints are closed within three months and 90 per cent are closed within 12 months.

Complaints Commissioner

3. The Complaints Commissioner, with the assistance of two complaints oYcers, is responsible for the investigation of all external complaints. As the number of complaints received is relatively small, he is able personally to direct how each complaint should be handled. Upon receipt of a complaint, he has a range of powers. For example, he can dismiss a complaint because it is obviously wholly without merit, seek further information from the complainant or barrister or other witnesses involved, or simply refer the matter straight to the Conduct Committee for consideration. 4. If the Commissioner decides that a complaint should first be investigated further before reaching the Committee, the file is passed to one of the Complaints OYcers to carry out enquiries as directed. Comments received will be sent to the complainant for consideration and, upon receipt of those, the file is referred back to the Commissioner for his determination. If he thinks it appropriate, the Commissioner then refers the complaint to the Conduct Committee for consideration. 3435523058 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Conduct Committee 5. The Conduct Committee comprises approximately 50 practising barristers, split into two teams, and 10 lay members (of which at least five will attend at every Conduct Committee meeting). The Chairman is a barrister and there are four vice-chairs; two lay and two barristers. Barrister members of the Committee provide their time and expertise without fee. Lay members are paid per meeting attended. Both the lay and barrister members are selected under Nolan Principles, through an open and transparent appointment process. 6. Once the Commissioner refers a matter to the Conduct Committee, it is the function of the Conduct Committee to decide whether the complaint raises a prima facie case of misconduct and/or inadequate service by the barrister and, if so, how the complaint should be determined. 7. When the Commissioner refers a complaint to the Conduct Committee, he will send the file to a barrister member of the Committee who is experienced in the field of law to which the complaint relates. The member will produce a detailed written analysis of the facts of the complaint and the comments received and make recommendations to the Committee. Depending on the complexity of the complaint, this analysis can take a considerable number of hours (and sometimes days) to complete. This analysis will be considered by the full Committee who will make a collective decision as to whether the complaint raises a prima facie case and, if so, how it should best be determined. No complaint may be dismissed by the Committee unless the majority of lay members present at the meeting agree to its dismissal.

Determination of Complaints 8. A range of informal and formal procedures are available for determining complaints, according to the nature and gravity of the matter. The procedures include informal adjudication, summary hearings, and (in the most serious cases) hearings before disciplinary tribunals. In all cases, the panel or tribunal is comprised of both lay and legal members (none of whom may be a member of the Conduct Committee). 9. Where a complaint is upheld, the barrister is disciplined and, where appropriate, also ordered to apologise, forgo fees and/or pay compensation to the complainant. A barrister found guilty of professional misconduct by a summary panel or disciplinary tribunal has a right of appeal to a tribunal of Judges. 10. A complainant who is dissatisfied with the way in which his or her complaint has been handled can refer the matter to the Legal Services Ombudsman, who will investigate the handling of the complaint and, if not satisfied that it has been handled appropriately, can recommend reconsideration of the complaint and/or order compensation to be paid to the complainant. The Ombudsman also has power to make general recommendations to a professional body about the arrangements it has in force for dealing with complaints. 11. In 2005–06 the Bar Council’s satisfaction rating with the Legal Services Ombudsman was 88 per cent.

Examination of Witnesses Witnesses: Ms Ruth Evans, Chair, and Mr George Leggatt QC, Vice-Chair, Bar Standards Board, gave evidence.

Q359 Chairman: I would like to welcome Ruth Ms Evans: Thank you, Lord Chairman. What we Evans and George Leggatt very much to the would like to say, first, is that we very much welcome Committee, and may I thank you both very much the draft Bill as it stands, and the proposals in it. In indeed for coming. Perhaps I might start oV with a particular we support the proposed regulatory question, please, about what Sir David Clementi told objectives; we support the proposal for regulation to us, that the regulatory functions of the approved be carried out by independent boards, subject to regulator did have to be adequately ring-fenced fromoversight by the LSB ( the Clementi B! model); and any representative functions the body might have we support the requirement to have regard to otherwise that would undermine the success of the principles of good regulation and best regulatory new regulatory framework, and I was going to ask practice, and to that eVect the Board, which has been whether there are any changes which you think in existence since January, has adopted a number of would further enhance the ring-fencing of the Bar key principles which reflect good governance Standards Board fromthe representational role of arrangements. We are evidence-based in the the Bar Council and ensure the independence of the approach to our work, we put the consumer interest Bar Standards Board’s independence? I should also first, and the public interest is as important.. We have declare, as I amsupposed to at each of these sessions, established a risk-based way of assessing the that I ama practising solicitor. profession’s work with consumers; we have 3435523058 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Ms Ruth Evans and Mr George Leggatt QC undertaken major steps to establish a consumer panel Ms Evans: Yes, it is. to advise the regulator3 on access to justice issues, and Mr Leggatt: It is translated into the terms of we have also established a tracking, benchmarking reference, which I believe are attached to our paper. survey to test public and professional attitudes over It started out as a model agreement but it has been time, which will arm us with a lot of useful put into the terms of reference. Could I just add a information to prioritise future work. So we are very very short point to what Ruth has said, and it comes pleased with the Bill’s scope and with its functions. out of the point she has made which is that we do We do have some concerns about the Bill itself which think it is very important that the balance of the we will come on to. We believe essentially that the Legal Services Board’s powers in the Bill is correct, powers of the LSB need to be put in balance; we think and we see it as of great importance that the LSB they are not quite in balance and we would like to should have the power to scrutinise the way the share that with you; and also to talk about the regulatory boards are set up and our governance complaints handling component of that. In answer to arrangements, because in that way there will be a your question, forgive me for the introduction, on the guarantee that our independence fromthe Bar whole we are very satisfied with the powers that we Council, and similarly for the other regulatory have been given under the model agreement with the boards, will be ensured. Equally, and I believe this is Bar Council. The model agreement is our governing a point Sir David Clementi made to you when he gave instrument; it separates the powers of the evidence, provided that is got right and the LSB has representative body fromthe regulatory side. We do strong powers to scrutinise the constitution of the have some teething troubles. We are working very regulatory board, then the other side of the same coin well with the Bar to ensure that these teething is that there should not be a need for the LSB to troubles are minimised, but I think there are two interfere in the particular regulatory decisions that issues that are of concern to us which we would like the boards are making because, if they are set up right you to look at. One is with regard to funding, and the with the right independence and the LSB can other is with regard to lay representation. Taking the guarantee that, then it should be able to be a ‘light latter first, because it is the easiest to deal with, we touch’ regulator with regard to substantive decisions. believe that the Bar Standards Board should have a We believe it is very important to get that balance lay majority—at the moment we have a barrister right in the Bill, and that if it is got right, that will be majority of one—and our model agreement does not the opportunity to fulfil what Sir David Clementi allow for that. On the question of funding, we have hoped for in this system. not got enough funds; we have not had as much resource attention given to us in setting up the organisation as was needed; the Bar is trying to work Q361 Lord Bach: I have a brief question about with us and is hoping to be able to give us a budget limited avenues for appeal against decisions of the that will match our requirements, but I think there is LSB, but before asking the question I wish to declare an important principle at stake here which is that, my interests. I am a non-practising barrister, briefly a within the Bill, there is no specific reference to Minister in the Lord Chancellor’s Department some resourcing along with governance arrangements, years ago. The Bar Council’s view is pretty clear. Do which would be helpful I think the Bar Standards you, Ms Evans, agree with the Bar Council that those Board as a regulator ought to be able to raise levies limited avenues of appeal that are at present in the for its regulated activities, the practising fee. This is Bill at the moment are unacceptable and, if they are, an important issue. We ought to be able to be what amendments would you suggest? I really ask the accountable to the profession for the money we spend question to both of you. on regulated activities and we ought to be able to put Ms Evans: I think we both disagree with the Bar in bids for fees which reflect the true costs of Council on this point. I, froma consumer regulation, and if there are increases needed, rather background, have a familiarity and understanding of than having to put in repeated bids on an annual the Ombudsman’s schemes in particular, and it seems basis to the Bar Council, we should have a to me that decisions on the Ombudsman are binding, transparent agreement in which we are directly consumers know that, the professions would know accountable to the profession for raising that fee for that. The consumer has redress to the judicial review our regulated activity. and that should be satisfactory, as it is in other Ombudsman’s schemes that are operated in the consumer interest. Mr Leggatt: And I would say that we do not want the Q360 Chairman: Now, you have referred to an regulatory systemto be heavy-handed, and we agreement between yourselves and the Bar Council. believe that if the balance of powers is got right in the Is that a public document? Bill there should not be need for additional structures 3 Note by Witness: ie the Bar Standards Board. on top of that. 3435523058 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Q362 John Hemming: The Bar Council have argued medical regulation, for decisions to be based both on there will be diYculties, including delay and a proper public interest input, a lay input, as well as duplication, which will arise fromthe splitting of relevant professional input on key questions which service complaints from complaints in respect of require legal expertise, particularly courtroom misconduct. Do you agree and, if so, do you have any practice, and George can perhaps elucidate on that evidence or examples of how diYculties of delay and again. But there will be components of a service and duplication could arise? a conduct case where it is extremely diYcult, Ms Evans: I think this is a very substantial question, particularly in court, to be able to separate conduct if you will forgive me for giving quite a long answer fromservice, and we believe that professional input, supplemented by George’s expertise, please. I have in the way that is already the case with the Bar looked at this very carefully and I think on the whole Standards Board, should be maintained. Speed: we that the way in which complaints have been dealt have a good record on complaints. 90 per cent of our with by the Bar Council has been good. They could cases are closed within a year, over half within three be improved and the lay commissioner, Robert months. Complaints need to be handled speedily for Behrens, whomwe recently appointed, is going to be the consumer, and the OLC will be dealing with a reviewing the whole systemof complaints.There is large number of complaints. Complaints against no complacency there; it is not a bad system but there barristers will represent just 3 per cent on current could be improvements. If, however, the proposals in figures of those complaints, and these complaints the Bill were taken forward, then there would be should be managed speedily. Cost: at present, serious risk of consumer detriment in a number of according to the figures that have been given, our key areas. There would be risk in terms of complaints cost £640. They will go up to £1,000. Part duplication, delays, substantial additional costs, of the reason is, of course, that the pro bono nature of there would be a risk of inconsistent decision- the barristers’ involvement in conduct cases will go. It making, and unless there is adequate professional will be far more expensive for our profession if input into the process, there is a risk of poor complaints are handled in this way. Simplicity: the decisions. Now, I would like to labour that point system should be simple for complainants about consumer detriment, coming from the themselves. It will not be. They need a single portal, background I do. I have a reasonable understanding we accept that, but there has to be delegated powers and awareness of what makes a good complaints to the Bar Standards Board, the regulator, we systemand I would like to be able to share this with suggest, in order to be able to reduce delays and the Joint Committee. I think it is a tremendously frustrations for consumers. On every count we feel, important point and one that has not yet been fully and we have looked at this carefully and, George, explained to the Joint Committee. It is a complex perhaps you could supplement on those areas I have matter. The criteria for a good consumer complaints mentioned, that the complaints handling component systeminvolve independence. There is no theological has got it wrong for barristers’ complaints. reason whatsoever suggesting that the regulator4 Mr Leggatt: All I would like to add is that we do think cannot be independent. However, there is a good in relation to complaints about barristers there is an point in complaints going through a single portal— important issue which has not really been grappled we totally accept that—but the complaints handling with, and it is the issue that most complaints, because process that is carried out by the regulator can be seen of the nature of barristers’ work, arise out of events to be independent. I do think there needs to be a that happen in and around court, and those events, single portal through which complaints are then and we have given some examples in our written delegated back. Consistency of decision-making paper to the Select Committee, almost inevitably must be paramount. There is a great risk that the involve both the consumer feeling unhappy and the OLC will make one decision on redress and another question of whether the barrister has acted properly decision will be made by the Bar Standards Board’s in terms of the barrister’s duties to the client and Conduct Committee on conduct. The reason I say duties to the court. So, in the way the Bill is presently this is that it is extremely diYcult to separate conduct structured, we do see that what is going to happen is fromredress, service complaintsfromconduct. 70 that there are going to be two procedures instead of per cent of the cases that the Bar Standards Board one, because in all these complaints they will be dealt deals with contain both, and I would like George to with on the one hand by the OLC dealing with redress elucidate on that in a minute, if I could. The risk of and then there is going to also be a separate inconsistent decision-making in which the consumer procedure, because there is going to need to be, to has to face two processes with the potential of two deal with the barrister’s conduct; and that is not outcomes seems to me to be something we should try going to be in the interests of the consumer, to have to avoid. There is the question of expertise. It is really to go through two processes and potentially give important, and I come from a background also of evidence twice. It will be all be longer and, worst of 4 Note by Witness: ie the Bar Standards Board. all, there is a risk that the two bodies will produce 3435523058 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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19 June 2006 Ms Ruth Evans and Mr George Leggatt QC diVerent decisions on exactly the same case, and that fromthe profession because it will be necessary for will be to no one’s advantage and we fear may bring the Legal Services Board to be satisfied that the Bar the systeminto discredit. regulator is set up to deal with complaints in a properly independent way. Q363 Lord Campbell of Alloway: May I declare an interest? I ama non-practising silk. We heard from Q366 Lord Campbell of Alloway: Very well, but Y the Bar Council that it was very di cult and not in could you tell us how the proposals are going to the consumer’s interest to try and separate conduct improve the present position that operates in the fromredress, and we were given the obvious main interests of the consumer, always bearing in mind the example that a lot of these arise out of the interests of the consumer and the quality of the circumstances in which a settlement was paid, and it advice? What is defective as far as the Bar’s position was pointed out—known to me but pointed out to which is going to be eVectively and necessarily people who were never involved in doing this—that rectified in this Bill? you need a certain expertise, not only to assess the Ms Evans: If I may answer that, Lord Chairman, the fault involved and the conduct, but also the redress. interests of the consumer are absolutely paramount It seems as if you both go along with that. Is that and the proposal that we have for delegated handling right? of complaints to the Bar’s regulator, the Bar Mr Leggatt: I certainly do, if I can answer first, but Standards Board, would satisfy all of Sir David Ruth will give her own answer. We have given other Clementi’s criteria for complaints handling for examples because there are many, but many consumers. What we are proposing absolutely meets complaints—the majority—about barristers relate to Sir David Clementi’s list, which is also our list, for a something that has happened in or around court. good consumer complaints handling system. Other examples include failing to adduce relevant evidence that was available. Q367 Lord Campbell of Alloway: So what is the use Q364 Lord Campbell of Alloway: If you say that, of the Bill? What advantage to the consumer does the could I ask this: what the Bar Council has proposed Bill give, in your opinion? does not seemto meto be wholly consistent, but it Ms Evans: A single portal, as it is currently expressed, may be and perhaps you can help. The Bar Council so all consumers know where they can go. We think proposes that the OYce of Legal Complaints should that is sensible. However, without the delegated retain the power to delegate complaints handling to function you are going to put all of Sir David approved regulators. Well, how on earth is that going Clementi’s criteria for a successful complaints to deal with the problemof conduct and redress? handling process at risk. Mr Leggatt: It will, I think, because the complaint will come in through the front door of the OYce of Legal Q368 Lord Neill of Bladen: The devil’s advocate Complaints and then, if it is a complaint about a might argue against you. You are talking about a barrister that raises a matter of conduct, the handling front door, post comes in and goes to the front door fromthen on of the complaintwould be dealt with by and immediately it gets sent straight oV to the Bar the Bar regulator. There is a very similar system to regulatory authority or whatever; that will soon be that in operation, in fact, in Australia, in New South common knowledge. What is the achievement in Wales, where they have exactly that arrangement having a front door if everybody knows the systemis under which there is a separate commissioner who that a particular profession’s particular regulators receives complaints and then, where appropriate, he will be dealing with the cases that are appropriate for or she can delegate the handling of the complaints to them, which they are doing, by and large, quite well another body. now? Ms Evans: I think the point is that some consumers Q365 Lord Campbell of Alloway: I understand what may not know where it is appropriate to go to, you say but, if you agree with that, how do you meet whether their complaint is primarily about a barrister Sir David Clementi’s conclusion that a single or about a solicitor, and to have a single portal is complaints handling body would foster simplicity, extremely helpful, also in terms of national consistency and independence fromthe profession? advertising. If the public are informed of a single How do you deal with that? gateway for complaints, that will soon become Mr Leggatt: It will foster simplicity because there will established practice, and I think that makes a lot of be one place for the consumer to go and make a sense. What we are unhappy about is the proposal complaint; it will foster consistency because you will that the OLC deals with this 3 per cent of complaints get an identical result of the conduct issue and the in a way which is going to have significant consumer consumer service issue because they will be decided in detriment on all the criteria that Sir David Clementi part of the same process; and it will be independent wanted. 3435523058 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Lord Neill of Bladen: I must apologise; I should have National Consumer Council who feel it is very declared my interest. I am a practising barrister. important to set up an absolutely independent, new, non rebranded organisation. Fromyour perspective, Q369 Baroness Falkner of Margravine: In your therefore, what are the benefits and drawbacks of the response you mentioned some of your costs, but do two options, one siting it in the West Midlands and you think the costs are reflected accurately in the so on, and the other to set up a new single portal? figures produced by the Government in their Ms Evans: As far as we are concerned neither option regulatory impact assessment, and in the light of the works. We are not interested in the ownership issue as report prepared by PricewaterhouseCoopers? such because our only concern is where is the relevant Ms Evans: We provided themwith our costs, that is expertise. What we need is an organisation that is fit the first thing I would like to say. The second matter to take on complaints which by their nature, as we is that the problemthat we have with the proposals in have already demonstrated, require a lay input and a the Bill is that the Bar Standards Board would still professional input, a barrister’s input, so we need to have to find another £135,000 a year in order to be have an organisation that has experience in handling able to deal with the complaints that are raised by the those complaints. I do not believe the existing Bar Standards Board itself and to deal with the organisations do and, of course, a new organisation liaison with the OLC. So the major problem we have by definition would not. But George may want to add is that the costs per case rise from£640 to £1,000. But to that. George might want to add to that. Mr Leggatt: No. I agree with Ruth and would say Mr Leggatt: No, I do not. that we have no view as far as solicitors are concerned as to what is the better arrangement for them, but we Q370 Baroness Falkner of Margravine: Moving on do not feel that either of these suggestions caters fromthat, we in taking evidence this afternoon heard appropriately for th e circumstances of complaints fromProfessor Saggar who put up a very robust about barristers. argument for the CCB to retain their service, and at Chairman: Thank you very much indeed. We are the same time we have seen written evidence and very grateful to you both for coming to give evidence. some of the responses of the Legal Services There are some additional questions we have not Complaints Commissioner and she did not think that really had time to cover, and if my colleagues can the CCB service was as robust as it was presented as explore with you ways of ensuring we have your being, and that, incidentally, is referred to by the answers to those as well, I would be very grateful.

Supplementary memorandum by the Bar Standards Board (Ev 56d)

I am writing to you with further comments from the Bar Standards Board on the draft Legal Services Bill. There are two particular points that we wish to make.

Appeals

We should like to clarify the Board’s answer to Q361 (Lord Bach) concerning whether we agree with the Bar Council that “those limited avenues of appeal that are at present in the Bill … are unacceptable”. We are not certain whether this question was intended to refer to appeals fromthe LSB, or to appeals from decisions of the OLC in relation to legal complaints, or to both. Our answer in each case is as follows: (1) As regards appeals fromthe LSB, the Board’s view is that—provided the p owers of the LSB are appropriately defined in the Bill so as to ensure that it may only interfere with regulatory decisions made by a front line regulator where such interference is necessary to avoid serious harmto the regulatory objectives— no avenue of appeal fromdecisions of the LSB (othe r than the right of judicial review) should be necessary. We therefore do not agree with the Bar Council on this point. (2) As regards the OLC, the Board has seen the legal advice received by the Bar Council and agrees with the Bar Council that, in order to comply with Article 6 of the ECHR, provision needs to be made for a right of appeal from decisions made in relation to legal complaints. Such an appeal should be available whether the complaint is handled by the OLC itself or (as the Bar Standards Board has urged should be permissible) by a body to which the OLC has delegated the handling of the complaint. 3435523059 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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If it would be possible to include a footnote referring to this clarification in the transcript of our evidence, we would be very grateful.

The Board’s Independence We have seen the evidence of the Law Society’s Regulatory Board and, in particular, would wish to support that four points that they make at paragraph 9 of that report. We believe that the Bill would be improved if these could be taken into account. 30 June 2006 3435523060 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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THURSDAY 22 JUNE 2006

Present Bach, L Michael Jabez Foster Campbell of Alloway, L JohnHemming Falkner of Margravine, B Stephen Hesford Henig, B Mr David Kidney Hunt of Wirral, L (Chairman)

In Attendance: Mr Nigel Reeder and Mr Sean Langley, members of the Draft Legal Services Bill Team.

Memorandum by the Co-operative Legal Services (Ev 66)

1. The Co-operative Group

The Co-operative Group is a membership organisation owned by and operated on behalf of its members. Its aims are fourfold: — to strive for world class levels of business performance; — to be open, responsible and rewarding, putting co-operative values and principles into everyday practice; — to enhance the lives of our people, members, customers and the communities in which we trade; and — to work for the long-termsuccess of the co-operative sector. Membership of the Co-operative is open to anyone over the age of 16 who shares the values and aims of the co-operative movement. With some two million members the Co-operative Group is the UK’s largest consumer owned co-operative. Additionally the Group services in excess of 15 million customers. The Group is a family of businesses—most of which are consumer facing—and its interests include farming, food retail, travel, pharmacy, funeral provision as well as the banking and insurance services within Co-operative Financial Services. Shared by all of the Co-operative Group’s businesses is a set of brand values of openness, honesty and trust. Championing the interests of our members has always been central to the Co-operative Group’s strategy and, over the years, we have introduced a number of market leading initiatives in our various commercial sectors. Our Right to Know policy within Food Retail, for instance, is a commitment to provide the facts that people need to make informed purchasing choices, Travelcare’s Holiday Report is a “warts and all” report which publishes complaints made by our customers against leading holiday companies as well as ourselves and the Funeralcare Forumbrought together experts to ensure that the interests o f the bereaved are central to our service. These are but three examples of our brand values in action and we are determined that openness, honesty and trust will be core to the delivery of CLS moving forward.

2. Co-operative Legal Services

Co-operative Legal Services (CLS) is a new co-operative business venture, launched earlier this year as part of the Co-operative Group, to provide a comprehensive suite of legal services. The new venture is based in Bristol and around 150 jobs will be created over five years. We are confident that the formation of CLS represents an important step in delivering the vision of greater consumer confidence and choice that was set out in the White Paper published in 2005 The Future of Legal Services: Putting Consumers First. We believe that the combination of the proven management team within CLS, first class products and services backed by the Co-operative brand will provide a compelling proposition in a market that has not always enjoyed the trust and confidence of consumers. 3435523060 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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3. The Current CLS Business Model Under Rule 3 of the Employed Solicitors Code 1990 CLS is currently able to operate a solicitors practice subject to certain limitations. The rule provides: “A solicitor who is the employee of an association may act for a member provided: (a) the membership of the association is limited to persons engaged or concerned in a particular trade, occupation or activity or otherwise having a community of interest; and (b) the association is one formed bona fide for the benefit of its members and not formed directly or indirectly for the benefit of the solicitor or primarily for securing assistance in legal proceedings; and (c) there shall be no charge to the member in non-contentious matters; and in contentious matters the association shall indemnify the member in relation to the solicitor’s costs and disbursements in so far as they are not recoverable fromany source.” Under this rule CLS is able to pursue claims on behalf of members of the Co-operative Group, where the issue in question is contentious and provided that CLS underwrites the member’s liabilities in terms of costs and disbursements. In practice this means that CLS is not currently allowed to employ solicitors who will undertake a conveyancing transaction for members or assist with a member’s probate unless CLS is prepared to oVer the services free of charge. CLS is able, however, to pursue a personal injury claim on behalf of a member and, if successful, recover the cost of the pursuit of that claimfromthe defendant third party. However, t his service can only be oVered to members at present. Under the current regulatory regime, CLS is not able to act in-house on behalf of non- members of the Co-operative Group. All non-member work has to be forwarded to one of the solicitor firms that make up CLS’s panel. The anomaly of this position is demonstrated in that CLS will be able to act on behalf of the estate of a member killed in a road traYc accident in bringing a fatal accident claimbut will not be able to assist i n obtaining the grant of probate or the administration of the estate. There is no logical reason or justification for this distinction.

4. Observations Regarding the Draft Legal Services Bill CLS welcomes publication of the draft Legal Services Bill. CLS believes that fundamental reform of the framework of legal services provision in England and Wales is required in order to ensure that our members and customers can benefit from greater access to legal advice, products and solutions. CLS believes that there is no sustainable reason why the legal services profession should not be subject to wider competition. Increased competition will bring benefits to: — consumers/clients; — the profession; — the customer service industry; and — the regulatory bodies. The interests of consumers—both in terms of clients and potential clients—must be the guiding principle that governs the establishment and operation of a regulatory framework for the legal professions. This means that all clients should benefit fromgreater access, choice and quality froma re gulated industry that they can trust.

4.1 The Impact of Proposed Legislation

(a) Regulatory Objectives CLS supports the regulatory objectives outlined in Part 1 of the Bill and believes that it is very important that “improving access to justice” and “protecting and promoting the interests of consumers” (part 1, clause 1.1a and 1b) figure so centrally in the opening clause of the Bill, thereby defining the legislation’s purpose. Access to justice, of course, includes financial access and issues of aVordability and physical/geographical access. But it also needs to include emotional access, especially given that in the private client sphere the vast majority of legal services are “distress” purchases, often made of necessity rather than choice. For many the fear of approaching a legal services provider because they think they will be patronised or talked down to is a major barrier. Any potential customer who feels like this does not have real access to the legal systemand justice. 3435523060 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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(b) The Legal Services Board CLS welcomes the proposal to establish the Legal Services Board (LSB) and supports the proposition that the LSB should exist to provide consistent oversight regulation of Front Line Regulators (FLR). The original proposition outlined in the Regulatory Review by Sir David Clementi was: “To consider what regulatory framework would best promote competition, innovation and the public and consumer interest in an eYcient, eVective and independent legal sector. To recommend a framework which will be independent in representing the public and consumer interest, comprehensive, accountable, consistent, flexible, transparent, and no more restrictive than is clearly justified.” CLS believes that an umbrella regulator will achieve this. The current regulatory regime is too complicated and has too many competing interests to be eVective. The establishment of the LSB to regulate the activity and performance of FLRs and the requirement for FLRs to separate their regulatory and non-regulatory functions is crucial to the establishment of a trusted and transparent regime. The LSB should recognise the diVerences that exist in those FLRs that it will be seeking to regulate. The LSB should not be inflexible in the way it deals with FLRs and should not seek to impose a single set of criteria on them.

(c) Alternative Business Structures CLS welcomes the proposals contained in Part 5 of the Draft Bill to allow for the creation of Alternative Business Structures (ABS). We believe that the entrance of trusted brands into the market place will lead to a greater degree of accessibility to the legal profession, a greater choice of services and better value for money. This arises from: — the stronger customer relationship that a consumer brand has with its customers; and — the greater flexibility that a large non-partnership organisation has to invest in systems and process that will drive through increased customer service. CLS also believe that customer protection and security is also vital. We therefore support the measures outlined in the Bill to ensure that only approved bodies are licensed to conduct legal activities. The designation of a Head of Legal Practice (s 75) and a Head of Finance and Administration (s.76) as approved persons is a sensible practical step to ensure compliance. In establishing the rules relating to the granting of licences, either by an FLR or the LSB, the most important issue that needs to be clarified are those relating to conflict of interest. Customers must be protected where there interests are in conflict with the business interests of ABS firms. The detailed rules surrounding the grant of licences and the ownership requirements should only be formulated following a full consultation by the LSB with the legal services industry and other interested parties. In this response CLS has not addressed the issue of multi-disciplinary practices. We welcome the proposals relating to the external ownership of legal practices but have not formulated a view on the provision of multiple professional services from one source although we recognise some of the concerns around legal professional privilege. Some professions may fit more comfortably together than others.

(d) The Office for Legal Complaints The eVective handling of complaints has been a contentious issue over many years for the solicitors profession. It is vital that all complaints are, and are seen to be, handled impartially and expeditiously. This is not happening under the existing regime. CLS believes that the proposal contained in Part 6 of the Bill that all complaints be initially made to the dedicated OYce for Legal Complaints (OLC) is correct. A “one-stop-shop” whatever the nature of the complaint is far easier for customers to understand. Customers cannot and should not be expected to understand which parts of legal service provision are regulated by which FLR. The scheme rules, which the OLC will be required to put in place should be the subject of consultation with the industry, the LSB and other interested parties. In conclusion, CLS believes that the Draft Legal Services Bill proposes a welcome step change in the future provision of legal services that will allow for more inclusive access to justice and greater customer focus. June 2006 3435523061 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Memorandum by the Institute of Chartered Accountants in England and Wales (Ev 65) The Institute of Chartered Accountants in England & Wales (“The Institute”) is pleased to respond to your request for written evidence to the Joint Committee on the Draft Legal Services Bill. We refer throughout to the draft Legal Services Bill as “the Bill”. You are in of our response to the White Paper, “The Future of Legal Services: Putting the Consumer First” [submitted but not printed]. It is therefore not our intention to rehearse the arguments therein save for those matters which we believe require further emphasis.

Introduction 1. The Institute of Chartered Accountants in England and Wales is the largest professional accountancy body in Europe, with more than 127,000 members. The qualifications oVered by the Institute are recognised around the world and allow members to call themselves Chartered Accountants and to use the designatory letters ACA or FCA. 2. The Institute has operated under a Royal Charter for more than 125 years, working in the public interest as a Charter obligation. It is regulated by the Department of Trade and Industry (DTI) through the Financial Reporting Council and its members are also regulated in a number of specialised areas for example by the FSA for investment business activities. Its primary objectives are to educate and train Chartered Accountants, to maintain high standards for professional conduct among members, to provide services to its members and students, and to advance the theory and practice of accountancy. 3. The characteristics of Chartered Accountants, developed through selection, training, support, regulation and monitoring, are of the highest standards. Our members are skilled in providing professional advice to clients including complex financial information, tax and financial reporting. Clients seek professional services fromtheir Chartered Accountants (including unreserved legal advice and other services) as a first port of call, because of confidence in their abilities, knowledge of the client’s aVairs, linkage to the accounting services already provided and because of our members’ competence to provide such services, cost eVectively. 4. It is important to maintain the distinction between the legal and accountancy professions, in order to ensure that appropriate ethical and competence standards continue to be imposed on both. Each profession requires high standards of integrity, but professional accountants are also required to act with objectivity. The principles set out in the Bill do not provide for this additional principle and require those covered by the Bill to act in the interests of their clients. Clearly, there are some areas of practice where these two principles could conflict: auditors act objectively in reporting on financial statements; lawyers representing their clients in court cases do so specifically in the interests of their clients. 5. There are many areas where the principles do not conflict, and the two professions can each provide legitimate and valuable services. The most obvious example is in the area of tax advice, where accountants have been providing advice on taxpayers’ rights and obligations under the law for many years but there are many other circumstances where adversarial proceedings are not in question and the professional is not engaged in forming an independent judgement. If this legislation does not take the opportunity to maintain and promote the ability of Chartered Accountants to compete freely with lawyers in these areas, a key opportunity will have been lost, to protect and promote the interests of consumers. 6. We are keen to see development that promotes choice and variety, in the provision of professional and legal services. As our profession is subject to rigorous standards, we believe that our members can play a key and increasing role in the development of this market.

Regulatory Objectives 7. We strongly support the regulatory objectives of the Bill, with the single exception that we question why Objective (b), on promoting competition, has been limited to competition between authorised persons providing reserved legal services. The Act should also seek to support competition between those supplying unreserved legal services, where this is in the interests of consumers. 8. There are aspects of the drafting of the Bill that we believe undermine itseVectiveness in meeting the regulatory objectives. In particular, if an unfair regulatory burden is imposed on Chartered Accountants seeking to provide legal services, within their areas of competence and the oversight of their professional body, this will fail to open the market, and thus fail to serve the interests of consumers. 3435523061 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Alternative Business Structures

Jurisdiction in relation to the unreserved and non-legal activities of licensed Alternative Business Structures (ABS) 9. We welcome the recognition, implicit in the Bill, that there is an interest in allowing professionals to practice together, and that this could be in the interests of their clients. However, the structure envisaged to allow this is complex, has adverse consequences and may not encourage take up of this option. 10. Part 5, Section 59(1) states “the provisions have eVect for the purposes of regulating the carrying on of reserved legal activities and other activities by licensed bodies” (our emphasis). 11. In order to provide clients with reserved legal services within an accountancy firm, the firm would be required to hold a licence as an ABS. In order for a legal practice to admit a Chartered Accountant as an owner or manager (even if the Chartered Accountant would not be providing legal services) would likewise require a licence. 12. As currently drafted, all activities of the licence holder, including non-reserved and non-legal services, would be subject to regulation at the same level as regulated legal services. This is unduly onerous, and does not give rise to an obvious benefit to clients. Where such non-lawyers are members of existing recognised professional bodies with high ethical standards of equal standing to those of lawyers, such regulation would appear to provide no additional safeguard to clients at all. 13. We suggest that the OLC and LSB would not wish to consider matters arising fromthe provision of services, which could be as diverse as pure accountancy to road-side breakdown recovery and regulated by other more appropriate bodies. 14. We submit that a distinction should be made between entities seeking to combine services under one roof (eg solicitors providing legal services and accountants providing accountancy services) and entities seeking to provide reserved legal services through hitherto unreserved individuals (eg accountants wishing to conduct reserved litigation). There is no risk to consumers in qualified professionals providing services within their professional competencies, and under the jurisdiction of their professional bodies, without subjecting such services to additional regulation. It would seemunfair that these profes sionals should eVectively be prevented from admission to principal status by virtue of their admission rendering the firman ABS (thus requiring a licence).

Regulatory co-ordination 15. Our regulatory arrangements with the FSA stand as a model of how inter-regulator referrals and co- ordination of jurisdictions by regulators has worked in practice. Consumers, in our experience, have not been confused or disadvantaged by these arrangements. We would urge the Joint Committee to consider this as an example that could be applied to the regulation of legal services.

Involvement of non-lawyers in legal practices 16. We agree that, before a licence is granted to an ABS, consideration should be given to whether the non- lawyers involved are fit and proper. Where member firms of this Institute include non-Chartered Accountants as partners, we have rigorous tests of fitness and propriety, contained in our “AYliate Regulations”. Among other requirements, these oblige aYliates to agree to abide by our ethical requirements and to subject themselves to our disciplinary regime. We do not understand why similar arrangements would not be possible for small numbers of non-lawyer professionals joining law firms, without the need for themto convert to ABS format. 17. We welcome the principle of permitting investment of non-lawyers in firms providing regulated legal services. We question whether law firms will change their approach and permit non-lawyers to enter partnership if to do so would require the additional requirements of an ABS licence.

Practical considerations 18. We do not envisage that our member firms will wish to provide regulated legal services as the primary function of their practice. Such services are more likely to be provided by lawyers through a legal department within an accountancy firm. 19. Whilst some entities may be attracted by the prospect of providing legal services through ABS the reach of the Bill to other unregulated activities would be an unwelcome prospect. 3435523061 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Definition of Legal Services 20. Our response to the White Paper addresses a number of issues on the definition of legal services. We refer the Joint Committee to those arguments generally (see Paragraphs 29 and 30 particularly). 21. We note that those legal services currently reserved (broadly to lawyers) have been unchanged. As argued in paragraph 4 above, some reserved legal services could equally be provided by non-lawyers, who are subject to existing and rigorous oversight structures, without the need to license the provider as an ABS. 22. Services, such as applying for probate are completely within the competence and skill set of Chartered Accountants. Others such as the drafting of some legal instruments (eg trust deeds), whilst requiring a high degree or skill and competence could be provided by professionals such as Chartered Accountants. Indeed, it is common for Chartered Accountants to undertake significant work for clients, submitting the resulting product to a solicitor only because the law prohibits the accountant fromp roviding the services personally. This creates an additional cost for the client without benefit. 23. We would not advocate deregulating these services entirely as in our view the provision of these services without any formof oversight would reduce quality and is counter-intuiti ve to promoting or protecting consumer interests. 24. We recommend that the Bill is amended to enable the provision of services which include: — applying for probate; — reserved instrument activities and — the administration of oaths; by listed professionals, including Chartered Accountants, under the jurisdiction of an appropriate professional body or other regulator. This would have the attraction of widening the market for the provision of these services whilst maintaining mechanisms that safeguard consumer interests. 25. We would stress that our members are required to undertake work only where they are competent to do so, or risk disciplinary action.

Licensed Access Scheme 26. Fair access to justice requires not only the ability to source optimal legal support and advice but also the ability to recover the costs in respect of the same. We remain concerned in respect of the Licensed Access Scheme and specifically the decision in Agassi v Robinson. 27. In that case, there was no doubt that the advice given was appropriate, high quality and cost eVective. Nonetheless, due to restrictions regarding the awarding of costs in legal proceedings, Mr Agassi’s choice of advisers (Chartered Tax Advisers rather than lawyers) meant he was unable to recover his costs. It would undermine the future provision of legal services, whether through ABS or traditional accountancy practices, if the costs incurred in circumstances similar to the Agassi case are not recoverable in the same way as the fees incurred by a legal practice would be. This would be a clear impediment to choice for consumers. 28. We urge the Joint Committee to reconsider this important area. This Bill presents an opportunity to clarify the position.

Legal Professional Privilege 29. Legal Professional Privilege is a sensitive issue, but it should be recognised that it does represent a competitive distortion in the market for professional services, where exactly equivalent services are provided by equally professional qualified service providers. We suggest that this matter does need to be included in the consideration of the Joint Committee.

Conclusions 30. The intensions of the Bill are to be supported and applauded. 31. We broadly welcome the proposed removal of the legal restrictions on law firms to include non-lawyers amongst their principals and the concept of ABS. However, adoption of the ABS will be deterred by the licence requirements eVectively meaning the status quo is retained. 32. We strongly urge the Joint Committee to amend the Bill, excluding from regulation unreserved and non- legal services provided by an ABS, where an existing professional body has jurisdiction. 3435523062 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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33. A consequence of the Bill should not be to undermine the key role non-lawyers play in the provisions of professional advice spanning legal and non-legal areas. 34. The Bill as currently worded misses opportunities for radical reform and further steps could be taken to simplify and open up the provision of legal services without compromising consumer protection or quality. 35. We submit that as currently drafted the Bill is not in the interests of consumers or the economy. We would welcome the opportunity to clarify any points contained in this submission. Should the Committee value our further input, in particular in clarifying its understanding of the accounting profession’s role in the provision of legal services, please do not hesitate to contact me. 15 June 2006

Examination of Witnesses Witnesses: Mr Eddie Ryan, Managing Director, Co-operative Legal Services, Mr James Molloy, Product Manager, Legal Services, AA, and Ms Felicity Banks, Head of Business Law, Institute of Chartered Accountants in England and Wales, gave evidence.

Q371 Chairman: May I welcome Felicity Banks, Q372 Chairman: The members of the legal Head of Business Law at the Institute of Chartered profession? Accountants in England and Wales, Eddie Ryan, Ms Banks: Yes. In most areas of professional practice managing director, Co-operative Legal Services and this makes absolutely no diVerence because the two James Molloy, product manager, Legal Services at are the same. There are some areas where they could the AA. Thank you very much indeed for finding conflict. Auditors have to be objective and people time to come and see us today. I am very sorry, and taking the position of the client in adversarial I apologise in advance that we do not have time for proceedings have to take the side of their client opening statements. We are very limited in the without too much regard to objectivity. Nevertheless, amount of time we have but this is an important because there is such a wide middle area where we can evidence session for us, and may I get straight into compete it is in the interests of clients in those areas matters and ask the first question, as well as declaring for such competition to be free and fair. So to give my interest in that I am myself a solicitor, a member some responsibility in the Bill for that area to be of the Law Society, and I hold a practising certificate provided fairly, I think would be fair and in the and have done since 1968. Now, if I recall, the interests of consumers. chartered accountants in England and Wales have proposed revising the regulatory objective in the Q373 Chairman: Mr Ryan? draft Bill to include promoting competition between Mr Ryan: I would respond initially by saying that it those supplying unreserved legal services as well as would not increase competition because already those supplying reserved legal services, and I these services are unreserved and therefore there is thought, Felicity Banks, I might ask, first, what free competition. However, we do recognise that benefit you feel this would bring? some of the services, in particular will writing and Ms Banks: May I say, first of all, that I am a member probate, may well be better served and consumers’ of a very proud profession. I ama chartered interests may well be better served, if those particular accountant myself and speaking to many members of items became restricted services and then fell within other proud professions you have no need to fear the control of the Legal Services Board as proposed competition. The best lawyers will always compete by the Bill. on an appropriate level, and sometimes with Mr Molloy: My view is that in the unreserved sector members of other professions. You will be aware that competition has never been an issue. It is important there are areas where lawyers compete with chartered to have consistency across the regulatory framework accountants, the most obvious one being in the area so that for that reason alone I think it is of advice on tax law. This is within the definition of advantageous to include the unreserved services in an unreserved legal service. The professions are addition to the reserved services. diVerent. The easiest diVerence to put your finger on Chairman: Just looking in more detail at the Legal is that, while both professions are required to be Services Board, John Hemming? independent and act to the highest standard of integrity, our members are obliged to be objective Q374 John Hemming: Particularly for the chartered while your members are required to serve the accountants, you have suggested that the regulatory interests of their clients. arrangements with the FSA should be the model upon which the regulation of legal service is based. 3435523062 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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How would you make those distinctions, and how been mishandling client money, the frontline would it improve upon the model proposed in the regulator would sort out the legal entity, the Bill? professional bodies would still need to sort out the Ms Banks: I want to make clear I am not suggesting individuals and discipline the individuals themselves, model A. I am not suggesting that the Legal Services so there would be an advantage in sharing Board becomes a huge sole regulator. When the FSA information. was set up, lawyers and accountants were the two Ms Banks: I have similar views. sections of the market which went from having a Chairman: Just looking now at alternative business single regulator to having two, their own professional structures, if we may, Lord Campbell. body and the FSA. This was very worrying to us but, in fact, arrangements have been made that even where the FSA has authority to regulate accounting Q378 Lord Campbell of Alloway: I had better declare business by accountants, they delegate that to the my interest: I am an aged Queen’s Counsel that no professional body. There are memoranda of longer practises. Why did your organisation propose understandings in place so that complaints are sent to establishing an alternative business structure in what the proper place to be dealt with cost eVectively and are the advantages—I do not like talking about easily. customers—to your clients of this as regards the quality, the advice that is given? Why do you do this? Q375 John Hemming: So what you are arguing for Mr Ryan: The Co-operative Group did far-ranging there is the delegation of complaints procedures. The consumer research before they decided to go ahead argument from the Bar is that barristers’ complaints and establish the Co-operative Legal Services should be handled by the Bar on a delegated basis, business, the research showed that people were and you are saying that works very well under the uncomfortable with some of the services that they FSA, although the argument is diVerent for were receiving fromthe present legal market.Our solicitors? research showed that people felt it was old-fashioned Ms Banks: It is not my area of specialism but if it and antiquated, it was expensive and very often cost caused a problemfor the clients of Chartered more than they anticipated, the whole process took Accountants I think I would know about it. far too long, and there was a feeling that there was a great deal of jargon being spoken and people were Q376 John Hemming: A question for everybody: being talked down to, so the type of service that our what might be the pros and cons of the OLC and the members are expecting and we would like to provide LSB entering into Memoranda of Understanding is one that is far more modern and is far more with other regulators or complaints bodies? approachable and in turn gives an overall better Mr Molloy: Certainly there have been numerous satisfaction to the consumer or to the client. examples, as we have seen with the rise of no win/no fee personal injury claims, for example, where fully regulated bodies, i.e. providers of legal services, and Q379 Chairman: May I just intervene and say that financial services (through after-the-event policies you are referring to some research which I am not too and financing arrangements) have still enabled sure you have shared with the Committee. It would consumers being ‘ripped oV’ and treated very be very helpful if you could. unfairly, and poorly. All of this in three very highly Mr Ryan: I will certainly provide a copy of it, yes. regulated sectors and I can only assume that is because the collaboration between regulators in adjacent sectors (where clearly there was a bundling Q380 Lord Campbell of Alloway: This is tangential. of diVerent types of regulated services) has not If you consider the scope of the Ombudsman scheme worked. I think it is important therefore for the new and that it is wholly undefined, and have you regulatory framework to take into account that there considered whether it is an impartial tribunal for the is regulation, and we need to see enforcement of purposes of Article 6(1) of the Convention, and, if so, current regulations as a priority in this. what are your comments, and if not, why not? Mr Molloy: I amsorry I do not feel it appropriate for Q377 John Hemming: So you are eVectively saying me to answer that question at all. there should be only one cook for each piece of broth? Ms Banks: We have a complaints mechanism within Mr Molloy: What I amsaying is they need to work the Institute that we believe to be adequate to control together to make sure that the customer is protected. the behaviour of both members of the Institute and Mr Ryan: I would largely agree with that. member firms of the Institute, and to that extent we Particularly where services overlap in terms of MDPs have views to put forward. Obviously one does not the regulatory bodies would need to share want more expensive complaints mechanisms than information where, for example, accountants have are necessary for the purpose. 3435523062 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Q381 Lord Campbell of Alloway: Are you content dangerous to say “no problems”, but an that there should be no supervisory jurisdiction apart encouragingly low level of problems. fromjudicial review which does not consider the merits in the High Court? Q384 Michael Jabez Foster: Very well. May I before Ms Banks: I aman accountant not a lawyer, and so asking Mr Molloy and Mr Ryan if they have a when it comes to appeal matters and things like that comment on that declare my own interest as a I would really prefer to defer to people with a better practising solicitor and a member of Law Society. Do specialismfor dealing with this than myself.We are either of you have a view on what has just been said? not allowed to give views on things we are not Mr Ryan: First, I would say that regulation for the qualified to give views on! protection of the consumers should be non Lord Campbell of Alloway: Thank you. negotiable. I do think that while multidisciplinary practices could result in regulation and whilst it may be eVective it may on the face of it be overly Q382 Michael Jabez Foster: I want to ask you, burdensome, and I guess the challenge is for us to Felicity Banks, a little about your opposition to the make sure that we get that balance of eVective formof regulation of ABSs. You say that in your regulation and management of the sector correct. I view it would be too onerous, it may even be a know for a fact that when Sir David Clementi was restriction on the development of alternative business first proposing in his report he was very much in structures. What particular aspects of proposals in favour of perhaps trying a limited legal disciplinary the Bill are you getting at? practice regime first and that may well be the way Ms Banks: I do understand that there needs to be forward. control over the ownership and management of Mr Molloy: I would add that a regulatory regime ABSs. You need to make sure that the people are fit which was selective meaning that certain types of and proper. The way the Bill is worded, though, bodies would have diVerent levels of regulatory leaves it very open. It makes it appear that an ABS burden is naturally uncompetitive, and so a more that was owned or included membership from our onerous approach to regulation will naturally stifle member firms, our member firms’ ABSs, would be innovation and investment. which is above all what I subject to dual regulation; they would be subject to think this Bill is trying to achieve—a new standard of the regulation of my Institute and also the licensing legal services, through new entrants bringing new body. Apart fromthe reserved legal services, where investment, new ideas and approaches. Any decision we do think a legal regulator oversight is appropriate, about the standard of regulation and whether both we do not consider this necessary. Dual regulation is reserved and unreserved services should be regulated unnecessary and over-onerous, and anything which in the same way has to be driven by what is best for is too expensive stands in the way of appropriate the consumer in terms of transparency and competition. consistency. which I think will have a greater impact in terms of building consumer confidence in the new Q383 Michael Jabez Foster: But would you accept, world. however, that, in fact, these are a diVerent animal than has been previously regulated and, therefore, Q385 Michael Jabez Foster: Felicity Banks, you there is a need for perhaps a higher level of regulation make a specific distinction in your paper between when we come to ABSs, that that is the very nature of those organisations seeking to combine services what they are, and a diVerent formis needed than under one roof and those organisations seeking what has been expected in the past? to provide reserved services through hitherto Ms Banks: The head of legal practice will have unreserved individuals. What practical diVerence oversight over the reserved legal services. Unreserved might that make? legal services, as I have said, have been provided by Ms Banks: I think the point I was trying to make was our membership to the benefit of their clients. Fewer that it is very important to make sure that reserved people would go to an accountant for tax advice if services are provided by competent, professional, they were not providing a very good service under ethical people. I think that is probably the only clear our regulatory oversight. Firms of chartered distinction I wanted to make there. accountants have, in fact, been multidisciplinary practices for many years. We do not demand that all Q386 Michael Jabez Foster: Is it practical to make partners in accountancy firms are qualified that distinction, then, because the nature of legal accountants; many of them have other specialisms. advice is often diverse. Frequently as a practising They sign up to our ethical code, and to our solicitor I know people come to you with one disciplinary processes, and to our monitoring of their problembut actually have a very di Verent problem, professional practice. So far as I amaware there have and it is the wealth of the knowledge of the lawyer been no problems for clients—it is perhaps that enables himor her to determinewhat the real 3435523062 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22 June 2006 Mr Eddie Ryan, Mr James Molloy and Ms Felicity Banks issue is rather than the one they thought they came asking me questions on regulation that I am a little bit with. So is it really practical to distinguish it? struggling with. Ms Banks: A real necessary skill for chartered accountants is to recognise when they are reaching Q389 Mr Kidney: So you do not know what the the end of their knowledge of the law and to refer Institute’s view would be on whether they should be their client on to a solicitor. We would like that seek to be an authorised body? Y solicitor to be there in their o ce ready to hand the Ms Banks: As a member representing our member client on to. firms I think it would be a very good idea. Mr Ryan: Ideally I would add that a client would want a one-stop-shop for the advice, but because of Q390 Mr Kidney: But that is a personal opinion in the diversity of the legal profession it might not the end? always be possible to give that advice, but you need Ms Banks: It is, because we have not looked at it to have available a body of support to provide the deeply. The Bill suggests that the frontline regulators advice in particular specialist areas, and our model and the licensing bodies will all be legal services would build a body of that support through the use professional bodies, not other professional bodies, so of a panel of solicitors as well as the in-house lawyers the idea was coming to me as something quite new. that we intend to use. But I must say it looks a very good idea to me. Mr Molloy: I think it is not uncommon for what we would describe here as ‘unreserved individuals’ to be delivering reserved services to clients, under the Q391 Mr Kidney: But taking a mixed firm of people supervision of a reserved person, an appropriate giving financial and legal advice, do you think the PQE, a partner or a solicitor, and I think under these Financial Services Authority would be an proposals that would remain the case. The head of a appropriate body to galvanise into that ABS firm? legal practice would, of course, take on the role being Ms Banks: I cannot see that that would be a huge carried on by a managing or senior partner in a law problemeither. The FSA also does a lot of work in firmtoday, so I do not see a di Verence between the ensuring that its authorised firms are run by fit and current situation and the future. proper people.

Q387 Mr Kidney: I declare my interest as a non- Q392 Mr Kidney: Can you foresee the FSA seeking practising solicitor. Felicity Banks, taking what you an authority fromthe Legal Services Board to be a said a little while ago about dual regulation, does it regulator? follow fromthat that you feel there should be Ms Banks: Do I really have to answer for the FSA? regulation fromoutside the legal sector, other than frontline regulators referred to in the draft Bill, who Q393 Mr Kidney: I amjust checking out how should be able to be the licensors of alternative feasible do you think it is for us to move so far away business structures? fromregulation of lawyers by bodies with some Ms Banks: I think that may well be a very good way experience of legal matters? forward. If our member firms come to us for a licence Ms Banks: I think the reserved legal services should as an ABS, we would be able to continue to provide have oversight froma legal regulator of somekind. our overall supervision of the firmwith the reserved For unreserved legal services, possibly on a diVerent legal services under the head of legal practice, under definition fromset out in the Bill, I think the FSA his oversight. I think that might well be a very good would be appropriate. The larger retail banks tend to appropriate answer. have trust departments which write wills and manage estates, and it seems to me that that is very much the Q388 Mr Kidney: Just pursuing this a little bit kind of service that it would be appropriate for the further, a new business giving a full wide range of FSA to regulate. I see no problemin your tax advice services containing some chartered recommending that this Bill gives the ability, for accountants and some professionals, would you example, for the FSA to regulate banks applying for envisage your Institute being authorised to license non-contentious probate, nor for the Institutes of that firm? Chartered Accountants to license our members to Ms Banks: At the current stage of the development of apply for non-contentious probate. It seems to me to this legislation we have not looked into it that deeply. be an area very much in line with what we already do At the moment the great majority of our regulatory and what our regulated populations do. oversight is on member firms only; these are firms with a majority of our members in the partnership. Q394 Mr Kidney: Let me at last get the views of the We have divided ourselves out as a professional other two witnesses on this, then. So these are mixed body. I am on the representational side and I am firms with some legal and other services. Should they totally separate fromthe regulatory side, so you are be regulated outside of the legal sector. Mr Ryan? 3435523062 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Mr Ryan: As I said earlier, I think as you move to between the employer and the fee earner’s duties mixed disciplinary practice the control becomes far diVerently, but I amsure that will develop over a more complex. I believe the proposals as put forward period of time as to how best to manage that conflict. of a single Legal Services Board does add clarity to the consumer on where to turn in the event of a Q397 Mr Kidney: As far as the language of this draft problem. I do not propose, and the Co-operative Legal Services Bill is concerned, do you think it Group would not, that the frontline regulators lose contains adequate safeguards against a problemof control of their members, and they would insist upon conflict of interests? the correct ethical values and principles being applied Mr Molloy: I do not necessarily think that there is a when those members are servicing those clients. problemwith such conflicts of interest today. I do not believe that in the new world such conflicts are likely Q395 Mr Kidney: Does that mean we cannot avoid to be prevalent. It is managed today; I think it will be the problemFelicity spoke about about dual managed in the future. I think this will happen regulation? For example, some of the accountants because of what happens in ABSs rather than being regulated by the Chartered Institute of because of the contents of the Bill. Chartered Accountants? Mr Ryan: It does not mean we cannot avoid it; that Q398 Mr Kidney: Mr Ryan, in the new world of ABS is a problemwe have to get over, and how those firms, do you think there is a conflict of interest that diVerent professions share that information, as we we should foresee today? were talking about earlier, and how they regulate on Mr Ryan: There is no greater conflict than already a joint basis would have to be considered very exists today—eg if a sole practitioner has to pay his carefully. rent, he needs to settle cases very quickly—but I have Mr Molloy: My view is that, should the FSA, express to say in establishing the Co-operative Legal Services a desire to become a frontline regulator, and one of the points I made very strongly to the co- provided it could demonstrate that it had the operative board, which incidentally consists of 28 necessary knowledge of the matters under regulation, members, 17 of whom are elected by the consumers together with the necessary competence, and possibly and the members of the co-operative group, so they included within its make-up a suitable level of legal are lay members of the board, that the solicitor/client professionals, it would make a perfectly adequate relationship is absolutely sacrosanct and nothing regulator for the new world. I do not necessarily could be put in the way of dealing with that solicitor/ think they should be barred just because they are not client relationship, and I think the risks for the Law Society, for instance. The principle of consumers in commercial conflict when dealing with regulation is to ensure that providers treat customers a £3 billion organisation are perhaps far less than fairly, and ensuring that organisations structure dealing with a sole practitioner. themselves and operate in such a way that puts the customer first. As long as the regulator is doing that Q399 Mr Kidney: Just listening to you reminds me job maybe it is not so important that it is exclusively that it is possible my wife has a share in a co-op so I made-up of lawyers. must declare that interest, in case it matters later on. Is there anything you can add about conflict of Q396 Mr Kidney: In the future, an ABS firm, that interest and how this draft Legal Services Bill deals customer who is a client of a legal professional in the with the problems that might arise in an ABS firm? business, how would he be reassured that in the event Ms Banks: In an ABS firminvolving lawyers and of a conflict between the duty to the client and to the accountants we are aware of potential conflicts—not employer it would be the client who comes first and so much between the interests of the owner and the not the employ’s interests? client as these will be no greater than in any Mr Molloy: This happens today. There are numerous professional service firmthat you act for. There will law firms where, particularly if they are doing work be, in some circumstances, potential problems which is fixed-fee in nature, such as in the insurance between the ethics of the two professions but, as I sector, for example, that conflict exists today. It is have said, I think these will be manageable and we managed by the case handler, or fee earner in would have harsh words to say about any lawyer or question, ‘pushing back’ at the senior partner or the accountant who did not put their own professional management structure about issues of allocation of ethics absolutely at the top of their professional time to individual clients.—that should be no practice. diVerent in the new world. I think the head of legal Mr Kidney: Thank you. practice is going to have a very important job in making sure that the client’s, or customer’s needs are Q400 Chairman: Mr Molloy, I think you used this at the core of everything the ABS does. 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22 June 2006 Mr Eddie Ryan, Mr James Molloy and Ms Felicity Banks of what this new world is, now the Bill receives its Mr Ryan: I have to say that we will be working both Royal Assent in its existing form, and how would you with our inhouse practice and a panel of solicitors. see the scene in five years’ time, which you now The advantage to the client is that the Co-operative describe as the “new world”? group represents a face, an organisation that they Mr Molloy: I will draw an analogy if I may with the trust, someone that they see as approachable, and all world of deregulated opticians services, more than 20 the market research, which, as I say, we will give you years ago, were first deregulated services provided by a copy of, did say that the consumer would accept opticians in a limited manner and if you were to go the Co-operative organisation, the Co-operative home this evening and open up Yellow Pages you will movement moving into this sector. We will not be see four major brands in that sector together with providing fromthe inhouse teamall of the legal quite a large number of small independent providers. services that our clients may need and that is why we I believe that this draws quite a nice picture of what will keep the panel of solicitors. For example, we may I think the legal services. sector will look like. I choose not to deal in matrimonial law so as not to believe that there will be a number of, ‘it may be a lot give one member advice which may upset another more than four, legal behemoths’, shall we say, that member who was part of the divorce, but we will then have established some position of significant market be able to direct those members to specialist panel share and who will be specialising in volume legal firms and we will be able to monitor the levels of services, whether in personal injury claims, or will- service that those firms provide and we can do that in writing or conveyancing. I think there will also be a two ways. The first is through auditing the work that number of smaller niche ‘boutique’ practices which they do, but also we will insist that every case on will specialise in areas of law which perhaps are not completion results in a satisfaction card being sent catered for by the larger operators. I believe that, out to the client and those cards will be returned through that mechanism, access to justice will be directly to ourselves, so we will ensure that the service protected. There will be ‘horses for courses’ providers that will be provided is of the best possible quality. who will step in and fill the gap for every legal need that presents itself. What will those really successful Q402 Chairman: Felicity Banks, do you just want to firms look like? I think they will look like comment on what you have heard about access to organisations that have invested very heavily in justice and access to legal advice in the way that Mr technology, in customer or client service, and in their Ryan’s and Mr Molloy’s new world portrays? marketing and product propositions, and so on. Ms Banks: As I have said, our members give routine These providers are the ones which will win advice on people’s rights and obligations under the significant share by simply giving the best oVering to law. They would find it easy and convenient and the potential client base out there. indeed it would be a good service for their clients if they could include solicitors, lawyers, on their staV to give more developed legal advice, legal advice from a Q401 Chairman: Mr Ryan, you of course in your lawyer, and I am sure, like my fellow panel members, organisation have worked with panels of solicitors. there will come a stage at which you have to go to an Just to assist the Committee, what would be the outside firmfor a really specialist service. advantages to your clients of receiving legal services Chairman: I would like to thank Felicity Banks, through the sort of structure which Mr Molloy is Eddie Ryan and James Molloy very much indeed for talking about rather than fromone of a panel of coming today. You have been of great assistance to solicitors who are recommended by, or working for, the Committee and thank you for taking the time and you? trouble to come.

Memorandum by the City of London LawSociety (Ev 42) The CLLS has appreciated the opportunity given for it and its clients to engage with the DCA in discussion on the principles of the proposed reforms set out in the Consultation Document, particularly as it represents almost half of the UK legal profession. The CLLS is, however, concerned that the Bill is in places inconsistent with the White Paper and does not reflect all the recommendations of the Clementi review. It is also concerned that the very short timeframe (16 working days) given to the profession for consideration of a complex and lengthy Bill and the Explanatory Notes is inadequate, particularly when only one of the CLLS’s many comments on the Consultation Document has been taken into account in the Bill. The legal profession and consumers of legal services of all kinds should be given suYcient time to consider the implications of the detail within its over 300 pages. In addition, the time given to the Joint Committee to report on the Bill (barely two months) is too short for proper consideration to be given by the Joint Committee to the concerns which will be raised in response to the Bill. 3435523063 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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1. Independence and Objectives

1.1 The CLLS’s primary concern is that any reform to the legal system must establish beyond doubt that the UK will continue to have a strong independent legal profession whose regulator is neither the creature of Government nor unduly influenced by particular interest groups. It is also vital that UK law firms be able to compete on a level playing field with international law firms with oYces in the City and be as free as possible to establish themselves in other jurisdictions. The City’s corporate and commercial lawyers should not be hindered fromcontinuing to maketheir considerable contribution to the n ational economy by practising in the UK and abroad on a level playing field with other lawyers. As well as addressing matters relevant to other sectors of the legal market, the regulator must in addition be well positioned, and required, to take account of matters aVecting solicitors and sophisticated consumers of legal services in the UK and international corporate and financial markets in which the CLLS’s members operate. 1.2 Given the statement above and the importance of the contribution of the members of the CLLS to the UK balance of payments, the CLLS considers that the objective (e) of the LSB in Clause 1(1) should be expanded to: “encouraging a strong, diverse and eVective legal profession, which is independent and internationally competitive”. 1.3 The CLLS remains concerned to ensure that the legal profession must be (and be seen to be) independent from Government. If it is not, public confidence in the legal process may be undermined and there is a risk of damage to the reputation of English law, its key role in international business and the ability of the UK law firms to practise internationally. This extends not only to the ability of such firms to exploit new legal markets but also their ability to service UK multinationals, who expect their lawyers to have oYces wherever they do. A perception of lack of independence arises as a result of the many powers given to the LSB which give the LSB the appearance of a primary regulator (rather than the supervisory regulator envisaged by Clementi) with disproportionate powers. The LSB should have proportionate powers which are adequate to deal with situations where FLRs fail. Are the powers in clauses 24, 30–33 and 34–37 needed for eVective regulation and consumer protection bearing in mind the powers in clauses 25–27, 28/29 and 38–40? Also, any powers given to the LSB should only be exercised if clear, objective tests are met (rather than the subjective tests in the Bill). In addition, there are no review or appeal procedures apart fromin relatio n to fines. Clause 3 is also problematic because it appears to allow the LSB too much subjective latitude in the way it will operate. Why are the words “so far as reasonably practicable” included in clause 3(2), and why is there no objective test in clause 3(2)(b)? In clause 3(3) why is the LSB only required “to have regard to” the various principles rather than to act in accordance with them. Also, clause 3(3)(b) is too vague and subjective. The Bill gold-plates the Clementi proposals. What is needed is light-touch regulation with the FLRs clearly operating as the primary regulators. The LSB should only exercise oversight of the FLRs and not be a de facto FLR itself. 1.4 The CLLS reiterates its view that the appointments to the LSB and OLC should not be entirely at the discretion of the Secretary of State. If the proposals remain as drafted (particularly as regards the chairman of the LSB) then the legislation should require appointments to be made in accordance with the Commissioner for Public Appointments’ Code of Practice. This concern would be particularly acute in circumstances where the LSB cancels the designation of an approved regulator and steps in to regulate directly. 1.5 If the chair of the LSB is to be independent fromthe profession, the CLLS remains of the view that individuals should not automatically be excluded from being able to chair the LSB purely as a result of having at some point practised as a solicitor or barrister or in other “reserved” professions. This seems to us to exclude automatically a range of individuals who may be well-suited to the position including many eminent public servants with such a background. We also question why this limitation applies only in relation to the first chair since, arguably, the first chair would, during the set-up period, benefit most froman understanding of the profession. 1.6 The CLLS is still of the view that it is essential that lay members of the LSB, the Consumer Panel and the OLC should incorporate a cross-section of all legal consumers including heads of legal departments/general counsel drawn fromcorporate entities or other sophisticated purchasers of legal services. 1.7 Consistent with this requirement for balance, the CLLS would prefer the requirements for membership of the LSB to be amended. We believe that the reference in paragraph 3 of Schedule 1 to the requirement for membership of those with knowledge of “commercial aVairs” should be revised to reflect sophisticated purchasers of legal services, who may themselves be legally qualified. Possible alternatives might be: with experience of “complex international business matters” or “international legal services or financial markets”, or these criteria could instead be added as additional items. 3435523063 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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1.8 In relation to the OLC, a similar amendment should be made to paragraph 4 of Schedule 13 in order for the OLC to be better informed as to the expectations and complaints of such consumers. 1.9 In relation to the Consumer Panel, the CLLS does not feel that the drafting makes the correct distinction, namely between those for whom the purchase of legal services is a rare event (such as individuals) and sophisticated consumers, who often deal with legal advisers on a daily basis. For example, in Clause 7(4)(a), would a Government department consider itself to be a “business”? In addition, the CLLS considers that the wording of Clause 7(5)(d) should be revised so that it does not exclude in-house counsel fromserving as members of the Consumer Panel since they are amongst the biggest and most sophisticated consumers of legal services.

2. Involvement of the Profession

2.1 All parts of the legal profession should be closely involved in, and consulted about, its own regulation. Good regulation should be a partnership between regulators, consumers and professionals. The LSB should be required to consult the legal profession and the business community whenever it is required to consult the Consumer Panel, for example in relation to paragraph 3(2) of Schedule 9 where it is proposed to cancel the designation of an approved regulator because this could have a impact on the perceived independence of the profession. 2.2 In addition, the FLRs, the legal profession and the business community should be consulted about any extension of the scope of the legislation.

3. Risk-Based Approach/Proportionality

3.1 The CLLS welcomes the risk-based approach set out in Clauses 3(3) and 23(3) but would like greater clarity in terms of the wording to ensure that the FLRs will make and apply rules which properly reflect the primary legislation’s intent. The legislation must require the FLRs to have regard to: (a) the principle that a burden or restriction which is imposed should be proportionate to the benefits which are expected to result fromthe impositionof that burden or restrict ion (cf s.2(3) of FSMA); and (b) the diVering degrees of risk involved in diVerent types of transactions; and also the diVering degrees of experience and expertise that diVerent consumers may have (cf s. 5(2)(a)/(b) of FSMA).

4. Alternative Business Structures

4.1 This is a complex area in relation to which the CLLS considers Government is trying to cover too much detail too quickly. 4.2 The CLLS considers that the Government’s proposals still need more detailed thought and consultation. There seems to be little evidence in the Bill that the Government has resolved fully all of the complexities identified in relation to “MDPs” in Sir David Clementi’s Report. Therefore the primary legislation should only set out the framework; the detailed regulations should be developed in consultation with the legal profession and consumers of all kinds and set out in secondary legislation. Generally, the FLRs should be given the additional powers and should determine the details of the regime, not the LSB. The CLLS is not convinced that a separate regime is necessary or cost-eVective, and thinks that it will be confusing for consumers to have to deal with a regulator carrying out two diVerent roles. Also, if ABSs can choose which FLR would regulate them, this might result in less consumer protection if they choose the most lenient. 4.3 Moreover, the detail of regulation in the Bill is unclear in a number of respects, particularly the circumstances in which the ABS regime will apply. For example: (a) there is currently an illogical distinction between outside investment in a corporate (10 per cent materiality threshold) and an LLP (no materiality threshold) (Clause 90); (b) paragraphs 170, 171 and 209 of the Explanatory Notes appear to be inconsistent and contribute to the confusion which still remains in the Bill about ABSs. 3435523063 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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4.4 The regime should require clearly that firms must make a positive decision to become an ABS. UK law firms should not be forced to become an ABS because the scope of the regime is too widely framed. The regime should only apply if either non-lawyers control a firmor if there is materia l outside equity investment. It should not apply eg because: (a) there are barristers or foreign lawyers in the firm or a small number of non-client facing partners who are in charge of finances/administration; (b) the members of the firm lend money to the firm; and (c) the firmis a LLP. 4.5 The ABS regime must not aVect the ability of overseas lawyers to be partners in UK firms (eg because overseas law/Bar rules prohibit the ABS structure). 4.6 The relevant FLR should be able to determine what it requires in relation to control of management and set its rules accordingly. If it is felt essential to deal with the management of conflicts of interest, a possible alternative approach would be for the primary legislation to require only that the FLRs have regard in their rules to the management of conflicts of interest, and then for the FLRs to set the detailed rules. In a similar vein, the details of the regulations in relation to Head of Legal Practice and Head of Finance and Administration should not be included in primary legislation.

5. Costs of New Regulatory Regime

5.1 The CLLS considers that the costs of the proposed regime should be properly scrutinised to ensure that the increased costs are justified and can be borne fairly, particularly as the proposed regulatory framework is diVerent and more costly than that envisaged in the Clementi model. The CLLS also considers that Government should contribute to the costs, at least initially. This is particularly important since if the costs of the new structure are to be borne entirely by the profession (as appears to be the case) this will ultimately feed through to the consumer. David McIntosh Chairman CLLS Working Group 14 June 2006

Executive Summary

1. Inadequate time for consideration by the profession of the Bill. 2. Inadequate time for the Joint Committee to properly consider comments made and to report on the Bill. 3. Need for greater emphasis on the importance of independence for the legal profession and its regulators. The basis on which members of the LSB are appointed needs to be more distant fromGovernment.In addition, the powers of the LSB are disproportionate to its role as an oversight regulator and gold-plate the Clementi proposals. 4. Importance of ensuring that the City’s corporate and commercial lawyers are not hindered fromcontinuing to make their considerable contribution to the national economy by practising in the UK and abroad on a level playing field with other lawyers. 5. Need for greater recognition of the fact that sophisticated consumers include legally-qualified regular purchasers of legal services, requiring diVerent protection fromprivate consumerswho purchase legal services infrequently. 6. Need for greater recognition that the sophisticated consumer needs proper representation on the Consumer Panel and a voice in the regulatory process. 7. The need for the appointments to the Legal Services Board and the OYce for Legal Complaints to be more clearly independent of Government. 3435523063 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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8. The need for greater involvement of the legal profession in the implementation of this legislation and its impact, to ensure the support and compliance of the profession and proper protection for all kinds of consumers of legal services. 9. The need for greater clarity in the role and scope of Front Line Regulators to ensure implementation of risk-based and proportionate regulation. 10. The need for further consideration and consultation in respect of Alternative Business Structures (ABS) and clarity that firms must be required to make a positive decision to become an ABS. 11. Greater scrutiny to be given to the increased costs of the new structure and whether Government should contribute to these initially. This submission has been endorsed by Slaughter and May, Bird & Bird, Freshfields Bruckhaus Deringer, Lovells, Derchert LLP, Holman Fenwick & Willan, Charles Russell LLP and Addleshaw Goddard.

Memorandum by Slaughter and May (Ev 22) Slaughter and May has been actively involved in helping the City of London Law Society to formulate its written response to the Joint Committee on the Draft Legal Services Bill (copy attached) and therefore broadly supports the views put forward in that response. Should the Committee wish to talk to us about any aspects of the response, please contact David Frank (the Firm’s Practice Partner and a Corporate Partner) or me (the Firm’s Executive Support Lawyer). Sarah de Gay 14 June 2006

Memorandum by Bird & Bird (Ev 23) I attach a copy of the City of London Law Society response to the Draft Legal Services Bill, as submitted today to the Joint Committee before whom David McIntosh of CLLS is giving evidence on Thursday 22 June. As a law firmwith 150 years of history, headquartered in the City, and now wit h 500 lawyers of whomthree- quarters are non-UK lawyers qualified and based overseas, with a turnover of approaching £100 million per annum and serving large commercial clients, we endorse the views contained in this response paper, not least those concerning independence and proportionality. The complicated proposals, in our opinion, merit consideration over a greater period of time than is being allowed. Roger Butterworth Partner Bird & Bird 14 June 2006

Memorandum by Freshfields Bruckhaus Deringer (Ev 24) You will have received today the CLLS’s response paper to the Bill. I served as the Freshfields Bruckhaus Deringer representative on the Working Group. My firmstrongly endorses th e response made by the CLLS. Julian Francis 14 June 2006

Memorandum by Lovells (Ev 38)

I write to endorse the response paper to the Draft Legal Services Bill submitted by the City of London Law Society. The paper accurately reflects the concerns this firmhas about the p roposed changes, and we very much hope that the points made in it will be taken into account in the final Bill. John Young Senior Partner 15 June 2006 3435523068 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Memorandum by Dechert LLP (Ev 44)

I have reviewed the CLS response to the draft Legal Services Bill which has been submitted to the Joint Committee and, in our capacity as a Corporate Member firm of CLLS, write to endorse the views contained in that draft response. James M Croock 14 June 2006

Memorandum by Holman Fenwick & Willan (Ev 48) I refer to the City of London Law Society’s response to the Draft Legal Services Bill, as submitted today to the Joint Committee before whom David McIntosh is giving evidence on Thursday 22 June. I confirmon behalf of this firm, a corporate member of the CLLS, that we fully support that response. Roderic O’Sullivan Senior Partner 14 June 2006

Memorandum by Charles Russell LLP (Ev 49) I refer to the Response to the Draft Legal Serivices Bill which has been submitted by the City of London Law Society of which Charles Russell LLP is a corporate member and write on behalf of this firmto endorse the views expressed in that response. Caroline Byram Risk and Compliance Manager For and on behalf of Charles Russell LLP 15 June 2006

Memorandum by AddleshawGoddard (Ev 81) I write simply to bring to the attention of the Joint Committee the support of my firm for the response put in by the City of London Law Society. I am sure you are aware that the recommendations carry the weight of a significant degree of support through a wide range of law firms in London, including the largest. I am sure you are aware through our contribution that law firms make to the economy and to the Community. I trust that you will give the proposals careful consideration. Paul Lee Senior Partner 28 June 2006

Memorandum by the Solicitors Sole Practioners Group (Ev 25)

Summary

1. The purpose of this submission is to alert Parliament and the Joint Committee to: — the loss of the independence of the legal profession contrary to the Rule of Law — the loss of independent legal advice by the adoption of Alternative Business Structures 2. The Solicitors Sole Practitioners Group response deals with these questions and some of the specific issues raised in the Call for Evidence. 3435523072 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Introduction

3. The Solicitors Sole Practitioners Group is a group of approximately 4,000 solicitors out of a total of approximately 100,000. They form a group within the Law Society and endeavour to maintain close links with the Society and its oYcers.

4. All sole practitioners are treated as members of the Group. The Group has an executive of about 15 members holding quarterly meetings and an annual conference. There are several local groups around the country. The Executive keeps in close contact with each other by e-mail and with members through a quarterly magazine, and from time to time, questionnaires on their views.

5. The Group has given responses to all consultations and reports on the issues leading up to the draft Legal Services Bill since the OFT’s 2001 report. In particular the Group responded to Sir David Clementi’s review and a delegation visited Sir David Clementi personally. Before responding to Sir David Clementi’s review the Executive canvassed all sole practitioners and received their responses to specific questions.

6. It appears from what is said in the Joint Committee’s Call for Evidence that the Group’s response to the White Paper is already before the Joint Committee.

7. The Group welcomes the opportunity to be able to respond to the Joint Committee and in particular the issues which the Committee has identified on which it would welcome evidence.

8. There has been a lengthy process towards the Draft Legal Services Bill since the OFT Report in 2001. That Report asked for legal services to be more consumer orientated and legal practices to be less restrictive. The legal profession was under criticismfor its poor complaintshandling. Th e question was raised as to how the profession could regulate itself and at the same time represent itself in the same body.

9. The Law Society has anticipated these issues and has moved to separate regulation fromrepresentation which is a move welcomed by many sole practitioners. That provision is now in place and it is not anticipated that the Legal Services Bill will change it. In addition the handling of complaints against solicitors by the Law Society has improved considerably and it is now recommended and intended that this will be dealt with by an independent body. Sole practitioners are broadly content with that.

10. On the assumption that those matters can be dealt with without the requirement for a wide-ranging Legal Services Bill, the question then arises as to the necessity for the remaining provisions of the Bill.

Are the Draft Bill’s Proposals Necessary and could the Bill’s Proposed Outcomes be Achieved by Better Means

11. Sir David Clementi’s Review, accepted by the White Paper and the draft Legal Services Bill, is that the front-line regulators should be retained. Much was made in the Review, and the Background to the Bill, of the existing alleged maze of regulation. Consideration was given to the abolition of the front-line regulators and the imposition of a single Legal Services Board which Sir David Clementi and most other consultees felt was unwieldy and unworkable. It now seems that that for very understandable pragmatic reasons the “maze of regulation” will continue but with a further tier of oversight. The question arises whether that tier of oversight will achieve anything of practical value to the consumer and the legal profession.

12. The only likely practical eVect of such a further tier of regulation is to be able to exercise a degree of control over the front-line regulators. As the Legal Services Board, the new overall regulator will be appointed by the Secretary of State, that control is eVectively government control. At present the front-line regulators operate under their own individual Acts of Parliament so that Parliament is able to decide what substantive changes should be made in their activities. This function will now be transferred to a Board under the control of a Minister of the Government in power for the time being.

13. There is an argument to say that a Legal Services Board will coordinate the functions of front-line regulators and provide control of some legal activities which are not at present satisfactorily controlled by the existing regulators. There is also an argument to say that the public perception will be that the Board gives greater clarity and accountability, but if the public were aware of the potential loss of independence of legal advice, public reaction would no doubt be diVerent. 3435523072 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The Proposed Structure and Powers of the Proposed Legal Services Board

14. The proposed powers of the Board are wide and in eVect amount to the control of the front-line regulators under a systemof licensing. By exerting influence and pressure on the front -line regulators the Board, and through it the Government, can exert influence on the providers of legal services. 15. At present solicitors and barristers who provide the majority of legal advice and representation are ultimately accountable to the independent judiciary through formal control by the Master of the Rolls, rather than the Government. The present proposals appear to remove any form of accountability to the judiciary and will inevitably weaken the ethos of both barristers and solicitors as “oYcers of the court”. 16. It is that responsibility to the independent judiciary, rather than to a government-controlled authority, which is the bedrock of our legal systemand enables the individual to be pro tected fromthe State. 17. In its previous submissions the Group have argued strenuously that the appointment of the Chairman of the Board and its members should be by the judiciary, in consultation with the Secretary of State. The proposals in the Bill are for appointment purely by the Secretary of State without any consultation with the judiciary. The involvement of the judiciary is only as consultees in relation to issues involving regulation of front-line regulators which might impinge on the workings of the courts. Even in those circumstances there is no obligation on the Board to comply with any such representations. 18. The International Bar Association has expressed its standards for the Independence of the Legal Profession (1990) in the following terms: “A lawyer in discharging his or her duties shall at all times act freely, diligently and fearlessly in accordance with the legitimate interests of the client and without any inhibition or pressure fromthe authorities or the public”. 19. The United Nations set out basic principles on the role of lawyers adopted by the eighth UN Congress on the prevention of crime and the treatment of oVenders as follows: “Lawyers shall be entitled to formand join self-governing professional a ssociations to represent their interests, promote their continuing education and training and protect their professional integrity. The executive body of the professional association shall be elected by its members and shall exercise its functions without external interference”. 20. Accordingly whilst the prospect of coordination of legal services by a Legal Services Board may have merit, the fact that that coordination is by a Board which is appointed solely by a Government Minister without consultation, threatens the whole independence of the provision of legal services, and lawyers providing those services will have concern as to ultimate Government control over their activities. 21. It is accepted that paragraph 35 of the Notes to the Bill states that it is expected that appointments to the Board will be made in accordance with the requirements of the Commissioner for Public Appointments but such process will only result in a recommendation and will be subject to the Ministers influence. The Board is hardly likely to act independently of the wishes of Government

Regulatory Objectives

22. These are laudable objectives in themselves which need to be balanced. It is noted that they are not intended to be ranked but that the first objective is “supporting the constitutional principle of the Rule of Law.” This constitutional principle can only be satisfactorily supported if the practical operation of the rule of law is not controlled by a Board appointed by the Secretary of State. There is an argument to say that because of that, the first regulatory objective of the Bill is in practice, in conflict with the provisions of the Bill itself. 23. It is presumably intended that there should be no competition between the diVerent regulatory objectives but there is obviously going to be competition between the regulatory objective of “promoting and maintaining adherence to the professional principles” and the two regulatory objectives of “protecting and promoting the interests of consumers” and particularly “promoting competition and the provision of reserved legal activities”. It will be unfortunate if the Bill were to provide a vehicle to encourage a conflict between diVerent objectives. 3435523072 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Alternative Business Structures 24. The first significant departure in the draft Bill fromcurrent practice i s to place the ultimate control of the provision of legal services into the hands of the control of the Secretary of State. 25. The second is to allow the provision of legal services to be provided through commercial organisations which are not controlled by lawyers who are subject to professional standards. There is no other example of this world wide apart possibly fromNew South Wales in Australia. It does no t happen in Europe and it does not happen in America. The Americans are a most consumer and commercially orientated country and yet, the American Bar Association, having considered the issue, does not feel that the provision of legal services can be put into the hands of commercial organisations. Other European countries have considered the issue in various European Court decisions and supported the principle of independence. 26. The draft Bill has attempted to deal with problems which have been voiced by many parties and which the draughtsman of the Bill accept are real, by proposing a complex system of licensing and in-house supervision by way of a designated Head of Legal Practice (HOLP) and a designated Head of Finance and Administration (HOFA) 27. Those protections open the door firstly to disputes as to the “fitness to own” test, and secondly cannot avoid the pressures which will be placed upon legal staV by virtue of their employment, which may have an eVect on the way in which they feel obliged to work. 28. There is really no substantive evidence that the public believe they will be better served by receiving legal services “in bulk” any more than they are at present. As has been seen by current experience, existing legal firms are able to provide bulk conveyancing facilities if they wish to. These operations can be expanded on but there is nothing to say that they will be improved by being given under a commercial brand. To combine a commercial brand with the provision of services normally understood by the public to be provided by solicitors can only diminish the solicitors “brand” which at present, whilst it is subject to some criticism as to delay and expense, is never subject to the criticismof lack of independenc e. 29. An example of the diYculties created by the imposition of commercial pressures on legal work has been the example of the Claims Farmers. It seems to be generally accepted that the experience of claims farmers is not being good and some of the worst examples of commercial pressures and commercial practice have resulted fromthem.The public perception of themis not good. 30. However many safeguards are put in by the fitness test and HOLP and HOFA protections these will not be understood by the public who will perceive a lack of independence in the legal advice they receive which will be particularly damaging when complaints are made which involve this accusation. 31. The provision of legal advice in this country is subject to several perceived complaints by the public but very rarely, if at all, do those complaints involve allegations of lack of independence. It will be disastrous for public confidence if that consideration enters the equation bearing in mind that many disputes that the public have are in fact with Government itself. 32. In short the position is that at this point: — consumer interests have been driving this proposed new regime for provision of legal services; — some solicitors have welcomed it because of the cash value that will be placed on their partnerships in being bought out by commercial interests; — the Law Society has agreed because of various pressures upon it; — few commercial interests have shown an interest in the proposals; — it is not proved that many consumers will be better oV; — the systemhas not been tested elsewhere in the world; and — the risks of the changes are considerable. 33. All previous reports have only given recommendations without being responsible for the changes. Parliament itself is responsible for the changes. It is now for Parliament to decide whether it is prepared to take responsibility for such a significant change. Parliament might consider that some change is acceptable without allowing commercial interests to have a majority controlling interest. 34. Sole practitioners generally do not disagree with the need for greater involvement, below a controlling interest, for non legal employees of legal firms. Similarly it may be acceptable for non legal investors to hold an interest in legal firms of less than 50 per cent. 3435523073 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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35. Sir David Clementi advised against multidisciplinary partnerships, which in fact sole practitioners were more prepared to accept than controlling outside ownership. At least the intention would be that all parts of a multidisciplinary professional partnership would be subject to regulation. The diYculty is that the regulation of those partnerships involving lawyers and nonlawyers would cross regulatory boundaries giving considerable complications for no significant perceived benefit.

36. The author of this submission has read the various reports cited in the Risk Assessment accompanying the Bill in relation to Alternative Business structures. It is for the members of the Joint Committee and for Parliament to consider the value of these reports. Solicitors themselves are very conscious of the fact that there is no diYculty in obtaining expert opinions to give two completely diametric points of view.

37. The reports give detailed theoretical reasoning as to why Alternative Business Structures will be beneficial, but they do this on the basis of reasons of commerciality coupled with potential safeguards, rather than from the basis of constitutional principles and existing safeguards which have always underwritten the provision of legal services, both in this country and abroad, and which eVectively only this country is now intending to discard.

38. At an early stage the Sole Practitioners Group obtained an opinion of Counsel, Professor Nicholas Grief, an expert in constitutional law, who incidentally gave an opinion against the legality of the Iraq war, which many people may now consider was a valid opinion. This opinion is annexed [submitted but not printed] and expresses the ways in which the legislation will have an impact on EEC Regulations and Conventions.

39. If, in spite of these and other similar submissions, Parliament does determine to proceed with provisions for majority non legal control of solicitors firms then the Group proposes that the Bill should provide that this should be delayed for a suYcient period of time to allow the Legal Services Board to establish itself and for the eVects of the new regulatory regime to be established before taking the next step of allowing commercial interests also to have a majority control in legal firms. This approach is supported by the report of Brearley and Frank. At page 33 they state “We believe that there are several preconditions for successful change. First a programme of incremental change is almost certainly more desirable than abrupt change. The fact that ownership restrictions are so widespread and that empirical evidence of a world without such restrictions is limited gives force to the argument for an incremental approach.”

40. From the above it can be seen that the Joint Committee’s request for evidence in respect of potential conflicts of interest is answered as follows (a) Internally—any potential conflicts of interest in firms providing multidisciplinary services.

The benefit to the consumer at present is that, in obtaining the separate advice of at least two separate independent professional advisers in the course of a transaction, such as a solicitor and a surveyor, each will be able to draw the attention of the client to any failures of the other, but in the case of a multidisciplinary partnership the incentive will be for any failure by one part of the partnership not to be revealed by the other. The incentive will always be to ensure that the deal goes through. The question of overlapping regulation is also a diYculty. The High Street already provides the public with separate independent advice fromvarious diVerent disciplines within close proximity to one another. (b) Externally—any potential conflicts of interest between the demands of legal professional work and external shareholders.

This is where the Group’s main concern is expressed to the Joint committee, whether the shareholders or stakeholders are concerned, as pure shareholders and investors, or as part of another company providing complimentary services, or as a company exercising influence related to their own particular non legal financial or commercial interests. The interests of those parties are eventually in the long run bound to erode or overcome checks and balances such as those proposed in this Bill. A former Prime Minister has said “one can’t buck the market”. (c) The impact on legal professional privilege.

In the case of external majority ownership it will be physically impossible to ensure the vital protection of legal professional privilege, or to be sure that it has been protected. 3435523074 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Other Issues 41. The Sole Practitioners Group is concerned to draw the Joint Committees attention to these major principles and the arguments that support them. This is because the Group do not believe the Law Society will advance the above views. The Group are satisfied that the views are held by a majority of sole practitioners and by a substantial proportion of remainder of the profession, and are views that the Joint Committee should be aware of. 42. The other issues referred to in the Call for Evidence, including questions of funding, relationship with complaints, compensation fund arrangements and the OYce for Legal Complaints, are matters which the Law Society will no doubt express views on, which the Group will probably be content to support.

The Impact on the Legal Profession 43. Evidence is not specifically invited on the impact of the Bill on the existing legal profession. However it appears to be an accepted fact that the impact the Bill will have, and is intended to have, on the legal profession and its method of delivery of legal advice and services, will be significant. That is argued to be a good thing or something which will benefit the public. 44. The eVect of the changes is likely to be heaviest on medium-sized high-street firms providing a local service. Those firms are already under pressure from the eVects of the public funding restrictions. The changes will mean that legal services will be provided by remote out-of-town call centre providers without a personal service. There are numerous clients of local firms, often elderly, often of ethnic minorities, who depend on their relationship with, and availability, of their local solicitor for support and advice. 45. Whilst the new proposals may benefit some people who are looking purely for an impersonal service at a lower cost than that provided already by high street solicitors, the eVect of the changes in the Bill will be to deprive many others of the service currently provided at a low or reasonable cost on a personal and easily accessible basis. The advantages of the proposals are unquantified, but the disadvantages are accepted, and this sea change in the provision of legal advice should not be taken to be of benefit to all consumers of legal services. The Joint Committee should take into account the accepted fact that the changes will reduce local legal advice and services and the Committee should find that this will disadvantage significant numbers existing consumers. June 2006

Examination of Witnesses Witnesses: Mr Stephen Alambritis, Head of Parliamentary Affairs, Federation of Small Businesses; Mr David McIntosh, Chair, City of London Law Society; Mr Clive Sutton, Honorary Secretary, Solicitors Sole Practitioners Group; and Mr Robert Banks, Bar Sole Practitioners Group, examined.

Q403 Chairman: I would like to thank Clive Sutton, see that the concerns might be diVerent and perhaps I David McIntosh, Robert Banks and Stephen might start with the City of London Law Society, Mr Alambritis very much indeed for coming. May I McIntosh, and would you like to share with us your apologise immediately for putting you together at the concerns against the background which has been same table when I can well understand that you have painted for us by a number of witnesses of our legal some diVerent points of view to put across. I am systemand our legal profession being a centre of afraid this was forced on us by the fact that we are excellence which is greatly revered across the world operating against this very tight timetable and thank and has global significance. Perhaps you, of all you very much indeed for understanding this and people, Mr McIntosh, represent a number of very key taking the time and trouble to come. We are seeing firms in the City of London who really do the UK the Minister on Monday, so this is our final evidence proud right across the world, so it is quite important session before we see the Minister, hence we have to to hear fromyou as to what you feel as to the e Vect try and pack as much as we can into this session, but this Bill will have. what I thought I might do was to start oV with a Mr McIntosh: Thank you very much. Can I clear my general question, asking about your concerns about three conflicts, that my wife shops at the Co-op, I am the sort of world the Bill may well create. In asking a member of the AA and an accountant helps me in these general questions to start oV with, I should my financial aVairs. Can I also disclose my declare my interest as a member of the Law Society coincidence that, like you, Chairman, I was admitted and I had a practising certificate for many years. I can in 1968 and have enjoyed it since then. 3435523074 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Q404 Chairman: You have weathered better than removes these concerns from our minds. The mere the Chairman! perception of a lack of independence from Mr McIntosh: I amnot sure about that! The main government will be used against my member firms in concern of my church of members is to highlight the situations where they are competing for international importance of the country’s leading commercial law instructions and will play into the hands of the firms being allowed to build upon their substantial protective bar associations around the world who are contribution to the UK economy and the quite diYcult when we are trying to obtain practice underpinning of, in particular, the City of London as rights abroad and establishment rights abroad. I the world’s leading legal and financial service. That is know that fromfirst-hand experience because, when a shared concern. If you will just permit me to point President of the national Law Society, I spent quite a to a DCA document, called ‘Exporting Excellence’, I lot of my year campaigning for improved do not think I can improve upon this short quote, establishment rights and practice rights abroad, and which says, “Legal services are at the very heart of that included talking to the governments with our every financial and business transaction and key to Government’s support as this is always supported by the proper functioning of the economy. However, the the UK Government for the reasons I have identified very nature of legal work often means that it is in the quote I gave you, and that included China, overlooked as a major contributor to the UK’s Japan, Hong Kong, Korea, the USA, Canada and economy. Four of the global 100’s largest law firms, quite a lot of European countries. You will be based on revenue, were fromthe UK in 2003–04. The surprised, some of you, I think, by the lengths to sector contributed £12.9 billion or 1.3 per cent of the which those bar associations, not the governments UK’s GDP in 2002–03. Seven of the top 10 firms, because the governments in those countries are trying ranked by the proportion of lawyers outside home to engender business and create commercial centres jurisdiction, are fromthe UK and exports generated where they need the excellence of, among others, by international law firms totalled £1.8 million, in English lawyers, but the bar associations are a little 2003: three times the total since 1995 and have risen scared and very protective. Now, the power of the since then”. A second very short quote, and I take Secretary of State to appoint and the detailed powers great pleasure in this one, is the Minister who is written into the Bill as drafted which are almost day- coming before you next week said this in a magazine to-day powers which will be reposed in the Legal called Managing for Success with regard to the Bill Services Board, even if not used, even if just in reserve that is being considered today: “We should rightly or, perhaps I should say, in terrorem, could create a maintain the best quality of the current system which situation which will allow people to suggest, maybe have secured UK lawyers their unrivalled wrongly, but possibly rightly, that there is a challenge international reputation for independence and to independence. If that happens, that could aVect professionalism.” Our concern is that those objectives, which are shared objectives, could be the competitiveness that we want to preserve. If the undermined if the Bill goes through as drawn. As Bill, however, was drawn to Sir David Clementi’s drawn, it could amount to an own goal in terms of expectations and to the expectations of those of us undermining international standing of the firms that who listen to a lot of words fromthe Government Y I represent, the firms referred to in my first quote are and government o cials in favour of a B-plus light- all corporate members of the City of London Law handed approach with less power, but obviously the Society. power to call if the front-line operator really got it wrong, if the Bill were rewritten in that way, instead of in a way where it contains the tools, even if those Q405 Chairman: Can I just draw you a little further tools are not used, for a heavy-handed model-A on that. Presumably you are referring to the approach, we would not have any problems with that independent element? aspect of the Bill. Suitably modified, I do not think Mr McIntosh: Yes. the danger I have spoken of on independence would be a real one. Q406 Chairman: Would you like just to give us some advice as to how what is presently proposed could, in the way you describe, damage the reputation of Q407 Chairman: That is all very helpful. Turning English law and the ability of firms that you represent perhaps to Stephen Alambritis next, we have had to practise internationally? some evidence, looking at the high street, from the Mr McIntosh: Can I preface answering that question OFT and a number of other organisations that it is up by saying this: that the City of London Law Society to the market to decide whether there is a future for and its members are in sympathy with the overall the small business in the legal profession, the high objectives of this Bill and their concern is the way it is street practitioner. Perhaps you might share with us written and there should be a way of writing it which your concerns about the Bill in that context. 3435523074 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Mr Alambritis: Thank you. I would just declare the Government, and that is something we will no doubt fact that I am a member of the Consumer Advisory come back to, and, secondly, you are bringing in a Panel at the DCA on this aspect of the DCA’s work lack of independence by the fact that legal services and I amhere representing smallbusinesses as will be potentially provide d by those with a consumers as well as small firms of solicitors; we do commercial interest in other matters and in the not have too many of those. I just want to make it provision of other services. Now, that, as I clear that there are 4.3 million small businesses, all understand it, is something which has never been users of legal services. The FSB has just under done in any other part of the world. The Americans 200,000 members of which only 600 are small firms of have considered it and have rejected it and we cannot solicitors and, therefore, where we are coming from see, on behalf of the sole practitioners, of which 95 as an organisation is the use of legal services by small per cent of our survey do not agree with the question firms. We see the Bill as not overarching, as a light of ABS, we cannot see the reason why. What is the touch and leaving the front-line regulator with quite advantage that is going to be gained for giving up a lot of scope to deal with the representation versus what is a fundamental cornerstone of the provision of the regulation aspect. With regard to the high street, our legal services in this country and something we do believe that the legal profession should wake which has never been adopted by anybody else. I up to the fact that consumers now demand a high believe New South Wales possibly. But it is level of delivery service, a very high level, and what something which we will be doing which is we are seeing amongst small businesses, in particular, completely novel so far as the world is concerned. I is the need for one-stop-shop advice. We, as an have my concerns that that sort of issue will impact organisation, have a free legal expenses insurance on our international standing, and that will be scheme in place for our members and there is a lot of diminished by the fact that other countries are aware demand for that. We provide litigation, we provide that our legal services are being provided on a legal advice, legal information, health and safety and commercial basis, which is unnecessary and, in my tax representation. When we ask the just under view, in our view, completely wrong. 200,000 members of the FSB why they joined, years ago they joined for the conviction for the lobby, but lately they joined for this one-stop-shop service of Q409 Chairman: Mr Banks, on behalf of the Bar legal advice which is why we believe that the future Sole Practitioners, what are your concerns? could lie in the ABS, alternative business structure, Mr Banks: Could I declare an interest too and say for small law firms. that the views I express have been discussed among our members, although it is not a formal position that we have, but, like many of the issues we have Q408 Chairman: Yes, we will come back to that a discussed, we do not put forward our views in little later. Mr Sutton, presumably you have got relation to our position and we look at it purely from concerns on behalf of the Solicitors Sole Practitioners the public interest and the consumer. If it is bad news Group. Would you like to share themwith us? for the legal profession, but good news for the public, Mr Sutton: Yes, speaking as a sole practitioner, our then the public must win. As far as my concerns are members are independent; as you can appreciate concerned, my overall concern is that there is a fromour name,they have strong, independent views; danger that the Committee will consider the they do not feel they have any vested interests and, I regulatory framework and competition rather than have to say, almost everyone you hear from today has whether you are exposing the consumer to danger. some body or some organisation behind them on We, the people I have discussed it with, see this Bill behalf of whomthey are speaking. We do not. We are as quite dangerous in some fundamental respects and all independent. We provide a personal service to our likely to expose the consumers and in fact, as far as clients. That, we think, is going to be something the alternative business structures are concerned, which you may not get with the alternative business likely to reduce competition and possibly increase structures as they will be very much more corporately prices and, perhaps even more important, expose the structured. The way I would like to put the opening consumer to not having the independence that they suggestion which you made is to say that excellence must have with their adviser. The reason we say this is is the essence of the provision of legal services in this that one of the reasons our legal profession does quite country and, so far as we are concerned, in the world well overall is it has so far managed to resist context, and the only reason for this excellence has commercial pressures and corruption. There are legal been its history of independence fromany other systems around the world with the tape turned oV. outside influences. Unfortunately, you are, in this We know where they are, across the Atlantic, in some Bill, starting to bring in, firstly, the lack of countries in Europe and some of the emerging independence due to the appointment of the Legal countries and the independence of the Bar and Services Board, on the face of the Bill directly by the solicitors is not present. People are sat on and the 3435523074 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22 June 2006 Mr StephenAlambritis, Mr David McIntosh,Mr Clive Sutton and Mr Robert Banks systemof justice is corrupted. One of the ways that could make some significant changes to help in we have achieved not having that in this country is relation to developing their organisation in the same because of the separation between the Bar and way that direct access has been formulated with the solicitors. Of course there are changes that need to be Bar and the mediation and the arbitration services. made and have been made but the protection from They have been developed organically, but this Bill is the community and the division there is most trying to do too much and, at the end of it, will have important. When someone goes to see a solicitor done things it never intended to do, so work with the primarily, but also a barrister, what happens is they professions and do it organically. are somebody who at the moment is rigidly Mr Sutton: I would not disagree with that. I agree controlled about what they can and cannot do. At the that there is much too much being expected, but what moment, my work in the legal world shows that it is we are concerned about as sole practitioners is this happening. That is why generally if you go to a step that is being taken, to go beyond the ownership solicitor you get independent advice which is of legal firms by lawyers, to get to a point where they unaVected by other interests. Although the Bill is well are owned in a majority way by commercial intentioned and nobody can dispute that the organisations. That has never happened before, I do objectives of Clementi are correct, the eVect is that it not think, anywhere in the world. You have a is raising a curtain, will let in what many think are situation with commercial organisations that they certain bits of competition but the eVect is that when have their own agenda. They have to do what they the “Spuds R Us” company is receiving customers have to do. They have to comply with their through the door they are not receiving good choice. shareholders’ wishes; they have to comply with their They go to the one shop. They can progress through owners’ wishes. Executives are very good at getting with probate, for instance, matrimonial or whatever. their own way. There will be continual pressure by They will be oVered the choice of the one shop. At the these commercial organisations, once they are moment, if you go to an estate agent, there is always responsible for lawyers, to press the regulators to ease the protection that they then hand over the very the rules. There will be pressure on Parliament to ease important bit of tying the legal knot to a solicitor. the rules. There will be pressure to continue to change You get two people and the checks and balances the law into a commercial organisation. You may mean that the fraud at that stage is less. have many other criticisms of a solicitor. You may say he is slow, he overcharges, but you cannot say he Q410 Chairman: You are concerned about the one is not independent. No member of the public has yet stop shop? said a solicitor is not independent. As soon as this Bill Mr Banks: I amvery concerned about the one stop goes through and some mistakes happen, the first cry shop and also I amconcerned about people who are fromfrustrated clients, a nd tabloids possibly, will be, involved in the provision of legal services who are “My solicitor was not straight. He was employed by able to contribute to the decision making and they Boots or the AA” or whatever. are not lawyers. They are not subject to the code of Mr Alambritis: We think this is a good Bill. It is for conduct. They may be subject to some regulations the benefit of consumers who are using legal services. formulated here but the eVect is that on the ground We have no problemwith the appointmentof the they are likely to pay more and they are likely to have Legal Services Board by the Secretary of State. If you those people who should not intrude on that decision. recall, the OFT director general and oYcers are all It is necessary for the lawyer to be able to stand up in appointed by a Secretary of State through the DTI independent practice and say, “That is not on. We and they are independent. There will be a consumer cannot do that” and those are my concerns. panel on the Legal Services Board which will represent consumers. We think that is important. Q411 Baroness Falkner of Margravine: How would There is a consumer panel on Ofcom and the you have it? Would you retain the status quo? Financial Services Authority. It is important that the Mr Banks: One of the best areas of law I learned at legal profession embraces change. This change is law school was equity. That was a systemof law that based on giving consumers more choice and a greater was developed organically. Problems arose and say. Let me remind the Committee that there is lawyers introduced certain tests. The problemwith a safeguard within ABS. Depending on the the law making since I came into practice is that there predominant profession within that ABS, there will has been a whole raft of changes and there have only be a head of legal practice or a head of administration been three criminal bills that have made things better. and finance and they will be ethically bound. I am All the rest have not. What I would like to see is puzzled as to why we have been told that legal firms organic change because this Bill is trying to do too are not commercial firms. We are all in the business much and is introducing exposure working with the of making some money along the way. Independence professions. Take Felicity Banks. Her organisation will still be retained. We think the evidence for the 3435523074 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22 June 2006 Mr StephenAlambritis, Mr David McIntosh,Mr Clive Sutton and Mr Robert Banks change comes from consumers, giving them a voice, Mr Alambritis: You should be able to bang heads but also comes from this yearning for one stop shops. together in terms of having under one roof estate WWW.shop4law.co.uk is one, as is internet agents, accountants, solicitors and so on. They are all globalisation and legal expenses insurances, where a ethically driven. They should all be mature enough to lot of businesses are going that way. If you have a decide who the head of legal practice and the head of building society account, if you are with the AA or finance and administration is. That is the safeguard the RAC, you have legal expenses insurance. More in terms of ensuring that everything goes well. We and more consumers are using that. ABS is an option. need to think more about the consumer, Joe Public, Law firms do not have to go for ABS. It is a voluntary who is going into this one stop shop and is reassured option. That will give the opportunity for rural law that he can get all the legal services he wants. He does firms to combine with the rural estate agencies based not have to go separately to an estate agent or a on ethics. They are all ethical. They should all be able solicitor or a licensed conveyancer or legal executive. to talk to each other ethically and make it a success. They go to a one stop shop and they are reassured Mr McIntosh: I will keep back my thoughts on ABS they can get it all there. It is voluntary; it is not because we are coming to that separately. It might be imposed. It may or may not happen, depending on useful to highlight the importance of distinguishing the market and how that is driven. As far as I know, between diVerent types of consumers. It is tempting the independence of the Law Society and the Bar to lump them all together. I not only think that one Council will be retained. You have to get into the size does not fit all; I do not think one size fits shoes of the consumer to understand the Bill is much anybody. There has to be flexibility. I amvery morefocused on the needs of th e consumer and the concerned about quality of service to the consumer, demands of the consumer, given the speed with which depending on which consumer it is. There may be a consumers now want resolution to problems. diVerence in quality required in bulk buying of routine things and buying very specialist things. Q413 Lord Campbell of Alloway: This wretched What my constituents sell is really complicated things consumer is a client seeking legal advice. I hate the and even those thinking of ABS and having a panel term“consumer”.Are you insured against giving are going to instruct the sort of firmI represent negligent advice? The Bar is. Solicitors are. Are you? V anyway on the hybrid stu . They are governed by a Who insures you? What is the nature of your market place with very sophisticated clients. Very insurance that it is this great safeguard for what you often the buyer of their services is the in-house call consumers? lawyer. I would not like to see a one size fits all Mr Alambritis: I amsure ABS firmswould be insured approach stultify the market place. I would not like just like any other firm. I do not see any to see my members over-regulated, competing diVerentiation. against others, perhaps foreign firms in London, Mr McIntosh: I sympathise with Lord Campbell’s doing non-reserved work, not being regulated to the concern about quality. I represent some very high same extent and gaining a competitive advantage as quality law firms. Not one of them, including the a result of our being hidebound by double tiers and largest in the world, pretends it can be a one shop far too much regulation. place for everything. There are things it will not do and could not do as well as smaller firms. The danger Q412 Lord Campbell of Alloway: Up to a point you is this idea that the customer or consumer—I prefer V have all made your position plain save for one thing. I “client”—will not know the di erence between butter totally accept that we are all in the business of making and margarine. They might think they are going to a money on the way. Fair enough, but all my life I have one shop place as they go to a hypermarket, if you been in another business of professional obligation to like, but they will not know until too late that the get independent and proper advice to the client. particular discipline that they want the service on There have been occasions at the Bar when a solicitor within that one shop is not as good as that same has sent work to me. It has landed on my desk and the service by a sole practitioner or a firmlike the ones I clerk has said, “You cannot do it. I amsending it represent down the road. They will learn about the back. You do not know enough about it.” I would problems too late. say, “Really?” and he would say, “No. It would not be good for chambers. You would mess it up.” How Q414 John Hemming: I should declare the only do you cope with the quality of advice unless you interest that is relevant to these proceedings. I ama have a solicitor and an independent Bar? We do not member of the FSB. I believe in Scotland we have always advise the way that solicitors want us to and solicitors and estate agents operating together. If you we do not always do what solicitors want us to do but have a solicitor and an estate agent working together we have all survived. How do you get this quality on a transactional fee type basis, how do you resolve with a one shop? I do not understand how you do it. the conflict of interest there? 3435523074 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22 June 2006 Mr StephenAlambritis, Mr David McIntosh,Mr Clive Sutton and Mr Robert Banks

Mr Alambritis: I do not see where the conflict of know those people who have gone too far, those interest would come into it if they are professional solicitors who then take that they should not do, people, professionally qualified and signed up to the which should have gone to an independent barrister codes of practice of their relevant bodies. For the who is a specialist in this area. That independent estate agent it would be the National Association of barrister not only represents the client, consumer or Estate Agents. For the solicitor it would be the Law whatever best but he or she also saves a great deal of Society. Let us not forget that the head of legal public money by doing it extremely eYciently. practice and head of finance and administration will Therefore, your concerns should be everybody’s be there to resolve any conflict of interest. concerns.

Q415 John Hemming: Do you accept that there is a Q417 Mr Kidney: I amsure Mr Banks is not taking conflict of interest if they are paid on a transactional about solicitors who have an accreditation to be an basis so that they are paid 1 per cent of the property advocate in a higher court when he says that. or transaction going through, and the solicitor thinks Mr Banks: I regret some of those have done certain this is not a good transaction; it is not in the interests things. I hope I amnot o Vending the solicitors here. of the client? Mr Alambritis: I am sure that by communicating with each other on a daily basis they should be able to Q418 Lord Bach: What about some barristers who resolve those kinds of issues in the interests of the also appear who are not up to it? Mr Banks: They do not have Henry as a clerk. consumer, the client.

Q416 Stephen Hesford: My interest is that I aman Q419 Stephen Hesford: I have to wear another hat ex-practising member of the Bar, no longer because I have asked one side of the coin. I now go to practising. This is to the FSB. In some ways we have the other side of the coin. Mr McIntosh, are you already touched upon much of what I would be aware of Olswang? seeking to look at which is really the benefits and Mr McIntosh: Yes. disbenefits fromyour perspective. What is the consumer research that your organisation has done Q420 Stephen Hesford: They are a member of your to persuade you that this is the way forward? organisation, I understand? Mr Alambritis: The evidence is the increase in the Mr McIntosh: Yes. membership of the FSB. When we ask the members why they joined the organisation, it is primarily to take advantage of the legal expenses insurance Q421 Stephen Hesford: I further understand that scheme we have in place, for which we pay over £4 they do not agree with your stance. In evidence to us million in premium and for which we get over 150,000 they suggest that you are wrong and that they are calls each year from the members. Primarily, they happy with the framework. There appears to be a join the organisation to take advantage of that one contradiction within the camp. Mr McIntosh: stop shop of legal services which is information, I have read Olswang’s letter and they advice, litigation and tax representation. We are are supportive of everything we have said, except they take a diVerent view over the way in which ABSs coming at it from that element of demand that we see V for the one stop shop that we are running. should be organised. The di erence is not one of any Mr Banks: Lord Campbell asked us about the great distinction. In our paper, because we felt that independent Bar. That sounds very favourable for the provisions for ABS were too woolly and the five barristers, the independent Bar, but it is exceptionally people on our working party could not understand important when there are competing pressure on the provisions, asked questions and still could not consumer, client, defendant, respondent, whatever it understand them, we said, “Would it not be a good is, that individual in the spotlight. The solicitor can idea to set the framework and deal with it by way of go to the independent Bar and have the clearest, subsidiary legislation?” We are just as comfortable independent advice and it is sometimes extremely with the idea of the framework being set and it being unfavourable. It will only be given if he or she has the worked out by the front line regulator. There is not really a distinction between us and Olswang. I am expertise to do it. The danger of not having a fully delighted they agree with everything else we have independent Bar is shown by regretfully the lack of said, without qualification. success—I hope you do not feel oVended—in certain solicitors trying to do work as solicitor advocates, which they are not properly qualified to do for Q422 Stephen Hesford: Because ABSs may provide commercial reasons. Please accept that I am sure a new type of firmto the market,the one stop shop most solicitors know when they go too far but you writ large—I am not taking about a one stop shop in 3435523074 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22 June 2006 Mr StephenAlambritis, Mr David McIntosh,Mr Clive Sutton and Mr Robert Banks the City—is not your stance contradictory and self- Q424 Chairman: Thirteen and a half years. interested? Really, the point you make is that you are Mr McIntosh: Yes, the fact that the case was not afraid of competition? perhaps managed as well as it ought to have been. On Mr McIntosh: The answer to your primary question careful reading of his criticisms, he is certainly not a is no, it is not contradictory. We are in favour of the man who is going to take a diVerent view to the idea of ABSs. We would like the choice to be there for government about the importance of civil, legal people to go down that route, provided they are services to the economy. He is not a man who would properly defined, provided they do not inadvertently take make sweeping statement. I dare say he was very make into an ABS something that is not. A law firm pleased with his own solicitors when it comes to it. of 550 people converted into an ABS because it has This is an example of, if you take a snapshot of one partner alongside the other 549 who happens not yesterday and you take a snapshot of some other day to be a solicitor? It is not the intention to make that in the future when a Secretary of State may be fed up into an ABS. We want the wording to avoid the with the National Law Society over some prickly mistake of making things into an ABS that are not subject. These powers, if they exist will, in my intended to be caught. We want a situation where, if opinion, be exercised when somebody is in a bad you want to be an ABS, you know how to go about mood. We need to take those powers out of the Act it and you apply to be one. One thing is sure. There so that people in a bad mood cannot wrongly use will not be a charge towards ABSs in the City. The them. I have read David Clementi’s evidence and he lesson of New South Wales tells us that it probably was quite rightly praising the calibre of the current will not be taken up massively because the City firms chair of the Regulation Board, Peter Williamson, but are quite used to the fact that hardly any of themhave what if one day we have a very strong Secretary of any major client who does not have two or three State and a fairly weak chair of the board? You others of themon their panels because of risk of would not even need to invoke the rules. You would conflict. Their clients are used to retaining their first just mention a concern over lunch, as you might do, and best choice of lawyer alongside their first and and the board might be quiescent. I am sorry to get best choice of accountant, financial adviser and bank. heated about it but I have spent my whole life being They put these ad hoc teams together for major independent and I amvery scared about that transactions and their clients realise you will not independence being threatened. necessarily get everything that is best in a one stop shop. We are not fearful. If you are led to think that, Q425 Stephen Hesford: I amfascinated—and I am you misunderstood our position and I am very sure the Committee is—and I welcome the chance to delighted to spell it out. We are not against; we are in have this exchange because this sounds like evidence favour of clarity and choice. We are not frightened of froma profession in a bad mood. anything except a lack of independence and Mr McIntosh: I amsorry about that. government control. Q426 Stephen Hesford: The fear seems irrational, if Q423 Stephen Hesford: In the City, there has been a you do not mind my saying so. There is a power in the big bang exercise already in relation to other Bill and there is no evidence that it will ever be industries and provisions of services, the Chinese operated unless the profession screw up badly so that walls and all that sort of stuV that used to exist. The an extra, type A, regulation has to come into force. It city on the back of that has gone fromstrength to will not ever be used if the profession behaves itself. strength. What is the diVerence? Is it just that this is Mr Macintosh: At the risk of increasing your feeling to do with the provision of legal services? that I amin a bad mood,which I amnot; I amlike Mr McIntosh: There is not much of a diVerence this all the time— because one of our main points is that we are quite comfortable with a Legal Services Bill that has Q427 Stephen Hesford: I am not sure your members removed from it the threat to independence, has would be encouraged by that. removed from it the power of a Secretary of State to Mr McIntosh: They seemfairly supportive and I appoint and the powers which make the once think that will continue when they hear what I am removed regulator to look very much like a front line going to say now. I do not buy the idea—I having regulator. We are very worried about situations noted the evidence given by the OYce of Fair arising, as arose yesterday, when the governor of the Trading—that reserve powers will not be used. If Bank of England made a statement in the context of they are not likely to be used, do not put themin the BCCI case, on which he was reported as because all that is necessary in this Act, taking your suggesting our civil legal systemrequired reform.I own example that if you have just put to me, is that if amsure his criticismsrelated to our civil litigation the front line regul ator badly screws up remove them. procedures and the fact that the case was not— Change them. Have a power to intervene. Define in 3435523074 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22 June 2006 Mr StephenAlambritis, Mr David McIntosh,Mr Clive Sutton and Mr Robert Banks this Act just how badly the front line regulator has to panel within the DCA, we have had various do before these “reserve powers” can be used. The discussions with the legal profession on consumer fact that they are in the Bill does aVect my mood redress, on ensuring legal services at the right price, because I wonder why they are in there if they are not reasonably priced, for consumers from all walks of going to be used. life. Sadly, we did get a defensive response fromthe legal profession. This is a way forward that should be Q428 Baroness Falkner of Margravine: In light of embraced. This is not a new debate about cost your comments looking ahead, you said in your and access to legal services, about the profession written evidence that primary legislation should only and its independence, about compensation, redress, set out the framework and the detailed regulations negligence and service delivery. It has been going on should be developed in consultation with the legal for quite some time. Therefore, it should be embraced profession and consumers of all kinds as set out in and we think that ABS is a way forward. ABS is an secondary legislation. Did you have any time frame option. It is voluntary. It does not have to happen. in mind? What period of time would need to elapse The sole practitioner can have the clientele and the while we looked at how the situation evolved? What customers. “Client” sounds to me like a master/ length of time were you thinking of in terms of a servant relationship. That is why we as an period that would give a picture that is perhaps more organisation prefer “customer” or “consumer”. accurate? Client professional is master/servant in many ways. Mr McIntosh: The point was not made as a delaying That is why sometimes the client element is dropped. tactic. It was made against a background where we We want to re-emphasise that ABS is an option. It is were having very constructive discussions with the there. You can take it up but you do not have to take representatives fromthe DCA. We had reached a it up. It is a way forward to ensure the consumer gets point where there was an understanding between us a one stop shop possibility. We all go to shopping for us to help with some of the language for ABS malls; everything is there. This is the demand that is which was seen to be a diYcult topic. We oVered a coming from consumers and we think it is a way draft and that was declined. They oVered to produce forward. The licensing regime is well laid out. some wording for us to consider. I am not being Lord Bach: Mr Sutton and Mr Banks, both of you critical of our friends in the DCA. The government have extolled the virtues of the present systemin quite are rushing this. You have already made the point high flown language, if I may say so, saying it is the that this Committee does not have a long timetable. best in the world by a very long way. It seems to me We thought to ourselves: if you want to rush the Bill, that, whatever you may say about how you would do not rush the ABS detail. It should be developed like to move forward organically, Mr Banks, in fact with continuing discussion so that the wording, when you do not like this Bill at all; nor you, Mr Sutton. Do it comes through in detail, is fit for purpose. It needs either of you support the idea of setting up the LSB? to be understandable; it needs to achieve what is Do either of you support the idea of ABS? Finally, if probably a common purpose so far as my the systemis working so well as you claimit is, so constituents are concerned. I do not know how long consumers or clients are having such a great deal, it would take. One is thinking of a matter of months, what have you to fear fromextending competitionto not years. If the framework is set, there is no one stop shops? I should declare two interests. One, I objection to the framework being set. It is the detail am a non-practising member of the Bar. Secondly, I and the risk of it catching what it should not catch was for a short while a minister in the Lord and permitting what it might not be wise to permit on Chancellor’s Department. reflection it is a question of less haste and more care. Q430 Chairman: We are not quite sure whether he Q429 Baroness Henig: Could I bring back the wrote the quotes which you were, quoting, Mr Federation of Small Businesses to ask how do you McIntosh, but we think he may have done. react to arguments that have been put to us that the Mr Sutton: Sole practitioners do not have anything regulatory framework proposed for the ABSs is too to fear. We are here to tell this Committee what it cumbersome to lead to a consumer benefit? may be doing wrong in the interests of society in this Mr Alambritis: It should not be. The regulation with country and in the interests of the client. I amvery regard to the licensing of the ABS will take into proud if I amthe servant and the client is the master, account the size of the ABS so that the licensing body because that is what I feel we should be. We wish may alter or reduce the relevant licensing fee which is to provide a service for our clients. We want to something that carries the support of the OYce of provide a quality service. We do not want to provide Fair Trading. We do not see that. What we see is a what I think is going to be given, which is only an licence systemthat is about right in its balance. What eYcient service. “You will have a reply within two we see a move ahead to provide those options. As a days. You will have an answer”. It may not be a 3435523074 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22 June 2006 Mr StephenAlambritis, Mr David McIntosh,Mr Clive Sutton and Mr Robert Banks very good answer. That will be the sort of service Q431 Chairman: Can I just stop you and ask Lord you will get fromthese alternative business services. Campbell if there a re any further points he wants I amsure no one would hardly ever see a human to raise. face. There would be a lot of e-mails and telephone Lord Campbell of Alloway: I wanted, if I could, to calls but I do not think you would see many people disassociate myself from the question put by my face to face. I say retain the best portions of the noble friend, Lord Bach, because, with respect to present systemand do not throw the baby out with him, I think it was put on a wholly erroneous basis. the bath water. There seems to be no real reason We are not concerned with competition at all. We for what is being suggested. I have not come across as such, or I as such if I were at the Bar, are not people who have said to me, “I wish I could have concerned with that type of competition, it is the seen you at the same time as I see the estate agent.” competition with other barristers to get the work. It People come to me from the estate agent and say, is a question of standards and, therefore, it is not a “I have been given this deal. What do you think?” question of competition. When you come to ABS, I say, “Perhaps you had better think about this or which was promoted on the basis of “it is fair for that.” They say, “I amvery glad you said that.” I the consumer”, it is not fair for the consumer at all could not say that if I was linked up with the estate if he does not get the quality of the legal advice that agent next door. EVectively, I would be taking away he is entitled to have and he has to pay for it, and if his commission. People come to me over litigation, he pays less for bad advice that is the most expensive and the problems with litigation usually arise expenditure that you can ever imagine in the world. because somebody has a conflict of interest and is It is far better to pay a little more and get the right advised wrongly because of the conflict of interest, advice. Why that question is put on a totally not in a legal context but because of some other misconceived premise, I believe, is if you go to the situation. You cannot airily say, “It will be all right. one-stop shop you do not get the way that you are Lawyers will act professionally because that is what referred to somebody on a diYcult and complex they are.” Everybody is human. You have to bear question who is competent through his technical in mind that the legal profession is being operated expertise to answer it. In other words, it is answered by human beings. If their job or their livelihood is oV the hoof, you pay oV the hoof and you have on the line because they do not give the advice that probably got the wrong advice. I suppose you could their employer thinks is the party line, they are call themconsumers,they are perfectly happy, but going to have to take that into account. They have I do not think it is the right way to go about it. wives and families to feed. That is a consideration we do not have these days. There is no pressure on Q432 Chairman: Mr Banks, you might like to a supplier of legal services by virtue of his respond without referring to that previous case. employment, to give any specific advice. Of course Mr Banks: Certainly I will not. As far as the Bill is there is pressure that we all have to pay our rent and concerned, could I make a few small points in everything else. We all have to make a living, but I relation to the detail. The appeal fromthe hope none of our legal advice is given on the basis Ombudsman is essential and that needs to be of what we might or might not earn. If legal advice protected. Without it, Europe may hold that those is having to be tarnished by the fact that it is given provisions are in breach of Article 6. That has to be by an employee, whether he is a solicitor or not, who looked at carefully by those on the Committee and has to bear in mind that he might or might not lose those advising it. The appeal restrictions given to the his job if he does not take a certain line which is dictated by his corporate employer, I think we are Legal Services Board are wholly unjust and they starting on a very slippery slope. may have to be undone at great cost through the Mr Banks: I amsurprised you isolated mebecause courts. I think that is a problemarea that needs to I think over the last few years—or maybe all the be looked at again. I think the word “barrister” time I have been in practice—I have been one of the should have the same protected status as the word most critical members of the Bar itself. The “solicitor”. I would invite your Committee to look impression that I do not like the Bill is based on at that. Among the more important things is the some various important legal principles, like the position of the consumer and position of choice. independence of the person you are going to seek advice fromand the separation between solicitors Q433 Mr Kidney: I declare an interest as a non- and barristers where there is litigation. Those are practising solicitor. I have a very quick question for things that are starting to be threatened. If you each of you. Mr Sutton, do you agree that the costs detected I do not like the Bill, I certainly do not like of regulation should be borne entirely by the the parts that expose the consumer. As far as the regulated community? Legal Services Board is concerned, on balance I Mr Sutton: They are at the moment. What we do think I would support it. not want to do is pay any more than we have to. 3435523074 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22 June 2006 Mr StephenAlambritis, Mr David McIntosh,Mr Clive Sutton and Mr Robert Banks

Q434 Mr Kidney: That is understood. Mr because somebody wrote down what happened, and McIntosh, there is a proposal in the Bill that the there was no criticismlevied at meat all, I think is costs will be partly by levy and partly on the bizarre. There is a fashion to report and it is being principle of polluter pays. Does “polluter pays” encouraged, and there is a fashion to complain, and mean that everybody who is subject to complaint it gets more and more expensive. I know it is not should pay for dealing with that complaint, or only popular but I do think there is merit for a small those who are found to have been at fault in some profession like the Bar that the public should pay way should pay? part of it. I do not think it is going to happen, I Mr McIntosh: I know the national Law Society has think that would be stopped. I feel it would be taken the position that only those who are found at wrong for those where no blame can be attached at fault should pay, and it is diYcult to argue against all to pay anything. Finally, could I say that one of that. As a representative of the City of London the polluters is the large number of people who put knowing that our lawyers are not very regularly the in false complaints. There are groups in Ford open culprits and between them our corporate member prison who spend their time advising people on firms—if you count in their lawyers who are not what complaints should be made. I do not know practising in the City—some of our firms are very whether anybody round the table has been subject large in and outside the City—they probably pay in to these ludicrous complaints which do not stand up excess of 40 per cent of all the practising fees levied at all. Those are the polluters, it is very hard to by the Law Society and we are paying a massive make them pay, but please do not assume because tranche of money towards complaints and we are there is a complaint you are a polluter. not polluting very much at all. I would like to say we should pay less but I find it diYcult to argue against Q437 Mr Kidney: Mr Alambritis, the last word to somebody wrongly complained about having to pay you. In the end the costs of regulation are passed for being wrongly complained about. on to the consumer in the prices that are charged for the service. Have you looked at the suggested costs in the Regulatory Impact Assessment and do Q435 Mr Kidney: Mr Banks, the Bar Council has you think those are proportionate? given us perhaps the best critique of the Regulatory Mr Alambritis: Yes, we think they are proportionate. Impact Assessment in terms of costs. Have you The Bill has stood by the principles of good seen that? regulation enunciated by the Cabinet OYce with Mr Banks: I have, yes. regard to consistency, accountability, targeting, proportionality and enforceability. We think it is Q436 Mr Kidney: Do you agree with it? well laid out and the legal profession should Mr Banks: I think they are in a better position than embrace it. We did a joint litmus test with the Small me. They put a lot of work into it. I think all these Business Service with regard to the ABS and we figures of costs are based on guess and the cost is think that it is well laid out. very worrying. Some people are reported—I was Chairman: We would like to thank all four of you reported, and the defendant just told the story of very much indeed. It has been a rather exhausting what would happen, and nobody could find any session because you have dealt so comprehensively criticismin the report at all, and that was the with our questions. We are exceedingly grateful to conclusion. The suggestion that I should pay you, thank you very much for coming.

Memorandum by the Bar Sole Practitioners Group (Ev 73) Thank you for the opportunity to give evidence to your Committee. Following the hearing may I put in writing our fundamental objection to ABSs. The ABSs put the consumer at risk. The following example I hope shows the problem. If the ABSs section of the Bill becomes law an estate agent whose only motive is profit could approach a solicitor who drafts an application for an ABS and an accompanying business structure which reads very well. All the safeguards requested appear to be in place. The estate agent could say in his part of the country there are few or no solicitors and it would help the consumer if he could provide a One Shop Service. The application is granted. He recruits a rather shy solicitor at a low salary who is just qualified. The application and the business structure are simply filed. Its only purpose is to secure an ABS licence. It can now be ignored subject to audits etc. 3435523075 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22 June 2006

The estate agent, a forceful character, secures a customer for a business lease and the agent’s commission is considerable. The potential purchaser is persuaded to use the agent’s legal services. The solicitor notices that the lease is wonky and says the customer should be told. The agent, fearing the sale will fall through, tells the solicitor without the sale the firmmaynot be able to pay its rent or “I will ha ve to find a new solicitor as you have no concept of commerce” or “you can forget your bonus”. The solicitor knows that without the job s/he will not be able to pay his/her mortgage on the flat s/he has recently purchased. The risk to the client is there for all to see. The customer should never be exposed to such risks or the solicitor to such pressure. Nothing in the Bill can remove the risk because: 1. The solicitor is not wholly independent. Put another way the solicitor should have only one interest, namely that of his/her client. The solicitor should be paid the same whatever the advice is. 2. The solicitor has a financial interest in the outcome of the commercial transaction. It could be said this is an extreme example. However, the same problems will exist in all ABSs. The Co-Op might say we will have the structures in place to stop this. The problem with that argument is that: 1. Parliament should ensure that every consumer is protected and not that most are protected. 2. Where the solicitor has interests in the commercial transactions his/her advice will always be open to commercial pressures. If a solicitor works as a team or the decisions are shared there will always be a problem. Even Head OYce saying your income figures are low puts pressure on the team. 3. A structure is only as good as those who have to implement it. ABSs should not become CARs (Consumer at Risk centres). Robert Banks Bar Sole Practitioners Group 26 June 2006 3435523076 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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MONDAY 26 JUNE 2006

Present Campbell of Alloway, L Mr David Burrowes Falkner of Margravine, B John Hemming Henig, B Stephen Hesford Hunt of Wirral, L (Chairman) Mr David Kidney Neill of Bladen, L Emily Thornberry

Examination of Witnesses Witnesses: Bridget Prentice, a Member of the House of Commons, Parliamentary Under Secretary of State, Department for Constitutional Affairs, Mr Nigel Reeder, Head of Legal Services Reform Branch, Mr Alasdair Wallace, Lawyer, Mr Sean Langley, Head of Policy, examined.

Q438 Chairman: Minister, welcome to the the shortlist of options was framed around locations Committee and thank you very much for coming here where the majority of existing staV are based. with your team. We are particularly grateful that you Therefore, we have looked at the West Midlands, have made your team available to us throughout the London, Manchester and Leeds. We have also sessions we have been having when we have been looked at both single and multisite options. The hearing fromwitnesses. It has been invaluable to be options were assessed against criteria developed with able to ask them questions from time to time and stakeholders. Based on our analysis our preferred thank you very much indeed for that. I should start option for the location of the OLC is a single site in oV by declaring that I am a member of the Law the West Midlands. This announcement relates only Society and I have held a practising certificate as a to the area of the country in which the OLC would be solicitor since 1968. I think you were probably aware located. Further work will need to be done to identify of that but I thought I ought to put it on the record. a specific site. However, Leamington Spa will not be Bridget Prentice: I will not hold it against you. considered. This approach will ensure that the OLC is a new organisation independent of the existing framework and can take advantage of a larger Q439 Chairman: I understand it might be useful if workforce and the benefits associated with moving to V you started o by telling us about the announcement a new site. Lord Chairman, I want to make it plain to you are proposing to make today. the Committee that this announcement is not Bridget Prentice: Thank you very much, first of all, for intended to pre-empt the parliamentary process but is inviting me to give evidence to the Committee. This being made on the basis that the West Midlands is obviously a very important Committee doing would be the government’s preferred option subject prelegislative scrutiny on what we believe to be a very to the report of the Joint Committee and any significant Bill. I amgrateful to be able to share some subsequent legislation which may be taken forward. of our thoughts with you and I ampleased that the Allied to this I would like to add that I amaware of teamhave been helpful to you. I have watched one or the oVer made by the Financial Ombudsman Services two of the sessions and I know that they have been to assist in the transition to any new arrangements. able to contribute. They have worked extremely hard The government’s policy remains as set out in the on this Bill so it is good to see that their work is being draft Bill before you with an independent OLC recognised. If I may, I would like to make a short established under the oversight of the Legal Services statement about the written and ministerial Board. While I consider it is only right to examine the statement I gave today. A key component of the draft extent to which there may be potential benefits Bill is to establish a single, independent complaints arising out of FOS involvement in service support, I Y handling body, the O ce for Legal Complaints. The can see no reason why this should have any impact on government recognises that the creation of the OLC the establishment of the OLC or the government’s V would impact significantly upon sta working in favoured option for location. In terms of assessing organisations within the existing framework. the FOS approach, any comments which the Joint V Uncertainty can have a detrimental impact on sta Committee may wish to make would of course be and on their morale, which is something that we all most welcome. want to avoid. In December I announced that the principles of TUPE would apply to the transfer of staV to the OLC. Since then my oYcials have been Q440 Chairman: Thank you very much indeed for developing options for its location in discussion with that opening statement. It deals of course with stakeholders and working closely with the OYce for complaints and we will be returning to that a little Government Commerce. In light of that commitment later. Perhaps in the meantime copies of your 3435523076 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley statement could be circulated to Members of the possible in order for the 12 to 18 months to end as Committee. May I remind you that the Commons early as possible. Liaison Committee has said that compression of time has continued to be a problemfor prelegislative scrutiny committees. I think your House is today Q442 Chairman: We will want to reflect on this. As discussing the Second Reading of the Charities Bill I understand it, we have been told by both Houses and it was in fact the Joint Committee on the that if we do need more time there is probably some Charities Bill that recommended that no House flexibility. We will however do our best to meet the should ever agree to a timetable for consideration of challenging timetable. There are a number of other a draft Bill that is fewer than 12 sitting weeks fromthe concerns. The Bill teamalongside you have date of publication of the draft Bill. The Draft Legal undertaken to provide a note to us on the areas in Services Bill was published on 24 May and we have which they are considering some important been given a deadline for reporting of 25 July, which amendments to the Solicitors Act covering the give us a timetable of fewer than eight sitting weeks, regulation of solicitors. This was raised in evidence excluding the Whitsun recess. It might be helpful if with us by, for instance, the Master of the Rolls who you were just to explain to us why you have set us this told us that unfortunately at the moment presumably very challenging task and outline the urgency of the it is contemplated that there will be some timetable for the Bill that has led to our being set only amendments to the Solicitors Act which are not two-thirds of the amount of time that is presently in this Bill at all. There are some quite recommended for the minimum time that should be important amendments that will have to be made to made available. It would be helpful if you could just the Solicitors Act in order to make this whole scheme explain, please. work. We were just a little bit concerned that we are Bridget Prentice: Certainly. It is indeed a very not yet aware of what these amendments are going to challenging task, although I suspect that this be. Mr Reeder did promise that he would write to us Committee above all will be up to that challenge. I do to set out some of the key areas that this is going to realise the pressure that it creates and I very much cover but we are a little anxious that at the moment appreciate the eVorts that Members have been there is nothing before us and we have not yet putting in to give proper consideration to this Bill. received any letter. We wondered whether or not you We have already undertaken extensive consultation would be now in a position to set out what areas the on the policy proposals before we published the draft amendments to the Solicitors Act are likely to cover Bill. As you will know in line with best practice we and what their impact on the draft Bill will be. Do have published a White Paper setting out those you really think that we are going to be able to give proposals for reformlast October with responses by full consideration to the impact of the draft Bill the end of January of this year. We wanted to publish without these provisions? the draft Bill as soon as possible in order to allow Bridget Prentice: First of all, yes, I think you will be prelegislative scrutiny to take place this session able to give full consideration to the impact because because we want to give ourselves the best possible the Bill sets out the policy and provides enough detail opportunity to have legislation ready to introduce on the objectives and the framework for you to be Y early in the next session, so as to deliver these able to consider that su ciently. You are right. There consumer focused reforms as quickly as possible. The will need to be a comprehensive schedule setting out draft Bill was published on 24 May which was just the consequential amendments. Important as they four months after the closing date for the receipt of are, they are essentially matters of detail and will not public comments and that represents a significant impact on the major policy proposals set out in the eVort. I know the timetable is tight but, having Bill. I have already written to the chairman of the watched some of your sessions already, I can see that Regulation Board of the Law Society saying that I the Committee is going to be more than able to will fully ensure that we take every opportunity to comment constructively on the proposals in the Bill. reformnot only the overall frameworkbut, where it is appropriate to do so, other existing legislation that impacts on the eVective regulation of the legal Q441 Chairman: Do you yet know when you have profession. Clearly, we would only want to do that pencilled in introducing the Bill? Obviously you will where changes are consistent with the overall want time to reflect on our report but I think the framework of the Bill. The Law Society have already Committee is anxious to know the reason for the submitted something in the region of 300 pages of urgency of the whole timetable. amendments. Bridget Prentice: We want it to be early in the second Mr Reeder: Part of the diYculty has been in trying to session in order that we can get all the proposals in. summarise the extent of the Law Society’s proposals It is a very long Bill and of course we want to take on to us and getting some preliminary views to you on board what this Committee has to say but there is a our position. The biggest chunk of work involves 12 to 18 month lead in so we need as much time as recognised bodies which the Law Society approves. 3435523076 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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That is where most of our eVort is concentrated and shows what the policy is but does not show in where the Law Society is seeking to make the most suYcient detail how it is going to be achieved. significant changes. The rest are fairly minor changes Bridget Prentice: I have heard that said by some. Let which deal with more routine matters but I will me point out what the purpose of the Bill is. The hopefully be able to get the letter to you tomorrow. purpose of the Bill is essentially to put the consumer Would that be acceptable? at the heart of the legal services. Therefore, we want Chairman: It is not as acceptable as today but it is to make sure that we have a situation where the better than at the end of the week. regulation of the legal services and dealing with complaints is done in such a way so that the consumer Q443 Lord Neill of Bladen: I will start by declaring has confidence in the service. Some of the detail of an interest. I ama practising barrister. Can I give a that does not need to be in this Bill. It is for secondary little more background on the way the Solicitors Act legislation. One of the things that this Bill has to be is problemarose? I was putting somequestions to the flexible enough to allow the Legal Services Board to Master of the Rolls, Sir Anthony Clark, and I respond in a way that best serves consumers’ needs. commented on the fact that there had for a long time That is why we have very deliberately not made a very been a close relationship between the Master of the rigid Bill but a much more flexible one. Rolls, the holder of that oYce, and the solicitors through various legislation and in various ways, Q445 John Hemming: There have been some approval of rule changes, formally admitting them to concerns raised by witnesses as to whether this is practise, dealing with various types of appeal and so moving the regulation of the legal profession from on. There were quite a number of links. He was a sort the rule of law to the rule of person. Do you see a of father figure, to give some sort of idea of the balance between putting consumers at the heart of relationship between himand the solicitors’ the new regulatory framework and ensuring the profession. I asked himwhether there was anything independence of the legal profession fromthe much wrong with the way the present system worked. government? You can see it on record but I think the substance of Bridget Prentice: Yes. First of all, I believe that an his answer was to say there was nothing much wrong. independent legal profession should put consumers “One or two of the roles I have to discharge seema at the heart of its services. If I can refer you to clause bit odd or a bit surprising or diYcult but I have not one of the Bill, it sets out very clearly the seven had any problemand I have managedit during the objectives here. If they are properly observed, the time I have been holding the oYce, but I believe that profession will be able to delivery high quality legal there must be in contemplation some changes to the services to the benefit of the consumer. One of the Solicitors Act which will make quite a radical objectives in clause 1(1)(g) is promoting and diVerence to my role. I am not in a position to give maintaining adherence to the professional principles you any evidence those because I have not seen what and it sums up very clearly that, where people are those changes are.” Here we have an example of a authorised in the reserved activities, they have to act witness last week who could not really answer the with both independence and integrity. I amvery Committee’s questions because he did not know what confident that at the very beginning of this Bill, in the the entire package of the proposed legislation was. first clause, we are maintaining the balance of the This is how the diYculty arose and that is why we are consumer at the heart of the service with keen to get a grip on this point. independence and integrity within the legal Bridget Prentice: I did see what the Master of the profession. Rolls had to say and I understand the position but in terms of the Bill itself which gives the overall policy, Q446 John Hemming: You see no problemwith the the changes to the Solicitors Act that we are talking idea that it is appointed and controlled by the about are secondary to the Bill. Of course there will Secretary of State? be discussion with the Master of the Rolls and others Bridget Prentice: No. I will talk about the when we have those details available. The fact that we appointment if you want me to. will be able, I hope, to produce a letter to the Committee tomorrow setting that out will be the Q447 John Hemming: There are questions about beginning of that consultation with other that later. It is this issue about independence and it is stakeholders who have obviously a very important the rule of the person versus the rule of law argument. view on the matter. What you are saying in essence is you think you have it right. Q444 Lord Neill of Bladen: On that idea about the Bridget Prentice: I think we have got it right. In some Bill declaring a policy, I think some of the critics and ways, it will be beneficial for the profession to work some of the witnesses we have heard have said exactly with the idea of the consumer at the heart of the that one of the things that is wrong is that the Bill service because that will inevitably, it seems to me, 3435523076 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley mean that they will work both with integrity and with are overlapping responsibilities and there are powers independence. which are limited and inconsistent. Under our proposals, the Legal Services Board will be new. It Q448 John Hemming: I do not think there is any will be an independent oversight regulator. It will diYculty about the consumer being at the heart of the have clear regulatory objectives, improving access to framework. Where the diYculty lies is there is a very justice, encouraging a strong and eVective legal clear perception that, even if the powers in the Bill are profession. The front line regulators will be working not used, there is the ability for the Secretary of State towards those same objectives. Already there is through the processes that exist to control the the opportunity for greater consistency. The operation of parts of the legal profession. That was establishment of a single, independent oversight raised by the City of London Law Society who said regulator I think will work very much towards that in itself it is perception that is important when restoring consumer confidence and improving the you are marketing legal services internationally as public’s perception of the legal profession which can much as reality. How far has the government taken only be beneficial to consumers. I think too that it will into account the international reputation of legal be beneficial to the professions. Obviously there will services in England and Wales and their value to the still be a number of regulators within the framework UK economy in framing the proposals for the new but their positions will become that of consultee regulatory structure? rather than as additional oversight regulators. This is Bridget Prentice: In terms of international value, we certainly what the consumer organisations are telling take that very seriously indeed. Legal services are us. We have paid very close attention to their views now a very important part of our economy. They on this and consulted with themin great detail. What take in something in the region of £19 billion a year.1 consumers are telling us is that this will be a much That is not an insignificant sum. We want to better systemfor them. encourage that. No doubt later on in our discussion I hope to be able to convince you that by allowing, for Q451 Baroness Falkner of Margravine: You talk example, the opening up of the markets through the about wanting to simplify the system and the ABS systemif anything we will be giving the legal regulatory maze, the diagrams and things. What profession even more opportunity to use their skills relevance do you think a 16th century Ecclesiastical abroad getting into some markets that might at the Provisions Act has in today’s world? Looking at moment be closed to them. It would be quite wrong schedule five, the Master of the Faculties will remain to suggest that in any way were we trying to inhibit as an approved regulator for reserved activities and the legal professions fromworking internationally. will still continue to have exactly the same role. Chairman: Page 104. Q449 John Hemming: I do not think there was a Baroness Falkner of Margravine: How does that fit suggestion that it was the intention of the with transparency, accountability and simplifying government to inhibit the larger law firms from the system? trading internationally. What was said was that the Bridget Prentice: First of all, you highlight an area actions of the government would inhibit their where all of these people have some formal activity. You disagree with what was said, in other regulatory function which shows to some extent the words? maze that there is at the present time. We have Bridget Prentice: Yes. I very much disagree and not worked very closely with the Archbishop of only that; they have misunderstood what the Canterbury and with the ecclesiastical side of things potential is. in order to simplify things as much as possible. We are still working with them. I accept the point you are Q450 Baroness Henig: Froma consumer’spoint of making that there are aspects that appear at variance view—you have already said that the consumer is at with bringing the whole systeminto the 21st century the heart of this legislation—how far would you say when we are still mired in the 16th century but we are the proposed regulatory structure does simplify the working closely with the Church of England on this current regulatory maze in the legal services in trying to make that a much simpler system. To be profession? fair, the Master of the Faculties has been very helpful Bridget Prentice: I do not know if you have had sight in trying to make sure that the role they play is that of the diagramthat we did before the White Paper, of the light touch regulator. showing what the present regulatory maze was. I suppose it looks a bit like some modern painting. The whole idea is to simplify that very much. There are Q452 Baroness Falkner of Margravine: Do you not very clear objectives in the present system. There believe that the church has a role to play in the 1 Note by Witness: In 2003 the turnover of the legal services market provision and regulation of legal services in today’s was £19 billion. UK legal services exports totalled £1.9 billion. world? 3435523076 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Bridget Prentice: The Archbishop of Canterbury has through to taking a much more serious response if already explained that there are two important roles they are very negligently falling down in their duties. that they play. One is they regulate the notaries’ profession and the other is that they performa number of the ecclesiastical functions which are Q456 Baroness Henig: More than one or two important to the Church of England. I do not think witnesses have suggested that the Clementi model this is probably the place for us to have a discussion B! approach followed in the Bill could over time about the establishment or otherwise of the Church become a model A approach. Do you think that is of England but the Archbishop has agreed that, possible and, if so, would the government have any subject to his approval, the notaries and the objections if that happened? regulation of the rules relating to notaries will be Bridget Prentice: I think that is possible but I would passed over to the Legal Services Board. He has not want to promote a model A because I do not probably gone some way towards moving that think that is what we want to move towards. I am aspect, if you like, into the 21st century. confident that, for the most part, the legal professions will exercise their regulatory functions in a very satisfactory way. If I had any doubts about that I Q453 Chairman: I suppose so have you in still would not be proposing that the legislation including the Master of the Faculties in the Bill. passported theminto the new arrangements.We Bridget Prentice: Yes. would say, “We do not think the Law Society or the Bar Council for example is capable of doing this.” I Q454 Baroness Henig: Can I ask some questions think it is right that the LSB has the power to exercise about the Clementi models starting with the B! controls over those bodies in order to protect the which is the one in the draft Bill? Are you happy that consumer interest and indeed to promote the B! model will provide suYcient flexibility to competition. It is possible for a body to lose its react to changes in the market for legal services? authorisation. Obviously we would all hope that it Bridget Prentice: Yes. It provides the very necessary does not reach that stage which is why there is the flexibility that I spoke about earlier. We very much flexibility that the LSB has through a whole range of agree with Sir David’s analysis and essentially the sanctions that it can use. I suppose it is technically model B regulator would be able to deliver regulatory possible for all bodies to lose their authorisation. I do outcomes similar to those in model A but with the not think that is a very likely scenario but it is advantage that it will also retain the experience and technically possible. Model B! is able to deliver the valuable contribution that is made by the regulatory outcomes similar to those that we would professional bodies. Model B or model B!,aswe expect in model A but we have the additional now refer to it, takes all of the good in model A and advantage of the contribution that the professional adds to it the very useful aspect of using the bodies themselves can make. If they carry out their experience and expertise that is already there within regulation appropriately to the high standard that the professional bodies. will be set for them, it will not move to a model A.

Q455 Baroness Henig: A number of witnesses were Q457 Mr Kidney: I declare an interest as a non- concerned that, rather than being light touch, the practising solicitor. In its oversight role of the LSB might be heavy handed. There were a lot of approved regulators the Legal Services Board has to concerns about that and, in the end, one or two witnesses felt the important thing was that the LSB be sure that consumer interests really are at the heart should act in a proportionate way. I wonder how you of their role and that they do not allow their see the provisions in the draft Bill ensuring that that representative function to interfere with their does in fact happen. regulatory one. Would you agree with the Clementi Bridget Prentice: I amdelighted that the word Report that it is quite important that the front line “proportionate” is being used and that we have regulators separate properly their regulatory and banished the words “light” and “heavy” regulation. representative functions? It is important that it is proportionate. Where the Bridget Prentice: Absolutely. That is really a very approved bodies are operating eVectively, the LSB important principle that Clementi established and will leave themto get on with that job properly. one that we very much approve of. If we look at Equally—and this is important for consumers— clause 25 of the Bill we set out how the LSB has to be where a body is falling down on their operation, the satisfied that there is that appropriate split between LSB has the ability to deal with that in an appropriate the regulation and the representative functions. That fashion. That gives good flexibility. It may be, for is absolutely key for consumer confidence. That has example, that the LSB simply has to remind a been a very important part of our thinking in putting regulatory body of what they should be doing right this draft Bill together. 3435523076 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Q458 Mr Kidney: Sir David Clementi recommended Commissioner for Public Appointments. It will be that there should be a statutory requirement to split subject to the Commissioner’s code. That code the two functions. In his evidence to us he says that reflects current best practice and the key principles your Bill fails to do that. You mention clause 25 which underpin that code are merit, independent which comes out as a bit of a side wind, saying that if scrutiny, equal opportunities, probity, openness and the Board is not satisfied that the functions have been transparency, and proportionality. That is what will separated it might have to consider taking steps to be used when the Secretary of State makes the require them to remedy the failure or mitigate the appointment. eVect of it or prevent it happening again in the future. Do you agree with Sir David Clementi that the Bill Q461 Mr Kidney: How can we be satisfied that the does not currently go far enough in making it a government will use that code and go through those statutory obligation to separate the two functions? transparent processes? There is nothing in the Bill Bridget Prentice: I think it probably does. I will take that says the government will. it away and look at it again. It is important that we Bridget Prentice: The appointment will be made by make it clear that the regulation and representation the Secretary of State under the provisions of using aspects of the professional bodies are separate. If the the Commissioner for Public Appointments. Bill is not drafted as tightly as it ought to be, we will certainly have another look at that and redraft it if Q462 Mr Kidney: It says so in the explanatory notes necessary. but not in the Bill. Could the Bill be amended to say that? Q459 Mr Kidney: Thank you. That is a helpful oVer. Bridget Prentice: I amnot sure that it would be Moving on with the Legal Services Board, the appropriate necessarily to amend the Bill to say that. government says that one of the key outcomes for the new regulatory systemincludes ensuring that Q463 Mr Kidney: Because a future government appropriate standards of education, training and might not want to be bound by it? conduct are maintained. Do you think that there is a Bridget Prentice: I think it would be very diYcult for role there for the Legal Services Board in making a Secretary of State not to be bound by those use of information that comes to its attention— provisions. It is what happens at the moment in a for example, information about complaints—to variety of other appointments. To provide it promote that kind of educating role? specifically in legislation might reduce flexibility. I Bridget Prentice: Yes, I do. There is within the Bill the amnot convinced yet. I will ponder it but I amnot opportunity for that kind of communication to go convinced that that would be the appropriate thing to back and forward fromthe Board and O Yce for do. I do not think it is done in relation to any other Legal Complaints to the professional bodies. It may appointments that are made in a similar way. be, for example, in taking up a consumer’s complaint that in the course of investigating that we think there Q464 Mr Kidney: Last year your department was is an issue that the professional body might want to responsible for the Constitutional ReformAct and look at. If there is the opportunity for themto send schedule 12 dealing with the Judicial Appointments that back to the professional body and say, “You Commission sets out a very detailed process of might want to look at that” that may subsequently consultation about who can be on the panel, how the trigger the bodies saying, “That is a problemthat panel recommends to the Secretary of State. All of other people might face. Perhaps we ought to do those things are detailed in that Act just a year ago. some more training and education. There is an issue Why can they not be detailed in this Act? over guidance” or whatever they think is Bridget Prentice: Because they are diVerent issues. In appropriate. Yes, I do think that is important. All the Judicial Appointments Committee, they are forms of education are always important but very making appointments to the judiciary. The Legal specifically we have put that into the Bill to allow for Services Board is a regulatory body and therefore is that two way conversation to go ahead. quite diVerent from making appointments to the judiciary. Apart fromthe Board’s sta V and members Q460 Mr Kidney: Coming back to the point that of the OYce for Legal Complaints, the Legal Services John Hemming raised with you earlier about the Board itself will not be making any appointments. independence of the new Legal Services Board from the government of the day, why is it in the Bill that Q465 Mr Kidney: If you look at the evidence of some the government appoints the entire Board, including of the legal representatives who have been before us, its chair? they regard the legal professions and their services Bridget Prentice: Because it is a well established as very proud and independent of government process of appointment by the Secretary of State. We influence. A lot of their work is challenging the will be using obviously the oversight of the government through the courts and they think this 3435523076 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley is as important as a Judicial Appointments they are at the heart of legal services; that the legal Commission in terms of maintaining the services are there to deal with their needs, first and independence of legal services in this country. I do foremost, and that they can be confident in them. If urge upon you to consider more guarantees of it is the tyranny of the consumer, I would have some independence in the Bill. sympathy with that. Bridget Prentice: If I may say so, the consumer might say that they want to make sure that the Legal Q467 Lord Neill of Bladen: Can I ask you about a Services Board is independent fromthe profession. provision in the Bill that struck me as of interest? As government, we have to make sure that we see Schedule one, paragraph 2(2) says that the first both sides of that particular story. It is perfectly chairman of the LSB must be a lay person. Time has normal now for appointments to be made under the a habit of moving on. People die, retire and so on. code. The Secretary of State will appoint someone Numbers two, three, four and five can all be who will be independent. I do not think I have any barristers or solicitors, not lay people? fear at all that the legal profession will maintain its Bridget Prentice: Absolutely. The reason we said that independence fromgovernmentand challenge the first chair should be a lay person is because we government wherever it thinks appropriate. On the think that would command consumer confidence. contrary, I amsure they will continue to do that with Let us use the word “perception” again. When the vigour that they already do it with. consumers see this new structure, seeing that the first Mr Kidney: Perhaps you can ponder that. chair of the new structure is a lay person will give consumers a great deal of confidence. After that, once it is firmly established and working well, any Q466 John Hemming: In a sense you have subsequent appointment would be made on merit. highlighted one of the issues here which is the Even barristers and solicitors might merit being chair “independence from” issue. In challenging this of the Legal Services Board. perception that it is a cosy cartel and people do what they want, you are acting to undermine some basic principles in the British Constitution and the rule of Q468 Lord Neill of Bladen: Do you really think it is law. My degree is in nuclear physics. I ama computer worth doing? Do you think people will notice on the programmer. I do not have an interest to declare in day the Bill is published? There will be an article terms of law because I am not a lawyer but it is quite saying, “And the good news is the first chairman is clear to me that this is undermining the rule of law. It going to be a lay person”? is a very small step towards tyranny. These issues Bridget Prentice: Fromthe consumer’spoint of view, such as the appointment of the Legal Services Board yes, that will be very important. They will see that this are important from that perspective. It is no good is a break fromtheir past experience; this is a new saying, “We will not use this power. We will not use Board looking to have their interests at the forefront that power. We will not use the other power.” The and they will welcome that. mere perception that you can use those powers means you have the power of hire and fire of the members of Q469 Lord Neill of Bladen: A lay person under your the Legal Services Board, who have powers—maybe definition could be somebody who has spent their life devolved powers—to control people’s access to the in the law. You have just singled out people who have court, to act as barristers or whatever it may be. That held particular posts—barristers, solicitors, et cetera. is undermining the rule of law. You can be a professor of law who is not qualified in Bridget Prentice: First of all, I do not agree that it those respects but has made a career as a professor of undermines the rule of law. I am not entirely sure why law. Would he or she be objectionable? you should think that it does. I certainly take Bridget Prentice: No. As someone who has been, if exception to the use of the word “tyranny”. I believe you like, on the fringes of the legal profession in that this is about not just making sure that the sense myself, I would not object to someone like that. independent legal professions are properly managed, The point is that it has to be someone that we feel supervised and so on by the Legal Services Board. consumers will see as someone who will best You have used the word “perception” a number of represent their interests. I think it is important that times. The perception from the consumer’s point of that initial appointment is one that consumers can be view is that we need to do this in order to give them very confident in. confidence in the system. They do not have confidence in the system at the moment. Therefore, I Q470 Baroness Falkner of Margravine: In response amvery enthusiastically in favour of this Bill and to John Hemming’s question you emphasised that these changes. I would agree with you that it will the consumer was the principal factor in your enhance the professions but aside fromdoing that the considerations on the matter of independence. Are other really important issue is that the consumer is you aware that most of the evidence we have taken not only at the heart of legal services but feels that fromconsumergroups as well as professional groups 3435523076 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley points to the fact that the problemlies in the handling Bridget Prentice: No. of complaints and the speedy resolution of complaints, not necessarily in the overall regulatory Q475 John Hemming: How is there a power to aVect role that the Board would have as its area of individual lawyers on behalf of the consumer through responsibility? While I appreciate and support your the Secretary of State if the Secretary of State does emphasis on consumers’ interests being upheld, you not have those powers? The Secretary of State does are talking about two slightly diVerent areas. Your have those powers and that is the underlying response did not really deal with the area that I think problem. John Hemming was dealing with. Bridget Prentice: Under the systemthe Legal Services Bridget Prentice: I amat a loss to know how else I can Board, in regulating the front line regulators, has a respond. I amnot quite sure why myresponse did not variety of powers not least of which is to take away deal with the area that John Hemming raised. their authorisation. They equally have the power to say to a front line regulator that, if disciplinary measures need to be taken, they will deal with that. I Q471 John Hemming: You just said it was not really do not see this Armageddon type scenario that important. You said you were not concerned about you seemto be portraying. the fact that the Secretary of State hires and fires all Stephen Hesford: On a point of order, for my part I the members of the Legal Services Board. You said, know we have quite a lot of questions to ask of the “That is not an important issue. What is an Minister and we have limited time. Is it in order for important issue is the Legal Services Board is us to be detained on questions which display a independent of the profession.” I have no concern fundamental misunderstanding of the Bill? about saying that the majority should be lay Chairman: I do not think the Minister needs any members or anything else like that. My concern and protection fromany of us. that of many other people is that the government has hire and fire on all the members of the Legal Q476 Mr Burrowes: I declare an interest as a Services Board. practising solicitor. Just to help you answer Baroness Bridget Prentice: I amsure Gurneys will correct meif Falkner’s line of inquiry in relation to the rationale I am wrong. I do not remember saying it is not behind the chairman and the members of the LSB important. I am not saying it is not important; I am being appointed by the Secretary of State, you said saying that the balance has to be in favour of the earlier that that is what some consumers want. The consumer. evidence that we have heard is that there is concern in terms of the complaints process—that is to be overhauled—and there will be a concern that it is not Q472 John Hemming: Why is the Secretary of State the legal profession that is involved in the in favour of the consumer rather than an appointment. Where has been the evidence that you independently appointed Legal Services Board? have received to suggest that there has been a call to Bridget Prentice: Because the Secretary of State is have the chairman and members of the LSB accountable to Parliament and therefore can be appointed by the Secretary of State? Have you challenged by Parliament. evidence fromthe National Consumers”Council saying they specifically want that, because we have heard the opposite. Q473 John Hemming: But they will not answer the Bridget Prentice: I do not think I can reach question. immediately for specific evidence in that respect Bridget Prentice: If we want to get into party political except to say that in our discussions with consumer sparring we can do but I do not think that is bodies and our own consumer panel they have important compared to the discussion we are having indicated that they would like to see the appointment on this Bill. The Secretary of State is accountable to being someone who is a lay person. The use of the Parliament. If the Secretary of State were to use the Secretary of State is as it is done in a variety of other powers that were available about hiring and firing in independent bodies and that is why we have chosen the way that you seemto suggest he or she would, that route. If you look at the FSA, the OFT, they are that would have to be brought before Parliament. all appointed by Secretaries of State.

Q477 Lord Neill of Bladen: This is about the exercise Q474 John Hemming: In essence, if there is a by the Board of its powers. One of the concerns here recalcitrant barrister who represented somebody in a is that possibly the principal or very important court case and the government is not happy with weapon is the imposition of a financial penalty by the them, they can sort things out via the Legal Services LSB. It looks as if the Board can move on that and Board. call for a conviction or a finding if it is satisfied—I 3435523076 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley quote the first line of section 30, subsection (1)(a)— designated as reserved legal activities for the “ . . . that an approved regulator has failed to performpurposes of the Bill? any of its regulatory functions to an adequate Bridget Prentice: Again, we looked at that and we standard or at all.” The judgment of all of that is in took the view that there was not really suYcient the power of the Board. Is the Board satisfied on that? evidence of consumer detriment in those areas, so we It is drafted, some might think, in rather broad, have not included them in the Bill. However, I think woolly terms: “failed to perform to an adequate I should put on record that if the Board were to standard”. Can you comment on whether it could be investigate whether there is a need to designate such made sharper and less subjective? groups then they would have the power to do so and Bridget Prentice: I certainly think that we possibly do I would expect themto do so, so those other groups need to be more definite in the way that we have could be brought into reserved activities if the Board, described that, but that may well be something that after an investigation, felt that they needed to. we would probably want to put in the detailed rules rather than in primary legislation. I do take the point Q480 Emily Thornberry: I have just been reading the you make here and I will certainly look at that again. evidence that we have been given by the TUC and Obviously, if the Committee has a particular view on they seemto be particularly concerned that muchof that, I would take that into account. I think it is their activities may be regulated as reserved legal important that the Board has that power but I will activities. I know there is a suggestion that it is going happily look again as to whether or not that should to be looked at again, and I just wondered perhaps be more tightly defined within section 30 and whether where you might have got to with that. If you are not or not it can be covered by the rules in secondary able to answer that at the moment that is fine. form. Bridget Prentice: I amaware of the TUC’s concerns. I amalready working on another Bill that the TUC has concerns about. Q478 Lord Neill of Bladen: You contemplate that there would be a right of appeal against the imposition of a financial penalty. That seems to be Q481 Emily Thornberry: The Compensation Bill? Bridget Prentice: Yes, the Compensation Bill. I am secured by clause 32 of the Bill and agreed by the aware of their concerns. I do not know that I can give imposition of a penalty. There would be an appeal you any further information. We will look at what and also the amount, but in general, with regard to all they have to say about it and if it is appropriate then the other powers, is it thought that there should be a we can deal with the issues that they have raised. right of appeal? Bridget Prentice: We did consider whether there ought to be a right of appeal against the powers by Q482 Chairman: While you are wearing that hat, the Board. I did not think it would be helpful to Minister, so far as the Compensation Bill is provide a specific appeal mechanism against concerned, which deals with the regulation of regulatory decisions. That could, I think, involve lots claimants’ management companies, could you let us of challenges and result in regulatory deadlock and so know whether you are still of the view that there is no on. I think it is better if we provide for the Board to need for any amendment to this Bill to ensure that reach its decisions in a way which is consistent with claimants’ management companies can come under ECHR principles. As you obviously will know, the aegis of the Legal Services Board in due course? Bridget Prentice: ECHR does not specifically require an appeal I amreasonably confident that we mechanism. It does leave open the opportunity for do not need to amend this Bill as it stands in order for judicial review and I think that is probably consistent that to happen because that is what we would want to happen. In a sense the Compensation Bill is an with the principles of ECHR. Also, I think if we were interimmeasureand the idea would certainly be that to provide a specific appeals mechanism that would claims management would come under the Legal mean setting up a separate independent tribunal and Services Board. Because that is an important part of I think that would add disproportionate costs to the what we want to do we will make absolutely sure that majority of regulators who, of course, would be there does not need to be an amendment, and if there regulating eVectively and therefore would not need does we will make an appropriate amendment to such an appeal route. make sure that happens.

Q479 Emily Thornberry: I have to declare an interest Q483 Emily Thornberry: The other major concern as well. I ama non-practising barrister marriedto a the TUC seems to have is that the new system of practising barrister. What is the Government’s regulation could also extend to the informal advice approach to the suggestion that other legal services, and representation provided by trade union oYcials such as will writing, administration of estates, and representatives in UK workplaces, but it says mediation and claim management, should be that their concern is that the Bill fails to recognise 3435523076 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley that trade unions are distinctive fromother Q486 Mr Burrowes: Once the regulatory rules are organisations. put in place within a 12-month period, is that when Bridget Prentice: I do understand that trade unions they will be made up? say they are distinctive fromother organisations. No Bridget Prentice: Yes. I do not want to put a specific doubt a variety of organisations can say that about date on it but I would say that there are already themselves. I hear what the trade unions have said. I regulators who are beginning to take steps towards amprepared to look at the concerns they have and if getting themselves ready to be regulators for ABSs, it is appropriate we will deal with things to see how so as soon as the Board is set up I think there is no they fit into the whole system, but I would be reason why that could not come into being fairly reluctant to say that any individual organisation is quickly thereafter, in 12-18 months, probably. unique and therefore has to be dealt with diVerently necessarily fromeveryone else. I hear what the trade unions are saying and we certainly will have discussions with themand see where their concerns Q487 Mr Burrowes: Where the Bill does require for are and whether they can be resolved without any the rules to be made up within the 12-month period, further amendment to this Bill, and if there needs to the Committee raised a question as to whether there be an amendment then we will look at that. should perhaps be more flexibility for that to develop rather than it being laid down that within 12 months it has to be set in place. Would you consider that? Q484 Emily Thornberry: Thank you. Now the Bridget Prentice: Certainly if there was good reason Government has received a financial analysis by why it had to be delayed then it would be remiss of us PricewaterhouseCoopers on the Compensation not to take that into account, but I would hope that, Fund options for the legal services sector, what is its given that there has been quite a lot of interest within approach to giving the LSB or the OLC the power to the professions and elsewhere already, people are require existing regulators (recognised in Schedule 5) already working towards it and so I think it is quite to establish and operate a compensation fund? good for people to have a focus and a timescale when Bridget Prentice: Consumer groups have expressed a things should be moving forward. I would hope that very strong view that compensation should be in that time there would be a number of regulators available to consumers of legal services provided by taking up the opportunity to regulate ABS firms and anyone who is subject to regulation by the Board and that there would be a number of organisations that I have to say that I find that a pretty diYcult would be keen to be ABS firms. argument to oppose. We have not as yet said what our preferred option as to the best mechanism for that might be and that is because we want to give the Q488 Mr Burrowes: But because it is somewhat Board the opportunity to have further discussions unclear, perhaps by its very nature it is uncertain about that. The PricewaterhouseCoopers’ report exactly what the take-up and impact will be, would it gave a variety of options and we want to work with not be appropriate to have in the Bill a requirement stakeholders during the summer in order to see what for ABSs to undertake further research into the the overall costs and benefits of each option might be. impact and eVect of it before granting licences so that Again, I think this is an ideal opportunity for the a more evolutionary approach was adopted? Committee to give a steer on that, which would be Bridget Prentice: In a sense I amnot sure that we need very useful to our deliberations in the course of the to do that because there are already in one sense summer. many elements of ABS in place. For example, in the not-for-profit sector you already have one-stop-shop Q485 Mr Burrowes: Given that there have been advice centres which very often cover a variety of concerns expressed to us in evidence about the these services and so they already, for quite a potential impact of ABSs is there not an argument considerable time, have provided a very good service that you should be evolutionary in your approach, to consumers. If you go into any reasonable sized perhaps adopting a pilot programme and seeing how CAB oYce you will see that kind of thing. Equally, in it aVects a locality and then moving from there? the private sector you have got licensed conveyancers Bridget Prentice: I amnot sure that it is something who already work quite successfully with external that lends itself easily to a pilot programme as such. ownership and work also with other organisations, so There are already firms which have indicated that I think we have already got examples in the field, if they would be interested in applying for ABS you like, where we can build on what they are doing licences, and obviously they would be free to do so so that we do not have to either do a pilot or in a sense when the approved regulators who have an interest in delay a timescale. I think people have a pretty regulating ABSs have reached the stage where they reasonable idea of the way we are moving forward can do that. on this. 3435523076 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley

Q489 Mr Burrowes: We have heard evidence from Q491 Mr Burrowes: In terms of the potential conflict witnesses raising concerns about potential conflicts between the demands, of, say, shareholders or those of interest between legal professionals working in investing capital and those within ABSs, have you ABSs and perhaps with external owners and those envisaged how to deal with that type of conflict? investing in ABS firms. Are you satisfied that in the Bridget Prentice: The firms obviously would be under current Bill there are suYcient provisions to protect the guidance of the regulators and they would the consumer? obviously have to ensure that the consumer interests Bridget Prentice: I think that is a very important are adequately protected. I think that would mean point. I think that is one of the really important parts, that they would have to make clear to their clients the in a sense going to the heart of the Bill, about extent to which their communications are subject to protecting the consumer. If we do not have privilege and that is why in a sense I would refer you confidence in this aspect then I think we are back to clause 1 being very important, the fact that undermining our own principles. I do think it is the solicitor, the lawyer within the firm, has to be able important that the proposals provide for the Board, to be absolutely confident of the privilege of their and indeed the authorised bodies, to maintain client and of their own integrity, so I think that by appropriate rules to ensure that no conflicts of making sure that that is very clear in the Bill we interest do take place or, if they do, that they are dealt should safeguard that provision. with. Again, to some extent that arises already. If I use the example of the licensed conveyancers again, it Q492 Mr Burrowes: Just on the point of investment, is possible for themto act for both the buyer and the do you consider the Bill needs to particularly specify seller and they have, subject to certain conditions, a fitness to own test? It does not at present. obviously, a way of dealing with that. Again, the Bridget Prentice: I think the fitness to own test, as I Chartered Institute of Patent Agents works very say, is something that the regulators would have to closely sometimes with the trade mark attorneys and look at initially. Whether we have to set that out in again there is potential for a conflict of interest but detail in the Bill I amnot yet sure. I would be they are able to work together, and, of course, no interested in the Committee’s view on that and it ABS firmwould be allowed to be set up unless it went certainly is something we could have a look at. under a fitness to own test. Any external investors would have to go under a fitness to own test and that Q493 Lord Neill of Bladen: Just turning for a would very much focus on their honesty, their moment to vulnerable groups, one thing we have integrity and their reputation. It would focus on examined in front of witnesses is, who are these things like their competence, and indeed their people who are going to come forward and provide financial soundness, so if you take all those things money and produce these new models? Who are they into account there are pretty stringent issues that going to be? Are they necessarily going to be people would have to address in order to even be particularly enlightened? Why should they not be considered to be an ABS firm. looking at businessmen who want a return on their money and they will find some of the rules they are professionally required to comply with are rather hostile to that? For example, as you know, a lawyer Q490 Mr Burrowes: You make reference to some of has to tell a judge if he is aware of a decision that is the easier examples of conveyancers but then you go contrary to his, the lawyer’s, own case and is relevant, to further potentially problematic relationships, and in point he cannot allow the judge to decide, so solicitors and auditors, for example. It must be a sometimes you have to tell the judge about a case problemthat there is potential for conflict for which blows you out of the water. Similarly with professions working within the ASBs. documents, you come across in the middle of a case a Bridget Prentice: Obviously, where lawyers and non- very inconvenient document which shows one of lawyers are working together on an equal footing your key witnesses is telling lies. You are obliged to conflict probably is inevitable in some respects. I produce that to your opponent at the court. These are think that is very much down to the detail of the rules very uncommercial rules, they have been established that we need to put in place and we want the LSB and over a long time to ensure that there are very high the authorised bodies to make sure those rules ensure standards of integrity operated by the professions. that any conflict that does arise is properly dealt with. Bridget Prentice: I see no reason whatsoever why that Yes, I have given examples perhaps of the simpler would not still be the case. The legal profession will areas but in areas such as the Bar and the Law Society still be subject to its regulatory provisions and, as I I amquite sure that they have morethan the said at the beginning, clause 1 points out in detail the capability of making sure that they would be able to need for themto uphold and maintaintheir deal with a structure and a set of rules that would deal professional principles. Of course, if they come with the conflicts of interest should they arise. across cases that are contrary to their own case, as is 3435523076 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley presently the case, they have to make the court aware Bridget Prentice: Yes, I think it would be the ABS firm of that. I think that does not in any way detract fromthat would look to who wo uld best suit themto the opportunity to work with other non- regulate them. If I could give you an example which professionals in an ABS firm. We have made clear, I hope clarifies the reasoning behind that. First of all, both in the Bill and elsewhere, that the professions I want to make it absolutely clear to the Committee must continue to uphold the standards by which they that I do not believe by having competition between already are expected to behave. the regulators that will in any way lower their standards. In fact, if anything, it ought to give them an opportunity to be more innovative in the way that Q494 Lord Neill of Bladen: Have you now moved to they interact with their members. The important the multi-disciplinary because you have talked about thing is that the competition is on the range of other professions? services available rather than on prices. I amnot Bridget Prentice: Yes, I was talking about themin saying that price would not be a factor, it might be, general. but the real competition is on the range of services. For example, let us say a firm set itself up to do Q495 Lord Neill of Bladen: I aminterested in how is conveyancing, it might have a licensed conveyancer, the man in the street or the person living in the village it might have a solicitor, it might have an estate agent going to get more availability of legal services as a in it, but its primary purpose is to do conveyancing. result of these new proposals. It could use the licensed conveyancers as their Bridget Prentice: I think there is possibly the chance regulator, which would probably be lower in price that it is quite likely that they will have a better than going to the Law Society where the Law Society chance of getting more services in the rural area. I would regulate a firmthat would do conveyancing think that the ABS can increase access to justice in a and probate and a variety of other work that would variety of ways. I think it will certainly help legal be available, so there would be a much wider service providers to co-ordinate resources and, spectrumof services available and, therefore, the therefore, that will be beneficial to the consumer. I price might be higher. It might be, for example, that think you can utilise economies of scale which will the Bar Council might decide it wants to set a kind of increase access to justice because there will be lower premier branding and say, “We will give you really prices. I think you can have easier access because top-notch quality services across this wide range and, there will be investment which will give more flexible therefore, we will charge you more”. It is for the ways of delivering service, whether it is by telephone consumer, in this case the ABS firm, to make the or on the internet, there is the opportunity for almost choice. I suppose it is between choosing whether you a 24 hour service to be made available. I think that go to Debenhams or Harrods in some instances, and certainly would help those less able to access legal you might choose one or the other. services than they presently do. There is a real potential and, in fact, I amquite enthusiastic about Q498 Mr Kidney: In the example you give of the fact that in a way this could open up legal services conveyancers, does it worry you that, for example, to people who might at present have diYculty the Law Society might decide it wants to hoover up accessing them. all the conveyancers and regulate themall and lowers not just its charges but its standards in order to be V competitive with the Institute of Licensed Q496 John Hemming: What e ect will it have on Conveyancers, and that is of detriment to McKenzie friends though, because they do exercise a consumers surely? right of audience and, therefore, will be a reserved Bridget Prentice: If that were to happen it would not legal activity which they currently are not? be the way we would like to see it happen. I do not Bridget Prentice: I would have to look at whether envisage that being likely to be the case. People will McKenzie friends would fall within the ambit of this choose exactly what services they want to provide Bill. That is a question that I have not looked at in and in so doing would then choose which regulator detail and I will come back to the Committee on it. most suits their profession. Remember, of course, Chairman: Just turning for a moment to regulatory that the standard that the regulators have to set is shopping, David Kidney. quite a high one so there will be no way that you could undercut the standard of service that would be Q497 Mr Kidney: Minister, if more than one front- asked for. What you decide in terms of price is line regulator could be the relevant regulator for a another matter. new ABS firm, is it intended that it is the ABS firm that will choose which regulator to seek a licence Q499 Mr Kidney: Those standards are policed by the from? Do you regard that as competition and, if so, Legal Services Board and the draft Bill permits the do you regard it as desirable? Board also to be a licensing authority. Do you expect 3435523076 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley this competition to extend to the Board competing Bridget Prentice: First of all, we must respond to the with the front-line regulators? concerns of consumers who have consistently told us Bridget Prentice: I do not. I think the Board is very that they had no confidence in a systemwhere likely to leave it to the front-line regulators. One of complaints about lawyers are being dealt with by the reasons that power is there is should a front-line their professional bodies, and that has been very regulator fall down in their duty it should be possible much at the heart of the theme of what I have been for the Board to take that over. Referring to the Lord saying today. Again, if you look beyond that at the Chairman’s question earlier about the compensation possibility that traditional barriers between the bill and claims funds, it is quite possible, for example, professions are beginning to blur then I think it is a that in the transfer of the regulator of claims funding, lot more important that consumers know they have a which at the moment in the Bill is the Secretary of single avenue of redress fromany legal service State, the Legal Services Board may deal directly providers. I think it is important we establish that and with claims funds themselves rather than waiting it needs to be as a minimum that that redress body until another regulatory body might come up on the has to demonstrably show that it is independent of horizon that would be appropriate. the professional bodies. I think that is very Chairman: Minister, I understand you have very important. Nevertheless, I accept that if you take, for kindly not set us any deadline. We have still got quite example, the Bar Council in comparison with some a lot to get through. You must tell us when you have other bodies, the Bar Council does a relatively good had enough of us! There is quite a lot more still to job in handling complaints, but that does not mean to come and I am afraid the House of Lords could have say that it cannot be improved further. It is certainly a division in which case I would have to adjourn the possible for the front-line bodies to deal with that. Committee for 10 minutes. I would like to move now What I would say is, in fact, that the Bill does make to complaints, if we may. clear, and I think it is a very important one and one the consumers very much appreciate, an internal investigation must be the first step. That initial handling of the complaint should be overseen by the Q500 Baroness Falkner of Margravine: Minister, I appropriate professional body. Consumers tell us all will turn first of all to what I see as the point of the time that if the initial handling of the complaint principle regarding your statement on the location of was dealt with properly then there would be no the OYce at the beginning of this session. First of all, frustration about the way things then spiral I would like you to accept that I have absolutely no sometimes into very long and diYcult and stressful opinion on the location, it is the point of principle experiences for them. that I would like to touch on briefly. While I accept Baroness Falkner of Margravine: Moving on, clause that your concern is to ensure that there is not an 118 of the Bill provides that the OLC may require extension of uncertainty for staV, and I appreciate regulators to provide specified information. In fact, it that concern, I think I regret that the Committee did is quite an extensive power in its role with regulators not have an opportunity to think about those issues that makes it appear— and deliberate on them, and possibly comment on Chairman: I do apologise, we will have to adjourn for themin the report, before you announced what your 10 minutes. intention was. I give you an example of a very similar situation where this course of action was not followed The Committee suspended from 3.44 pm to 3.54 pm for and, in fact, the announcement was made after the a division in the House of Lords. Bill had gone through, and that was the Equalities Bill last year, where there were very similar Chairman: Minister, I amsorry about that considerations of staV being placed in diVerent interruption. We realise that everyone has something locations and so on. I just wanted to note that slight of a tight timescale, but we have just a few more tone of regret. Coming to the legal complaints, we questions if we may. have had some arguments put to us that existing regulators think that the OLC should have the power Q501 Baroness Falkner of Margravine: Coming to delegate the management of service complaints to back to the OYce of Legal Complaints and the approved regulators if the OLC is satisfied that Ombudsman, the draft Bill does not at the moment robust systems are in place to deal with those kinds contain the appeals process, the decision is taken by of complaints with front-line regulators. What would the Ombudsman. We have heard diVering views on your response be to suggestions that the OLC should whether there should or should not be some form of have power in the Bill to delegate complaints an appeals process. We have heard fromthe Legal handling to such regulators if it is satisfied that Services Ombudsman who thinks it is: “absolutely appropriate systems are in place which are in the essential that there is an independent internal appeals interests of consumers? mechanism within the OLC” and then Lord Philips 3435523076 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley told us that he was “slightly concerned” about the Bridget Prentice: That certainly is a judgment that we proposal to have no right of appeal other than by would take. The ECHR does not specifically require judicial review. How would you respond to proposals an appeals mechanism, which is why we have left it that decisions by the OLC should be subject to a right open to judicial review. of appeal because the requirement to pay compensation may aVect the rights of lawyers under Q503 John Hemming: Article 6. Article 6? Bridget Prentice: However, as I have already said, I Bridget Prentice: Well, in a sense I will be repeating will be replying in detail to my Lord Chairman’s very much of what I said earlier about why we do not detailed letter which I received on Friday and I think think a separate appeals tribunal would be we will cover all aspects of Article 6 in that. appropriate. It would be an unnecessary and disproportionate response and it would be an Q504 John Hemming: Article 6 is an independent Y expensive one. I see the O ce of Legal Complaints tribunal established by law in determining civil rights operating with caseworkers initially making over rights, and that is why— recommendations and then either party being able to Bridget Prentice: We will cover all aspects in the request that recommendation is reconsidered by the response to that letter. Ombudsman. The Ombudsman’s decision should be binding, partly because one of the principles in Q505 Lord Campbell of Alloway: I was going to take devising the Bill in this way is because we want to do much the same point. I am afraid judicial review as away with too many tiers, we already saw earlier that such would be more trouble than it is worth and it will there were too many regulatory tiers and so on. We not be eVective because everybody imagines it is an do not want the process to have too many tiers appellate process but it is not, you cannot get because that would risk there being a much slower reconsideration of the merits of the case and this sort and more legalistic process which might deter very of situation requires that. Everything that was said genuine complainants. I think that point was made about that I agree with. I do apologise for not being quite strongly by Ruth Evans fromthe Bar Standards here but I could not be for various reasons and gave Board. As long as the OYce of Legal Complaints notice at the outset. I have to declare my interest. I am reaches its decision in a way which is consistent with a Queen’s Counsel and I retired when I was 85. ECHR principles then that would leave open the Bridget Prentice: Last week then! option for judicial review. I think the systemthat we have is consistent with the principles of ECHR. Of course, my Lord Chairman has written me quite a Q506 Lord Campbell of Alloway: Some time ago. detailed letter in this area and I will respond to it in The rules brought me right back to when in the early much more detail by the end of this week. days—it had not been done before—I opened a law oYce in Brussels and really dealt with only advice about competition law appearing before the Q502 John Hemming: Unsurprisingly, perhaps, Commission, appearing before the court in Brussels. some of the barristers who have written to the Bar A firmof accountants o Vered me rooms in their oYce Council have argued the case that, in fact, Article 6 and it worked all right and there was an eVective could not be satisfied by OLC decisions because it is Chinese wall but it was inevitable we got near to not an independent tribunal established by law and breaking the wall. They said, “Look, we are doing were that to be taken to judicial review it would be a awfully well, let us have a partnership” and we could merits review, not just a procedural review, and have done very well as a partnership but you could obviously that would be substantially more expensive not do it and it would have been the wrong thing to and potentially more expensive than actually having do. How somebody was going to judge the a tribunal in the first instance. Your response on the predicament with which I was faced with rules, I issue of the Legal Services Board was that it is a bit simply do not know, because once you get various cheaper to let it go to judicial review. The risk, of professions together and they have a partnership it is course, is if the judicial review goes against the Legal a very, very unacceptable situation and the quality of Services Board or goes against the OLC, the OLC the advice is not as independent as it should be. I just will end up paying. It is not necessarily true that it wanted you to take that point. You say you are would save money in comparison because you will working on rules, you have to realise in practice when get merits reviews, and you will get merits reviews at you are faced with this situation of a partnership the judicial review stage rather than merits reviews at rules do not really do it. an Article 6 stage within either the Legal Services Bridget Prentice: Can I say, Lord Chairman, three Board’s processes with the tribunal there or with the things in reply. First of all, on the ECHR issue, as I OYce of Legal Complaints. It is a judgment you can say I will respond substantively by the 30th, as you take but I think the basic point is you would have a have asked, but I would say that we were guided by merits review because it does not satisfy Article 6. the response given by Sir David Clementi on this 3435523076 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 Briget Prentice MP, Mr Nigel Reeder, Mr Alasdair Wallace and Mr Sean Langley issue and on that basis my current view is that the would be the situation if the assumptions proved proposals are consistent with the principles of ECHR incorrect, would that not then have quite a but I will look closely at that in the light of the considerable eVect on costs? Committee’s view. On the issue of the Chinese walls Bridget Prentice: The first thing to say is that and so on, there will of course be in an ABS firma the PricewaterhouseCoopers assumptions are head of legal practice who will have the duty of PricewaterhouseCoopers assumptions, they are not ensuring that the principles of the professions are the Department’s assumptions. upheld. The other thing which has not come out yet in the course of the questions and my responses is that there will also be memoranda of understanding between the regulatory bodies. For example, there is Q509 Chairman: That is very helpful. already one such in view with the Financial Services Bridget Prentice: They made the decision about the Authority and that will be another way of ensuring new bodies brought in and senior management and that those diVerent professions within a firmactually the influence that would have on costs. To be fair, we properly manage their aspects of the firm’s services are content those assumptions are not unreasonable. and do not intervene or unduly influence those of They were encouraged I think to base themon the another. I hope that is to some extent an assurance resources required by the LSB and the OLC on the that we are conscious of the issue that Lord Campbell basis of what we saw of the powers and duties has raised but I think we have covered it in those two contained in the Bill, but they also consulted with particular ways. approved regulators and other interested parties in Lord Campbell of Alloway: With respect, I think you making their calculations. In fact I think all the have sought to cover it as best you can but I do not information we have to hand suggests that, for see really how much more you could do. There are example, the financial implications of location are one or two things. I realise you are operating on the minimal although there are obviously some non- Clementi code, if you like, but I do not think it is financial implications in terms of access to the labour right, I do not think you should accept the Clementi market and so on. It has to be said that the financial code. Clementi is an accountant, I believe, or assessment is of course made on those assumptions something like that, and I was involved with and that there has to be a notion of some uncertainty accountants and they are very nice people and they about that. I do think that one of the key things that have their own profession, but once you get into a PricewaterhouseCoopers came up with was that even partnership with themit is a very di Verent aVair. I am if you have to increase staV costs, if there were instead not criticising you, I amcriticising Clementi.I think of being a drop in complaints there were an increase the whole concept is fraught with danger. and you had to employ more staV, they still predicted annual savings to the sector as a whole of about £2.3 million as opposed to just over £6 million if things Q507 Chairman: Perhaps not going down that road were to be as they have assumed. So I think overall too far, is there anything you would like to add? the costs at the moment are in the region of £97 Bridget Prentice: If you do take the view that you million and the prediction is that it would be about disagree with Clementi then it is diYcult for me to £88 million under the new scheme, so there would be persuade you very much further down that road. All a saving overall of about £10 million which I would I would say is de gustibus non est disputandum, hope would be returned to the consumer. everybody has to have their own view on these matters. Chairman: Thank you for that comment and for the translation. Finally, on costs, Baroness Henig. Q510 Baroness Henig: Can I just push you on this. We established earlier that one of the big objectives Q508 Baroness Henig: If I can raise the issue of the here is consumer confidence and particularly in the PricewaterhouseCoopers financial analysis and what complaints sector. Experience from other sectors in the costs might be, I think I am right in suggesting, the public sector suggests where consumers are more and this was based on issues which the witnesses have confident the number of complaints actually goes up raised, that that financial analysis was predicated and goes up quite significantly. Would that then upon assumptions such as there would be a 15 per aVect these costings in any way? cent eYcient saving by the OLC as compared with the Bridget Prentice: It might aVect themslightly, as I existing Consumer Complaints Service—I think that have said, in that if complaints went up significantly was one of the assumptions—and there would not be you might have to employ extra staV to deal with a great increase in the number of complaints. Am I them. However, although you are absolutely right right that they were the sort of assumptions on which that the more confident people are the more they use the PricewaterhouseCoopers costs were based? My the system, if they think it is worthwhile, that cannot question is, are those assumptions still valid? What be a bad thing. 3435523076 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Q511 Baroness Henig: No, it is a good thing. client, as a rule, and they are funded by somebody— Bridget Prentice: But it would get a much more the local authority, whoever it may be—where is that eYcient systemand a muchfaster redress. As I was additional money coming from? One presumes there saying earlier in response to Lady Falkner’s is additional money because at the moment they are comments about the OYce of Legal Complaints, we not paying anything. are very much encouraged and want to make sure Bridget Prentice: I cannot say exactly where that there will be an initial investigation in-house before it additional money, if additional money is needed, will ever gets as far as the OYce of Legal Complaints. It come from. I will certainly look at that and let the may be very often it is a misunderstanding or a simple Committee know if there is anything we specifically acceptance that a mistake was made which can be need to address in terms of ensuring they are treated dealt with very quickly if it is dealt with properly in- appropriately and fairly within the systemonce they house in the first place, and therefore in that sense are in the system. I take your point. that balances out what might be an increased cost if people are more enthused by the system that we have Q515 Chairman: Minister, thank you very much that they feel they have the confidence to use it. indeed, you have given us a great deal of your time. If I may say so, you have also indicated you are going Q512 John Hemming: I accept under clause 18 there to come back to us on a number of points, and we will be a transitional protection for not-for-profit have not covered some question and I understand bodies but where is the money coming from to pay arrangements will be made to give you an for these not-for-profit bodies when they are opportunity of responding to the questions we have covered? not had time to ask. We really do appreciate the way Bridget Prentice: I amsorry? Clause? in which you have so willingly stayed long beyond what you might originally have expected to Q513 John Hemming: Not-for-profit bodies are not understand was the length of the session and we are initially covered by the Bill, this is a transitional area, very grateful to you. We will seek to meet this almost which is where clause 18 comes in basically, saying, impossible schedule you have set us. Thank you for “For a while you do not have to worry about it.” explaining why it is important that we should and we After a point, not-for-profit bodies, call centres, will now deliberate and consider not only all you have CAB, whatever, are going to start being covered by said but all that has been put to us by the other the Bill for certain activities and there will be costs. witnesses. We are very grateful to you and Where is that money coming from? particularly the Bill team for being so helpful. Bridget Prentice: Some of that money will come from Bridget Prentice: Thank you very much, Lord the requirement that the Board will have in terms of Chairman, it has been a pleasure. The one thing I regulating everyone that there will be a fee levied, so really wanted to get across here is that the purpose of it could come in that. this Bill is to put the consumer at the heart of legal services and to give the legal professions both the Q514 John Hemming: But where do they get their independence and the opportunity that I think the money? If they are charging a fee to the not-for-profit Bill oVers to themall. Thank you very much. body, the not-for-profit body is not charging their Chairman: Thank you very much indeed.

Memorandum by Bridget Prentice MP, Parliamentary Under Secretary of State, Department for Constitutional Affairs (Ev 76) I would like to thank the Committee again for the eVorts that it is making to provide proper consideration of this draft Bill against a tight timetable for pre-legislative scrutiny. We wanted to give ourselves the best prospect of having legislation ready to introduce early in the Second Session in order to deliver these consumer focused reforms as quickly as possible. I would also like to thank the Committee for the opportunity to give oral evidence on 26 June and to submit the further written evidence enclosed. This letter seeks to respond to a number of the Committee’s questions that time did not allow us to discuss at my oral evidence session. On 26 June I also promised to write to you on three points that arose during the session. One of these—the ombudsman appeals process—is addressed in the answer to question 30, below. The second—the eVect of ABS on McKenzie Friends—has been responded to at oYcial level and I understand that this was circulated to Committee members on 29 June. I have set out the third issue—the sources of funding for the regulation of Not for Profit bodies—below. 3435523077 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Finally, I have taken the liberty of expanding on some of the key areas that were discussed in oral evidence, where I believe that supplementary evidence may be of use to the Committee’s deliberations. You wrote to me setting out the Committee’s views on the draft Bill’s compatibility with ECHR legislation. I amresponding separately to this letter. As agreed at my evidence session full details of the proposals from the Law Society and the CLC for amendments to existing legislation, together with a schedule of currently identified consequential amendments was sent to the senior clerk of the Joint Committee. We will continue to work on this with stakeholders over the coming months.

Outstanding Questions Posed by the Joint Committee

19. Is it the Government’s intention to bring forward provisions in legislation that will seek to remove all existing legal and regulatory restrictions on LDPs? (a) If this was left to the LSB, would this potentially disadvantage some types of LDPs? In general, all regulators, whether they intend to license ABS firms or not, will need to satisfy the LSB that any restrictions on particular types of practice are clearly justified. The Bill will also provide a mechanism for non-legal management and ownership, subject to the safeguards for licensed bodies outlined in Part 5 of the Bill. Any regulator that seeks authorisation as a licensing authority will not be able to maintain any restrictions that are at odds with Part 5. In addition to the options for ABS licensed bodies, the Bill provides for regulators to extend the scope of their recognised bodies rules so that they may eVectively regulate partnerships between diVerent types of lawyers (eg solicitors and barristers). As long as these practices are wholly lawyer-owned and managed, they would not need ABS licences, but clearly this stops short of Clementi’s proposed LDPs and what is possible under our ABS proposals. The Bill leaves some discretion to the LSB where rules are concerned. By setting out common principles for all regulatory bodies, yet leaving themto determinethe detail of their ru les to suit the particular types of entities they wish to regulate, the Bill strikes a balance between creating a level playing field and allowing regulators valuable flexibility. Any rules seeking to restrict forms of practice will require justification to the LSB.

20. How does the Government envisage the LSB overcoming disagreements or conflicts within multi-disciplinary ABS structures between the LSB and regulators of other professions? (a) Should the Bill require the LSB to have agreements in place with other regulators before licensing ABS multi-disciplinary firms? The LSB and licensing authorities will need to consult regulators in other sectors, and where necessary to make suitable arrangements with them. Co-operative links already operate successfully between existing legal regulatory bodies and other sectoral regulators. For example, the Law Society and FSA have a memorandum of understanding for regulating firms oVering regulated legal and financial services. In future, more extensive cross-regulatory co-operation will provide a solid foundation to allow licensing authorities to deal eVectively with any conflicts. Except in exceptional circumstances, it will be for licensing authorities, rather than the LSB, to license ABS entities. In doing this, we do not consider it necessary to include a specific statutory duty to enter into agreements with other statutory regulators before licensing ABS entities. Such entities could take many forms, and at this stage it is not possible to predict with certainty what formsuch regulatory agreements would take, or the range of other bodies that might become involved. However, the LSB will clearly need to be satisfied that a body has appropriate arrangements in place before designating it as a licensing authority. We will consider how best to give eVect to this in the Bill.

23. How does the Government weigh up the different arguments expressed by witnesses about the impact of ABS firms on Legal Aid provision? (a) Is the Government content that the provisions in the Draft Bill will not have an adverse impact on the provision of Legal Aid advice to consumers? 3435523077 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The Government fully appreciates the concerns expressed by witnesses regarding the impact of ABS firms on legal aid provision. However, we are confident that the ABS proposals will act as a driver for greater innovation and competition in the market for legal services in both the private and public market for legal services. This is not confined to large non-lawyer-owned firms entering the market. ABS will also free existing firms to change the way that they operate, to be more responsive to changing market conditions. This should help to broaden the supplier base and raise quality and drive down costs to the consumer. ABS proposals will enable businesses to better co-ordinate their service delivery methods to meet the needs of the consumer, particularly in areas where it has previously been challenging. ABS will also allow firms to organise themselves with various types of legal practitioners, moving away from the need for double contracting (solicitors and barristers) and reducing ineYciencies. This could potentially deliver higher quality service and also lower cost services enabling the legal aid budget to be more widely spent. In addition, the proposals will ensure that the regulatory framework can identify and monitor those areas that are most vulnerable and take steps to encourage consistent service availability across the country both within the private sector and, coupled with Lord Carter’s proposals, the legal aid market.

24. To what extent has the Government entered into consultation and discussion about the provisions in the Draft Bill with the review of Legal Aid Procurement being headed by Lord Carter of Coles? The Regulatory Impact Assessment of the Draft Legal Services Bill considers the impact that the proposed reforms could have on the existing framework for legal aid provision and, as far as possible, the proposed changes in legal aid provision as recommended in the review of Criminal Legal Aid Procurement. During the course of preparing the draft Legal Services Bill, the Government consulted with the Review of the Legal Aid Procurement team, headed by Lord Carter of Coles, and with legal aid practitioners and professional bodies. The purpose of this engagement was to ensure that our proposals were consistent with the existing plans for legal aid reformand its objectives. The greater flexibility that ABS will e nable within the legal services market could assist with the implementation of Lord Carter’s current proposals by providing greater opportunities to access external investment and permitting lawyers and non-lawyers to work together.

27. Some witnesses have raised concerns that provisions for the separation of service and conduct complaints in the Bill will lead to delay and duplication. Given the dual nature of many complaints, does the Government continue to believe that the system proposed will be in the best interests of consumers? While Sir David Clementi advocated the sort of independent complaints handling organisation proposed in the draft Bill, he took the view that it was right that professional bodies should be responsible for discipline of their members. It is diYcult to understand how Model B! could operate without regulators retaining this ability. Conversely, consumers have been very clear that they will not have confidence in a regulatory framework which provides for anything less than a single and fully independent redress body. The Committee has heard from many people (including the Law Society, the Financial Services Ombudsman and the Master of the Rolls) about the benefits of separating consideration of redress fromregulatory action. The great majority of complaints do not require regulatory action. Whilst the Government appreciates that this is not necessarily the case for every type of legal services provider, it does not seemdefensible fromthe perspective of consumer protection to make an exception to this principle in the case of a single type of provider. Allowing diVerent processes for diVerent types of provider would also be inconsistent with key objectives such as clarity for consumers and consistency of outcomes. In many cases duplication should not happen. When a consumer makes a complaint to the OLC, the OLC should be able to pass on the details to the relevant regulator or regulators. It should not be necessary for the consumer eVectively to complain all over again.

29. Clause 118 of the draft Bill provides that the OLC may require approved regulators to provide specified information to them. However, there is no reciprocal duty for the OLC to provide information to the approved regulators. Is there any reason why there should not be? (a) Is the OLC’s conceived as having a quasi-supervisory role, or as having an equal, but distinct, function from the approved regulators? Clause 118 is intended to provide the OLC with a power to require such information as it may need to determine a complaint. This clause is primarily concerned with the OLC requiring information from parties to a complaint—usually, the respondent or complainant. 3435523078 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The clause concerned with the OLC receiving information from approved regulators is clause 116. The Government entirely agrees that this provision should be reciprocal, and believes that the draft Bill achieves this. Clause 116(3) of the draft Bill requires regulators to provide information to the OLC, and clause 116(4) provides conversely that the OLC must provide approved regulators with information. The intention at this part of the Bill is to provide a two way process so that all partners in the regulatory framework receive all of the information they require to carry out their functions. The OLC’s primary function is to provide redress. There will be occasions when, in considering a consumer complaint, the OLC identifies a potential issue of professional misconduct, and it will refer that to the professional body concerned. In such circumstances, the OLC will inevitably have acquired some knowledge of the details of the complaint. As such, the Government believes that it should have the ability to make a reference to the LSB where it has serious concerns about the actions of a professional body on receipt of such a referral. However, the OLC does not and should not have any powers over the approved regulators to direct themin carrying out their functions. Regulatory control would be exercised where necessary by the LSB. It is also important to note clause 25(3) in this context—the LSB cannot direct an approved regulator with regard to a specific disciplinary case or regulatory proceedings. Furthermore, it would be impossible for the LSB to take action against an approved regulator over an individual case, for example by cancelling its designation. That would breach the duty in clause 3(3)(a) to act proportionately.”

30. How do you respond to the proposal that: (a) decisions by the OLC should be subject to a right of appeal because the requirement to pay compensation may aVect the rights of lawyers under Article 6 of the ECHR; (b) the OLC should have a final, internal review of its decisions? The Government does not believe that creating an external appeals tier for OLC decisions is either necessary or desirable. If the OLC’s procedures themselves comply fully with the rights guaranteed by Article 6(1), the Article does not require any right of appeal to be available. Our view is that if the OLC’s procedures do not comply fully with Article 6(1), any deficiencies may be cured by the availability of an appeal or review process that has “full jurisdiction” and itself complies with Article 6(1). Whether judicial review is suYcient or a full merits appeal is necessary will depend on the extent to which the OLC’s procedures themselves fall short of the requirements of Article 6(1). Paragraphs 253 and 254 of the Explanatory Notes set out in broad terms how it is envisaged that the OLC would operate. This would involve the OLC operating with caseworkers making initial recommendations, and either party being able to request that an ombudsman reconsiders the recommendation. The ombudsman’s decision would be binding. This is the model for complaints handling used by the Financial Ombudsman Service (FOS), which, I understand fromthe FOS, has never been successful ly challenged in the courts on grounds of incompatibility with Article 6. The Committee might also be interested that the recent N2!2 review of the FOS found that more than 60 per cent of respondents, including larger firms and consumer bodies, did not favour the addition of an external appeals tier. A fuller summary of the Government’s understanding of the implications of Article 6(1) is provided in the response to Lord Hunt’s letter of 22 June on Human Rights and the draft Legal Services Bill. That summary includes some of the considerations of which the OLC would need to be aware in ensuring its procedural rules are compliant with that article. In particular, the OLC would need to consider the provision of oral hearings, possibly in public, which the draft Bill allows for; and it would need to consider the mechanism of its internal review procedure, which would have to be available to both parties in a complaint (as the FOS procedure is). It is also important in terms of Article 6(1) to note that clause 99(5) of the draft Bill ensures that ombudsmen are appointed on terms which are consistent with ensuring their independence—above all, ensuring security of tenure. On a practical level, the creation of an external appeals tier would clearly make the complaints handling process lengthier, slower and more expensive. Sir David Clementi’s objective for the OLC was quick and appropriate redress with a minimum of formality, and he noted that appeals mechanisms might run contrary to this, prolonging uncertainty for both parties. The Committee might also note that the Law Society’s response to the White Paper supported the Government’s view (both the representative armand the Consumer Complaints Board agreeing), as did those of ILEX and the Legal Services Ombudsman; and that the Government’s view has also been recently endorsed by Which and the National Consumer Council. 3435523078 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The Government does not believe that a final internal review is necessary, but this is considered to be a procedural matter for the OLC to set in its rules (which will require consultation and consent fromthe LSB). The Government has no view at this stage on whether such a process would be desirable.

31. Sir David Clementi proposed that the money to fund the OLC should be raised from proven polluters. However, the draft Bill provides that the “polluter pays” principle will be applied to those against whom a complaint was made but not necessarily proven. Why has the Government chosen not to accept Clementi’s version of the “proven polluter”?

The draft Bill has been designed to leave the OLC the flexibility to determine the best way to operate the polluter pays mechanism. It is under an obligation to make rules setting out how it will determine its fees. These rules (as with all OLC rules) will need to be published in draft, allowing time for representations to be made, and the OLC will be obliged to have regard to those representations. The profession will therefore be involved in the process of ensuring that fees are set in a manner which is fair and proportionate. However, it is important that suppliers have an incentive to handle complaints eVectively in-house, and important that the OLC has an incentive to conciliate complaints where possible. The former incentive is provided by the prospect of a charge fromthe OLC; and the latter incentive w ould be compromised by the OLC relying on upheld complaints for funding. There is flexibility in the draft Bill to set diVerent fees for diVerent stages of a complaint, or even in some cases to waive fees altogether; the Government would not, for example, expect providers to pay fees for the processing of complaints against themwhich were found to be frivolous or vexatious. Nonetheless, a substantial proportion of those complaints reaching the OLC should be expected to be of some merit, or else the provider should have been able to resolve them at in-house level. Where they have not, the Government believes it is surely more reasonable for that provider to contribute to the cost of processing the complaint than it would be to charge all of the costs to the profession as a whole. (a) How does the Government respond to the view that the “polluter pays” principle as set out in the draft Bill may unfairly penalise parts of the legal sector that may, by their nature, attract more complaints than others? This risk is acknowledged at paragraphs 6.32 and 6.33 of the Regulatory Impact Assessment accompanying the draft Bill. It is plausible (although by no means certain) that a one-size-fits-all approach to setting fees might have this eVect. For this reason, clause 106 of the draft Bill deliberately allows the OLC the flexibility to set diVerent fees for diVerent types of lawyer or diVerent stages of a complaint. In certain cases the OLC would indeed be able to waive fees altogether. This flexibility should also be considered in conjunction with the consultation requirement with regard to the setting of fees, and with the regulatory objectives to protect consumers and improve access to justice. These factors in conjunction should serve to ensure that fees are set in an equitable manner that does not unfairly penalise any providers or indeed any consumers.

32. Does the provision that the OLC will, except in very limited circumstances, only consider complaints which have first been considered in-house have the potential to undermine consumer confidence in the independence of the new complaints handling system?

Allowing providers who are subject to complaints the opportunity to put themright at source is widely accepted as best practice for ombudsman schemes. Sir David Clementi supported this principle, although he suggested that there should be limited circumstances in which a complainant might be allowed to go straight to the OLC—for example, where the relationship between lawyer and consumer has been particularly acrimonious. The Government agrees with this position, and most stakeholders (whether consumer or legal professional) have also made it clear that they consider when things go wrong, a lawyer should be given the opportunity to put themright in the first instance.

35. Do you agree with the views of some witnesses that the costs of regulation, raised through the levy on approved regulators, will eventually be passed on to consumers of legal services? (a) How does the Government envisage the LSB dealing with the tension between the LSB’s approach to its regulatory function and it being funded by those it regulates? I would like to take this opportunity to highlight the potential long-term financial benefits the proposals will bring to both the consumer and practitioner. 3435523078 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The PricewaterhouseCoopers report concluded that the cost of regulating the legal services sector (ie the costs of the approved regulators and the LSB and OLC) is estimated to fall by around 10 per cent (£97 million to £88 million). As is the case with other independent regulators such as the FSA and the current legal front line regulators, the cost of regulation incurred by practitioners is inevitably passed on to the consumer. Given that the regulatory costs will fall under these proposals, we envisage the cost passed on to the consumer will also fall. However, as a safeguard against disproportionate rises in costs, the draft Bill sets out that fees paid by regulated persons must be approved by the Legal Services Board. In determining whether fee levels are appropriate, the Board will consider issues such as the eVect they may have on consumers of legal services. To ensure that the LSB will be fully accountable for any costs it incurs, it will be under a duty to publish an annual report including a statement of its accounts, which will be laid before Parliament and will be subject to scrutiny by the Comptroller and Auditor General. Given the funding relationship that this mechanism will bring between the LSB and those that it regulates, it is important that the LSB’s regulatory functions are not aVected by any conflicts or tensions in agreeing the scope and cost of its operations. To do this, the Board’s approach to its regulatory function will be proportionate to the duties it has in maintaining its regulatory objectives (which are shared by those it regulates) and discharging those functions set out in the draft Bill.

Further Clarifications I also promised to write to the Committee to clarify where the money would come from to pay for the regulation of Not for Profit bodies. Any transitional costs associated with regulating NfP bodies will have to be met either from levies raised on these bodies, or by the LSB. Authorised bodies who may license ABS firms may also choose to licence NfP providers at reduced or no cost, possibly as part of their pro bono initiatives. While professionals may not welcome this, it is undeniably in the public interest, and the interests of the profession (because it improves public perception of the profession as a whole), that NfP legal services can be delivered to the same high standards as other legal services, and that consumers receive the same level of protection. Currently, regulation of NfP services is felt by both NfP and private practitioners alike to be inconsistent and confusing—and consumers who receive unsatisfactory services can often be left without any redress mechanism. When a service is reserved it will be provided by, or under supervision of a lawyer; but for unreserved services there would be no recourse. A complaint cannot be made unless the service is wholly provided by a solicitor or barrister, whereas in practice cases are often transferred to lay advisers, leaving consumers with no remedy. This would not be a problemif the whole organisation was subject to regulat ion. In using the Bill to bring NfP services firmly into the regulatory framework, we are responding to calls fromboth the advice sector and private practice to set down clear regulatory guidelines for NfP providers. Clear regulation, leading to consistent standards, will continue to strengthen the reputation of the legal profession as a whole. As always, however, access to justice remains a key concern, and if we sought to transfer all additional regulatory costs to NfP providers themselves, without the discretion to take into account their resources, this would render many of them unsustainable and risk depriving the most vulnerable consumers of legal advice altogether. The LSB will of course seek to minimise the costs associated with NfP regulation, and to ensure that its powers to waiver or alter requirements are applied where appropriate. When the LSB regulates directly it will fund this regulation out of its general running costs—this will be a relatively small proportion of the whole.

The Legal Services Board

Appointment to the Board Much discussion has focused on whether the appointments to the Legal Services Board, made by the Secretary of State, compromise its independence. As the Committee will know, the Commissioner for Public Appointments is appointed by Her Majesty and is charged specifically with the duty to regulate, monitor, report and advise on the way in which Ministers make appointments to boards of public bodies. The Government is satisfied that this well-established process of appointment which would be carried out in respect of the LSB by the Secretary of State for Constitutional AVairs under the supervision of the OYce of 3435523079 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 the Commissioner for Public Appointments (OCPA), will safeguard the independence of the LSB both from Government and the legal professions. We do not believe that ministerial appointments mean ministerial interference. Many public bodies are appointed by Ministers in accordance with the Commissioner’s code and act in a way which is independent of Government. For example, the Equal Opportunities Commission, the Chair, Deputy and Members are all appointed by Ministers under OCPA regulation. The EOC’s 2004–05 annual report stated that it assisted in equal pay cases against some government departments. A Minister also appoints the Chair of the OYce of Fair Trading. Indeed, in evidence to the Committee on 6 June, Phil Collins, the Chairman of the OFT, said that “I am independent, I am appointed by the Secretary of State for Trade and Industry” and he went on to say that he “regard[s] that as being perfectly satisfactory given the various guidelines that exist over public appointments.” The OCPA code is underpinned by important key principles, including merit, openness, transparency, and proportionality, and reflects current best practice in making public appointments. Changes are therefore made to it from time to time and there is a risk that if we put more detail about how appointments are made on the face of the Bill, in five or 10 years time any procedure might not be fully consistent with current best practice. A recent example is that clauses 2.04 and 3.36 in the Code of Practice were clarified and amended in August 2005. Some witnesses have also suggested that appointments should follow the process of the Judicial Appointments Commission. I believe that there are important diVerences between the role of the Commission and the Legal Services Board, and more relevant comparisons can be drawn with other regulators. For example, OFCOM and the Financial Services Authority, whose Chairman and governing Boards are appointed by Ministers.

Independence of the Board

There have also been some concerns expressed in relation to the way in which the Legal Services Board might intervene in the day-to-day regulation of legal professionals, and the potential for this to impact on the independence of the profession. We have made sure that there are safeguards in the draft Bill which ensure transparency and accountability, and that the independence of the legal profession will be protected in the new framework. Clause 3 of the draft Bill places a duty on the Board to act in a way which is compatible with the objective to promote and maintain adherence to the professional principles, including independence and integrity. The Board, in exercising its functions under the legislation, will also be required to act in a way which is compatible with the objective to support the rule of law. How the Board does this will be open to public scrutiny as the draft Bill places it under a duty to publish an annual report which will be laid before Parliament. In addition, where the Board does have powers to intervene it must do so in accordance with the principle of proportionate regulation, as set out at clause 3 of the draft Bill, giving it the necessary flexibility to react appropriately to regulatory failures, should they arise. Specifically, when it issues a direction to an approved regulator, the Board is prevented by clause 25(3) fromtaking action in rel ation to disciplinary cases or any other specific regulatory proceedings. In addition to the intervention and direction, the Bill contains a number of important powers, such as designation of bodies as approved regulators and cancellation of that designation, and it is right that there is public accountability behind their exercise. The Government, and many current regulators, believe that the best way to achieve this is through an order proposed by the Secretary of State and put before Parliament for its consideration and approval. It is also important that the Board has the ability to consult the Secretary of State at an early stage in this process so that the Secretary of State has the opportunity to bring any wider public interest aspects of potential LSB decisions (such as a potential impact on legal aid funding or access to justice) to the attention of the LSB at an early stage. We believe that taken as a whole, the Bill provides suYcient protection for members of the legal profession, whilst enabling the Legal Services Board to promote eVective competition and protect consumers interests.

First chair of the Board

In my oral evidence to the Joint Committee, I explained that the Government wanted to ensure that the Legal Services Board would command consumer confidence; that is why we have proposed that the first chair should be a lay appointment. However, once the LSB is firmly established I consider it to be fair than any future appointment should be made fully on the basis of merit alone. The draft Bill provides this flexibility. 3435523079 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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I also said that, under the definition in the draft Bill, a lay person could include a legal academic. I think it is important that the consumer can be confident that the Chair is not, or has not been, a practitioner (as defined) and therefore subject to the regulatory or representative structures that the Board oversees. I amconfident that the public will recognise the fundamental diVerence between a legal academic and a commercial practitioner, and will not believe that an academic would compromise the Board’s consumer focus.

The regulatory model The Government firmly believes that Sir David Clementi’s proposed Model B! is the most appropriate way to regulate the legal services sector. However, a number of witnesses giving evidence before the Committee have raised concerns that a Model B! regulator could, over time, develop into a Model A regulator. Sir David’s Review concluded that Model B! has clear advantages over both Models A and B, and I agree with his analysis. Model B! will be able to deliver consistency in standards and will have the necessary flexibility to adapt to changes in the legal services sector. In particular, I recognise the benefits of the legal professional bodies retaining responsibility for day-to-day regulation. This will make best use of the experience and expertise that the professional bodies have developed over time, and also strikes the right balance between the independence of the profession and consumer protection. For Model B! to succeed, it is necessary that the LSB has powers to take decisive action when an approved regulator is failing and, in the most serious circumstances, to remove a regulator’s authorisation. Where there is no other appropriate regulator the LSB will need to regulate directly. This will prevent gaps in regulation occurring and will ensure continuity for both legal professionals and consumers. The Board could move from this fully to a Model A equivalent only if all the regulators in the framework failed and had all their authorisations removed. Such a serious step could happen only with the approval of Parliament. We consider this to be an extremely unlikely scenario and are confident that the existing professional bodies (listed at Schedule 5 of the draft Bill) will be able to regulate eVectively within the B! framework.

Powers of the Board There is certainly scope for greater definition of the LSB’s powers, but I do not see this as a matter for primary legislation, rather, it should be dealt with in detailed rules. Including a large amount of detail in primary legislation would reduce the framework’s flexibility and would restrict the way in which the Board’s powers could be exercised. The Government considers that such flexibility is essential in order to avoid a reduction in the eVectiveness of the Board’s regulation over time. An example of this which aVects the legal profession is the Solicitors Act 1974, which is now over 30 years old. The Act requires that the Law Society must collect practising certificate fees from its members annually. That means solicitors have to make a single payment of around £1,000 each year. The Law Society would like to make it easier for people to pay by allowing their members to pay monthly payments by direct debit. But they are precluded fromdoing that—under the current arrangements, only primary legislation can change that.

The Regulatory/Representative Split The separation of a professional body’s regulatory and representative functions is central to Model B!, and will ensure that the new regime is transparent and commands consumer confidence. The Government welcomes the progress that existing regulators, such as the Bar Council and Law Society, have already made in separating their regulatory and representative functions in advance of the LSB being established. As for whether the LSB will be satisfied with the extent of any separation of these functions, and whether it will have the power to bring about what it considers to be a more eVective separation, the draft Bill provides for the LSB to direct an approved regulator where it has failed to separate its regulatory and representative functions. This is set out at clause 25(1)(d). In addition, paragraph 14(3) of Schedule 5 requires the Board to be satisfied there is an appropriate split between regulatory and representative functions before approving a new regulator. I consider that the eVect of these provisions would be to provide the LSB with power to ensure there is an appropriate separation of the regulatory and representative functions of authorised bodies. However, in his evidence to the Committee, Sir David Clementi expressed his concerns that the Bill does not go far enough—a point echoed by Peter Williamson the Chair of the Law Society’s Regulation Board. In my evidence to the Joint Committee I said that, subject to the Committee’s comments, I would be willing to look again at the drafting of this provision in the Bill to ensure that it does properly provide for the sort of division which Sir David envisaged. 3435523079 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Education,Training and Conduct

I would also like to use this opportunity to expand on my oral evidence to the Committee on the Board’s educational role. A benefit of the new structure is that it will allow the LSB—in its oversight role—to work with approved regulators to achieve the regulatory objectives and promote good regulatory practice, including qualification regulations. For example, it will be able to act as a focal point to share best regulatory practice amongst authorised bodies, or use complaints feedback to highlight areas in which consumer confidence is low or which highlight particular areas of regulatory failure and informfutu re best practice. In its role in approving the regulatory arrangements of approved regulators, the Board will be free to consult such persons as it considers appropriate on the arrangements. Where, for example, these relate to qualification regulations, I would expect that the Board might want to consult leading academics or groups representing themsuch as the Society of Legal Scholars. The Board will eVectively subsume the role of the Legal Services Consultative Panel (the “Panel”) who currently advise the Secretary of State on applications by bodies wishing to become authorised to grant their members rights of audience or rights to conduct litigation and applications to alter rules and regulations relating to those rights. The benefit of the proposed arrangements is that the Board (which will include persons who have experience and knowledge of legal education and training) will be more flexible than the Panel, being able to consider (using its own expertise and overarching position), seek consultation on, and make judgements on such applications. The Board will be fully resourced and will, for example, be able to deal with major amendments to regulatory arrangements or sporadic influxes of applications to become approved regulators.

The Position of Trade Unions

Trade unions provide important social welfare services to their members and their members’ families. Trade unions aYliated to the TUC have 6.5 million members. For personal injury claims the extent of trade union cover includes family members of a member of the union (and this applies to most unions, including “the big four”—Unison, Amicus, TGWU and GMB). More than 10 million people have the opportunity to have union backing for a personal injury claim. We need to ensure that legislation will allow regulators to treat unions flexibly and be sensitive to their particular needs and functions. The provisions in the Bill will need to take account of the provisions of the Compensation Bill (which has not yet gained Royal Assent), as well as safeguard consumer interests in the broader legal services context. There are several options that we are discussing with trade unions. One option is that, under the ABS licensing system, licensing authorities could have the same power to waive or alter licensing conditions for unions, as with providers in the Not for Profit sector more generally. This would mean that special provision could be made for unions, including in relation to insurance. Another, as proposed under the Compensation Bill, is that independent trade unions could be made exempt via secondary legislation, where certain conditions are met. Whichever method is finally proposed under the Legal Services Bill, I consider it must neither restrict trade unions’ freedom to respond to their members concerns on the ground nor prevent regulators frombeing able to intervene if reserved legal services are not being provided at an appropriate level.

When will Alternative Business Structures be Seen?

If we can enable the licensing of ABS firms early in the process we can deliver real benefits to both consumers and the professions without undue delay. This will encourage business structures that could provide high quality, flexible legal services and improved access to justice, which is particularly important for vulnerable consumers. Currently, in the Not for Profit sector one-stop-shop advice centres controlled by non-lawyers have long provided a valuable service to consumers. Also, in the private sector the CLC and CIPA/ITMA successfully regulate practices with external ownership. There is no evidence to suggest that consumers are fundamentally at risk fromthese existing providers and manyhave benefited fromtheir adv antages. For example Not for Profit organisations assist consumers with services complementary to legal advice, and the introduction of new technology in conveyancing services by CLC members has brought down conveyancing prices. However, in the future, where new types of providers and service mixes might come forward, licensing authorities will have the power to consider and reject or alter licence applications to ensure consumer interests are safeguarded. 3435523079 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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We know that some firms are preparing themselves to be ABS providers—for example, the Committee has taken evidence fromCo-operative Legal Services. Someof the existing reg ulatory bodies are also preparing to apply for licensing authority status. We therefore expect that ABS will start to become a reality very soon after the relevant provisions are commenced. ABS is not just about non-lawyer ownership. Other forms such as mixed lawyer partnerships are also possible, as will be new ways for lawyers to own their firms. The risk-based approach that we have adopted will enable such firms to be set up more readily than a mixed-ownership ABS firm and we believe that they will start to appear relatively quickly.

Conflicts of Interest in Alternative Business Structures To some extent this situation arises already and the legal professional bodies deal with theme Vectively. The Council of Licensed Conveyancers, for example, has experience in ensuring that legal professional principles can be upheld in firms with external investment, and any conflicts of interest managed eVectively. Our proposals provide for the LSB and authorised bodies to maintain appropriate rules to ensure that any conflicts are properly dealt with. At a day-to-day level, the Head of Legal Practice (HoLP) will be responsible for ensuring that the licensed body adheres to all relevant professional and ethical obligations governing the provision of legal services. The HoLP’s duties will extend to reporting any breaches of such rules and obligations to the licensing authority. To safeguard against conflicts of interest between commercial pressures and consumer interests we aim to ensure that clients’ interests are given due priority. We are discussing with the DTI how best to balance duties to clients with other duties that directors will owe to shareholders and others, and will include appropriate provisions in the Bill.

Fitness to Own Test There is statutory provision for a fitness to own test at paragraph 10 of Schedule 11. This will focus on the applicant’s honesty, integrity and reputation; competence and capability; and financial soundness. The test will be triggered if the sumto be invested is above a particular threshold s et by the Legal Services Board. But, as I explained in my evidence to the Joint Committee, the draft Bill does not set out the detail, which we envisage either to be set out in secondary legislation or left to the LSB and licensing authorities to determine in accordance with the principles in primary legislation. The Financial Services and Markets Act 2000 is one model, at which we will be looking closely.

Costings When Sir David Clementi published his Report following his review of the regulatory framework for legal services (December 2004), much of the working detail of Sir David’s proposals had still to be worked though. Understandably a number of people expressed concerns about the robustness of the information on the cost of the new arrangements arrived at by Sir David. In presenting the draft Bill to this Joint Committee I was concerned to ensure that, while there might need to be discussions about who would pay the cost of regulation, we should try to minimise concerns about what the costs would be. That is why I decided to commission a leading firmof accountants to look critically at our proposals and to provi de robust cost information which the company would be prepared to defend publicly. Consequently, as I made clear in my oral evidence to the Joint Committee, the assumptions in the PricewaterhouseCoopers (PwC) report are PwC’s and not the Government’s. Having carried out our own analysis of the PWC report, I am confident that it represents a sensible and robust analysis of the resources required by the LSB and OLC, and a comprehensive and prudent assessment of the associated transition costs. In their written evidence laid before the Committee, the Bar Council voiced concern about PwC’s assumption of 15 per cent eYciency savings for the OLC over the Law Society’s Consumer Complaints Service. Having looked closely at the existing complaints handling systems my own view is there is scope for considerable eYciencies to be made. In part these could be achieved through the use of commercially available information and communication systems, and through the opportunity that the creation of a new organisation in a new location will aVord to design afresh the processes and systems for handling complaints. In reaching their assumptions, PwC were further influenced by research conducted by Experian for the Lyons Review into the impact that public sector relocation can have on embracing diVerent working methods and technologies. 3435523079 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Some witnesses before the Committee have also commented on the diVerence between the PwC figures and those published by Ernst & Young alongside Sir David Clementi’s Review. The main diVerence is in OLC transition costs, which are around £14 million higher in PwC’s report. ThisdiVerence is primarily due to the thoroughness with which PwC analysed and accounted for the costs which fall on legacy organisations (such as the Law Society) through, for example, parallel running costs and premises exits costs. Costs in direct relation to setting up the OLC are largely comparable to those stated by Ernst & Young. Compensation Fund PwC’s report gave a variety of options as to the best mechanism for a Compensation Fund. We will be working with stakeholders during the summer in order to see what the overall costs and benefits of each option might be, and I would also welcome the Committee’s views on these options. Once the Legal Services Board is established it would be for the Board to consider the precise detail of how our selected option will work. 30 June 2006 Supplementary memorandum by the Department for Constitutional Affairs (Ev 76a) AMENDMENTS TO EXISTING LEGISLATION At the Joint Committee’s evidence session on 19 June, the Chairman asked me about the proposals which the Bill team had received from the Law Society seeking amendments to update existing legislation. I undertook to write, providing further information. The Bill teamhas received approaches fromboth the Law Society and the Coun cil for Licensed Conveyancers (CLC) proposing that, in addition to establishing a new framework for the regulation of legal services, the draft Legal Services Bill should be used as a vehicle to update existing legislation which in its current form hampers those bodies from eVectively discharging their regulatory functions. While we agree this is a sensible approach, the Bill teamhas focused its e Vorts principally on drafting the main body of the Bill, so as to enable as comprehensive a pre-legislative scrutiny of the Government’s proposals as possible. Since publication of the draft Bill we have begun to turn our attention to the proposals fromthe Law Society and the CLC with the intention of instructing parliamentary counsel during the Summer. However, given the volume of proposals it is regrettably unlikely that the Department will be in a position to express a final view on these proposals in time for the Joint Committee to take this into account in its final report. Turning to the proposals themselves, the Law Society proposes amendments in the following areas:

Proposal number Proposal topic* Relevant Solicitors Act sections 1. Entities ** 2. Practising certificates 1, 1A, 9–10, 12–18, 28, 88 3. Fee powers 11 4. Reserved activities 19–27, 81–81A 5. Admission 3 6. Roll of solicitors 6–8 7. Training 2 8. Miscellaneous Part 1 29–30 9. Practice rules 31 10. Accounts rules 32–34, 85 11. Intervention 35 and Schedule 1 12. Compensation fund 36 and Schedule 2 13. Indemnity 37 14. Inadequate professional services 37A and Schedule 1A 15. Control provisions 41–44 16. New regulatory powers *** 17. Investigatory powers 44B, 44C and 83 18. SDT and High Court 46–53, 55 19. Miscellaneous Part 2 38, 40, 54 20. Remuneration of solicitors Part 3 (56–75) 21. Corporate matters and delegation 76–80 22. Miscellaneous Part 4 84, 86–87, 89, 90 23. Sweep up **** 3435523080 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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So far we have received all of these except proposals 16, 17 and 23. We are continuing to press the Law Society to provide these. The proposals which we have received are currently being considered, and I attach copies of these with this letter. We have also received a smaller list of proposals from the Council for Licensed Conveyancers. Again we are considering these, and I attach with this letter a copy of the CLC’s proposals. Essentially these relate to:

Matters Affected — Proposed changes to the term“licensed conveyancer”. — Time limit for Appeal re Issue of Licence. — Changes to the terms “Full and Limited Licence”. — Legal Disciplinary Partnerships. — Compensation Fund. — Disciplinary Powers. — Regulatory Immunity. — Appointment of Council Members. — Powers of Intervention. — Delegation of powers. — Period Licence Issued. — Power to reprimand. — Conditions on Licences—Accountant’s Reports. — Additional fee payable—Accountant’s Reports. — Power to charge for carrying out investigation. — Privilege. — Pretending to be licensed conveyancer. — Legal Assessor. — Disciplinary and Appeals Committee Orders against Recognised Bodies. — Suspension of Licence. — Award of Compensation. — Failure to Comply with IPS Direction. — Power to award costs on IPS hearings before the DAC. — Power to Fine. — Power to award costs. — Right of Appeal Against DAC Order. In addition to points proposed by both the Law Society and the Council for Licensed Conveyancers, we have also prepared an initial list of consequential amendments which we consider may need to be made. These are set out in the following table:

LEGAL SERVICES REFORM BILL—PROVISIONS OF THE SOLICITORS ACT 1974 THAT WILL POSSIBLY BE SUBJECT TO REPEALS AND AMENDMENTS

Part I—The Right to Practice as a Solicitor

S 1 Requirement to be admitted as solicitor, to have name entered on the Roll and to have in force a practising certificate issued by the Law Society in order to be qualified to practice as a solicitor. S 1A Practising requirements for employed solicitors S 2 Gives the Law Society the power to make training regulations for persons seeking to be admitted to practise as solicitors. Concurrence of the Secretary of State, the LCJ and the MR required. S 3 Admission as a solicitor. MR admits solicitors. 3435523080 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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S 8 MR’s powers in respect of appeals against Law Society decisions regarding entering a former solicitors name on the Roll. S 10(3) Practising certificates may be issued subject to indemnity conditions. S 11(1) MR to set the fee for the issuing of a practising certificate. Concurrence of the Secretary of State and the LCJ required. S 11(3) Stipulates what fees payable on issue of a practising certificate may be used for. S 12A(2) MR’s power to fix the level of the additional fee payable by applicants for practising certificates in the circumstances set out in S. 12 (special cases). Concurrence of LCJ and Secretary of State Required. S 13(1) Jurisdiction of the High Court and the MR with respect to appeals against the refusal of a practising certificate. S 13(2) Jurisdiction of the MR in respect of appeals regarding the imposition of conditions on a practising certificate by the Law Society. S 13A(7) Jurisdiction of the MR in respect of appeals regarding the imposition of conditions on a practising certificate by the Law Society whilst a practising certificate is in force. S 13B(7) Jurisdiction of the MR in respect of appeals regarding the suspension of a practising certificate by the Law Society following the conviction of a solicitor for fraud or serious crime. S 14 Jurisdiction of the MR to make regulations concerning the commencement, expiry and replacement of practising certificates. S 16(5) Jurisdiction of the MR in respect of appeals made against decisions of the Law Society refusing applications for termination of suspension.S. 19Rights of practising and rights of audience. THIS IS CRUCIAL. S 20 Unqualified person not to act as a solicitor. Creates criminal oVence. S 21 Unqualified person not to pretend to be a solicitor. S 22 Unqualified person not to prepare certain instruments. Restrictions on non-solicitors providing conveyancing services. S 23 Unqualified persons not to prepare papers for probate. S 24 Applications of penal provisions to a body corporate (where the body corporate is purporting to operate as a qualified solicitor) S 25(1) Prohibition on an unqualified person recovering costs. S 28 MR’s powers to make regulations (with the concurrence of the Secretary of State and the LCJ) concerning the admission of solicitors, the keeping of the roll, practising certificates, the keeping of the register of applications for practising certificates.

Part II —Professional Practice,Conduct and Discipline of Solicitors and Clerks

S 31(1) Empowers Law Society to make rules “for regulating in respect of any matter the professional practice, conduct and discipline of solicitors.” Concurrence of the MR required. S 31(2) Establishes the jurisdiction of the SDT in respect of complaints made that concern breaches of such regulations. S 32 Requires the Law Society Council to make rules regarding the opening and keeping of bank and building society accounts for client’s money. Concurrence of the MR required. S 33 Requires rules made pursuant to section 32 to make provision requiring solicitors to provide their clients with interest in respect of any moneys held on the client’s behalf. S 33A Confers the power on the Law Society Council to make rules empowering the council to produce documents relating to any account kept by him . Concurrence of the MR required. S 34 Establishes a requirement for each solicitor to deliver an accountant’s report to the Law Society every 12 months, except where the Council are satisfied that it is unnecessary for himto do so. Also requires the Council to make rules to give eVect to that requirement. S 35 Provides that the provisions of Part II of Schedule 1 regarding intervention in a solicitor’s practice shall be exercisable in the circumstances specified in Part I of that Schedule. S 36 Provides for the maintenance and administration of a compensation fund in accordance with the provisions of Schedule 2. S 37 Empowers the to make rules “concerning indemnity against loss arising fromclaimsin respect any description of civil liability . . .” Concurrence of the MR required. S 37A Provides that Schedule 1A shall have eVect “with respect to the provision by solicitors of which are not of the quality which it reasonable to expect of them” 3435523080 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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S 41 Establishes a general prohibition on solicitors employing anyone who to their knowledge is disqualified frompractice without written permission.Where written per mission is refused, appeal is made to the MR. The MR is empowered to make rules about appeals to him. S 43 Confers powers upon the SDT in respect of solicitor’s employees and consultants. S 44B Empowers the Council to require a solicitor or his firm to deliver to a person appointed by the Society all relevant documents in their possession for the purposes of investigating inadequate service provision or professional misconduct. S 46(1) Establishes the SDT. S 46(2) Provides that the MR shall appoint the SDT’s members. S 46(9) Empowers the SDT to make rules “about the procedure and practice to be followed in relation to the making, hearing and determination of applications and complaints.” NB “the power to make rules conferred by subsection (9) shall be exercisable by statutory instrument, and the Statutory Instruments Act 1946 shall apply to a statutory instrument containing such rules in like manner as if the rules had been made by a Minister of the Crown.” S 46(11) Empowers the parties to issue writs of subpoena ad testificandum and duces tecum. S 47 Sets out the jurisdiction of the SDT. Confers power on the SDT to strike solicitors oV the roll, suspend solicitors frompractice indefinitely or for a specified period, pa y a penalty not exceeding £5,000 etc. Also includes a provision empowering the SDT to hear applications to “require a solicitor to answer allegations contained in an aYdavit.” S 48 Makes provision for the filing of orders made by the SDT with the Law Society. “An order which has been filed shall be treated, for the purposes of enforcement, as if it had been made by the High Court.” S 49 Appeals of decisions of the SDT are heard by the MR or the High Court, depending on the nature of the decision. The MR is empowered to make regulations about appeals to himmadeunder this section. S 50 Duly admitted solicitors are oYcers of the Supreme Court. The High Court, the Crown Court and the Court of Appeal retain such jurisdiction in respect of solicitors as “any one of the superior courts of law or equity from which the Supreme Court was constituted might have exercised before the passing of the Supreme Court of Judicature Act 1873.”

Part III—Remuneration of Solicitors (Makes Detailed Provision in Respect of the Remuneration of Contentious and Non-contentious Business)

Part IV—Miscellaneous and General

S 81 Confers upon solicitors in possession of a practising certificate the powers conferred on a commissioner for oaths. S 81A Confers power on the Secretary of State to prescribe the fees charged by commissioners for oaths. Concurrence of the LCJ and the Master of the Rolls required.

Schedule 1—Circumstances in which Society may intervene/Powers exercisable upon intervention Schedule 1A—Inadequate Professional Services Schedule 2—The Compensation Fund I realise this is an extensive list and if it would be helpful for the Legal Services Reformteamto provide you with any further briefing on these or other points please let me know. June 2006

Memorandum by the Advice Services Alliance (Ev 29)

Introduction 1. The Advice Services Alliance (ASA) is the umbrella organisation for independent advice networks in the UK. Currently, our full members are: — adviceUK; — Age Concern England; 3435523081 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— Citizens Advice; — DIAL UK (the disability information and advice service); — Law Centres Federation; — Scottish Association of Law Centres; — Shelter; — Shelter Cymru; and — Youth Access. 2. Between them, our members represent over 2,000 organisations which provide a range of advice, legal and other services to members of the public. We estimate that about 125 of these organisations currently employ solicitors. Most of these organisations oVer services within a local area, but some of them are regional or national. They are largely funded through public sector grants or contracts and charitable fundraising. With some limited exceptions, services are oVered to users free of charge and are focused on areas of law which mainly aVect poorer people eg welfare benefits, debt, housing, employment, immigration, education and community care (now commonly referred to as “social welfare law”). 3. We note that our response, dated 23 January 2006, to the White Paper is available to the Committee. This submission should be read in conjunction with that response. 4. Because of the limited time available, we have been unable to fully consult our members about the content of this submission. We are aware that some of our members have been invited to give oral evidence to the Committee and that others may be making their own written submissions. 5. In the time available, this submission can not be a comprehensive response to the Bill. Our aimis to focus on some of the issues which are most important to our members.

The Draft Bill

6. In broad terms, the Draft Legal Services Bill reflects our response to the Clementi Review. We supported the separation of complaints handling from disciplinary issues. As we stated in our response to the White Paper, it is our view that the establishment of an oversight regulator to work with front line regulators is the framework most likely to provide the checks and balances needed to protect both the interests of consumers and the independence of lawyers frominterference by the state.

The Legal Services Board

7. However, we are very concerned that the Draft Bill proposes the appointment of all members of the Legal Services Board (LSB) by the Secretary of State. This will not, in our view, give suYcient confidence in the LSB’s independence fromgovernment.

8. We have read the transcript of the oral evidence given to the Joint Committee on 6 June 2006 by Mr Philip Collins of the OYce of Fair Trading and note that it is Mr Collins’ view that consumer confidence is unlikely to be sensitive to the regulator’s independence fromgovernment.Whilst w e accept that this may be true of some consumers of legal services, we do not accept that it is true of all.

9. Clients of the advice sector are often in dispute with public sector bodies, both local and national, over basic needs such as housing, welfare benefits and asylum. However, these same public sector bodies are often funders of legal advice services. This can put advice agencies in a position of conflict and from time to time there have been concerns about the pressure that public sector funders can exert on advice agencies and Law Centres not to take on certain cases. In these circumstances, an independent and robust regulator has an important role in protecting the ability of advice agencies to act in the best interest of their clients and protecting them from pressure to compromise on professional principles. 10. We therefore reiterate our view that the Board should be appointed independently of the Secretary of State. 3435523081 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Regulatory Objectives 11. Our growing concern about the independence of the LSB leads us to propose that the regulatory objectives should be amended to explicitly include a duty to protect the independence of legal advice services.

Funding for the LSB 12. We are not in a position to comment on the estimates of costs contained in the Regulatory Impact Assessment. However, we note that it is expected that the overall cost of regulation will increase. We emphasise that our members are not in a position to meet any additional costs.

Alternative Business Structures 13. We remain concerned about the potential for consumers to be confused or misled by the proposed alternative business structures. 14. We welcome the proposed requirements in paragraph 18(3) of Schedule 11 of the Draft Bill that a licensed body should have suitable arrangements in place to ensure the maintenance of the professional principles. However, we consider licensed bodies should also be required to ensure that consumers are at all times aware whether the service(s) they are receiving are regulated under the auspices of the Legal Services Board. Consumers should also be made aware of the implications of this. In our view, there is significant potential for confusion particularly where a licensed body conducts both reserved and unreserved legal activities.

The Not for Profit Sector 15. We welcome the acknowledgement in the Draft Bill that diVerent requirements are appropriate for not- for-profit bodies. We note that clause 88 of the Draft Bill enables a licensing authority, in relation to not-for- profit bodies, to waive or modify any requirements except for those relating to complaints and duties to co- operate with investigations. We believe however that there will need to be clarity as to the extent to which reserved legal activities carried out by solicitors within not-for-profit bodies are regulated by the Legal Services Board. This may mean that a degree of ring-fencing is required. 16. However, if we have understood it correctly, we have concerns that clause 18 is too widely drawn. As drafted it appears that, during a transitional period, not-for-profit bodies, whether or not they employ authorised persons or even have a track record in providing advice, would be entitled to carry out any reserved legal activities. This broad provision does not provide suYcient protection for consumers of reserved legal activities. Clause 18(1) could perhaps be amended to state that, during the transitional period, any not-for- profit body is entitled to continue to carry out any activity which is a reserved legal activity. 14 June 2006

Memorandum by Allen & Overy (Ev 34) We welcome the opportunity to comment on the Draft Legal Services Bill and broadly welcome the changes proposed. Allen & Overy LLP has been one of the firms involved in the Working Party which has produced the City of London Law Society (CLLS) response to the Bill. We endorse the comments made in that response. In particular, we think it is important for the Joint Committee to have regard to the following key points: 1. the importance of maintaining the international standing of the solicitors’ profession and its recognition as a “liberal profession” and the need to avoid the regulator being, or being seen as, a Government-appointed body which might prejudice the international competitiveness of UKheadquartered law firms; 2. a recognition of the significant part of the legal services market generated by sophisticated consumers and recognition of the fact that their requirements and expectations as regards regulation of their legal service providers are likely to be quite diVerent fromthose of private individuals; 3. following on fromthe previous point, the need for the inclusion of repre sentatives of sophisticated consumers of legal services both on the boards of the LSB and OLC and on the Consumer Panel to ensure that the interests of all consumers of legal services and not only sectoral interests are properly represented; 3435523082 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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4. the need for regulation, and in particular the primary legislation, to be light touch and flexible enough to allow continued innovation in the increasingly competitive domestic and international markets in which firms like Alien & Overy operate; and 5. the need for further detailed thought and consultation to be given to Alternative Business Structures (ABS). We have no aspiration to become an ABS but are keen to ensure that the legislation and subsequent regulations do not inadvertently impact on law firms which are international (and therefore organisationally complex by nature) but essentially are owned and managed by lawyers. There are a number of areas, highlighted in the CLLS response, where we think further consideration is required. 15 June 2006

Memorandum by Amicus the Union (Ev 26)

Amicus is the UK’s second largest trade union, with a greater number of members in the private sector than any other union and it is the fastest growing in the public sector. Now with 1.2 million members, Amicus has members in a range of industries including financial services, manufacturing, print, media, the voluntary and not for profit sectors, local government and NHS health professionals. Amicus also has members, who work in the legal sector, and represents those and represents those employed by the Law Society including the 370 staV in the Consumer Complaints Service. We have sent a separate letter concerning the Consumer Complaints Service workers.

Introduction This document has been prepared on the premise that the Amicus’ response to the White Paper, The Future of Legal Services: Putting the Consumer First, is before the Committee. We have additional matters to raise now. We have also expressed the desire to give oral evidence to the Committee. We have limited our comments to six pages, as requested in the Joint Committee Press Notice. We commented that there was no mention of trade unions in the White Paper, in spite of the very substantial involvement on behalf of our members and their families and in our own right as consumers of legal services, as well as the fact that we are most likely to be said to provide legal services, requiring regulation, unless we are exempt. There were 64,000 new PI cases passed on by trade unions aYliated to the TUC last year alone— and that excludes the employment cases. We understand frommeetingswith DCA o Ycials that there was never any intention that trade unions would be caught by the regulatory requirement and that there is no desire to do so, not least to the extent that a union rep. in a remote location may be prevented from advising a member that a grievance should be submitted (see s32 Employment Act 2002), or that it may be illegal for health & safety reps to advise members, in serious and imminent danger, of their legal rights (see s100 Employment Rights Act 1996). Nor is there, necessarily, any intention to regulate trade unions in relation to claims management services, including: — “advice . . . in relation to the making of a claim”, or — “referring or introducing one person to another”, or — “making inquiries’. (see Compensation Bill Clause 3(2)(b) and 3(3)), which are all activities that we properly undertake. And the need to regulate is particularly inappropriate given the nature and extent of the union legal service (see Appendix A, which repeats a section of the Amicus response to the White Paper). Unions have conducted themselves admirably in relation to the provision of legal services to their members and their families for decades, without significant problems. To the extent that there are organisations whose activities are said to detract fromthat, we can readily distinguish such o ther organisations or their activities and would welcome the opportunity to do so, whenever this is raised. The Lord Chancellor said in 2005: “Trade Union Legal Services are the foundation stone to a progressive and just society” and that unions have “an important role to play” as they “bring forward just claims attracting compensation for those who deserve it and promoting good health and safety”. 3435523083 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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We also believe it is certainly not in the public interest to adversely aVect our place in the systemfor the provision of legal services. The Regulatory Objectives (Clause 1) rightly have at their forefront “improving access to justice”. We concluded: “There is much of a potentially positive nature in the White Paper. Undoubtedly that would be the response of all those who wish to put the consumer first and to maintain or improve access to justice. We have a continuing strong motivation to maintain or improve the extensive legal services available to our members and their families, to promote access to justice for all and to speak out for Amicus as a consumer.” We maintain that stance.

How are Unions Caught? Let us start by confirming that Amicus has no desire to undertake any “reserved legal activity”, as we understand the meaning expressed in Clause 9(1) as it stands. We are advised by the DCA, that “litigation” for the purposes of Clause 9(1), does not include matters under the jurisdiction of the Employment Tribunals. We are aware that other unions do carry out activities that would be caught by Clause 9(1) as it is now. And we are given to understand that, when the Compensation Bill becomes law, additional activities will be regulated and added to those covered by the Legal Services Bill. Those activities are expected to include those mentioned above (Compensation Bill Clause 3(2)(b) and 3(3)). In the White Paper on page 56, it is specifically stated that “claims management services” are to be added to the list of activities, following the passage of the Compensation Bill. Our oYcials and reps (and the oYcials and reps of other unions), by the very nature of their status are likely to engage in “legal activities”. Among other things, they can complete applications for tribunals and have historically represented members at tribunal hearings. In personal injury matters, it is likely that reps and oYcers will advise members and members of their families to submit claims. These are inevitably referred on to our lawyers. Further, whenever a union employs a solicitor or barrister, for example, as they do and as Amicus does, this may cause the union to be regulated as an Alternative Business Structure. Our lawyers have no problemat present with being regulated by the Law Society, or Bar Council. We appreciate that the most likely outcome in our favour would be that of an exemption for trade unions, either on the face of the Act or otherwise. We hope to set out why this is justified and appropriate.

Why don’t Unions want to be Regulated? — The burden of regulation is costly in terms of resources (and unnecessary). In the context of Clauses 3(3) & 23(3) of the Bill, and in the context of the activities we undertake and the context in which we undertake them, we would argue strongly that regulation of unions is not needed and not proportionate. Otherwise in the context of Clause 1, an exemption for trade unions is certainly not inconsistent. — The LSB Regulator must ensure that there is indemnity insurance (see draft Legal Services Bill Schedule 11 Part 3 and explanatory notes paragraph 212 on page 46). Many unions do not have or have abandoned indemnity insurance due to cost. Unions have always had the resources to pay for their mistakes. — There is a requirement for competition (see Clause 1(1)(d) The Regulatory Objectives). It is simply inappropriate between trade unions (when there is almost invariably no cost to the member of the provision of legal services by the union), and to require unions now to compete overtly with claims firms and others, will not help anyone. There are 115 mentions of the word “competition” in the Bill and accompanying documents. Nevertheless, we support the principle that all those involved in the provision of legal services should advise individuals of alternative funding options. We believe the unions’ legal service (no fee: win or lose) to be the best available. There should be a clear obligation on all legal service providers, including insurance companies, to inform fully and properly consumers of the options available to them. We are happy that those to who we refer cases are obliged to do so. — There is enough for the new regulator to do now and if there are problems in the future, the regulatory systemcould be brought into play. We believe we have successfully argued in relation to the Compensation Bill, that there are good reasons for exempting unions from regulation. 3435523083 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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There are additional problems associated with ABS status. “In order to assess the suitability of a prospective ABS firm, the authorised FLR must be satisfied that the prospective ABS has attained the set standards. In particular, a prospective ABS firmwould be required to satisfy the LSB’s co mpensation fund and indemnity insurance requirements and to nominate a Head of Legal Practice (HOLP) and a Head of Finance and Administration (HOFA) to ensure that the conduct of legal business and practice management is in accordance with the regulatory rules.” (see page 72, paragraph 13.9 of the Regulatory Impact Assessment).

What Otherwise is Special about Independent Trade Unions?

Our status is that of not-for-profit businesses (by definition), but we are also democratic membership organisations—eVectively owned by the members only and we all operate in a manner, governed by the rule book. Trade Unions are regulated in this by statute—the Trade Union and Labour Relations Act 1992. This includes the need to prepare and register financial information, to elect oYcials, and to register with and be subject to regulation by the Certification OYcer. The Certification OYcer can hear complaints from members about any breach of rule and this includes those rules (which all unions have) governing the provision of union legal services. There are eVective complaint and appeal procedures within the rules of trade unions that can be invoked by members, often through their branch which can result in a matter, including the provision of legal services, being considered, or reconsidered by the wholly elected Executive Committee and even annual or biennial conference. Trade Unions also have a status in international law, reflected in Article 11 of the European Convention on Human Rights. Making and forming trade unions, of necessity requires that we are not unnecessarily encumbered in carrying out our business. Other membership organisations diVer in material respects. One such mentioned in discussion is the Automobile Association. Currently the AA’s website confirms that “In 1999, members voted overwhelmingly in favour of the AA demutualising and joining the Centrica group in a £1.1 billion acquisition.” It is simply not possible for an independent trade union to act in this way. And there are a range of other points that militate against regulation: — Unions and their law firms have a reputation, even amongst insurers and with the judiciary, of responsible behaviour in relation to claims: We do not take frivolous claims and claims are dealt with eYciently — Unions provide an additional layer of “regulation” in that we select specialist lawyers, set high standards and protocols for them and deal with member complaints. And that is in addition to Law Society Regulation of our lawyers — It is in our vested interest to ensure that the service is second to none — It is in our interests to pass on claims as soon as possible in a long established and eVective way — Unlike other consumer groups, such as CABx, we have a continuing relationship with members and that we have legal services second to none is a significant factor for recruitment — Unions generally make no deductions. In fact this is not just “no win—no fee”, but “no fee: win or lose” — Unions provide a service to members’ families, for PI cases — Unions seek to link the work they do on compensation with prevention and improvements for the future. For example: In a discrimination case Union representation is more likely to have an eye to a continuing working relationship and less of a focus on compensation, compared to a non-union lawyer operating on a contingency fee; and in PI cases we want to see lessons learned to prevent recurrence. Unions do not think that a compensation claim is necessarily the first option. 3435523083 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The Consumer Panel We have said we believe the unions should be recognised as a consumer and representative of many consumers and should have a place on the Panel. In the Civil Procedure Act 1997, the Civil Justice Council “must include persons able to represent interests of particular kinds of litigants for example employees”. There should be a similar provision in this Bill.

The Office for Legal Complaints To be eVective fromthe outset and in the long term,the OLC should be based around th e Law Society’s Consumer Complaints Service and remain located in the West Midlands and London, using the expertise developed there and to minimise cost and, not least, avoid disruption to the workforce. We welcome any further opportunity to be heard in relation to the passage of the Bill and to respond to any concerns that may be raised about our stance. 14 June 2006

APPENDIX A

Amicus’Interest—Our Legal Services Amicus delivers an eVective high quality extensive Legal Services package. The key features are: — employment advice and cover to pursue claims; — support to pursue personal injury cases; — whether work related or not; — for family members, as well as members; — free legal advice service; — conveyancing; and — free wills and a probate service. With the exception of conveyancing and probate, this service is at no cost, win or lose.

Memorandum by the Association of Personal Injury Lawyers (Ev 28)

Introduction The Association of Personal Injury Lawyers (APIL) was formed in 1990 by claimant lawyers with a view to representing the interests of personal injury victims. The aims of the Association of Personal Injury Lawyers (APIL) are: — to promote full and just compensation for all types of personal injury; — to promote and develop expertise in the practice of personal injury law; — to promote wider redress for personal injury in the legal system; — to campaign for improvements in personal injury law; — to promote safety and alert the public to hazards wherever they arise; and — to provide a communication network for members. APIL currently has around 5,000 members in the UK and abroad. Membership comprises solicitors, barristers, legal executives and academics whose interest in personal injury work is predominantly on behalf of injured claimants. APIL welcomes the opportunity to provide written evidence to the joint committee on the draft Legal Services Bill as we still have a number of ongoing issues with the Government’s proposals.

Executive Summary — APIL has serious concerns over the independence of the Legal Services Board (LSB) as currently envisaged in the Government’s draft Bill. 3435523084 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— APIL recommends that the appointment of the Legal Services Board’s chairman should be made via a consensus between the Secretary of State and the heads of the judiciary—the Lord Chief Justice and the Master of the Rolls. — APIL generally welcomes the definition of “legal activity” in the draft bill but does believe that mediation is not a judicial or quasi-judicial activity and should therefore be included in the definition of legal activities. — APIL believes it is premature for the Government to introduce alternative business structures (ABSs) into the legal market prior to first considering what their eVect would be on the marketplace for consumers, and whether the regulations and consumer protections are working eVectively. APIL suggests that only after legal disciplinary practices (LDPs) have been shown to work should there be further consideration of introducing more radical ABSs, such as multi-disciplinary practices (MDPs).

Independence of the Legal Services Board (LSB)

APIL has serious concerns over the independence of the Legal Services Board (LSB) as currently envisaged in the draft Bill. Page 3 of the Explanatory Notes states that the LSB will be “independent from. . . Government” but Schedule 1(1)(a) of the draft Bill provides for the chairman, and the members of the board, to be appointed by the Secretary of State. APIL is concerned that such a suggestion will have serious democratic implications, as a senior member of the Executive would ultimately be responsible for governing how the legal profession is regulated. We believe that such a structure could undermine the principle of separation of powers, a principle which the Government has previously endorsed by proposing the separation of the judiciary fromthe UK legislative body via the creation of the Suprem e Court. A further issue, APIL suggests, is that on many occasions—including in relation to personal injury claims— the state will be a defendant in a case. APIL submits that that the dual role of defendant and regulator creates a direct conflict of interest. APIL recommends that the appointment of the Legal Services Board’s (LSB) chairman should be made via a consensus between the Secretary of State for Constitutional AVairs and the heads of the judiciary—the Lord Chief Justice and the Master of the Rolls. The appointment of the other board members should also be made via this consensual approach. It will ensure that the appointment of the LSB chairman is not viewed as being politically motivated or, conversely, judicially motivated. APIL proposes that the constitution and governance of the LSB should follow the same, or broadly similar, lines as the Electoral Commission. This is an independent body, directly accountable to Parliament through a committee chaired by the Speaker oV the House of Commons. Transparency and impartiality are essential attributes of any public appointments system, especially if it is to retain the confidence and respect of the general public. APIL submits that the LSB does not pass this test and, therefore, it will be fatally undermined from its inception.

Reserved Legal Activities (Part 3)

APIL welcomed the Government’s decision to include a definition of “legal services’ within the White Paper, The Future of Legal Services: Putting Consumers First (October 2005, Cm6679). Part 3(9)(3) of the draft Bill delineates the meaning of “legal activity”. While APIL believes the definition is generally positive we do have some concerns. Clause 9 (4) states that “legal activity” “does not include any activity of a judicial or quasi-judicial nature (including acting as a mediator)”. APIL believes that mediators do not fulfil a judicial function in the same way in which, for example, judges do and should therefore not be excluded frombeing within the definition of “legal activity”. Mediators and mediation services are included within commercial partnerships/businesses providing a wider range of legal services. APIL submits, therefore, that to ensure full regulatory coverage of these diVerent types of legal services mediators, and mediation services, must be included in the definition of “legal activity” if the consumer is to be adequately protected. 3435523084 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Alternative Business Structures (ABSs)(Part 5) APIL believes that it is premature for the Government to introduce alternative business structures (ABSs) into the legal market prior to first considering what their eVect would be and whether they would work or not. APIL has always recommended that if new business structures are to be accepted, their introduction should be staggered and trialled. This means that prior to more diverse and radical structures—such as multi- disciplinary practices (MDPs)—being introduced, legal disciplinary practices (LDPs) should be “rolled out”. Sir David Clementi, in his Review of the Regulatory Framework for Legal Services (December 2004) agreed with APIL’s caution on this issue. APIL considers that the early introduction of ABSs could lead to considerable problems and confusion in the provision of legal services. We are very concerned that it will allow organisations which view personal injury cases simply as money-making business opportunities to enter the legal services market. It should be noted that previous “shake-ups” in the provision of legal services have lead to similar undesirable side-eVects, including the growth of unregulated claims management companies (CMCs). The unregulated nature of these providers eventually resulted in several high profile incidences of consumers being placed in vulnerable and disadvantaged positions while attempting to gain access to legal services—for example, the cases involved in the collapse of The Accident Group (TAG). While CMCs will shortly be regulated under the Compensation Bill, APIL is concerned that the current changes to the provision of legal services could lead to another unregulated industry developing and further damaging consumers perception of legal services. APIL further believes that the supplying of legal advice is conducted as a profession rather than simply an industry. It would seem, however, that this distinction has been lost in the Government’s drive to introduce competition into the marketplace. As a result, legal services, such as personal injury, will become “commoditised”. It is extremely debatable whether the claimant would regard this as a welcome development. There is also the question of the regulation of these new business structures. MDPs are practices which bring together lawyers and other professionals to provide legal and other services to third parties. Legal work might only be a small part of the work done by the practice. It is unclear, however, whether non-legal sections of an ABS will be regulated to the same high standards. Solicitors, for instance, are under an obligation to have professional indemnity insurance and to contribute towards a compensation fund. Would the non-legal members of an ABS be under the same obligation? APIL argues that non-legal members of ABSs should be subject to the same stringent regulatory system as the legal members. If this does not happen it could lead to a personal injury claimant agreeing to have his case handled by an unregulated, or poorly regulated, member of an ABS firm in the belief that this firm member was regulated to the same high standards as a lawyer. APIL is of the view that the Government is adopting a “big bang” approach to legal services reformwhich could lead to an immense amount of market dislocation and resulting chaos and confusion for consumers. This would clearly not be in the public interest and would defeat the objective of the Government’s reforms. June 2006

Memorandum by Dr Kamlesh Bahl CBE, FRIPD (Ev 35)

Submission to the Joint Committee on the Draft Legal Services Bill 1. I make this submission in an individual capacity as Dr Kamlesh Bahl CBE, FRIPD. By way of introduction, I qualified as a solicitor in 1980 and practised in commerce and industry. Between 1989 and 2000. I held a number of public service appointments including membership of two health authorities, the Council for Health Authorities and Trusts, The Judicial Studies Board, Justice, independent member of the Diplomatic Service Appeal Board of the Foreign and Commonwealth OYce, and trustee of Refuge. I was a non-executive member of London Transport, Open University and the University of Westminster. I was a member of the Law Society Council from1990 till 1999 and re-elected from2002 to 2005. Fr om1994 to 1997 I was the European Commission’s representative on the European Consultative Commission on Racismand Xenophobia. 2. In 1993 I was appointed as Chairwoman of the Equal Opportunities Commission after the first open selection process and held the position till 1998. In 1998 I was elected as Deputy Vice President of the Law Society and in 1999 was elected as Vice President until I was forced to resign fromthat position in March 2000. In 2005 I voluntarily removed myself from the roll of solicitors. 3435523085 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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3. I make this submission based upon my: (a) My extensive experience of public service. (b) My experience as a Council member and OYceholder of the Law Society. (c) My experience of litigation with the Law Society from1999 till 2005. (d) My experience of the workings of the Solicitor’s Disciplinary Tribunal (SDT) as a victimof a false complaint made by a fictitious person. This is now the subject of criminal proceedings against the solicitor concerned, an ex President of the Law Society. I believe this may assist in dealing with the supplemental request from the Minister, Bridget Prentice MP for the committee to consider the independence, flexibility and operation of the SDT and its relationship with the Law Society. 4. I propose not to refer to the specific circumstances of my litigation against the Law Society, as they bear no relevance to the work of the Committee. This applies equally to the criminal proceedings as they are still proceeding except to the extent that information is already in the public domain or a matter of public record.

The Bill—Overall 5. The proposals in the Bill should be warmly welcomed with their key focus on the consumer. However in assessing the workability and suYciency of the proposals, the Committee should take account of the prevalent culture within the proposed front line regulators, as this will be instrumental in achieving the objectives of the Bill. 6. Historically the legal professions have resisted change and have operated as the last “closed shops” in the UK. For example, the concentration of representative, regulatory and disciplinary roles in the Law Society has survived for too long despite the clear conflicts of interest and the sheer impossibility of reconciling the public interest with that of its members. The issues of “professional privilege and independence of the profession” although very important have been used consistently to resist transparency and accountability and intervention by third parties into their aVairs. The same approach is demonstrated in the oral evidence given by the Law Society to this Committee on 8 June. 7. Some of the regulatory principles that underpin the draft Bill, such as protecting and promoting the interests of consumers or promoting competition in the provision of legal services, are diametrically opposed to the way in which the Law Society for example has always operated. Purely the Clementi review and not any late dawning of light has triggered the recent separation of the roles within the Law Society. 8. The combination of functions has placed the regulatory bodies especially the Law Society in an invincible position in which it has historically escaped any real accountability. In theory there has been accountability to its members but a mixture of apathy and fear has characterised the lack of members’ involvement. Many solicitors have preferred to keep their heads down to avoid the wrath of such a powerful body as the Law Society, particularly with its draconian powers over their livelihoods. 9. The guaranteed funding streamfromfees levied on the profession has e Vectively insulated the Law Society from the rigours of competition and the need to modernise its practices. There is no public scrutiny of its activities, no shareholders to hold it to account and no requirement to make a profit to sustain itself unlike solicitor’s practices. Additional funding has been easily obtained whenever required through an increase in the fees levied on practioners for their right to practise and these have funded the ever burgeoning bureaucracy. 10. The Law Society has always operated as a gentleman’s club. That remains its prevalent culture and is now well enshrined in its policies and operating procedures. Its predominant philosophy is to maintain the status quo. Many have (rightly) perceived election to its Council as a step on the route to a judicial career and the statistics of appointments of Council and non-council members to the bench make interesting reading. Informal networking and influencing remain the major mode of operation despite the rhetoric and well worded policies. 11. StaV at the Law Society have always been insulated fromthe rigours of competiti ve environments and have become expert in defending the status quo over the years. Many have had no exposure to any competitive environment or modern day legal practice where the bottom line determines survival. They have even less exposure or understanding of the needs and interests of consumers and no real experience in putting these needs first. 12. The gulf between the proposed regulatory objectives and the prevailing culture in the frontline regulators must be recognised and the appropriate mechanisms to overcome these barriers must be included in the Bill. Despite the representations made by some of the professional bodies, there should be no question of light 3435523085 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 touch regulation by the Legal Services Board. There needs to be a clear message to the professional bodies fromthe outset that they need to transformrapidly to catch up with the rest of society. 13. In fact, the progress towards the regulatory objectives should be carefully and painstakingly monitored to ensure the required step change in cultural habits. Indeed a period of some duplicate regulation may well be the only way to ensure that the Bill’s objectives are met. Only the close monitoring of progress especially in the early stages will reveal whether the privilege of being front line regulators is justified in reality.

Legal Services Board 14. The structure of the Board needs to be robust and as independent as possible. Appointment by any political master will inevitably carry the taint of political interference, however well intentioned the incumbent. Appointment by non-political persons or bodies is preferable. 15. However equally important will be independence from the source of the funding streamas this can often be a very eVective method of influencing matters and decisions. Safeguards need also to be provided to prevent direct or indirect civil service interference as a quid pro quo for continued or increased funding. 16. Total independence will never be achieved and realistically the extent of independence will always be governed by the political will and priorities of the time. It is parliamentary scrutiny that has proved in recent times to be the most eVective safeguard of independence.

Office for Legal Complaints 17. The concept of a one-stop body for the receipt and handling of consumer complaints is most welcome. The existing systems of handling complaints both at the Law Society and the Bar Council lack overriding objectives, clarity on conflicts of interest and clear procedures. They are a maze to navigate through and have never been consumer friendly. That is simply because lawyers developed themwith lawyers and not consumers as the primary focus. 18. The Bill does not deal with the issue of misconduct of lawyers. This is presumably to be dealt with under the existing arrangements of the regulatory bodies. This is an important omission and the Committee should consider whether this is acceptable and whether there should be greater scrutiny of the operation of these procedures by the Legal Services Board. 19. The regulatory objectives should presumably be the overriding umbrella under which the disciplinary procedures to deal with misconduct are operated by the frontline regulators. The existing systems for dealing with misconduct should be evaluated to see if they are fit for purpose, operated in a timely fashion and appropriate to maintain public confidence in that front line regulator. Accountability will be crucial here and the Bill’s proposals here seemvery light in comparisonto those dealing wi th service complaints. 20. My experience of how misconduct claims were dealt with in the Law Society was that the opposite is the case. As in any closed shop, the pool of independent solicitors engaged to undertake investigations into misconduct is very limited and not representative of society as a whole. The process by which such persons were selected, the objectives under which they operated and the principles they were to apply were unclear and undefined and much was left to individual discretion. 21. My experience of complaints handling by the Bar Council was of a similar lack of clarity as to the aims and objectives and the principles to be applied. At the time I invoked the complaints process, the Bar’s independent Commissioner for Complaints had received no equal opportunity training and neither had the Committee considering the complaints. There was simply no policy on dealing with conflicts of interest. Like the Law Society, I believe it was a cosy set up where it was assumed that “the right chaps would automatically know the right way to handle things’. 22. Lack of fitness for purpose and mismatch with the regulatory objectives in the handling of misconduct complaints will inevitably impact on the eVectiveness of the Bill in the eyes of the public. A few well-publicised cases of misconduct and the failure to deal with them appropriately will easily confirmthe negative public perception of those who provide legal services and that the systemis still not working. 23. Overlooking the misconduct of those connected with the frontline regulators needs also to be closely monitored. The Glanville Davies aVair rocked the Law Society and led to the somewhat ineVective separation of its disciplinary and representative functions and the establishment of the OYce for Supervision of Solicitors. It was triggered by the blanket failure of the Law Society to take disciplinary action against an incumbent Council member. 3435523085 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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24. Sadly lessons have not been properly assimilated from that scandal. Committee members should be made aware that a further scandal lies in wait for the Law Society. Despite requests frompeers, an MP and community leaders the Law Society has failed to take any disciplinary or preventive action against a practising solicitor and former President of the Law Society who was arrested in 2004 and charged this year with four serious criminal oVences including the forgery of a client’s passport. It is diYcult to reconcile the recent call for greater powers for regulation by Mr Peter Williamson when the Law Society has chosen not to exercise the powers it already has in order to protect its own rather than the public interest.

Solicitors Disciplinary Tribunal (SDT) 25. The relationship between the Law Society and the SDT merits very close scrutiny by the Committee. The SDT is described as “independent” and the Master of the Rolls appoints the Tribunal members. But historically the SDT has almost wholly been funded and staVed by the Law Society with line management responsibility to Law Society staV. Successive Presidents of the SDT have called for alternative forms of funding to secure proper independence and separation fromthe Law Society in the SDT’s annual reports. 26. More recently the Law Society, the Master of the Rolls and the SDT entered into a Memorandum of Understanding in an attempt to formalise the independence of the SDT. However the parties have refused to disclose this document. The Committee should seek and review this document to ascertain whether it achieves the desired objectives. 27. Lack of transparency is a hallmark of the SDT. There is a great deal of confusion about the way in which it operates and the procedures are inadequately documented. Requests for information are sometimes dealt with by the Clerk (a Law Society employee) at her discretion and sometimes by the Tribunal without any clear explanation for the distinction. 28. The Law Society brings the vast majority of prosecutions before the SDT. The solicitors who prosecute before the SDT come from a small unrepresentative pool employed by the Law Society—”the golden few”. The process and criteria for their selection remain shrouded in mystery. 29. Any review of a decision of the SDT not to take action pursuant to a complaint lodged with it (rather than the Law Society) is by action in the High Court. Most startlingly the SDT cannot be made a party to this scrutiny of its decision. It is the solicitor complained about who must be joined as the other party to the litigation. EVectively there is no accountability for a decision made by the SDT especially a decision not to accept a complaint made against a solicitor. 30. The SDT has no procedures to check the authenticity of complaints made to it. In 2002 the SDT accepted a fictitious application made against me from a fictitious pastor and proceeded to deal with it as a genuine complaint. When asked to check its validity due to our suspicions, the SDT stated it had no power to do so. 31. The SDT refused to take steps to discover the true identity of the complainant despite having the powers to do so. The SDT declined to refer the matter to the police when requested to do so after being presented with compelling evidence that the complaint was fictitious and that the passport supplied was false. The subsequent police inquiry has led to the arrest and charging of a practising solicitor and former President of the Law Society. The SDT also declined to initiate any disciplinary action against the solicitor concerned or the two solicitors who had represented himor refer their misconductto the Law Soc iety for investigation. 32. I believe that it is the links between the Law Society and the SDT that prevented the SDT fromacting properly and independently in the circumstances outlined above. At that time the Law Society was defending the conduct of the same solicitor in discrimination proceedings brought by me and indemnifying his legal costs on the basis that the solicitor had acted in good faith and in the performance of his duties whilst he was President. Mr Peter Williamson oversaw that litigation on behalf of the Law Society. 33. It is my belief that the condoning and defence by the Law Society of misconduct when this solicitor was President allegedly encouraged him to believe that he could go on to commit acts with impunity that are now the subject of criminal proceedings. The failure of the Law Society to take any action to protect the public even after his arrest and charge would seemto reinforce that view. 34. Whilst the above is an exceptional example it shows the practical operation of the SDT at its worst. The Committee should ensure that a rigorous review is conducted of: (a) The relationship of the Law Society with the SDT and whether it is truly independent of the Law Society. (b) The principles under which the SDT operates and how these can be aligned with the regulatory objectives. 3435523085 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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(c) What checks and balances exist within the existing system. (d) The accountability of the SDT and mechanisms for review of its decisions. (e) How these mechanisms can be reinforced to ensure its accountability. (f) The systemfor monitoringthe work of the SDT and bringing this within th e regulatory objectives and under the jurisdiction of the new Legal Services Board.

Conclusion 35. I hope that this submission will assist the Committee in its deliberations on this very important topic. I am happy to provide such further information as the Committee may require. 14 June 2006

Memorandum by Simon Baker, Solicitor, Bristol (Ev 80) Summary 1. This submission addresses three key issues: (1) the separation of representation and regulation: it is essential for confidence in the new regulatory system that the fundamental requirements and principles in this respect be enacted by Parliament; (2) the regulation of ABSs: Part 5 of the Bill lays out a structure which is complex and confusing and which fails to address essential ethical principles and safeguards and to distinguish between: (a) partnerships between independent professionals of diVerent disciplines; and (b) corporate legal (or other professional) practices under the ownership and control of external bodies; and (3) cost: the cost of the new regulatory systemshould be kept under firmcont rol and not allowed to inhibit competitiveness or give rise to unfairness. 2. These three issues are inter-related. If greater trust and confidence can be engendered in the new system through the perceived independence of regulators, lighter touch, more transparent and responsive regulatory arrangements should be possible. This should allow more appropriate arrangements for ABSs and have a beneficial impact on levels of cost.

Separation of Representation and Regulation 3. Given the importance placed on this issue by Sir David Clementi’s final report (“Clementi”) (page 25 para 6; page 32 para 26; pages 36–39 paras 33–39; and page 50 para 71), it is surprising how little attention it receives in the Bill. The Bill contains only three overt references to the potential prejudice to regulatory function from representative activity (clauses 25(i)(d) and 138(2) and Schedule 5 para 14(3)). 4. The Law Society Regulation Board and the Bar Standards Board are right to urge the Joint Committee that the Bill should provide greater clarity as to how separation of representation and regulation within professional bodies should be ensured (Law Society Regulation Board submission paras 3 and 7–10 and Bar Standards Board submission paras 12 and 13). In the case of the Law Society Regulation Board this probably already reflects some underlying tension between the Board and its parent body. 5. In approaching this issue the Joint Committee should take a longer term view of how legal services regulation might develop and how robust the potential arrangements set out in the Bill might prove to be beyond the next 10 years. Clementi very fairly drew attention to the strengths of the current professionally based regulatory arrangements (page 36 para 32). He said they had produced: “a strong and independently minded profession, operating in most cases to high standards, able to compete successfully internationally”. But the perception remains that self-regulation cannot be trusted. Whatever the justice or partiality of the strictures of the consumer bodies and the OFT with regard to consumer complaints and anti-competitive practices which have largely driven the demand for reform, the perception of untrustworthiness has to be addressed. If the regulation of legal services does not command the confidence and loyalty of public and practitioner alike, this can only undermine confidence in the legal system itself. The arrangements made now must command that support and stand the test of time. While all regulatory structures must be capable of developing and changing over time, the institutions put in place now must be capable of lasting for at least a generation or more. 3435523086 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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6. The Joint Committee should ask itself whether it wants to see a robust systemof practitioner based front line regulation subject to suitable governance and oversight supervision or whether it is prepared to see within, say, a period of 10 years a Legal Services Authority combining all oversight and front line regulation (Clementi’s Model A—page 25 para 5). The latter is likely to result from lack of clarity over what is required for eVective separation of regulation and representation or fromconflicts aris ing between the two functions. Conflict will inevitably arise in a situation where the oversight regulator is “hands on” and intrusive and the front line regulators are in reality its limbs. In fairness to the Government, the White Paper, quoting with approval the National Consumer Council (Cm 6679 para 3.1) that: “An independent legal services regulator will . . . help restore confidence in a systemthat has failed consumers for too long . . . it is vital that it sets strict standards, exerts close scrutiny and, where necessary, is ready to bare its teeth.” promised that the powers of the Legal Services Board (“LSB”) would be comprehensive and that it would have a range of sanctions at its disposal. In short the LSB would have “real teeth” (Cm6679 para 5.6). The draft Bill delivers on this promise except that it does not directly require front line regulators to separate their regulatory and representative functions (as stated in Cm6679 para 3.1) or tell themhow to do so. That is left to the LSB. The White Paper said that consumers have to be confident that regulation is independent of providers and Government (Cm 6679 para 3.1). The perception that this is so will be diYcult to achieve in a landscape populated by a powerful oversight regulator appointed by Government and front line regulators which are “owned” (at least in legal and constitutional theory) by or which are part of practitioner representative bodies. 7. Under the regime contemplated by the draft Bill, conflict between representation and regulation is virtually inevitable on account of the power of the new oversight regulator and the enhanced roles of the OFT and the Consumer Panel. The Bill’s failure to lay out how a genuine split between representation and regulation is to be achieved is likely to prejudice the independence of regulation and the independence of the profession. The tension between representation and regulation could compromise the eVectiveness of a practitioner body’s representative functions and in turn the independence of its members. For instance, a practitioner body keen to retain its designation as an approved regulator could inhibit its representative armfromchallenging the oversight regulator in relation to regulatory cost, burden or initiative which is seen by members of the profession as likely to compromise their strength, diversity, eVectiveness or independence. On the other hand a regulatory board tied to a practitioner body, albeit not accountable to its members in the most meaningful way (ie financially), may still not be seen as suYciently independent by consumers and their champions and in consequence may not command public trust and confidence. Once the new arrangements proposed in the Bill are in place, they could lead to the absurdity of practitioner bodies being required to lobby (or appeal to the LSB against) what will still have the appearance of being part of themselves over regulatory issues. How long this will satisfy either consumer bodies or practitioners is anybody’s guess. 8. The time will come when the reality of separate regulatory and representative bodies may have to be embraced as a result of: — pressure from the consumer bodies through the Consumer Panel and on the LSB for the alignment of appearance and reality; — tension between practitioner bodies and LSB over the exercise of its oversight powers and activities; — the potential artificiality and uncertainties of the application of clauses 25(i)(d) and 138(2) and Schedule 5 para 14(3) of the draft Bill; and/or — demand from the profession. 9. It would be better if this did not end up with further disenchantment and another return to legislation and the establishment of a Legal Services Authority. If the requirements with regard to separation are set out clearly in the Bill as proposed by the Law Society Regulatory Board rather than being left to rules made by the LSB, this could bring much needed clarity at any early stage and encourage what may be a natural and incremental process of separation without prejudicing the designation in Part 1 of Schedule 5 of the existing principal professional bodies as approved regulators. 10. This applies particularly in relation to the Law Society (“TLS”) as the largest of the professional bodies. There is no reason why it should not be regarded as worthy of its designation in Part 1 Schedule 5. This is so because of the following: — TLS is an experienced and successful regulator (as opposed to complaints handler—a function which is in any event now being removed from all the legal professional bodies). 3435523086 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— TLS is a body of considerable standing and long established such that it would be diYcult for the LSB to reject its claims to be the solicitors’ approved regulator subject to it complying with rules as to governance which are common to other approved regulators. — Apart fromTLS, it is di Ycult to see how any other body except one promoted by the LSB itself (if practicable) would be acceptable to the Government as the solicitors’ approved regulator given the size and complexity of the solicitors profession. 11. Neither the White Paper nor the draft Bill rule out an approved regulator being a democratic body—only a representative or “trade union” body. Retaining its democratic structure, TLS as the solicitors’ approved regulator is more likely to be responsive to pressure to contain regulatory cost. It will of course be accountable and responsible to the LSB with a board and executive under its Council appointed, no doubt, in accordance with Nolan standards. However democratic principles and practitioner involvement as suggested by Clementi (page 34 para 29 (a)) are “more likely to increase the commitment of practitioners to high standards”. Hence the importance of making clear in the Bill what is expected in terms of governance. 12. If the governance requirements were stated in principle on the face of the Bill and if in consequence these were to nudge TLS, in the fullness of time, into hiving oV its representational activities this would be no bad thing for the long termhealth and sustainability of the new regulatory fra mework. If truth were told it is probably what many members of TLS both want and now expect to happen.

Regulation of ABSs 13. Part 5 of the Bill (Alternative Business Structures) is probably the most disappointing part of the Bill particularly for those of us who over the years have looked for balanced and fair liberalisation in this area. Certainly the Bill goes well beyond the carefully calibrated and thought through recommendations of Clementi. In fairness it reflects the policy stated in the White Paper (Cm 6679 para 3.1) which promised initiatives in terms of: — removing barriers to make it easier for new providers to enter the legal services market through alternative business structures; — one-stop-shops delivering packages of legal and other services to provide greater convenience for consumers; and — tapping into external investment and allowing diVerent types of lawyers as well as lawyers and non lawyers to work together on an equal footing. The White Paper promised strong and robust safeguards for the operation of these alternative business structures (ABSs) to protect consumers but did not suggest in much detail what these would be. However “quality and integrity … [would be] maintained across the board” (Cm 6679 para 3.1). 14. The systemfor the regulation of ABSs set out in the draft Bill is complex , confusing and uncertain and promises to be bureaucratic. 15. The systemis complexbecause it will involve three tiers of regulators —the oversight regulator, the licensing authority for each ABS and the approved regulator for the authorised persons working within ABSs. A considerable amount of delegated rule making is envisaged to bring the systeminto existence. Only approved regulators (apart fromthe oversight regulator) can becomelice nsing authorities but they will have to undertake a complex application process to achieve designation as such. 16. The systemis confusing and uncertain because key rules are either not s tated directly or are left to be written or approved subsequently by the LSB and the approved regulators seeking to become licensing authorities. For instance such a fundamental rule as the rule that licensed ABSs will only be able to conduct reserved legal activities through individuals who are authorised by approved regulators to conduct such activities is not directly stated in the clauses of the Bill. Clause 13 (1) states that an authorised person in relation to a reserved legal activity includes a licensed body authorised in relation to that activity by a licensing authority. But it is left to Schedule 11 para 18 (1) to indicate that such licensed body can only operate for that purpose through an authorised individual. That is a requirement which still remains to be included in licensing rules. Another example is the promise in the White Paper that the front line regulator will need to ensure that the combination of services proposed by an ABS “are not incompatible with or inappropriate for the delivery of legal services” (Cm6679 para 6.10). However it is quite uncertain wheth er this requirement will be enforced through the systemfor the approval of licensing rules by the LSB or will be a matter of discretion on the part of licensing authorities in terms of the conditions which they impose under clause 68 (4) and (5) of the Bill on individual licences. 3435523086 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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17. With so many of the rules still unwritten there is inevitably uncertainty as to how they are going to apply and as to how fair and robust the ABS regulatory systemwill be. For instance coming on top of comments in the White Paper such as: “the regulator will take a decision on a case-by-case basis on whether lawyers should be in the majority [ie in ABSs]” (Cm 6679 para 6.5), the draft Bill adds to rather than dispels uncertainty. 18. Confusion and uncertainty is added to by the prospect of competition between regulators for business as licensing authorities. The Bill accommodates the principle stated in the White Paper that “ABS firms will be able to apply to any Front Line Regulator authorised to grant the relevant licence. This will provide an element of competition between regulators.” (Cm 6679 para 6.3). Unsurprisingly, and notwithstanding that this notion is supported by the OFT, this has given rise to anxiety on the part of those giving evidence to the Joint Committee. I am particularly interested to note that among the consumer bodies Which? has expressed its opposition to ABS firms being able to “shop around for a licensing authority” (Evidence 14 June 2006 para 15). 19. The system contemplated by the Bill in reality contemplates corporate bodies owning legal services providers rather than what we have thought of in the past as multi-disciplinary practices (“MDPs”). I agree with the Institute of Chartered Accountants that the draft Bill provides a disproportionate and unduly onerous systemof regulation for MDPs. Their criticismis particularly te lling: “We broadly welcome the proposed removal of the legal restrictions on law firms to include non- lawyers amongst their principals and the concept of ABS. However, adoption of the ABS will be deterred by the licence requirements eVectively meaning the status quo is retained.” (Letter to the Joint Committee 15 June 2006 para 31). Accordingly I make the following suggestions. 20. After 20 years or more of debate about liberalising the rules governing the organisations through which legal services can be provided Parliament must decide upon the key ethical principles and restraints which will apply and not delegate this task to unelected regulators. Does Parliament consider: — that fitness to own a legal services provider should depend upon honesty, integrity, reputation, competence, capability and financial soundness and that these criteria should apply to changes in ownership as proposed by Clementi (page 117 para 40)? — that legal services practices within corporate owners should be ring fenced legal entities as proposed by Clementi (page 119 para 43)? — that there should be safeguards against the particular conflicts of interest which will arise in the mixed activities of ABS firms again as proposed by Clement (page 121 para 53) and therefore will the intention announced in the White Paper that “The focus of an ABS regulator will be on the prospect for conflict of interest and investor influence over the firm’s management” (Cm 6679 para 6.6) be enshrined in the Act? — that there should be safeguards against unreasonable commercial pressure again as recommended by Clementi (page 117 para 41)? and — that there should be a requirement that all persons exercising responsibilities in law firms in corporate or independent ownership should be “fit and proper persons” with an understanding of conduct of business rules? If so (and naturally I hope so) then the Bill (and the Act eventually) should give clear expression to all these principles. The Joint Committee should bear in mind that the reputation of the English legal profession internationally will be at stake in all of this. 21. The Bill should distinguish between and provide regulatory frameworks modified accordingly for: — MDPs between legal and other professionals who are already subject to practitioner regulation and oversight and/or independent MDPs where solicitors or other regulated legal service providers will remain in the majority but who wish to oVer partnerships or minority ownership shares to business support professionals or other compatible professional services providers; and — externally or corporately owned law firms which form part of commercial and corporate institutions oVering other goods or services to consumers. The fundamental diVerences between these entities or media for providing legal services need to be recognised and the rules designed accordingly. The problemwith the draft Bill is that it takes proposals fromClementi (eg the HOLP and HFA) and applies them to a much wider canvas than Clementi intended. 3435523086 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22. As proposed by the Institute of Chartered Accountants and the legal professional bodies, the approved regulators and professional body regulators (eg the ICAEW) should be the regulators of the first category of organisations, ie MDPs, under the oversight of the LSB. Models for the necessary formof regulation would be the Law Society’s Multi-National Partnerships (MNPs) rules and the ICAEW’s AYliate Regulations. This proposal would provide proportionate, targeted and relevant regulation which would actually encourage innovation and the development of MDPs at long last. If the recommendations above regarding separation of representation and regulation are adopted, consumers, the public and the competition authorities should all have the necessary trust and confidence in the professional bodies performing this role. 23. A combination of Section 124 of the Building Societies Act 1986 (recognised institutions providing conveyancing services) and Section 37 of the Courts and Legal Services Act 1990 (Authorised Conveyancing Practitioners Board) provide a model for the regulation of the second category of organisations—corporately owned ABS law firms. Section 37 and the 1990 Act provide a model of a single regulator for such firms. In the case of ABS firms, the single regulator could and should be the LSB which in any event is intended by the draft Bill to be a licensing authority. Section 124 and the 1986 Act provide a model for permitting the provision of legal services by recognised or licensed institutions through the medium of employed solicitors, licensed conveyancers and other authorised persons. Under Section 124 the Lord Chancellor would have been the regulator and the maker of the relevant “recognition” rules and that role should now be performed by the LSB. Section 124 was of course repealed in 2004 and Section 37 was never brought into force. However they provide useful precedents for the suggestion that the LSB should be the single regulator of corporately owned ABSs. 24. There will inevitably be overlaps between MDPs and corporate ABS law firms and grey areas as to the appropriate professional body regulator for individual MDPs. These potential areas of conflict would best be resolved by the LSB under rules analogous to these in clause 87 of the draft Bill. 25. The success of these proposals, designed to reduce confusion complexity and bureaucracy would ultimately depend upon the adoption of the recommendation in paragraph 20 above.

Cost

26. This is a practitioner’s plea. Please can regulatory cost be contained. 27. Excessive regulatory burden and cost are as much (if not more) of an enemy as the potentially unequal competition which will face small solicitors’ firms in the traditional areas of legal practice fromlarge institutions. 28. It is possibly not generally recognised how competitive the legal services market has in fact become since the mid 1980s. OGC.buyingsolutions (as sponsors of the Catalist L-Cat panels), the Treasury Solicitors and the procurers of legal services on behalf of local and other contracting authorities under framework arrangements would, I believe, vouch for this. In such a competitive market place additional cost is always unwelcome. Regulatory cost in particular does not always bear equally, fairly and proportionately. The cost estimates in the Regulatory Impact Assessment and the PwC report will not convince many law firm leaders and managing partners. Regulatory cost must be controlled. 29. It is unfair that regulated firms and practitioners should have to bear all the start up costs of the LSB and the new regulatory systems under the Bill and all the costs of the on-going activities of the LSB and the Consumer Panel. There must be a just apportionment between the industry and the tax payer. 30. A “polluter pays” principle under which anyone complained of, whether or not meritoriously, has to pay a fee will quickly bring the new complaints systems into disrepute—particularly if it is cheaper to “buy oV” the unmeritorious complainant than to pay the fee to resist an unfair complaint. 31. Any suggestion that the profession should shoulder the relocation, redundancy and/or recruitment costs of “a fresh start OLC” when facilities and staV are already available and TUPE would apply would be obnoxious. 32. Clause 43 of the draft Bill is objectionable in terms of the scope of the purposes for which it requires approved regulators to raise practising fees. Practitioners should not, for example, be expected to subsidise through their practising fees: — the cost of management training to competitors; or 3435523086 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— pro bono or free of charge services in areas of unmet legal need particularly where these arise because new entrants into the market licensed under the new systems “cherry pick” the profitable work as feared by the Legal Services Ombudsman and Complaints Commissioner in her Evidence to the Joint Committee (June 2006 para 5.5). 29 June 2006

Memorandum by Berrymans Lace Mawer Solicitors (Ev 82) The Joint Committee invited, in its press notice dated 25 May 2006, interested organisations and individuals to submit written evidence as part of its inquiry into the draft Legal Services Bill. This short response is submitted on behalf of Berrymans Lace Mawer (BLM). In it we have repeated, for ease of reference, the questions raised by the committee. We welcome the draft Bill generally and the opportunity to submit evidence to the committee. Our principal concern in the move towards a deregulated legal services sector is that professional duties to clients and to the court should continue to take precedence over other interests. We believe this is the key to a flourishing independent legal sector. In personal injury work, examples from parts of the claims management sector show the real risks to clients and professionals of the failure of regulation, or the lack of it. We develop this example in our short submission. BLM is a firmof solicitors which works primarilyfor defendants and their in surers. The firmhas over 100 partners and 800 staV in total based in seven oYces in England and Wales. The practice is an important participant in the civil justice process and its annual turnover is of the order of £45,000,000. We work closely with commercial clients, trade associations and government bodies in the broad debate on civil justice policy and the regulation of legal services, and we are represented on the Legal Services Consultative Panel.

The Bill—Overall 1. Whether the draft Bill’s proposals are necessary, workable and suYcient; and whether the Bill’s proposed outcomes could be achieved by better means. 2. Views on the government’s estimate of casts contained in the Regulatory Impact Assessment. — BLM broadly welcomes the draft Bill in so far as it seeks to fill regulatory gaps around the provision of legal and related services. We believe that transparent and eVective regulation of legal services is vital to maintaining public confidence in this sector. — Our recent experience of unregulated service providers is, however, cautionary. In the personal injury sector the rapid emergence and subsequent collapse of market-dominant unregulated claims management organisations1 has seriously tarnished the legitimate activities of making and defending injury claims, damaged the reputation of the legal professions in the public’s mind and contributed to the perception of a compensation culture. — This issue is currently being addressed in the Compensation Bill. It will be of central importance to the personal injury sector that those regulations are properly imported into the regulatory structures envisaged in the draft Legal Services Bill. — We cannot comment in detail on the estimate of costs contained in the RIA. However, we note that the costs associated will be borne by the professions at large, and hence passed on to clients and consumers. The prospect of such extra costs is worrying at a time when there is significant government concern about the existing high level of costs associated with personal injury claims and their impact on access to justice.

Regulatory Objectives 3. Whether the regulatory objectives set out in Clause 1 of the Bill are appropriate. — We support the seven regulatory objectives. We would welcome a clear public presentation of these objectives by the LSB when it is set up. We recommend The Financial Services Authority’s (FSA) web page “Statutory Objectives”2 as an excellent example of a Plain English approach to the presentation of similar objectives in another regulated sector.

1 Most notably Claims Direct and The Accident Group. All references in this evidence to Claims Direct are references only to the former claims management company Claims Direct which is now in liquidation. 2 www.fsa.gov.uk/Pages/about/aims/statutory/index.shtml 3435523087 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Legal Services Board 4. Overall, whether proposals for the regulatory body are fit for purpose; and in particular: (a) The proposed structure and powers of the proposed Legal Services Board (LSB). (b) Funding for the LSB. (c) The relationship between the LSB, the OYce for Legal Complaints, the Consumer Panel and the Government. (d) The proposed compensation fund arrangements. — We would not wish to make detailed comments on the structure, powers and funding of the LSB. The measures in the draft Bill are generally fit for the purpose of the LSB as a regulatory body with oversight of other front line regulators (FLRs). — However, what will be absolutely vital in practice is that the LSB is properly resourced so that it: — uses its powers and carries out its functions consistently and transparently with regard to all FLRs under its supervision; — keeps the market under review,3 collecting and analysing intelligence on the evolution of the market for legal services generally and reserved legal activities in particular (so as to avoid any repeat of the sort of problems arising in the claims management sector mentioned above); — acts quickly to “police the perimeter”4—ie enforce regulatory standards to ensure that only authorised businesses are carrying out reserved legal activities. — We believe that in order to promote public confidence in the independence of the LSB—from government and from the professions—serious consideration be given to the following possible amendments to the Bill: — that appointment of the members of the LSB is expressly subject to the Code Of Practice For Ministerial Appointments To Public Bodies;5 — that the Secretary of State shall take advice fromthe Senior Judiciary wh en considering appointments to the LSB; and — that every chairman (and not just the first) of the LSB shall be a lay person.

Alternative Business Structures 5. The ability and desirability of the proposed new Alternative Business Structures in: (a) opening up the market for legal services; and (b) delivering consumer benefits. — This is a key area for our practice. We believe that the introduction of Alternative Business Structures (ABSs) is likely fundamentally to change the ways in which legal services and reserved legal activities associated with personal injury claims are provided to members of the public. — We believe that ABSs will open the market for legal services in our main practice areas and we believe the increased competition will drive improvements and bring about real benefits—in respect of costs, choice and service—for consumers. — We are not aware if the LSB is to have powers to order external or “lay” investors in a legal ABS practice to give up the investment if, after investing in the ABS, such lay investors do not pass any “fitness to own” test subsequently requested by the board. Further consideration might be given to this aspect. 6. Potential conflicts of interest under the new structures, including: (a) internally—any potential conflicts of interests in firms providing multidisciplinary services;

3 The facility to review is important. In 2000, the Blackwell Committee (www.dca.gov.uk/civil/blackwell/reportfr.htm) presented a range of options for regulation of the emerging claims management sector to Government. Prescently, the report noted (emphasis added) that “. . . legislative options should only be considered if, after keeping the personal injury field under review while the eVects of the Access to Justice Act 1999 are assessed, the Lord Chancellor concludes that there is evidence that the public interest is seriously threatened by the activities of non-legally qualified claims assessors or emerging claims management organisations.” 4 The phrase is one commonly used by the FSA. See www.fsa.gov.uk/Pages/doing/regulated/law/focus/perimeter.shtm/ 5 wwwpublicoppointments.gov.uk/commissioner for-public—appointment.aspx 3435523088 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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(b) externally—any potential conflicts of interests between the demands of legal professional work and external shareholders; (c) the impact on legal professional privilege. — We do not foresee any new internal case-by-case conflicts of interest arising frommulti-disciplinary services. We believe that full guidance issued by the FLRs—to regulated persons—on managing conflicts should generally be adequate. In order to ensure consistency across disciplines, we would, however, suggest that the LSB be tasked with ensuring that the FLRs adopt similar methodologies in preparing and implementing conflict rules. — We are pleased that the draft Bill6 makes express provision for dealing with regulatory conflicts. However, we believe that in the interests of certainty for (legal) professionals and consumers any such conflicts must be resolved in an expedited manner and hence suggest that the six month period quoted may be too long. — We are extremely concerned at the potential conflict in ABS practices between on one hand the duty to external shareholders/investors and on the other the (legal) professional duties to act in a client’s best interest (Clause 1 of the draft Bill). Whilst we do not wish to labour the example, once again the experience of Claims Direct and The Accident Group well illustrates the risks for consumers of commercial interest taking precedence over legal professional duties. We believe that the latter should take precedence if there is a conflict, but we recognise that this proposal could raise serious and complex issues for the functioning of ABS practices. There may be a similar potential conflict arising out of privilege and hence we would recommend that these topics are considered in detail by the committee.

Office for Legal Complaints Overall, whether the proposed OYce for Legal Complaints (OLC) is fit for purpose; and in particular: (a) the proposed structure and powers of the OLC; (b) compensation arrangements and limits; (c) whether an appeals process is required; (d) the conditions and level of respondents’ fees. — The arrangements set out in part 6 of the Bill appear to us describe a new OLC that is broadly “fit for purpose” in investigating and compensating complaints arising from legal services. We note that a great deal of the detail is left to secondary legislation, we presume to ensure flexibility of the scheme, the fees charged etc. This will require careful scrutiny. — We welcome the independent “one stop” approach to legal complaints that the OLC will represent and believe that as a consequence consumers will be more likely to have confidence in the manner in which legal complaints are investigated by the OLC than at present. We believe that the example of the Financial Ombudsman Service, which replaced a range of industry complaints processes, is a good practical precedent that demonstrates that the “one stop” approach can work eVectively in a diverse regulated sector. June 2006

Memorandum by the British and Irish Ombudsman Association (Ev 15) As you are may be aware, the British and Irish Ombudsman Association (BIOA) responded in January to the Department of Constitutional AVairs’ White Paper: The future of Legal Services—Putting Consumers First. We have also been pleased to have been involved in consultation meetings with the Department over the drafting of the Bill. One of the points made in our response, and during the consultation meetings, was the recommendation that any proposed new legal complaints scheme be called an ombudsman scheme. We note fromthe Draft Bill that, although it is referred to as “the ombudsman scheme”, the OLC will have the final say as to the name under which the scheme is eventually operated. BIOA feels very strongly that the scheme should be known as an ombudsman scheme, with the word “ombudsman” in the title. It is one of BIOA’s core objectives to encourage the use of the title of “ombudsman”, a term which continues to gain growing public recognition and respect. A dilution or fragmenting of the complaint-handling landscape with a plethora of other titles such as

6 Clause 87. 3435523089 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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“commissioner” and “adjudicator” is not helpful and can confuse, in our view. We feel that it would be a missed opportunity and a shame if a new statutory scheme is given any name other than “ombudsman”. We have similarly made this point to the Scottish Executive and to the Scottish Parliament’s Justice 2 Committee in relation to the proposals to form a new “Scottish Legal Complaints Commission” in the Scottish Executive’s consultation paper: Reforming complaints handling, Building consumer confidence—Regulationof the Legal Profession in Scotland. BIOA will continue to actively encourage the use of the term “ombudsman”. Please contact me if you have any questions or queries relating to either this response or to any other aspect of the British and Irish Ombudsman Association. Ian Pattison Secretary 12 June 2006

Memorandum by the BPIF, British Printing Industries Federation (Ev 39)

Introduction 1. The BPIF (British Printing Industries Federation) is the leading Trade Association for the Print Industry. Its duties include representing its members’ interests in all aspects of commercial activity and in particular in relation to all initiatives taken by Government. The use our members make of legal services is key to the productivity and eYciency of their companies 2. The BPIF Legal Department consists of two lawyers and a . We very much welcome the opportunity to give evidence to the Committee. We note particularly that the role of Trade Associations appears not to have been considered to date. These are key to ensuring that sector-specific advice is provided by individuals experienced in their own field and knowledgeable about the industry 3. As 75 per cent of our members have less than 20 employees we have a good understanding of the needs of small and medium size enterprises (SMEs) and the legal advice gap experienced by these SMEs. This submission focuses upon the needs of our members in relation to timely, high quality, cost eVective legal advice. 4. The BPIF has approximately 2,350 members. It is the largest single representative organisation for the industry:

Number of Companies Turnover Employees Industry % 12,000 Industry % £14.4bn Industry % 158,000 BPIF % 2,350 (20%) BPIF % £6.6bn–7.1bn BPIF % 87,000–97,500 (45%–50%) (55%–62%)

5. The industry suVers fromlow levels of profitability with pre-tax profit marginson sales of b etween 2.85 per cent7 and 5.48 per cent.8 Average total sales for the top 500 companies is £31 million although some of this may not be classified as “printing”. When you consider that there are approximately 12,000 companies in the industry this gives a good indication that it is an industry dominated by SMEs. 6. Currently the BPIF Legal Department employs one qualified solicitor as Head of Legal, one commercial solicitor and one trainee solicitor. The Legal Department is constrained at present as to the amount of legal advice and representation it can oVer its members.

Summary 7. Our members have diYculty with the current models for legal advice, finding it too costly; cumbersome; user-unfriendly (paras 11–12 below) 8. Thus they do not take prompt legal advice when necessary, leading to problems becoming exacerbated or resolved unsatisfactorily (para 13 below)

7 PrintWeek Top 500 companies report 29 November 2002. 8 BPIF Printing for Profit Survey, November 2002. 3435523090 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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9. Given that our members are overwhelmingly SMEs, they should be considered “consumers’ of legal services in much the same way as individuals (para 14 below) 10. Allowing Trade Associations to set up a Legal Disciplinary Practice, owned by the Association, would deal with these diYculties (paras 16–25 below)

Issues for discussion 11. SMEs have a particular need for legal services provided in innovative ways because they do not have the following: — The resources to employ in-house counsel. — The resources to properly informthemselvesas to relevant legal issues. — The management expertise to deal eYciently with legal issues. — The financial resources to instruct solicitors. These claims are supported by recent research carried out by the Small Business Council’s evaluation of government employment regulations and their impact on small business; the Council was adamant in its’ assertion that “small businesses have a low awareness of employment regulations and see complying with them as a very low priority”.9 12. The BPIF’s own informal research10 has found reasons given for SME’s wariness of traditional legal advisers include: — Lack of approachability. — Opaque and uncertain charging structures. — Lack of understanding of their particular sector. — Lack of timely and practical responses. 13. As a result of the above: — Disputes which could be solved quickly by early identification of issues drag on ineYciently. — Disputes arise due to ignorance of the law (SBS survey as above). — Negotiations are not concluded properly. — Proper legal documentation of agreements is not drawn up. — If litigation is embarked upon, it is dealt with unprofessionally, leading to delays and the disruption of the judicial process. 14. In our submission, in the light of the above, SMEs are “consumers” in much the same way as those who approach law centres or their Trade Unions for advice. Accessibility of legal services is just as much a problem for our members as it might be for individuals. Therefore they should not be viewed in the same light as large businesses who have the resources and expertise at their fingertips to deal with legal issues 15. In addition, there is currently no method of pooling experiences of a particular industry-specific legal issue. For example, intellectual property issues arise regularly within the print industry. However, it is presently very diYcult for the BPIF to build any sort of analysis of this issue on which to base educative and lobbying initiatives. 16. The above issues could be tackled by the delivery of industry-specific legal advice which is accessible through their own Trade Associations, thereby ensuring: — They feel confident in approaching their Association in a way that they would not be in approaching other legal advisers. — The issue of fees is dealt with in a user-friendly manner; for instance fixed fees, “unbundling” of cases. — There is close cooperation between the various specialist advisers working in the Association, thereby establishing a “one-stop shop” for the users.

9 Small Business Council (SBC): “Evaluation of Government Employment Regulations and Their Impact on Small Business”, March 2004. (www.smallbusinesscouncil.org). The SBC is a Non-Departmental Public Body which advises the Chief Executive of the Small Business Service and reports to the Secretary of State for Trade and Industry. 10 Questionnaire exercise carried out Jan/Feb 2004. 3435523090 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— Issues which are common to a particular sector (for instance Intellectual Property in the printing industry) can be identified and managed by the Association as a whole, eg by pressing for legislative change and/or educating the industry in avoiding the pitfalls. — Issues are controlled by a body (the Trade Association) dedicated to improving and modernising that sector. — Methods of advice and representation are tailored to meet the needs of the sector.

The Current Position 17. The Committee will be familiar with the current rules regarding the dispensing of legal advice by Trade Associations. Briefly, Rule 3 of the Employed Solicitor’s Code 1990 relaxes Rule 4 of the Solicitor’s Practice Rules 1990 to the extent that solicitors employed by Trade Associations can act for members of that Association. However, they are severely restricted with regard to charging members for their services. This makes it diYcult for the Association to build up suYcient resources to be able to oVer a high quality all- inclusive service. 18. This is especially true of Associations (the vast majority) who represent SMEs. Their membership subscriptions have to remain low in order to be attractive to members. Thus a full legal service cannot be oVered as a standard part of membership. 19. The BPIF has only employed a qualified solicitor for the past four years. In that time it has become apparent that there is a strong desire amongst members to use their Trade Association lawyer. Legal queries run at an average of three per day and one lawyer has undertaken over 240 Employment Tribunal cases in that period.11

Possible Changes 20. A preferred option, achieving the goals of delivery of legal services in a user-friendly way and also ensuring the resources to provide a high-quality service, is the ability to build a Legal Department within the Association which can charge members as it sees fit (always within any relevant regulatory framework). 21. In addition, the traditional partnership model of legal practices suVers froman old-fashioned approach to management and client care. A model which has to answer to a quasi-corporate body (the Association) will allow the development of a more business-oriented approach to these issues, and will oVer the environment in which to explore more innovative methods of delivery of service. 22. As a Trade Association, the BPIF occupies a unique position. Its raison d”etre is to provide benefits in the widest sense of the word to its members and to the industry sector as a whole. It is accountable to its members and not to shareholders. Whilst commercial prudence is clearly of the utmost importance, profit is not the primary motivator of the organisation. 23. It is therefore an ideal vehicle for an Alternative Business Structure (ABS), since most of the conflicts of interest that may arise are not as pressing as they may be in a highly profit-driven body. 24. In addition, being sector-specific, Trade Associations can bring a depth of understanding of the industry concerned to any legal matter. They can also act as professional mediators in disputes. 25. Thus the BPIF would support any ABS which would allow such a development

Conclusions (a) Traditional SMEs in the printing industry lack management expertise and the resources to deal with legal issues; consequently they often lack the ability to identify legal issues that should be addressed before they become very problematic. In this regard they closely mirror a typical consumer relationship with the legal profession, characterised largely by a lack of accessibility. (b) The Legal Services Bill is a good opportunity for the creation of a new business model; namely Trade Associations as providers of Legal Services to their members. This model would enable a superior legal service to be oVered to members, with the result that disputes and negotiations would be concluded more quickly and eYciently. It would also help Trade Associations in their advisory and educative role by highlighting particular recurrent legal issues within the industry. June 2006

11 BPIF quarterly Cases Report and telephone query logs. 3435523091 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Memorandum from C S Caisley, Partner, Walker Morris (Ev 05)

I ama partner in a top-50 UK law firmwhich will be relatively una Vected by the proposals in the draft Bill and, therefore, my following comments will hopefully be more balanced than some which you will have received from members of the legal profession who are more directly aVected.

1. It has been said on behalf of the Government that the reforms will open up access to justice to more people who will have a wider choice of legal service providers.

Answer This is untrue. Whilst the reforms will pave the way for financial institutions, insurers and supermarkets to become more heavilly involved in the provision of legal services than they are at present, in the long termthe reforms will have the eVect of reducing the number of providers. One only has to look at the insurance industry itself to see what will happen. The acquisition of many of what were previously thought of as large insurers (General Accident, Commercial Union, Prudential, for example) has considerably reduced choice for the consumer. Brands such as Direct Line, Prudential and Churchill now belong to one bank. Another provider of insurance services, The RAC, is owned by Norwich Union which some years ago also acquired one of the largest motor insurance brokers in the UK, Hill House Hammond. Has all this been good for the consumer? I think not, because there will be continued consolidation in the future which will reduce choice even more. Has it reduced premiums? No. Any reduction has been down to the move towards direct insurance and investment in IT by the major players. The description “TescoLaw” is apt, because what has happened in the retail sector will happen with the provision of consumer legal services. The giant supermarkets, having obliterated the vast majority of “corner shops’ in the UK (which has had a major, negative impact on life in the rural communities) are now turning their attention to non-food retailing with the same result. The proposed reforms will eventually lead to an evolution that will see the vast majority of smaller law firms close and the premature retirement of many lawyers currently providing valuable services to the community, to be replaced by a handful of high street banks, insurers and major retailers. Initially they will provide cheaper services in order to gain market share, but once this has been achieved and the competition has levelled out, prices will rise. Result—less choice for the same price.

2. Will the standard of services provided be improved?

Answer There is no doubt that the people who will be investing in the provision of legal services will have the financial muscle to improve the delivery of services in terms of speed, eYciency and quality of presentation. However, any investment will have to be paid for and this can only come from higher cost to the consumer or low margins but high volumes of instructions received. We have previous negative experience of the financial institutions getting involved in other industries (eg estate agents and valuers) where volumes did not deliver the anticipated yields. Has the standard of service improved? Certainly not to any great degree. Service standards have improved for other reasons, eg because of greater and improved legislation such as The Property Misdescription Act.

3. Will the integrity of the legal profession be maintained?

Answer This is an unknown quantity, but there will be a much greater problem as regards conflicts of interest and a desperate desire fromthe large institutions who will be providing the ser vices to deliver results which their shareholders will find acceptable. At the moment the relaxation of regulations which formerly prohibited a lawyer fromreceiving remunerationin return for the referral of business has resulted in a price war as regards personal injury claims work, with large banks and insurers demanding, and being paid up to £700 for each referral. What steps will the same providers take to secure other types of work? A weekend for two in Paris, a Christmas hamper or reduced home insurance if we prepare your will as well? 3435523091 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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I know not whether the comments which are received in response to the draft Bill ever see the light of day, and I doubt that they will make any diVerence in any event, but I amconvinced that the proposed legislation will cause more problems than those it seeks to solve. However, it seems that everyone is prepared to buy into that in order to achieve a service sector for the community which in five to 10 years will be wholly controlled by the major banks, insurers and supermarkets.

Memorandum by Clifford Chance (Ev 36)

Summary 1. CliVord Chance welcomes the government’s aims to make the regulation of legal services more transparent and accountable, and has made constructive contributions throughout this process. It is vital that the independence, integrity and international competitiveness of the UK legal services industry be protected, and be seen to be protected. The general thrust of the proposals in the draft Bill supports these principles, but there are aspects which give rise to concern, particularly: the power of appointment to the Legal Services Board, vested solely in the Secretary of State; the need to distinguish between “retail” and “wholesale” clients, and between diVerent areas of law; and the over-burdensome requirements on partnerships with a very small minority of non-lawyers.

Clifford Chance and the UK Legal Services Industry

2. This submission is made on behalf of CliVord Chance LLP, in response to the invitation by the Parliamentary Joint Committee on the Draft Legal Services Bill to submit evidence on the provisions of the Draft Legal Services Bill. 3. We very much welcome the publication of the Draft Legal Services Bill and the opportunity to submit our views. We trust that the Parliamentary Joint Committee will find our comments helpful and constructive. 4. CliVord Chance is the largest law firmin the world, with 28 o Yces in 19 countries throughout Europe, the Americas and Asia and over 3,700 legal advisers, the largest number of whom are based in London. We are regulated by the Law Society of England and Wales. 5. According to a report by International Financial Services London, published in March 2005, legal services contributed £12.9 billion or 1.4 per cent of the UK’s GDP in 2002, net exports generated by international law firms totalled £1,802 million in 2003, and international law firms in London generated an estimated £2.6 billion in UK tax revenue in 2001–02. 6. CliVord Chance is a full service law firm serving, primarily, commercial and business clients. We have practice areas covering finance, corporate/commercial, property and tax, pensions and employment. The proposed Legal Services Bill is of direct practical relevance to us in our business operations, and our concerns are likely to be shared by other large commercial law firms in the UK. 7. We have a broad client base, which includes leading banks and other financial institutions, multinational and national commercial organisations and other bodies such as governmental and regulatory authorities. These clients are sophisticated, well-informed about their own needs and well-informed about the strengths and weaknesses of diVerent legal service providers. Services to these clients are a varying mix between advisory and transactional services, and are often multi-jurisdictional in their content.

Protection of Consumers

8. It is important that the provisions of the draft Legal Services Bill reflect the diVerences between client type and knowledge across the legal sector, as well as inherent diVerences between diVerent types of legal activity. There should be a statutory recognition (and instruction) to the Legal Services Board—and the front line regulators—that they should distinguish between “retail” and “wholesale” clients (ie basically, between individual, less sophisticated clients and corporate clients) and between diVerent areas of legal activity (ie between typically High Street activity such as domestic conveyancing, personal probate and matrimonial or childcare work as compared to work typically carried out by the very large City or international firms such as multi-jurisdictional property law advice for large corporates, international finance transactions, large-scale mergers and acquisitions etc.) 3435523092 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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9. There is a clear and successful precedent in the wording of the Financial Services and Markets Act 2000. One of the “regulatory objectives’ of the Financial Services Authority under the Act (s. 2) is “the protection of consumers”. This phrase is further defined (in s 5) as “securing the appropriate degree of protection for consumers” in determining which the FSA must have regard to: “(a) the diVering degrees of risk involved in diVerent kinds of investment or other transaction; (b) the diVering degrees of experience and expertise that diVerent consumers may have in relation to diVerent kinds of regulated activity; (c) the needs that consumers may have for advice and accurate information; and (d) and the general principle that consumers should take responsibility for their decisions”. 10. We would urge the Committee to consider the very real diVerences between assisting a major multinational bank in a complex international financing transaction and advising an individual consumer on aspects of a residential conveyancing or divorce proceedings. In the first case, the Head of Legal of a client entity instructing solicitors is likely to be a lawyer himself of many years’ standing and with detailed experience and expertise in the field. In the second case, it may be the first time the consumer has instructed solicitors and he or she may have no knowledge of the relevant area of law. It is neither appropriate nor helpful—to either type of consumer—that these should be treated in the same way. 11. We therefore suggest that it would be desirable to include on the face of the Bill wording which explicitly recognises the diVerent needs of consumers and requires the Legal Services Board, and the front line regulators, to take these diVerent needs into account. 12. Similarly, we suggest that it would also be appropriate to distinguish between diVerent types of legal activity, as protections appropriate for eg domestic conveyancing are not the same as those appropriate for eg international mergers and acquisitions.

Independence of the Profession 13. While we welcome reform of the legal services sector, it is vital that this should not be at the cost of the independence of the legal profession. As Sir David Clementi said in his report12 “The current systemhas produced a strong and independently minded profession, operating in most cases to high standards, able to compete successfully internationally”. The independence of the profession has attracted high calibre entrants to the profession and contributed to the success of UK law firms in overseas markets. Interference with this independence, or even the perception of such interference will only have a negative eVect, both on success in recruiting high quality applicants, and on the brand of “solicitor” in overseas markets. 14. The proposed Legal Services Board will have enormous power and exert key influence over the legal profession. We believe that if appointment to the Board is solely vested in the Secretary of State, this will seriously threaten the independence of the legal profession. We therefore urge the Committee to recommend amendments to the draft Bill to the eVect that the Secretary of State should not be able to make appointments to the Legal Services Board without some form of consultation with the legal profession. We feel, as a minimum, that the Lord Chancellor should have an obligation to consult the Lord Chief Justice on the composition of the Legal Services Board.

Alternative Business Structures 15. The UK has one of the most liberal regimes for legal services in the world. The flexibility of this regime has been a major contributor to the international competitiveness of UK law firms. We support the provisions in the draft Bill on Alternative Business Structures insofar as they would permit multi-disciplinary partnerships. 16. We acknowledge the complexities involved in regulating Alternative Business Structures, and the need to ensure that such organisations are subject to the appropriate level of regulation. 17. The practical eVects of Part 5 as currently drafted (as we understand it), would be that a large law firm (such as CliVord Chance) would not be able to invite, say, its Head of Finance (if a non-solicitor) into the partnership (with around 600 legally qualified partners) without having to follow the licensing procedures set out in the draft Bill, and seeking to become a “licensed body” for the purposes of the draft Bill. If it were to become a licensed body, it would then be subject, because of having one non-legally qualified partner, to the

12 Para 33, Sir David Clementi’s Report of the Review of the Regulatory Framework for Legal Services in England and Wales, December 2004. 3435523092 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 same licensing regime and the same approved regulator as bodies majority owned by non-lawyers, or with a majority of non-legally qualified partners. 18. We do not believe that such an approach would fit with the principles of good regulation (as set out in the draft Bill at s. 3(s)) as being proportionate and targeted only at cases in which action is needed. 19. We would propose that the licensing procedures should not apply, or that there should be a simpler process for the formation of an Alternative Business Structure where certain specified types of similar professionals are joining a partnership. 20. We would also suggest the inclusion of a de minimis level within the regime—so that the provisions on Alternative Business Structures would not apply, eg where 5 per cent or fewer of the partners in a partnership were not qualified solicitors or recognised foreign lawyers.

Freedom of Information

21. We note that the LSB is made subject to the Freedom of Information Act 2000 (“FOIA”) (s. 28 of Schedule 1). We are concerned that the LSB, through its role of approving the regulators, through its potential role as front line regulator, and through its power to receive papers which the legal services ombudsman has the legal right to demand (s. 118 and s. 123), will have access to large amounts of extremely sensitive and confidential information. While such information may attract the normal exemptions set out in the FOIA, the LSB could choose to disclose the information anyway, or be ordered to disclose. 22. We believe that it would be entirely consistent with the freedomof info rmation regime, and, in particular, with the position of other regulatory bodies, if there were to be a statutory prohibition on the face of the draft Legal Services Bill, preventing the LSB fromdisclosing specified kinds of information, including information provided to it in confidence in relation to its regulatory functions, without the consent of the party providing the information, or the party to which the information relates. We would direct the Committee’s attention to such a prohibition in s. 348 of the Financial Services and Markets Act 2000. There are comparable prohibitions in relation to numerous other bodies including the Bank of England, the Civil Aviation Authority, the Health Service Commissioners, the OYce of Rail Regulation and the OYce of Communications.

Legal professional privilege

23. We note that s. 139 of the draft Bill seeks to extend legal professional privilege to individuals who are not barristers or solicitors but who are “authorised person[s] in relation to an activity”. We query whether there might be a risk that this section could be interpreted as a definition of legal professional privilege, as opposed to an extension, and wonder whether it might be helpful to include clarificatory wording to this eVect. 14 June 2006

Memorandum by Cobbetts LLP (Ev 59)

Section 154—Definition of “Not for Profit Body”

1. It would be preferable to use a phrase other than “not for profit”, as this can be understood to denote a lack of commercial drive or eYciency. Corporate entities established for a purpose other than the profit motive can be described (positively rather than negatively) as “social purpose” bodies. It would be preferable to use a phrase which denoted what such bodies are, rather than what they are not. 2. The phrase “for charitable or public purposes” in sub-paragraph (a) of the definition could also be reconsidered. First, whilst the word charitable is capable of precise understanding, the same might not be said of “public”. The word used both in the mutual sector (which has community benefit societies) and the company sector (which has community interest companies) is “community”. It might be preferable for the phrase to be worded: “for charitable, social, community or public purposes’. 3. It may be appropriate to ensure that a community benefit society or a community interest company qualified as such a body in any event. If so, the definition might be expanded to provide specifically for this. 3435523093 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Section 74

The provisions covering change of ownership may be impractical (and unnecessary) in relation to mutual organisations where members only have one vote, and possibly only one share. 15 June 2006

Memorandum by CASIA, Complaints Against Solicitors, action for Independent Adjudication (Ev 33) CASIA is pleased to have the opportunity to make its views known to the Joint Committee on the draft Legal Services Bill. In fact we have a request which is for an opportunity to send a deputation to meet the Joint Committee. 1. A deputation from CASIA met Sir Stephen Lander in 2003. Members went to the Sir David Clementi Public Regulatory Review meetings and met Nigel Reeder and James Gerrard at the Department of Constitutional AVairs. We have provided evidence for these meetings. Recently we were able to attend a “Which?” meeting to hear an address by Bridget Prentice and Lord Falconer who kindly answered the questions of some members. While we were pleased at the opportunities to put forward representations, we do feel that we would like to make representations directly to the Committee ourselves because no one else can speak with the passion and conviction that we can. 2. You may or may not be aware that there are various groups concerned with injustices in the present system although CASIA (Complaints Against solicitors, action for Independent Adjudication), is one of the few groups that is a actually a company limited by guarantee as is the Law Society itself. We are not against solicitors, as some assume, but we do feel that far too little action is taken against bad solicitors who through negligence or greed destroy their client’s lives. 3. The group that became CASIA first met in June 1995, becoming a company in 1996. I amone of those who wrote to the Lay Commissioner who handled complaints before the Solicitors’ Complaints Bureau was set up which was followed by the OYce for the Supervision of Solicitors and succeeded by the Consumers’ Complaints Service all of which, to put it bluntly, have failed complainants. 4. The cause of failure is the determination of the Law Society to hold on to some form of self-regulation and the present bill will not change that as completely as it should. Complaints want their complaints treated as a whole, they do not want the distinction made between service and conduct complaints because gross negligence and misconduct are at the other end of complaints about inadequate service, one being just a severe manifestation of the other. 5. Furthermore, a present brake on a full investigation is that solicitors have a conflict of interest when replying to questions by the complaints body because if they provide, “full & frank” replies, they could put their insurance in jeopardy. In fact, it seems that a guilty firm, in a desire to protect itself, will lie quite blatantly to the complaints’ body. What safeguards are there to prevent a solicitor lying to the complaints system in a letter marked, “Private & Confidential”, which the complainant has no knowledge of? 6. These are issues, backed by proof, that we have consistently raised because we want the systemchanged to make sure that when clients become the victims of bad solicitors there is a robust systemthat will expose them. There is nothing in the draft bill that will do this. There is not enough emphasis on lay people being involved in the Board and all the committees. As a contributor to the Scottish Justice 2 Committee said, people are not stupid. In some cases a committee would need no legal professionals at all, just access to legal advice when necessary. Page 86. The first chairman must be a “lay person”. What of the second? 7. The idea of separating complaints according to possible compensation value is as decisive as the old system, especially as the ceiling of £20,000 is so low. Someone with modest means left severely disabled whose by personal injury case has been made a complete blotch by incompetent and unethical solicitors is in no condition to star a negligence claim immediately against his ex-solicitors. Someone who had lost his home and business is for the same reason in no position to start an action for negligence either. A full investigation of the solicitors’ files and perhaps court files would at least give the victimg reater knowledge of his own case. 3435523094 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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8. Therefore, all complaints, whatever their value, should be thoroughly investigated and an opinion given on whether, on balance, the complaint is justified or not. The complainant can either accept compensation under the Board’s scheme or take action himself. 9. No matter how much it is denied, solicitors balk at taking negligence actions against other solicitors. Initially solicitors tell victims that they will help them but victims quickly find that their case is making no progress. If they protest, the solicitors are quick to threaten withdrawal and demand payment. Often a barrister’s Report is obtained which invariably paints a very bleak picture of their hopes of success which the solicitors then use to come oV the case. However, some clients do not see what is sent to the barrister. One firm even secretly contacted the client’s insurers and persuaded themto stop h is insurance. 10. Under the old systemserious complaintswere passed to the Law Society f or the solicitor to be disciplined etc but the complainant was never told what happened next. I was even told, years ago, that the serious allegations I made would be dealt with by the Law Society and if there were then any issues remaining, these would be dealt with as Inadequate Professional Service, hardly crumbs of comfort. 11. Another CASIA member was told by the OSS that his complaint about a firm of solicitors who had allowed someone to claim that he was a Fellow of ILEX, to work unsupervised, to have his own client account and to award himself mark ups of 60 per cent for his court work etc but whose true status was that of a clerk was serious enough to be passed on to the Law Society. The consequence of this was that the Law Society apparently advised the firmto get two personal injury solicitors and to pen sion oV the clerk but the failed client got nothing. 12. A very common problem is the right of a solicitor to keep the file if a bill is unpaid. In far too many cases this right when the bill is disputed is used as a weapon which is completely unethical. There are other options, (see ”Which? 250 legal complaints solved”) but the complainant bereft of legal advice does not discover them. There perhaps should be a help line with such basic information as solicitor’s advice is increasingly becoming unaVordable. 13. The bill is supposed to be about improving the complaints system but all the emphasis is on providing a service for future users. Attention to the complaints service is too skeletal. The greater part of it seems concerned with the expansion of solicitors’ work with the assumption that if solicitors can widen their activities and opportunities this will lead to fewer complaints. That is not necessarily so. 14. “Putting the Consumer First” as far as complaints go should be a reality; it should not just apply to future users. The viewpoint of the complaints system is written from the top down, ie how the Regulator is regulated, the meanings of the definitions of terms, payment of Chief Executive and chairman, all of which is necessary but which seemto have little relation to the day to day handling of complain ts fromthe victimsof bad solicitors. 15. There is nothing in the bill about the day to day running of the complaints systemand what safeguards there are for individual complainants. Complainants are they frequently falsely told that all the issues in their complaint have been looked when this is blatantly untrue, especially when complainants try to get issues looked at again after they have discovered additional material connected to the original issues. Protests are ignored and the complainants are then told that their letters will not be answered. 16. There is no guarantee whatsoever that all the bad practices revealed so shockingly in the “Willing Blindness” Report by Richard Moorhead, Sarah Rogers and Professor Avron Sherr which received so much justified criticismand which are supposed to have been corrected, by the Co nsumer Complaints Service have been reformed. All complaints should be looked at in the whole but the tendency is to fragment the complaint so criticisms are easier to dispose of. Should caseworkers have their own Code of Conduct? 17. Last but not least CASIA is concerned about the references to secondary legislation. We want the complaints’ right and other matters to be dealt with in the primary legislation. We want an assurance too that the Law Society and other regulators will pay for the complaint system, not the taxpayer. 18. I wish that we had had more time to look at the bill. As all the responses have not arrived yet. With so many references to committees and rules and regulations it is quite diYcult to visualise how the systemwill work in practice and I hope that it will not just be chasing targets which distorts a true appreciation of the situation. There are grave concerns that if a complainant mentions fraud their complaint is shut down. There are other concerns about solicitor induced bankruptcies; concerns about a beneficiary’s lack of the right to information. These complaints need investigation with the complaint kept in touch with the investigation. Good intentions 3435523094 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 are not enough. Unless we have solutions, remedies and true accountability above all there will be a deficit in the democratic process. Sadly, hopes for reform of the complaint system will not be fulfilled. That will not happen with the bill in its present state. It is too skeletal. Much more information is needed about the thoroughness of the handling of complaints. 13 June 2006

Memorandum by Sarah Cook, Amicus the Union (Ev 27)

I amthe full-timeo Ycer responsible for Amicus members working for the Law Society and I am writing to you on their behalf. This is in addition to Amicus’ response to the request to provide evidence to the Joint Committee on The Legal Services Bill. I am writing specifically to raise the concerns of members with regard to the establishment of the OYce for Legal Complaints. Amicus supports the principle of the establishment of anOYce for Legal Complaints to deal with consumer complaints about legal service providers; however, we are concerned about the impact such proposals will have upon the futures of our members within the Law Society’s CCS. Amicus notes the progress and improvements made to the Law Society’s complaints handling. Amicus also notes that the Law Society has appointed an independent board to oversee its complaints handling which means that this area of work is now independent and that no member of the Law Society’s council sits on the boards of the Consumer Complaints Board. Amicus notes that since the appointment of Sir Stephen Lander as Independent complaints Commissioner he has noted that the Society has made significant progress in its work in complaints handling. Amicus also notes that it was acknowledged in the White Paper that performance is improving at the Consumer Complaints Service. However, Amicus also notes that the original costs/benefits analysis in the White Paper (at page 147 in Appendix D) listed a number of economic benefits and costs, but whilst the social benefits are considered to be increased consumer confidence, the social costs are “none”. This can only be true if those currently working in the Law Society’s Consumer Complaints Service can continue to do so and are not significantly disrupted. Prior to the publication of the white paper and the Legal Services Bill various indications were given by the DCA that the future OYce for Legal Complaints would be based around the Law Society’s Consumer complaints staV and oYce and that TUPE would apply to these staV who would transfer to work for the OLC. Amicus also notes that this was a recommendation of the report commissioned by Sir David Clementi. However, by remaining silent on where the OLC will be based there is uncertainty and anxiety raised amongst staV. Further assurances fromthe DCA are now required to ensure that the social costs are indeed “none”. Amicus is part of the working party established by the Department for Constitutional AVairs to consider the implications of the establishment of the OLC. We note that a final decision on location is unlikely to be made until late June/July. We understand that the delay is due to more time being taken to ensure that the analysis and research to be provided to Ministers in order to make the decision is fully robust. However, we feel that is causing stress, anxiety and uncertainty amongst the staV aVected and unless addressed sooner rather than later will result in an exodus of talent fromthe organisation. Amicusbeli eves this would have the potential not only to impact negatively on the Law Society’s ability to maintain improvements in the run up to the transition but also the ability of the new organisation to recruit the best available pool of expertise. There are over 300 staV working in the CCS at the Law Society’s Leamington Spa oYce, if any new OLC were not located nearby this would mean a large number of redundancies, which would have implications for our members livelihoods, families and working futures and knock on eVects on the local community and economy. It would seeminappropriate to knowingly increase numbersof redundancie s in the West Midlands, an area that has already suVered large numbers of redundancies in the recent past. It would also be a cost to the DCA in terms of the loss of complaints handling expertise and skill. In addition, the CCS has around 70 staV working out of its Holborn oYce in London, who have contributed to the improvement achieved. Amicus considers that the retention of these skilled and experienced staV will be important for the continued success of the CCS and the future success of the new OLC. Amicus understands that there has been eVective lobbying by the consumer bodies to ensure a fully independent and new OLC, however I would reiterate that Amicus members have worked hard to develop and improve the complaints handling service at the Law Society and have built up great knowledge and expertise in delivering eVective consumer complaints handling. 3435523095 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Amicus would also point out that it is itself a large-scale consumer of legal services. Amicus believes that a smooth transition is an essential requirement to sustain and build upon the improvements already achieved. We consider prompt clarification of the location of the new organisation and the desire to retain the existing expertise of staV will be the most eVective way of ensuring that the new OLC is both independent and eVective complaints handling body for consumers. Any oYce tasked with providing consumer redress for the legal profession faces a diYcult challenge given the range, complexity and scale of the transactions which it oversees. Our members have worked extremely hard and have built up a unique expertise in undertaking this task. They have also consistently demonstrated flexibility and a willingness to embrace changed which suggests they could seamlessly adapt to the new culture of the OLC. They should not now be made scapegoats for any past failings. Amicus has welcomed the Department of Constitutional AVairs’ intention to take into account when deciding the location the need for business continuity as we consider that a smooth transition is an essential requirement to sustain and build upon the improvements already achieved. At the same time we consider it self evident that any decision to locate the new oYce at a distance fromthe majorityof existing sta V that precludes themfrom relocating would have a disastrous eVect on business continuity. It stands to reason that if the rewards promised to the dedicated CCS is in eVect a redundancy package subsidised by the consumer, that the staV retention diYculties will be considerable. We do not consider that it would be in anyone’s best interests to fundamentally undermine the Law Society’s ability to maintain improvements in the run up to the transition in this way. Amicus believes that public confidence in the new OYce for Legal Complaints is an essential ingredient in ensuring it is an eVective complaints handling body for consumers. However, we also believe that quire rightly such confidence will only be built by the new organisation itself delivering a level of service equal and superior to that currently oVered by the Law Society’s Consumer Complaints Service. We note that there is an identified risk of the likelihood of an initial drop in service standards if the location necessitated the creation fromfirst principles of an entirely new body. We consider that such problems would be far more serious than just “teething problems’. The eVect would in our view be long term, and the consequences potentially irreparable. We believe that there is a need to provide prompt clarification that the new OLC will be based around the Law Society’s Consumer Complaints Service in the West Midlands and London, in order to ensure eVectiveness, minimise costs and avoid disruption to the staV and the service. Sarah Cook Regional OYcer With Responsibility for the Law Society Amicus Membership 14 June 2006

Memorandum by Dr Bernhard Dombek, President, BRAK-German Federal Bar (Ev 70)

We have been informed of the Draft Legal Services Bill (the “Bill”) as it has been presented to the United Kingdom Parliament by your Government on 25 May 2006. Under the call for evidence of same date we take the liberty of submitting evidence as to certain obstacles which Alternative Business Structures (“ABS”) would encounter in Germany. Before doing so, we would like to present our organisation. The Bundesrechtsanwaltskammer (“BRAK”—German Federal Bar) has been instituted by an act of parliament as the self-regulatory body of the German legal profession. As the umbrella organisation it represents the 27 regional Bars and the Bar at the Federal Court of Justice which represent a total of currently approximately 139,000 lawyers (German Rechtsanwa¨lte and foreign lawyers established in Germany) in the Federal Republic of Germany. BRAK does not want to interfere in internal aVairs of another Member State of the European Union13 and therefore does not comment on the Bill generally. This should not be interpreted as a support in favour of those aspects of the Bill on which we do not comment. The reason why we submit this evidence is that as of today a number of English firms of solicitors are active in Germany where they play a major role in the area of business law. Solicitors and Barristers of England and Wales as well as German Rechtsanwa¨lte are members of those firms, either as partners or as employed lawyers. In view of the present situation it is therefore not

13 With due regard to ECJ C 309/99 19 September 2002 (Wouters) stating that the rules governing the legal profession are not harmonized. 3435523096 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 unlikely that, if the Bill becomes the law of your country, ABS will seek to set up branches or subsidiaries in Germany. Under European law14 as implemented in Germany, solicitors and barristers who are established in Germany are subject to the German rules of professional conduct in the same way as are German Rechtsanwa¨lte. They have to register with the regional German bar (Rechtsanwaltskammer) of which they become a member having full membership rights. This means that all lawyers who are permanently present in the German branch of an English law firm, be it as a partner or as an employed lawyer, have to comply with the German professional rules. In compliance with the constitutional requirements applicable in Germany, the status as well as the major rights and duties of lawyers have been laid down in a federal act of parliament.15 In addition to setting up those essential rights and duties, the same law has put in place an assembly of delegates, who are democratically elected by all lawyers,16 to adopt certain more detailed rules.17 German law attaches paramount importance to the independence of lawyers and of their profession. The first section of the law on the legal profession defines the Rechtsanwalt as an “independent organ of the administration of Justice”.18 The Rechtsanwalt and any European lawyer established in Germany shall exercise his/her profession free fromexternal influence and only as deter mined by himself/herself.19 German law authorizes law firms to adopt a large variety of legal forms, including those existing under the laws of other EU Member States, but in view of this overall requirement of independence it provides that only lawyers and members of some other professions which have similar rules of conduct shall be partners and/or shareholders of a law firm. It further requires that its partners/shareholders shall be personally active in the firm.20 It also requires that such firmshall be managedunder the responsibility of lawyer s and that in case other professionals exercise in the same firm, the managing body shall consist of a majority of lawyers.21 If in your country ABS are authorised to be set up, as is provided for in the Bill, it is our understanding of the Bill and of the preceding White Paper that firms authorized to provide legal services could have shareholders fromoutside the profession, such as banks and insurance companies.It is o ur further understanding that the management of such firms would not necessarily be in the hands of a majority of lawyers. Those legal bodies being inconsistent with the requirements of German law, we are therefore of the opinion that German Rechtsanwa¨lte as well as solicitors and barristers established in Germany would infringe German professional rules if they became a member of such type of an ABS. Those firms would therefore encounter a major obstacle in Germany. In view of the importance of the German market for legal services in Europe we think that it is necessary to draw your attention to this particular aspect of your future legislation. We remain of course at your disposal for any further information you may need. 22 June 2006

Memorandum by Eifion Edwards (Ev 17) Introduction

This evidence aims to be helpful by agreeing the Draft Bill is needed, but to argue where and why the draft Bill may not be fit for purpose. There is concern that standards in legal services may not improving much in the next decade, for “the experience of people in the street” and those people running small/medium business, because the process of needed reformwill be too slow. Or possibly there is the question of whether some may wish the Draft Bill to be as ineVective as the regulation around the work of the Financial Services Authority (and others).

14 Directive 98/5/EC (Establishment directive for lawyers). 15 The Bundesrechtsanwaltsordnung (BRAO). 16 The Satzungsversammlung. 17 The Berufsordnung fu¨r Rechtsanwa¨lte (BORA). 18 H 1 BRAO. 19 ¡ frei und selbstbestimmt¢, H 1 BORA. 20 H 59e BRAO. 21 H 59f BRAO. 3435523097 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Is Financial Services Regulation a Warning for Future Legal Services Regulation? The aimof this page is to look at what is acceptable for business practice or ethics under an already regulated sector, so to consider how far down the developing process should legal services regulation start, to avoid like problems. Too many modern regulators such as the FSA (Financial Services Authority) and LSC (Legal Services Commission) are under some kind of cloud over their failure, to the extent of causing despair and a growing backlash. The BBC2 TV programme Business Lunch reported that gossip at “The City” says being savaged by the FSA is like being savaged by a dead sheep. Possibly one way to explain wider discontent with the regulation of banking and Financial Services is people are caught like fish in a barrel, for use by predators. One typical example is of a low income earner (not in debt only bought transport for work), who paid more in just bank charges (not repayment) than income tax. Thus evidence that regulation fails, and allow banks to entirely undermine Chancellor Gordon Brown’s welcomed strategy for low income people, “to make work pay”. If the main banks made a reported profit of around a combined £35 billion, (although investment is an element of the profit), could the unfair customer personal expenditure lost to banks’ profit, have otherwise been channelled to deal with the pension crisis? It is said there is no evidence of a cartel. Maybe we observe just an industry normresulting fromlike responses to a competitive environment where the unified aim is to further shareholders’ interests. The BBC1 TV Watchdog programme looked at problems with the Prudential. But it seems the Financial Services Insurance sector believes it is acceptable to look for legal loopholes to not pay out claims even to terminally ill people, based on what is in the shareholders interest. Will a consultation on legal services which started out “in the public interest” fromhaving been shaped by a banker/accountant, and Chairman in the Financial Services industry, now also shape legal services (provision and decision making) based on what is “in the shareholders interest”? The OFT has said some bank charges are to be reduced, but voluntarily and changes will take over a year— or even more. In the meantime the Alliance and Leicester response is reported to be to axe customers, who challenge themover the charging that regulators see as unfair. At the same time Vanquis Bank Limited promotes its’ new credit card oVering money to probably the demographic segment who are cash strapped and desperate, at an interest rate of around 49.9 per cent (with additional charges for cash as opposed to purchase). The glossy publicity says in large print of an oVer which can help the customer stay in control saying “Now you can aVord a little freedom”. But the very much smaller print hidden in a collection of leaflets says it takes “14 years six months” to clear the balance of £1,000 if repaid at the minimum rate. Can customers ignorant of financial aVairs trust these banks? Vanquis Bank Limited, as others are able to state on glossy brochures they are approved and regulated by the FSA. Would you like your family to be taken in by all of the tactics existing Regulation allows to be played on people who do not stop to think, or are not educated, or are desperate? Why allow other families to be victim in Financial—or Legal Services? Finally as we look more directly at the regulation of Legal Services there are other questions. Was Sir David Clementi also behind the design the FSA? Would the Prudential (or similar) buy law firms? Is Sir David Clementi Chairman of the Prudential? Would banks and insurance firms benefit fromslow or weak regulation of legal services?

Possible Gaps in Draft Legal Services Bill The Draft Bill proposes is a process, not an outcome. Starting too low down the process, impairs chances of success. The Draft Bill could even be unlawful especially if like the above Financial Services problems, Legal Services failure takes years to rectify. 3435523097 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The structure of the Draft Bill seems to have endless potential, but in reality the concern is that the potential is limited given a weapon used by lawyers in litigation is to “quietly oVer so many hurdles”, so that those with diVerent views will make no progress. Although rules can be made or influenced later in the process, there is the question of whether the wording in the Draft Bill is unhelpful by structuring solicitors “only” as litigators who have rights of audience. The Draft Bill could be said to be backward thinking and working against the spirit of the Woolf Reforms, Judicial Review ruling on pre-action protocol and work of the DCA,—that litigation should be a last resort. The Draft Bill potentially works against rank and file lawyers who risk being weeded out of representing people in future claims for compensation via the new mediation schemes, such as are being proposed by for example the NHS. Mr WilliamWallace of the LSC in the North of England told the writer that fro mhis research on the community legal service, people want an answer to a problem, and not legal advice. If the primary work of the solicitor is litigation and rights of audience, then lawyers are placed into a mentality that they do their job well to seek to bring matters to Court with the huge cost to public sector, business and individuals. When an early negotiated settlement could be achieved, and costs saved.

Example of a Typical Problem as a Test of Whether the Draft Bill is an Answer Please consider as reported in the Western Mail 24 May 2006 of the case of young mother Diane Price 24 who needlessly died in the hospital operating theatre, leaving her partner and two young children. It took five years for the defendants to admit liability and then pay £300,000. On TV and in the Western Mail Diane’s mother Mrs Price complains over the defendants (who I understand to be advised by the Welsh Health Legal Service) for giving the family five years of torment on top of their bereavement: “Why could they not have done so earlier, instead of prolonging the torment for my family”.— Western Mail, front page, 24 May 2006 Who takes action here over poor legal standards? The family cannot be expected to go through more torment by complaining? Can third parties complain? Exactly who do third parties complain to? Is a complaint needed to prompt action? Does the Legal Services Board or OLC have authority to act where potential wrongdoing occurs, but no complaint is received? If a lay third party reports an errant lawyer, will the OLC have a duty to act on the complaint? Also the Draft Bill does not seemto encourage or specify (as can occur in FSA ) where staV trawl the media and adverts for problems, and try to be proactive in investigating and taking action, on conduct before a complaint is received and to prevent a complaint needing to arise. Should the Law Society (and other) trawl the media etc and then act? Will the Draft Bill address these ongoing problems? Change to the Bill is requested to be more proactive on such behaviour as reported in the Western Mail. If this issue is not addressed in the Draft Bill, it could take years for reformto occur.

The Law Society’s and Bar Council’s Strategies Could Make Them Unlawful and/or be Unsuitable as Regulators In Legal Services a “customer need” can be the legal right to access to justice, and a fair trial. In business termthe proposed regulators like the Law Society and Bar Counc il are “product/service led” (no choice but to accept what Law Society design for their wishes and interests),—not “customer led”. For example, a customer led business designs a product/service suitable for what customers want or “need”. In contrast a Law Society style product/service led business says the equivalent to the well known example eg we make black Model T Fords and that is all you can buy. But if the equivalent of that Model T ford in Legal Services means what the professional body/lawyers trade unions oVer results in not just complaints, but that clients cannot have legal cases dealt with adequately enough to proceed, that means no access to justice and/ or no fair trial. The approval of the Law Society and Bar Council as Regulators may well be unlawful. 3435523097 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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A solution to improve standards could be regulation by specialism, not by profession. That way more rank and file lawyers would take over by each specialismand could report to the Le gal Services Board and develop what was needed and good for each specialism.

The Shape of the Profession and the Supply of Lawyers Again the Draft Bill has wording to bring change, but without a starting point could potentially take years to bring change. The request is that diversity in entry to the professions, is still defined to deliberately exclude those with limited qualifications, deprived areas, limited resources and without high grades. Strict rules on qualifications risks being indirect discrimination, as only the more privileged can aVord the time and money to become lawyers, which excludes minority groups. Also mature entrants with experience in other careers, (even 40 years plus) may be best suited to deal responsibly with the needs and problems of lay clients and small/medium business. The Law Society’s aimto promotethe profession by restricting entrants to only the young with high grades can mean a profession which is incompatible with work solicitors do. With the retirement age at 67 an entrant qualifying at 42, could give 25 years service. Older people can be more suited to the work of some specialisms. Solicitors are not one kind of person or professional. Mergers & Aquisition lawyers are high earners where top graduates may be relevant. In contrast for example as in many communities, South Wales Valleys based solicitors dealing with welfare rights, family law, magistrates court, employment and NHS disputes,—need to be lower earners for aVordability and able to relate to and understand peoples lives. Rather than be motivated (or indeed privileged enough) to have time to seek higher grades at University as a worthwhile aim. Is it unreasonable to suggest that people prefer a lawyer who will listen, help and act rather than what mark the lawyer had at school?

Competitive Practice Amongst Law Firms Erodes or Ends Access to Justice There is a failure in the supply of lawyers or lawyers time, to allow access of justice for many people. Again this can be unlawful. This claim although may seem strange to some, is supported by independently through the OFT’s contribution to the consultation behind the Draft Bill “Competition in the Professions’ page 11. The writers are consultants in Law and Economics and they explain something of how competition can make the supply of lawyers (or their time) be limited, to cut costs. “Thus there could be market failure which leads to an inadequate supply of quality of services or, in the extreme, no services are provided at all”.—Point 37, page 11 “Competition in Professions’ Published by OFT. In reality it seems already if a client manages to get a lawyer to agree to act it would seemas if the lawyer would take a fee, but not have either the personal ability or the time be able to do the work of processing the information the client has to be examined and advised on. The writer of this submission used his status as a lecturer to ask a London Barristers Chambers how clients should best organise casework. The answer was that the correct type of experienced specialist solicitor was vital. The Head of a London Barristers Chambers then agreed to see if his staV could find that kind of solicitor, needed for a lay client. StaV at the chambers trawled London solicitors firms speaking to the senior solicitors, and all firms contacted said they would only assign more junior staV, where such staV would be too inexperienced to cope.

How To Keep Up With a Changing World? What measures can be introduced into the draft Bill to ensure Legal Services can respond quickly enough to keep up with the needs of any era. As opposed to at present, where the Law Society and LSC are in the example below ten years too late, in basic innovation. Can the Draft Bill state such a duty and speedy response? One example of many,—we have known for many decades we are in a post industrial society and the “age of information”. The introduction Data Protection Act 1988 was foreseeable. Yet ten years on fromthe drafted Bill, neither the Law Society or Legal Services Commission take the initiative to add this category of law to their list eg family law, criminal law, etc. 3435523097 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Can the draft Bill be worded so there is the responsibility to ensure a framework so we avoid the stagnation of present? What measures can there be to prevent collusion between LSB, OLC and Regulators to avoid dealing with problems? What changes can be made to the Legal Services Bill to limit or prevent the Legal Services Board and OLC turning a blind eye to issues that are obviously serious or major problems—especially those problems reported by credible consumer groups? Can other think tanks, consumer groups, or client groups report these policy problems and have concerns taken seriously? Exactly who would receive reports of policy problems?

Quality Management and Training for Culture Change &Cooperation The Draft Bill appears to have too few proactive measures to improve quality. The powerful known wisdom of how to “manage organisations for results’, is being ignored. For example the Draft Bill has no adequate specified link between the consumer complaints received, and the Legal Services Board and OLC having both a duty and authority to re-design legal services and their quality. Therefore the same problems will continually reoccur, and the OLC will chase it’s tail and waste money investigating a volume of similar complaints, where the same old problems are avoidable. The Board and OLC can change rules, but cannot train eg high street lawyers and those regulated to understand why the change and to cooperate with the change. The gap here seriously undermines chances of success.

What is Dishonesty?What is the More Serious Offence? Which is the greater wrong for a lawyer to take £100 of client cash? Or for a lawyer ruin the client’s life or business, with losses suVered in at least hundreds of thousands as well as the emotional and lifestyle loss? A major problem well know to some clients and consumer groups, is that a lawyer ruining a clients life or business is certainly not uncommon, but is not in reality seen as an oVence, and would not easily be received as a complaint. Whereas it is by comparison easy to deal with a complaint of a loss of £100 cash. Rules need to change where the start is needed in the wording of the Draft Bill. In High Court proceedings “Bad Faith” is interpreted as an act(s) of ill will,—that is dishonesty. In contrast in lawyers Professional Conduct, dishonesty only involves the taking of cash. It seems that in Professional Conduct, lawyers have engineering their own definition of dishonesty The Draft Bill risks giving credibility to the definition of dishonesty by lawyers, by references that use the limited definition of dishonesty referring as only when client’s cash is taken. As bad faith by lawyers is such a problem, why not make it an oVence for a lawyer to act in bad faith during his work? The Draft Bill says it is a criminal oVence for a person to act like a lawyer when they are a lay person, but the Draft Bill does not say it is an oVence for a lawyer to act as no more able than a lay person and/or ruin the client’s life or business.

Gaps in the Overlap with the Work of Legal Services Commission There is a major overlap in the work of the LSC and proposed regulation by Law Society Bar Council and OLC. The problemis the LSC refer an issue to eg Law Society and the Law Societ y say they have no jurisdiction. Can the draft Bill extend the jurisdiction of Regulation to deal with either the overlap or failure to even try to supervise service quality by the LSC? Conduct in legal aid matters is in the main unregulated. Also it has always been an issue, that if a client complains the lawyer may well terminate the legal aid, as an act of bad faith. It is in the interest of the lawyer to do this to slow up and limit the ability of the client to prove the lawyer as errant or negligent. There are no measures of supervising of quality of lawyers used by LSC. The LSC only supervises a highly questionable system of “administrative compliance”. 3435523097 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The writer has tested the LSC systemand in short found absolutely no intere st in ensuring quality or dealing with complaints. There is no proper systemto deal with errant LSC sta V. Could this jurisdiction be added to the Draft Bill?

Important Areas Not Covered by Rules The Legal Services Board or OLC is too restricted to prevent problems or conduct not covered by rules,—eg What is adequate client care or case preparation? And how is that achieved? Such issues are critical for access to justice. Yet given we already know the proposed regulators have an interest in still avoiding dealing with such issues, the Draft Bill wording risks taking decades to address such fundamental issues. A complaints system is inadequate on it’s own because lawyers appear before independents bodies (court or Tribunal Service) by written submission or orally as their living. Therefore even though an independent body will investigate, vulnerable clients are not able to match the games lawyers will play. Nine out of ten lawyers will aimto wear out the client and some can even be particularly abusive,—not so much to be rude—but as a cold calculated legal tactic to wear down the client to avoid potential challenge or allegations. Lawyers will threaten to sue a client even though the lawyer knows no such action is possible. Why not acknowledge what occurs, and find ways to be proactive even with training and also address such bad faith and dishonesty?

Regulation and Innovation in Self Help—When Not in the Interests of the Law Society or Bar Council Especially given Government aims the majority of people become able to gain higher education or degree level qualifications, there is increasing logic to people reading law books and organising their own legal action as a means of access to justice and gaining a fair trial. Having spoken with insurance companies, it could in theory be possible for credible litigants in persons to go through a process to get “insurance against costs’. Also it could be possible for litigants in person to set up a network of training session, for other litigants in persons. Also we need to develop more use of a McKenzie Friend, where a lawyer will sit by a litigant in person, and advise on how the lay person presents their case. If insurance could be made available for costs for capable litigants in persons, why not legal aid to cover costs. Will the Draft Bill place a duty on the Legal Services Board to help foster a healthy business like approach to innovation (such as mentioned here) that is not immediately in the jurisdiction of the Board or in the interests of the Law Society or Bar Council? Eifion Edwards MBA, DMS, Cert Ed, MCMI 15 June 2006

Memorandum by EPOQ (Ev 45)

This Paper is a short Note based on our response to the Government White Paper The Future of Legal Services and which was submitted in evidence thereto on 16 January 2006. In our view: — You don’t need a highly qualified lawyer to solve every legal problem. Certain legal problems can be resolved by access to legal information and other web based legal applications. When you need a lawyer, Internet or call centre access to one can provide a convenient and immediate channel that minimises the problems of scheduling, time oV work for a face to face appointment, and the inconvenience of having to travel to a lawyer’s oYce for what may only be a brief conversation. — We know fromour work with self help clients, that legal informationby its elf, in the formof automated legal documents and searchable legal information databases can resolve some legal issues by providing an answer to a legal question that does not require the deep analysis of a trained lawyer. 3435523098 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— When a client uses legal information, in various forms, to solve their legal problem, the utilisation rate of a lawyer goes down and consequently costs go down. — Law firms, particularly smaller law firms, have yet to embrace the set of Internet technologies that have become standard in almost every other industry. Thus, there is a disconnection between the way people consume other services and the way they consume legal services which is unlikely to be filled by the smaller law firms who lack the infrastructure, intellectual knowledge, capital and the more importantly the will to break out of the old mould inextricably linked to “time costs”. — The Legal Services Bill will allow new players to enter the consumer and SME legal market places. These new players will be able to use Internet based document assembly technology allied to call centres and paralegals, or even on a face-to-face basis in a retail environment. They will be able to bring convenient, aVordable and reliable legal services to the public with higher levels of quality and service than have previously been experienced. The availability of the systems, content and know how as well as the regulatory climate has hitherto prevented the introduction of such services by well known banking, financial service, insurance and consumer service organisations. The technology has been available for the last two to three years to deliver on a digital age for legal services but the regulatory climate is still impeding the opportunity. The Legal Service Bill will change all this in favour of the consumer and SMEs — Today the Government’s own websites are frequently the resources which barristers and solicitors turn to when wishing to advise clients—thereby repackaging free resources into paid-for ones for the consumer. Statutes are available to everyone free online. So too are court judgments. Large law firms, in their attempts to solicit clients, put vast amounts of good advisory information onto their websites, along with charities, pressure groups, universities and the like. The net result of the growth in free resources has been a profound drop in the actual cost of sourcing legal research materials that has been not been reflected in the cost of legal services oVered by the legal profession to the public. Without reform, the benefits of this drop in resource costs will never be passed on since law firms particularly at associate and partner level will staV at the optimal skill level for their salaries or profits. Rather crudely put whilst lawyers can continue to charge £200 plus per hour for relatively routine work which could be automated they have no incentive to change their delivery methods and introduce technology to lower costs. — This situation will change with strongly branded ABS legal service providers coming into the consumer and SME marketplaces. Workflow automation and “groupware” will ensure that high quality legal services which are appropriate and tailored for user requirements will be available at reasonable costs over the Internet and via telephone call centres. There will be roles in these providers for good lawyers who are prepared to accept the challenge of working in an interdisciplinary environment oVering services to the many rather than bespoke advice to the few. — The problems of social deprivation and social exclusion in rural and urban areas are varied. Individuals and communities can be deprived by reasons of geographical isolation, lack of public transport, lack of local facilities or lack of access to facilities that many of us would take for granted. But it appears that in areas of social deprivation and social exclusion there is little access to legal services. This situation is likely to continue and get worse as the market eVects of Home Information Packs (HIPS) reduce solicitors’ income arising from conveyancing. Some parts of the UK are likely to become “Great Unlawed23” areas—zones whose inhabitants will not have any lawyers working within their communities. — Neither the Law Society nor the Bar Council has made any significant reference to this problem. But the failure of their members to provide services to areas of social deprivation and social exclusion will not be intentional or malicious—it is symptomatic of the fact that solicitors and barristers cannot make a decent living within the present professional structures when catering for people who live in these areas. Yet the people living in areas of social deprivation and social exclusion suVer from the same “life episodes’ that need basic legal services—birth, employment, marriage, establishing a home, going into business, divorce, redundancy and death. — This is where we believe that the Legal Services Bill will have their most marked eVect. By allowing non-lawyer ownership and investment in alternative business structures (ABS) it will be possible for sophisticated technology based legal solutions to stemthis gap. Without the availability of these systems and technology the reforms by themselves would have little impact.

23 “Great Unlawed” being derived from“Great Unwashed”—Victorian citizens who lived without the benefit of running water and modern hygiene and “Great Unbanked” being citizens existing without access to banks or building society services. 3435523098 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— Over the past few years we have talked extensively with many major banks, financial institutions, insurance companies and consumer organisations to gauge their attitude to the opportunities that will be presented by a reformed legal marketplace. Many have stated that they will embrace the new opportunities thrown up by the Legal Services Bill and will take up the challenge of providing a wide and varied range of legal services. These organisations already have in the place some of the technologies, systems and know how to deliver a 21st century legal service and what they lack in systems, know how and content they will buy in from organisations like EPOQ. — The change is not going to be instant—large trusted organisations that have to negotiate and establish service level agreements for delivery of new services cannot move quickly. But there is evidence that services are currently being constructed by some trusted organisations in the lead up to the Legal Services Bill going through Parliament. By 2008–10 we expect many of these organisations to routinely oVer a large range of consumer and small business legal services using document automation/assembly and other intelligent know how systems on the Internet allied to workflow and call centre systems for voice to voice services. Indeed we expect in some cases they will venture into the retail arena oVering “walk in” centres which themselves are linked to Internet and call centre systems. For example in the US there is an organisation with over 200 “walk in” legal stores24 oVering a broad range of document preparation services. By and large by 2010 we expect that, with the help of the Legal Services Bill’s reforms and the availability of the systems and technology required, consumers of routine legal services will begin to consume them just like they currently inform themselves, amuse themselves, care for themselves, educate ourselves, work, shop, bank and stay in touch in the 21st century—by the use of Internet and telephone based technology. 14 June 2006

Memorandum by Fishburns, solicitors (Ev 47)

1. Introduction 1.1 This response is prepared by Fishburns, Solicitors. Fishburns is a specialist professional indemnity practice representing professionals, including solicitors and independent financial advisers and their insurers. As a result, we have substantial practical experience of the workings of the Financial Ombudsman Service, having defended over 300 claims and advised on several judicial review situations. We also have an in depth knowledge of solicitors’ negligence and misconduct claims. Our contacts within the professional indemnity market give us a valuable insight into the implications of transferring smaller claims from litigation to an Ombudsman scheme. 1.2 This response is directed solely to matters concerning the ombudsman scheme which is to be administered by the OYce for Legal Complaints (“OLC”). As the scheme does not yet have a name, in this evidence we refer to it as the Service or “LOS”. 1.3 Broadly speaking, Fishburns welcomes the introduction of LOS, but has a number of specific concerns.

2. Financial Limit 2.1 As expressed in our response to the White Paper, we consider that a financial limit of £20,000 as set out in clause 110 of the Bill may be too low. In 2000, which was the last year that the Solicitors’ Indemnity Fund compiled statistics, the average professional negligence claim was worth about £38,000. 2.2 We note that under clause 111, the Secretary of State may amend the limit in accordance with a recommendation made by the OLC, the Legal Services Board (“the Board”) or the Consumer Panel. We consider that the OLC should be required to consult on the financial limit within two years of the inception of the scheme and every two years thereafter. This consultation should be open to submissions from the Consumer Panel, the Board, approved regulators and authorised persons. 2.3 We particularly welcome clause 112(9), which prevents the institution or continuance of legal proceedings in respect of the subject matter of a complaint once that complaint has been accepted. We believe that the finality given to complainants and respondents on acceptance of a determination is vital to the smooth working of LOS. We would strongly oppose any attempts to amend this clause.

24 We the People www/wethepeopleusa/com(owned by Dollar Financial Corp). 3435523099 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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2.4 We note that under clause 105 sub clauses (5)(c) and (6)(b), the OLC may make a rule which allows LOS to dismiss complaints which are clearly worth more than the financial limit imposed by clause 110. We consider that it is essential that the OLC makes such a rule to provide clarity for complainants and to prevent the LOS from becoming a testing ground for litigation or a means to obtain pre action disclosure outside the confines of the Civil Procedure Rules and pre action protocols.

3. Wider Implications 3.1 Although financial services professionals are more prone to multiple complaints that legal professionals, and thus complaints which give rise to wider implications are a more significant hazard for them, we refer to the TAG case which we mentioned in the wider implications context in our response to the White Paper. In that response we expressed the concern that determination of generic issues in one TAG case, though not determinative of the other TAG cases as a whole, would be determinative of those issues in the other cases in which they arose. We felt that a mechanism was required to ensure that such cases were dealt with together and, possibly, that there should be some sort of declaratory relief mechanismto refer generic issues to court. 3.2 We add, as a further example, that we have previously dealt with a large number of complaints against one respondent relating to one financial product where the value of the individual complaints ranged from £78 to £18,371. Over 190 complaints were made, of which 86 proceeded to the Financial Ombudsman Service. In fact the complaints were all settled prior to an adjudication or ombudsman’s decision, but the combined value of the 86 ombudsman complaints was approximately £146,000 and, had all the investors in this product complained (there were over 1,000), the value would have been approximately £1.7 million. 3.3 We note that the Bill contains no specific provisions to deal with wider implications cases; however, under clause 105, if the LOS were to receive a very large number of identical low value complaints, where the value of each complaint is under the financial limit, but the cumulative value of the complaints to the respondents is substantially over the limit, it could use sub clauses (5)(c) and (6)(b) to dismiss the complaints without a consideration of their merits. 3.4 If the drafters of the Bill had this possibility in mind, it would be helpful to receive guidance as to the circumstances in which they consider (or the OLC considers) such dismissal might take place, as it is diYcult to weigh up the disadvantage to the claimants of having their complaints decided by the courts (expensive procedure for a low value claim) against the disadvantage to the respondents of having the group of complaints decided by the LOS (a decision based on what is fair and reasonable for a high value claim). 3.5 If this possibility was not under consideration in drafting the Bill, it would be helpful to consider what mechanism would be available to the OLC in these circumstances and/or whether the LOS should be provided with a rule enabling it to group specific cases or cases relating to specific incidents together, such that all such cases are dealt with under the supervision of one ombudsman or team of ombudsmen. This would, at least, aid consistency in decision making. 3.6 Further, we welcome the provision under 106(2) enabling the OLC to waive the case fee payable by the respondent in particular cases. In the above example, the respondent was required to pay 86 case fees to the Financial Ombudsman Service, despite the fact that the cases were identical and were all settled prior to any substantive consideration.

4. More than One Defendant 4.1 We welcome the power granted to the OLC to make scheme rules which will enable the LOS to add co- respondents.

5. Eligible Complainants 5.1 Under article 102, complainants are excluded from LOS on grounds of ineligibility. The only grounds of ineligibility mentioned in the Bill are based on the complainant’s status as an authorised person or public body or by the Secretary of State. 5.2 By its very title, the White Paper which gave rise to the Bill emphasised the need to put consumers first. The notes to the Bill (for example note 14) also suggest that the Bill makes provision for the OLC to award redress to consumers. Further, note 272 suggests that the types of person eligible to bring complaints will be limited to private individuals and small businesses. 3435523099 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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5.3 If the LOS is truly to consider only complaints from private individuals and small businesses, it might be more convenient to deal with the relevant eligibility criteria in the LOS’s rules, rather than by order of the Secretary of State.

6. Legal Professional Privilege 6.1 We are pleased to note that under clause 118 the LOS will not be able to require the production of documents which would be privileged in court proceedings and welcome the restricted information provisions under clause 122 and 123.

7. Publicity 7.1 We note that under clause 121 the OLC may publish a report of the investigation, consideration and determination of a complaint. We note that the name of the complainant will not be disclosed without the complainant’s consent. 7.2 We would welcome the publication of anonymised case information in the format produced by the Financial Ombudsman Service in “Ombudsman News’, which is a useful tool for the industry in learning how to avoid situations which may give rise to complaints and in improving the handling of complaints when they do arise. We remain concerned that the publication of case information in which the respondent is identified may give rise to misleading perceptions about the abilities of particular firms or individuals. 7.3 It is a well known fact that certain areas of law, for example conveyancing, generate more complaints than others. Also, firms that undertake large numbers of transactions are more exposed to complaints than firms which only occasionally undertake high risk transactions. However, the largest firms are unlikely to face significant complaints to LOS, as most complaints brought against them are likely to be worth too much to merit consideration by a body with a £20,000 compensation limit. Further, such complaints are likely to be brought by larger businesses, which may be ineligible in any event. 7.4 As a result, the publication of anything which could lead to “league tables” of complaint information being produced is likely to be counterproductive; such league tables are unlikely to reflect the performance of specific firms unless very carefully weighted. Further, this information would be open to mis-interpretation by the media, particularly those sectors which are already prone to “lawyer bashing” and could lead to an underserved loss of confidence in the legal sector.

8. Appointment of Ombudsmen 8.1 Whilst we understand the need for consumer confidence in the LOS, we are disappointed that clause 99(2) requires the Chief Ombudsman and assistant ombudsmen to be lay persons within the meaning of Schedule 13. 8.2 Under s21 Legal Services Act 1990, the current Legal Services Ombudsman shall not be an authorised advocate, authorised litigator, licensed conveyancer, authorised practitioner or notary. The Act does not, however, prohibit the Legal Services Ombudsman from been a member of one or more of these categories in the past. Further, the Legal Services Ombudsman is able to delegate functions to staV members and there is no restriction on the qualifications or profession of those staV members. 8.3 We do not consider that it is necessary to exclude former lawyers from acting as Chief Ombudsman or as assistant ombudsmen as required by the current Schedule 13. A wide pool of experience and expertise is desirable to inspire public confidence. To exclude anyone with previous practitioner experience solely for that reason seems discriminatory and overtly consumerist. In particular, some of the ombudsmen currently employed by other ombudsmen services would not fall within the definition of lay persons. It seems illogical that they could not be employed by the LOS where their non legally qualified colleagues would not face such a bar. 8.4 We appreciate the need for justice to be seen to be done. However, under the old Insurance Ombudsman scheme (now superseded by the Financial Ombudsman Service) a number of qualified insurance market practitioners acted as Ombudsman’s Assistants, but there was no suggestion that their behaviour was biased against consumers. 8.5 Further, all cases which are litigated against legal practitioners may end up at trial, where a decision will be made by another legal practitioner (a Judge), but no one has ever seriously suggested that the results of such hearings are biased or defective as a result. 3435523099 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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8.6 In fact, many practitioners with a professional negligence background have a fairly cynical view of the abilities of some legal professionals and would, we consider, be extremely unlikely to be overly practitioner friendly.

9. Appeals

9.1 We do not consider that an appeals process is required by Article 6 of the European Convention on Human Rights. There is a right under Article 6 to a fair and public hearing. We are concerned that the scheme rules should make provision for there to be a hearing if requested by either party to the complaint, to ensure that there is no breach of Article 6. 9.2 We do not consider that an appeals process is essential to the smooth running of the scheme or that it would be of benefit to consumers or practitioners. As with FOS, if there is an error of law or if the decision is Wednesbury unreasonable, there is always a right to a judicial review. 9.3 Fromour experience, there is a certain category of complainantand res pondent who will explore every possible avenue of appeal however hopeless the position. In such cases, an appeals process will only add to the delay and cost of dealing with the matter. 9.4 For the majority of complainants and respondents, who do not fall within this category, a formal appeals process will again add to delay and expense. We do not consider that this would be justified by the improved quality of decision making. Complainants who use LOS will have the opportunity to reject decisions which they do not like. While respondents will not have this luxury, many financial services practitioners accept that the odd “bad” result is more than compensated for by the relatively quick andeYcient service which they receive from the Financial Ombudsman Service and that an appeals process would remove some of this eYciency. We consider that legal practitioners, once used to LOS, are likely to adopt the same view. 9.5 However, we consider that once an assistant ombudsman or other staV member has reached a preliminary position on a matter, it would be appropriate for that decision to be submitted to the “losing” party for further comment prior to a final decision being taken, as is currently the case with the Financial Ombudsman Service. 9.6 We are aware of several Financial Ombudsman Service cases in which the final decision has been diVerent from the preliminary position. There are a number of reasons for this. In particular, the informal nature of ombudsman complaints may mean that the respondent has had a diVerent understanding of the subject matter of the complaint from the ombudsman and has not, therefore, adequately addressed the issues which are of most concern. Equally, the complainant may not have expressed him or herself clearly and an essential part of the complaint may have been overlooked. Alternatively, the ombudsman may have been labouring under a misunderstanding of a fact or the relevance of a piece of information. 9.7 In one particular case which we dealt with, a Financial Ombudsman Service adjudicator attached particular importance to the inclusion of a comment in a share prospectus and drew a number of adverse conclusions fromthe fact of its inclusion. These conclusions were not jus tified, as the inclusion of the comment was required by the listing rules. The respondent was given the opportunity of explaining this to the adjudicator prior to a final decision being made, avoiding a “wrong” decision and the need for a judicial review. 9.8 In several other cases the firmhas accepted the preliminarydecision, b ut disputed the way in which loss has been addressed, leading to a diVerent basis of quantification. 9.9 It is sometimes hard for firms to address quantum issues in the first instance when the complaints they face may be vague. To give an example, one of our clients faced the following complaint: “for making a grave error of professional financial judgment by investing my money in what they must have known was a plunging, debt riddled fund, with seemingly total disregard for any possible return in growth or income”. 9.10 In this particular case the Financial Ombudsman Service found for the firm. However, in addressing this particular complaint there were so many possible ways of addressing loss, depending on what the “error” might be held to have been, that it was not possible to make detailed submissions on the point when preparing a response to the complaint. 9.11 We therefore consider that it is essential in the handling of each complaint for the losing party’s views to be canvassed before any final decision is taken. 3435523099 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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10. Conclusion 10.1 Given our past experience of solicitors’ claims and the Financial Ombudsman Service, Fishburns is possibly more positive about the OLC and LOS than some legal professionals, who undoubtedly view the proposals in the draft bill as a leap in the dark. 10.2 We hope that the matters raised in this paper are addressed, particularly in the drafting of the LOS rules, to avoid substantial problems in the future. 13 June 2006

Memorandum by the Hampshire Incorporated LawSociety (Ev 54) I amwriting on behalf of HampshireIncorporated Law Society. The response we made to the White Paper on the Future of Legal Services is attached [submitted but not printed]. The Society is concerned at a number of the proposals in the Draft Legal Services Bill. In particular, we mention: (1) The proposed erosion of the independence of the legal profession. It is essential for the rule of law to operate that it is independent fromgovernment.The Secretary of State s hould not be involved in the appointment of the Legal Services Board. (2) It is a fundamental principle espoused by the United Nations that lawyers should regulate themselves without interference fromgovernment.The White Paper proposals contrav ene this principle. (3) The proposals for the creation of an OYce for Legal Complaints will not allow approved regulators to carry out their responsibilities properly. Furthermore, there is no provision to deal with vexatious complainants. (4) The Paper does not provide for the regulation of all legal services, for example will writers. (5) The proposals will result in a lack of access to justice to significant numbers of the public as they may drive smaller firms out of business or to amalgamate with larger firms. We disagree with the small firms’ impact test. (6) There are inadequate proposals for regulation of alternative business structures and accordingly, the public is not protected. (7) The cost of the new regulatory framework will be increased if the Law Society is not allowed to act as an unfettered regulator. Adrienne Edgerley-Harris President of Hampshire Incorporated Law Society 15 June 2006

Memorandum by A B Craven, HIPS(97) (Ev 06) HIPS(97) is the sole surviving group for very elderly victims of flawed home income plans marketed in the late 1980s. In general solicitors gave an appalling service to their clients which made a mockery of the term “fiduciary relationship”. Consequently the writer was a respondent to the Clementi Consultation Paper. 1. The hope of HIPS(97) is that the influence of Government and the Law Society in the Bill will be minimal. 2. Thus it is desired that the Legal Services Board will be appointed by an independent body. This means that the approval of the Secretary of State is not required. 3. Similarly in reference to the OYce for Legal Complaints (OCL), Schedule 13, para 1(1) the reference to the Secretary of State be deleted and also in para 1(2). 4. The staYng of OCL could cause problems in that it is highly undesirable (in the writers opinion) for lawyers working for the complaints system run by the Law Society at Leamington Spa to be allowed to apply for posts in the OLC. The appalling service over many years with no sign of improvement would indicate that these lawyers would maintain the “old school” stance if appointed. Unfortunately it would appear that these lawyers have a right to apply due to TUPE—Transfer of Undertakings (Protection of Employment) Regulations 1981. The TUPE Regulations were originally introduced in order to implement the EC Acquired 3435523101 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Rights Directive (77/187/EEC) adopted in 1977. One hopes that the Chief Ombudsman will be aware of the appalling record of the Law Society in this respect. 5. Schedule 13, para 110(1) indicates that the maximum compensation which could be paid under the ombudsman scheme would be £20,000. It is pointed out that this is well below the maximum compensation allowed by the Financial Services Compensation Scheme (48,000) and the Financial Ombudsman Scheme (100,000). 6. I cannot see that this involvement in the Bill by the OYce of Fair Trading is relevant. I hope that my submission will prove of assistance to the Joint Board. 5 June 2006

Memorandum by JUSTICE (Ev 10)

1. JUSTICE is an all-party law reformand humanrights organisation dedica ted to advancing access to justice, human rights and the rule of law. 2. JUSTICE wishes to comment on one matter alone in the Draft Legal Services Bill. This relates to the definition of the “regulatory objectives” in clause 1(1). These are defined as: (a) supporting the constitutional principle of the rule of law; (b) improving access to justice; (c) protecting and promoting the interests of consumers; (d) promoting competition in the provision of [reserved legal activities]; (e) encouraging a strong, diverse and eVective legal profession; (f) increasing public understanding of the citizens’ legal rights and duties; and (g) promoting and maintaining adherence to the professional principles. 3. The professional principles are defined in clause 1(3) as: (a) that persons who are authorised persons in relation to activities which are reserved activities should act with independence and integrity; (b) that such persons should act in the best interests of their clients; and (c) that the aVairs of clients should be kept confidential. 4. Thus, the draft Bill is based upon the model of multiple objectives used in the provisions in relation to sentencing in criminal cases contained in s142 Criminal Justice Act 2003. This lists a set of purposes to which a court should have regard for the purposes of sentencing. These are: (a) the punishment of oVenders; (b) the reduction of crime (including its reduction by deterrence); (c) the reformand rehabilitation of o Venders; (d) the protection of the public; and (e) the making of reparation by oVenders to persons aVected by their oVences. 5. The consequence of setting such multiple objectives is that necessarily the decision-maker has to choose the relative priority of each—as happens in a decision about criminal sentence. This multiple-choice approach to sentencing is often referred to as involving a “smorgasbord” approach—involving a pick and choose approach. 6. This contrasts with the approach of the Constitutional ReformAct 2005 w hich, in section 3, requires the Lord Chancellor, Ministers of the Crown and others responsible for the administration of justice to “uphold the continued independence of the judiciary”. This is one overriding objective. Section 3(6) then identifies further duties on the Lord Chancellor in upholding that independence. 7. The first clause of this bill should be rephrased so that the statutory purpose is to uphold the three professional principles (which are an excellent statement of the core professional obligation to hold the interests of the client as paramount). This should be followed by objectives in the way in which this should be done, using the provisions currently set out in clause 1(1)(a)–(f). This would give primacy to preserving professional independence. 3435523102 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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8. The point here is important. The Bill introduces a Legal Services Board appointed by Ministers to regulate currently independent legal professions. The board and government are acting as proxy for consumers, many of whomthe governmentconsiders have insu Ycient knowledge to make informed market decisions (eg Explanatory Notes, para 1.34). However, there is a danger that, in this process, the government may acquire powers that it might be tempted at some stage to use in order to further other political agendas. 9. Issues have arisen in other countries which illustrate this point. The structure of this Bill is only at all acceptable in a country with a highly sophisticated political culture that accepts the need for the independence of the legal profession and the judiciary. One would be concerned about these provisions in, say, an emerging or uncertain democracy. However, issues can arise even in the most sophisticated of liberal societies. For example, the Legal Services Corporation in the United States was required to refuse funding to any organisation that acted for illegal immigrants—even in relation to cases which the corporation did not fund. It is not beyond the bounds of imagination that some future government in the UK might want to require approved regulators of the legal profession to put constraints, for example, on acting for anyone who is an unlawful immigrant—either at all or beyond a certain point in their case. Arguments might be raised that this was in furtherance of at least one perception of the rule of law; allowed greater access to justice; protected citizens rights etc. 10. There must be no equivocation on the duty on all those undertaking reserved legal activities that, subject to their duties to the court (which appear to be retained in the obligation that they “act with independence and integrity”), such persons should act in the best interests of their clients and on a confidential basis. 11. Indeed, it should be explicitly open to a regulatory authority to state that such professional obligations may be applied to those acting in all unregulated legal activities. The point about lawyers is that they act solely in the interests of their clients and not that of the government or any third party, subject only to the maintenance of their probity. It would be surely disastrous if the kind of professional independence made famous by Atticus Finch in fiction and many a lawyer in real life were to be unintentionally sacrificed by this proposed legislation. 7 June 2006

Memorandum by John Kirkhope (Ev 30) I ama solicitor as well as a . Notaries have a long and honourab le tradition and they are becoming ever more important in this increasing global world. In addition to the tradition functions of the notary, that of notarising foreign documents notaries have also been able to conduct probate and conveyancing. Schedules 2 and 3 of the draft bill seemto prevent those acti vities continuing. The draft bill is intended to open up the legal market and yet for no good reason at all one set of professionals will have their activities limited. This is not an advance it is a regressive step and I would urge the committee to rethink the matter. 1 June 2006

Memorandum by the LawSociety of Scotland (Ev 51) The has consistently contributed to the debate on Regulation of the Legal Profession in England and Wales since Sir David Clementi published his consultation paper on the Review of the Regulatory Framework for Legal Services in England and Wales. Because of the significance which developments in England and Wales can have in policy development and thinking in Scotland and because of the universality of the principles involved in the maintenance of a strong, eVective and independent legal profession, it is important for the Law Society of Scotland to comment on the draft bill before the Joint Committee.

Legal Services Board Part 2—Independence from Government The Society is concerned at the proposal to establish a Legal Services Board to regulate legal services in England and Wales. The creation of this new oversight regulator presents a particular threat to the independence of the legal profession, particularly in terms of schedule 1, paragraph 1(1)(a) and (c) where the Board’s Chairman and ordinary members will be appointed by the Secretary of State. The Society is also concerned at the terms of paragraph 1(3) which provides that the Secretary of State may, by order, amend the number of ordinary members of the Legal Services Board. 3435523104 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The Society is also concerned at the terms of paragraph 7(2)(d) where the Secretary of State may remove a member who is “unfit to hold the oYce or unable to discharge its functions”. The issue arising fromparagraph 7(2)(d) is that it is the Secretary of State who makes the decision as to whether or not a member if unfit to hold the oYce or unable to discharge its functions and accordingly, the removal process is not independent. The role of the Secretary of State also emerges under paragraphs 21 (in relation to borrowing) and 22 (in relation to the provision of accounts). In the Society’s view, the totality of involvement of the Secretary of State compromises the independence of the oversight regulator and accordingly, compromises the independence of the legal profession.

Alternative Business Structures (ABS’s)—Part 5 The Society is concerned about the creation of ABS for a number of reasons: (a) the licensing provisions in Clauses 60-72 and Schedule 11 are only framework provisions and lack detail. More details is required about how Licensing Authorities will, in practice, regulate ABS’s. (b) the scheme of practice management under Schedule 11 (creation of Head of Legal Practice and Head of Administration) may be appropriate for City firms but eVectively excludes smaller practice units. Is this the Government’s intention? (c) the fitness to own provisions require careful scrutiny, and (d) although the bill only applies to England and Wales and the Practice Requirements in paragraph 17 of Schedule 11 relate to England and Wales, how will the impact of the creation of ABS be controlled outwith England and Wales?

Order-making Power of the Secretary of State The Society is concerned about the wide-ranging powers in the draft bill which are given to the Secretary of State to make orders amending the bill and making provisions in terms of various clauses. Clauses 151 (Orders, rules etc) and 153 (Parliamentary control of orders) set out some of the framework for the many provisions on which the Secretary of State can make Orders under the bill. The Society is particularly concerned at the capacity for the Secretary of State to make Orders as detailed as detailed in at clause 153(3) under clauses 19, 20, 38, 39, 51, 57, 63, 64, 156 and schedules 3 and 5. In the Society’s view, even aYrmative resolution procedure for these important issues provides insuYcient opportunity for Parliamentary scrutiny or ministerial accountability. In some circumstances, such as the designation of approved regulators under clause 20 or the cancellation of designation as an approved regulator under clause 38, the consequences of order making under these provisions would be far-reaching and extensive. Approved regulators have generally been established in terms of Acts of Parliament and it is inappropriate to provide the Secretary of State with a power to remove by Order what Parliament has created by an Act, particularly in terms of maintaining the independence of the legal profession. Furthermore, there is no obligation on the Secretary of State to consult in relation to the orders which he may wish to make. This is in contradistinction to the requirement for consultation on rules made by either the Legal Services Board or by the OYce for Legal Complaints. Hope these comments are of assistance. If you have any queries, please do not hesitate to contact me. 15 June 2006

Memorandum by Robin Makin (Ev 09)

A. Timetable and the Government’s Approach 1. In the Ministerial written statement25 of 24 May 2006 it is stated that the Legal Services Bill (“LSB”) “proposals are complex and important” and that the Minister believed “it is right that Parliament should have the opportunity to scrutinise themin draft form”.

25 Written ministerial statement by the Secretary of State for Constitutional AVairs and Lord Chancellor, Lord Falconer of Thoroton, of 24 May 2006. 3435523105 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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2. The Minister considered that requiring the Joint Committee to report by July 2006: “provides an opportunity for Parliament to take evidence and consider the detail of the proposals and make recommendations through the Joint Committee’s final report.” 3. The timetable does not aVord suYcient opportunity for those, such as me, to give full consideration to the proposals or to give detailed evidence to the Committee.26 Others, with far greater resources, have had similar aspirations regarding contributing.27 4. It appears that the Government does not wish there to be full consideration of issues and ideas or to engage with all stakeholders but to press ahead with what was proposed in the White Paper as quickly as possible.28

B. Issues Raised by Me with the Government’s Legal Services Bill Team Following Publication of White Paper 5. In response to the exhortation on the Department for Constitutional AVairs website to e-mail comments on legal services reformto them,I did so on the day after the publication of the White Paper. I said: “1. The White Paper does not appear to recognise that not all solicitors are member of the Law Society. What does the Government propose to do about the fact that the Law Society claims to be the representative body of solicitors when there are a substantial number of solicitors who are not members of it and who it can not, therefore, represent. What investigation did you do into this aspect of the matter? 2. Please will you let me know what you propose to do to ensure that the Law Society are no longer entitled to levy monies from practising solicitors who are not members of the Law Society which does not represent their interests in respect of matters that do not relate to regulation? 3. The Law Society should lose one or other of its representative or regulatory functions and its assets divided accordingly. Whilst it is noted that the Government consider that the profession should pay for the new regime of regulation it can not be right the Government to continue to force solicitors to pay for a body that they are either not members of or which does not represent their interests—representation. 4. What do you propose to do to ensure that human rights issues are now addressed including the right under the European Convention of Human Rights not to be a member of an Association? 5. Regulation should cover all lawyers including Government lawyer and lawyers employed in public sector roles who should all have the same standards—consumers are aVected not just by those they instruct but by other lawyers (opponents’ lawyers and those in Government and the public service—all may be involved in a particular consumer’s matter and regulation of all of themis imperative in the interests of the consumer). 6. All lawyers should pay their share of the regulation costs—at present there is preferential treatment for some—who do not pay their share, have benefits and are not subject to same standards and burdens whilst others pay more than their fair share (like non-member practising Solicitors) do not have the benefits of others (non-member practising solicitors do not vote in regulatory matters aVecting practise but those who do not practise but are not members of the Law Society do!) 7. Please can you advise me of the people in your team, their functions and contact details? Who can I speak about this matter?” I followed this up with a further e-mail: “Please will you let me know when I can expect to hear from you. It seems to me to be appropriate if not essential to ensure that the Law Society’s role in the future is confined to regulation and the legal structure will need to be reviewed and amended in the legislation.

26 The amount of material to consider runs into reams—it was released on 24.05.2005 just before the Bank Holiday weekend when many (especially those with children) were away and Parliament was in recess for a week. The Draft Bill Cm6839 is 172 pages, The Explanatory Notes run to 66 pages, The Full Regulatory Impact Assessment 88 pages and the Financial Analysis to support the draft Legal Services Bill (the Report of PricewaterhouseCoopers LLP (”PwC”) dated 22.05.2006 is 140 pages long. 27 David McIntosh (who is, also a member of the Law Society Council) of the City of London Law Society is reported in (of 01.06.2006 on page 1) that the CLLS had engaged consultants to lobby for the right for a representative of CLLS to appear before the Joint Committee and for the timetable to be put back. The former being successful—according to the future meetings of the committee the CLLS are giving evidence on 22.06.2006 but the latter apparently not possible because the Government rather than the Committee has set the Committee’s timetable. 28 The Future of Legal Services: Putting Consumers First (published on 17.10.2005). The Minister in his statement of 24.05.2006 makes the point that the draft Bill was published “just seven months later”. 3435523106 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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This aspect needs to be looked at as a matter of urgency. Please will you let me know what you are doing, when and how in this regard? I sent a further e-mail: “I amconcerned that I have still not heard fromyou. Please will you be kind enough to let me know what is happening? What will the bill do to regulate those providing mediation services?” Another e-mail was sent: “I contacted you as requested by e-mail and have raised important points. The matters I have raised are appropriate for consideration in producing good legislation. It is, of course, better to now consider these matters now rather than after the Bill is produced together with accompanying notes for the legislators. Otherwise amendments and points are likely to have to be raised at a late stage. What is your systemfor acknowledging and replying to requested e-mails? I amcopying this e-mailto the Rt. Hon George Howarth MP with whomI have alre ady raised the issue of the “system” of consultation and legislative change by the DCA. I look forward to hearing fromyou.” 6. The fact that I had raised the “system” of the DCA in consulting with a senior Member of Parliament in another contest (and had copied my last e-mail to him) elicited a response. However it was not satisfactory. It was not fromthe Legal Services Bill Teambut was a brief letter froma very junior oYcial (without any responsibility for the Legal Services Bill) who after briefly restating matters in the White Paper then indicated that: “In terms of the Law Society, some positive steps have been taken in separating its regulatory and representative functions in line with the recommendations made by Sir David Clementi in his final report published December 2004 on reforming the regulatory framework.”

C. My Preliminary Evidence to the Joint Committee 7. On 8 May 2006 I submitted my preliminary evidence to the committee (included therein was a declaration of my interests). I said: “1. I refer to my previous communications. 2. Whilst my written evidence for the committee has not yet been submitted I would like this letter to be regarded as preliminary evidence and provided to the Members of the Committee. 3. I understand that the committee will be meeting this afternoon, Thursday 8 June at 2.10 pmin Committee Room 6 with witnesses: Kevin Martin, President, Fiona Woolf, Vice President, and Russell Wallman, Director of Strategic Policy, The Law Society of England and Wales. 4. I too would like to give evidence to the Committee for reasons already communicated. However this letter sets out some matters that may be of significance to the Committee in questioning the witnesses that have already been called to give evidence. 5. Some principles underlying my approach to the Bill are as follows: (a) It is imperative that the independent professional ethos of the client’s interests being paramount and promoted within a framework of proper regulation are entrenched and safeguarded. (b) There should be a level playing field for those providing for money or monies worth legal services with, in respect of the same type of legal service, every provider having to provide the same regulated standard of service and pay the same regulatory cost. This regime should, also, apply to lawyers employed in central Government who are paid as lawyers, can claimfees as lawyers (if successful in litigation fromthe opposing pa rty) but are (usually) not professionally regulated as lawyers or pay their share of the regulatory costs of lawyers. (c) The regulatory regime should encompass and have flexibility to include legal services that ought in the public interest to be regulated. In addition to will writing there is a rapidly developing area of mediation (in respect of which I have good and bad experience) which ought to be regulated. 3435523106 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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(d) The costs of the new regime ought to be minimised and shared fairly including having some regard to the historical situation. It seems to me (and indeed others such as some local law societies) to be perfectly obvious that the Law Society should be limited to its role as a front line regulator (its statutory functions) with the other roles it has or would wish to develop being quite separate. I believe that this would have a dramatic saving in the public and professional interest (including costs and the legislation that would be needed compared with what the Law Society would like to happen and seek) but would not be regarded as being in the vested interests of the Law Society establishment. 6. As the Chairman Lord Hunt of Wirral will know I am a practising Solicitor with rights of audience in all Higher Courts and have undertaken human rights work in Strasbourg (and so have some experience of artificial restrictive trade practices not operating in an important legal forum). I have worked throughout my professional career in the same firm which was founded by my father in 1949 and we have been very independently minded. The basis of professional success in the past was “look after the clients and the fees will look after themselves” but it is now and is likely to further become “look after the fees and the clients can look after themselves’ which dismays me and many others with a vocational professional ethos. 7. I am not a member of the Law Society (although I have to pay a full practising certificate fee). The Law Society is the regulatory body of solicitors but is not the representative body of solicitors. The Law Society along with others (such as the City of London Law Society which has hired a professional lobbyist to lobby you—see Legal Week of 1 June 2006 at page 1) are well resourced [The Law Society is funded by all practising solicitors but does not represent their views—such as on payment of referral fees (in which the Law Society did not do what the profession wanted) or in respect of its very future by not even asking for views outside its Council or in its supposed consultation of the profession (because they would not like the answer they would receive) on the fundamental question of its future—see point 4(d) above]. 8. I feel that it is important for the Committee to consider the issue and closely question the witnesses fromthe Law Society as to why they did not allow the whole profession to have a say and indeed did not themselves look into the cost and public benefit of the Law Society’s role being limited to regulation. 9. This is something that I have sought to have satisfactorily dealt with by the Law Society for many months. By way of illustration on 20 October 2005 I e-mailed the Law Society: “1. I have been speaking to the Vice President of the Law Society, Andrew Holroyd, regarding the so called market research into the future of the Law Society. 2. Mr Holroyd was not able to tell me as to how the proposed consultation has taken account of the practising solicitors who are not members of the Law Society and who have, presumably (like me) had to opt out of being associated. Please will you let me know? 3. The consultation document clearly needs to set out the legal basis and powers of the Law Society as they currently are—I pointed out to Mr Holroyd that the Law Society website does not do this—and what the possible options may be including through legislation to arrive at a position that may be acceptable to a large number of practising solicitors. 4. It appears that the Law Society should allow Solicitors to have an option of not having to contribute to any representative role of the Law Society (in accordance with the right under the European Convention on Human Rights not to be a member of an Association) and that the Society’s future role is limited to regulation. All assets which have been contributed to by practising solicitors (whether members of the Society or not) for the purposes of regulation should not pass to the any new association. Those who wish to be part of an association can do so and pay for it but those who do not should not have to and their contributions (including those compelled of them—including from non-members such as me) should be used to defray the costs of regulation. In this regard the consultation paper should set out the overall financial situation including the assets received by the Law Society (including the basis upon which they were contribute and have reached the Society (such as how the Law Society have received an apparent windfall of approximately £50 million contributed by practising solicitors to the now defunct Solicitors Indemnity Fund which the Law Society has chosen not to use for the 3435523107 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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purposes of regulation or professional indemnity cover but for the benefit of its own employees!). 5. Please will you let me know what the Law Society propose to do to ensure that all Solicitors (including those who are not practising members) have the chance of the review resulting in a solution that results in the dissolution of the Law Society? How will this option be clearly set out in the consultation process giving clear information as to the advantages of it for practising solicitors?” 10. The Law Society has still not answered me as to the fundamental future structure issue that I have raised despite reminders. It is perfectly clear that the obvious way forward—the Law Society’s role being limited to regulation and any representative role that they wish to have to be created separately and distinctly—has not been fully or fairly considered by the Law Society. There is a clear issue and a matter of choice that is of relevance to the Committee in its scrutiny of the proposed legislation designed to deal with this area. 11. The Law Society’s subsequent so called consultation of the profession “Have your say” as to the future of the Law Society had nothing to do with the future structure—it involved spending a few minutes completing an “on line” questionnaire relating to the functions of developing a representative body. The concern about the ambit of the consultation and the viability of the Law Society in the long termbeing an umbrellaorganisation for both regulator y and representative roles has been questioned by others in the context of the creation of a new national representative body for solicitors (the Law society as I have already pointed out is not the representative body of all solicitors). The Birmingham, Bristol, Liverpool and Manchester Law Societies prepared a paper a copy of which I amenclosing in pdf format): Splitting Representation and Regulation The relationship between The Law Society (“TLS”) and the Local Law Societies (“LLS”) Model for the creation of a new national representative body. In that paper it is indicated: “The ‘Have Your Say’ consultation is nothing more nor less than ‘business as usual’. It does not invite the profession to consider or answer the more fundamental question whether or not TLS is the right body to take on the representative role rather than to continue solely as the frontline regulator.” 12 For the sake of completeness I declare that I am a member of the Liverpool Law Society (for library usage and because membership is on a firm basis) but have had no role whatsoever regarding the production or views expressed in the paper which only came to my attention when it was referred to in a public journal. 13. As to the future of the Law Society the Birmingham, Bristol, Liverpool and Manchester Law societies paper goes on to say that: “Since separation is now inevitable TLS should become the FLR ceasing altogether to be the representative body. The reasons for this are as follows. 1. TLS is an experienced and successful regulator (as opposed to complaints handler—a function which is in any event now being removed from all the legal professional bodies). 2. TLS is a body of considerable standing and long established such that it would be diYcult for the LSB to reject its claims to be the FLR subject to it complying with qualifying rules which are common to other FLRs. 3. Apart fromTLS, it is di Ycult to see how any other body except one promoted by the LSB itself (if practicable) would be acceptable to the Government as the solicitors’ FLR given the size and complexity of the solicitors profession. 4. It is better that TLS plays to its strengths as a regulator rather than to its structural weaknesses as a representative body in the new order. 5. The top down senior staV driven culture of TLS predisposes it be a regulator rather than a representative body commanding grass roots loyalty. The White Paper does not rule out an FLR being a democratic body—only a representative or “trade union” body. Retaining its democratic structure (ie with a slimmed down elected Council), TLS as the FLR is more likely to be responsive to pressure to contain regulatory cost. It will of course be accountable and responsible to the LSB with a board and executive 3435523108 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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under its Council appointed under Nolan standards but at least democratic principles will ensure some degree of elected member input. Separation will be an opportunity to rationalise and focus the functions of TLS as the FLR and cut down its cost base accordingly. It remains to be seen what the actual requirements of the LSB and enabling legislation will be in terms of qualifications for authorisation of FLRs and “appropriate governance arrangements” (Cm 6679 para 5.2). However stripped of all representative functions, TLS will have no diYculty in demonstrating the required separation between regulation and representation. It should also be possible for TLS to function on the basis of a much smaller elected Council (perhaps elected on a regional basis). The rules may allow the elected Council to be composed entirely of solicitors so long as the necessary lay element is present on the board. However whatever the rules may be, there must be an opportunity to save cost.” 14. I shall be grateful if this letter could be provided to all the members of the Committee for and in anticipation of this afternoon’s evidence session.”

D. Previous Consideration of the Law Society’s Role and the Present Position Regarding Practising Certificate Fees

8. In May 1999 the Government considered restricting the use of the practising certificate fee by the Law Society to regulatory matters.29 This arose as a result of Dr Alan Whitehead MP laying an amendment at the Commons Committee stage of the Access to Justice Bill30 to restrict the use of practicing certificates to the regulation, education and training of solicitors. The Minister considered that there was a strong case for such a restriction because it was right in principle to define how a professional body may spend money generated from compulsory subscriptions. The Government gave the Law Society time to fully consider the issues and adjust. 9. The Law Society made a submission to the Lord Chancellor in relation to the application of section 47 of the Access to Justice Act 199931 regarding the amendment to section 11 (3) of the Solicitors’ Act 1974 relating to the application of practicing certificate fees. The Law Society produced a spreadsheet (based on their year 2000 budget adjusted) showing respective percentages for “regulation (and some other purposes)” and “representation” of the total cost of categories of their activities. Not unsurprisingly the Law Society was keen to allocate as much as possible to “regulation” rather than “representation”. 10. A formal reference of the Law Society’s proposal was made to the Lord Chancellor’s Legal Services Consultative Panel pursuant to section 18A (3) (b) of the Courts and Legal Services Act 1990. There had been a delay in the Law Society finalising its proposal for the Panel (the Panel were informed that “it was not practicable for the Law Society to progress the matter for some months”). The panel concluded that an Order be made under section 47(1) of the Access to Justice Act 1999 should be made but pointed out that the body of a statutory instrument was not the appropriate place for the qualifying percentages to be specified (and that in any event it would be inappropriate and premature for it to give any advice about such percentages and some reservations were expressed for example in respect of claims to seek 100 per cent qualification under the “regulation” category). 11. In April 2001 the then Lord Chancellor’s Department wrote to the Law Society32 and advised themthat: “the Lord Chancellor was in the process of considering the terms of the statutory instrument so as to restrict the purposes for which the Law Society may set fees for the issuing of practicing certificates”.

29 The Times 13.05.1999 “Irvine moves to block Law Society union fund”. 30 See Hansard for Standing Committee E of 13.05.1999 at columns 412 to 416. The House of Lords considered the matters on 14.07.1999—see Hansard at columns 456 to 463. 31 Section 47 provides: (1) The Lord Chancellor may by order made by statutory instrument amend section 11(3) of the Solicitors Act 1974 (power of Law Society to apply fees payable on issue of practising certificates for any of its purposes) by substituting for the purposes referred to in it (at any time)— (a) the purposes of the regulation, education and training of solicitors and those wishing to become solicitors, or (b) both those purposes and such other purposes as the Lord Chancellor considers appropriate (2) No order shall be made under this section unless— (a) the Lord Chancellor has consulted the Master of the Rolls and the Law Society, and (b) a draft of the order has been laid before, and approved by a resolution of, each House of Parliament. 32 Letter sent by Nigel Reeder (of the Legal Services Development Division and who is now the lead oYcial on the DCA Legal Services Bill Team). 3435523108 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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It was indicated that it: “in raising fees on a compulsory basis to support its regulatory activity, it seems only right that those solicitors being asked to pay for the cost of regulation by the Society, by means of their practising certificate fees should be entitled to vote on Council resolutions that aVect their regulation” The Lord Chancellor’s Department pointed out that: “some solicitors who hold pracitising certificates choose not to be members of the Law Society: possibly because they accept the need for regulation but do not want to be associated in anyway with the other activities of the Law Society” 12. The present situation regarding the purposes for which practising certificate fee income may be applied by the Law Society is set out in a memorandum between the former Lord Chancellor’s Department and the Law Society and states the following: “1. Section 11(3) of the Solicitors Act 1974 originally provided for the Law Society to collect fees for the issuing of practising certificates and to apply them“. . . in such man ner as the Society may think fit for the purposes of the Society, including facilitating the acquisition of legal knowledge”. Statutory Instrument No 3235/2002 amended Section 11 and limits the purposes for which the Law Society may set those fees, the eVect being that the Law Society may not set compulsory fees with a view to raising a total amount in excess of that which it applies for the following purposes: (a) the regulation, accreditation, education and training of solicitors and those wishing to become solicitors, including the maintaining and raising of their professional standards and giving advice on practice management and practical support for solicitors’ practices; (b) the participation by the Law Society in law reformand the legislative p rocess; (c) the provision by solicitors and those wishing to become solicitors of free legal services to the public; (d) the promotion of the protection by law of human rights and fundamental freedoms; (e) the promotion by the Law Society of the professional interests of solicitors through discussion with, and participation in the activities of, relevant national and international bodies, governments and the legal professions of other jurisdictions.

The Calculation of Income from Practising Certificates 2. The income to be raised by the Law Society from Practising Certificate Fees shall not exceed the amount needed for: — the forecast expenditure for the year ahead starting 1 January to be applied to the activities set out at (1) above; — the provision of a prudential reserve for funding of such activities; — the payments of any loans which may have been made to finance such activities. 3. The maximum sum to be raised from Practising Certificate Fees shall include, as agreed by the Lord Chancellor, the annual forecast full cost of work in the following areas: — Regulatory, Disciplinary and Educational (100 per cent), including all work by the Legal Education and Training Department, the OYce for the Supervision of Solicitors the Professional Ethics Department Regulation and Information Services and the Solicitors Disciplinary Tribunal. — Practice Support (100 per cent), including work by or in respect of Library and Information Services, Practice Management Unit, Law Management Section, , Client Care and Probate Section. — Law Reform(100 per cent), including areas such as crime,civil litigatio n, revenue, planning and environmental law, company, and housing law and standard setting. — International (100 per cent), including involvement in regulatory regimes of other jurisdictions to ensure there are opportunities for UK solicitors to practise with the least impediment. — Research and Policy Planning Unit, central functions and regional oYces (90 per cent), including conduct and management research for the Society, preparation of the Society’s Annual Statistical Report, provision of local practice advice and support to firms and dealing with general enquiries fromthe public and the profession. 3435523109 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— Policy Directorate teams (90 per cent), including those covering Legal Services; Private Client; and Groups and Resources. — Private Client Team(90 per cent), including work on legal aid remunerati on, cost issues, conditional fees, conveyancing, probate and employment law. — Legal services (90 per cent), including work on legal services (excluding remuneration) in areas of law which are primarily publicly funded eg family and children law, mental health and disability, immigration law and alternative dispute resolution. — Groups and Resources (90 per cent), including administrative support to Law Society groups and those working on equal opportunity issues. — Communications, Law Society groups and Membership Services’ (60 per cent), including communication in relation to regulation and providing support for the practice of the profession, the running of various Law Society groups such as those representing solicitors in Commerce and Industry, Local Government, Young Solicitors etc and income raising activities such as the library.

Validation of Law Society Accounts by the Lord Chancellor’s Department 4. As the setting of fees for the issuing of practising certificates by the Law Society is subject to the concurrence of the Lord Chancellor, the Law Society agrees to make its accounts available to oYcials of the Lord Chancellor’s Department for scrutiny on the first year of operation of the arrangements annually thereafter [section 11(4) of the Solicitors Act 1974 requires annual accounts]. It further agrees to make available as part of this process figures, certified by the Law Society’s accountants/auditors, showing the total monies applied by the Law Society during the year in respect of each of the approved purposes. This is to be accompanied by a statement fromthe auditors stating: “In our opinion the income raised from the practising certificate fee for the year 20xx/20xx has been properly applied within the requirements of section 11(3) of the Solicitors Act 1974 (c 47), and in accordance with the Memorandum of Understanding dated XXXXX and agreed between the Lord Chancellor’s Department and the Law Society.” 5. The Law Society will provide annual proposals for the level of practising certificate fees showing the amount the Law Society proposes to raise for each of the approved purposes. If requested, the Law Society will also arrange a meeting between the Law Society and its accountants/auditors and oYcials fromthe Lord Chancellor’s Department.

E. Human Rights Considerations Regarding the Law Society and the Suggested Way Forward 13. It is submitted that the Joint Committee in considering the overall situation ought to consider the potential implications and importance of Article 11 of The European Convention on Human Rights53 and Article 1 of the first Protocol to the Convention34 and some of the Strasbourg case law. 13. The applicants in Young, James and Webster vUnited Kingdom 35 were employees of British Rail. After being employed, the employer became a closed shop. The applicants were required to join a trade union. For various reasons they did not and subsequently were dismissed. The Court acknowledged that a limited right to “freedomnot to associate” exists. The Court referred to the limitedopt ions the employees were given of trade unions to join36: “An individual does not enjoy the right to freedomof association if in real ity the freedomof action or choice which remains available to him is either non-existent or so reduced as to be of no practical value.”

53 (Rome) 4 November 1950. Article 11 provides: 1. Everyone has the right to freedomof peaceful assemblyand to freedomof a ssociation with others, including the right to formand to join trade unions for the protection of his interests. 2. No restrictions shall be placed on the exercise of these rights other than such as are prescribed by law and are necessary in a democratic society in the interests of national security or public safety, for the prevention of disorder or crime, for the protection of health or morals or for the protection of the rights and freedoms of others. this article shall not prevent the imposition of lawful restrictions on the exercise of these rights by members of the armed forces, of the police or of the administration of the State. 54 (Paris) 20 March 1952. Article 1 of the 1st Protocol provides: Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. 35 (1981) 4 E.H.R.R. 38. 36 At paragraph 56. 3435523110 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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15. Article 11 only provides individual rights in relation to an “association”. It does not apply to membership of “public law institutions” exercising administrative law powers and having statutory functions. However, the fact that an organisation performs certain functions provided for by the law, and serves the public interest no less than the interest of its members, will not necessarily be suYcient to take it outside the ambit of Article 11. Regard must be had to its legal basis, purpose and functions in order to determine whether its character is predominantly “public” or “private”. 16. The applicants in Albert and LeCompte vBelgium 37 were doctors. They claimed that compulsory membership in a professional body for doctors violated their right to freedomof association. The Court found no violation of Article 11 because the professional organisation performed important regulatory functions and was not an association. Another reason that no Article 11 violation was found was because the doctors were not prevented fromjoining other societies. 17. In Sigurdur A Sigurjonsson v. Iceland38 mandatory membership in a professional organisation was deemed a violation of Article 11. The applicant, a taxi driver, was required to join an organisation for taxi drivers to protect and represent their interests. The Court held that a privately organised and operated association of taxi cab drivers was not a public-law association but a private association and therefore within Article 11. The Court noted that the group did performpublic functions, but the primaryre sponsibility for public regulation of taxi cabs was in another public agency. 18. In Sir David Clementi’s Report,39 he makes several observations about the inadequacy of the Law Society. Firstly, he acknowledges that several of the Law Society’s most important functions are overseen by other regulators. He states that the “Master of the Rolls has broad regulatory oversight powers over the Law Society, including the right of admission to the Roll”40 He, also, suggests that organisations like the Law Society may face a conflict of interest in being both regulatory and representative bodies: “It is, however, particularly diYcult for professional bodies who combine both regulatory and representative roles to deal with competition issues. Regulatory bodies should be expected to encourage open competition, subject to maintaining quality standards; representative bodies have a legitimate right to fight their corner, warning that the public may suVer if the market is opened too widely. This is a diYcult set of conflicting issues for one body to balance. The dual role caused diYculty for the Law Society in its consideration of the extension of conveyancing rights beyond its own monopoly in this area”41 19. It is submitted that the obvious way forward is for the Law Society’s membership to become mandatory for practising solicitors but in order to do this the Law Society must completely divest any functions that do not relate to regulation, education and training (the statutory provisions under the Solicitors Act 1974). 20. Such a way forward would inevitably have considerable cost saving. The assets of the Law Society would have to be predominantly applied for its statutory functions. The PwC report42 appears not to have considered this scenario notwithstanding that, as indicated above, it was clearly and immediately raised by me with the DCA following publication of the White Paper. The proposal would avoid further legislation—at most one clause in the Legal Services Bill would be needed to achieve the result. It would be compliant with human rights obligations. The Law Society is currently the regulatory body but its composition and rights to have a say in regulation are exercised by its members which only comprise of those prepared to join it as a representative organisation. Practising solicitors such as me are not prepared to join it for a variety of reasons and could not be forced to do so unless its functions are limited to regulation. By so limiting the Law Society it would avoid unsatisfactory apportionments and resentment about allocation of costs. Furthermore, it would have some considerable benefit in focussing attention on the core function of a front line regulator (unfortunately, in recent times, eVorts of the Law Society have been primarily concentrated upon how it can develop a “representative” role and retain as much funding for it by way of compulsory subscription and retention of assets).43

37 (1983) 5 E.H.R.R. 533. 38 (1993) 16 E.H.R.R. 462 (paragraphs 31–32). 39 Review of the Regulatory Framework for Legal Services in England and Wales. 40 Page 25. 41 Page 29. 42 Financial Analysis to support the draft Legal Services Bill—Report of 22.05.2006. The overhead savings for the Law Society are set out at pages 94 to 97 do not consider the limitation of the Law Society’s activities as proposed by me. 43 There has been concern expressed as to the £250,000 fine imposed on the Law Society by Legal Services Complaints Commissioner, Zahida Manzoor for failing to handle its complaints service being a manifestation of the inadequacy of the corporate governance by the Law Society’s OYce Holders and Council including with regard to its own employees. This has been reported upon by the internet news site Roll on Friday. 3435523111 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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21. Sir David Clementi in his oral evidence to the Joint Committee44 specifically flags up that the practising certificate fee issue which should be intended to cover the regulatory functions because he did not think it is appropriate for it to cover representative issues.

F. The Regulatory Objectives—Clause 1

22. Clause 1 (1) refers to “protecting and promoting the interests of consumers”. This underlies the commercial interests and is at times in conflict with professional principles. The legal rights and duties of citizens (in contrast to the commercial interests of consumers) are only to be understood rather than protected and promoted.

23. It is suggested that clause (c) be amended by substituting “citizens” for “consumers”

24. Provision should be made for regulatory principle (g) to be the overriding objective. The Legal Services Board should set out minimum professional conduct rules that apply for each type of regulated activity and ensure that everyone providing that activity is subject to the same minimumstandards of professionalism, ethics and contribution to insurance ands compensation. One illustration of the conflict between professionalism and commercial interests relates to solicitors being instructed by banks to draft wills—this is done on the understanding that the testator will appoint the bank’s trust company as the executor. If a solicitor advised the testator of the huge cost of administration charged by the bank in comparison with what a solicitor would charge45 the solicitor would not receive further instructions.46

25. So far as the professional principles are concerned there is a hiatus that has developed so far as group litigation is concerned. In group litigation the interests of clients is not something that has to be or is, indeed something that has been advance by lead solicitors. Specific provision needs to be made in the regulatory objectives to deal with this area that has developed beyond professional rules of conduct.

G. Reserved Legal Activities—Clause 9

26. The following activities should be regulated if performed as a business activity for fee, gain or reward and so should not be exempt (Cause 14 provides exemption provisions that are set out in Schedule 3) (a) advising and drafting about wills; (b) all the administration of an estate activities (not just some limited probate activities); (c) mediation; and (d) the undertaking of professional conduct investigations.

27. Cause 9 (4), excluding mediation from the definition of “legal activity”, is a serious shortcoming. Concern about regulating mediators was raised with the Legal Services Bill Team by me but has been ignored. I have experience of serious circumstances which call out for measures to be introduced to ensure that mediators of legal disputes should be subject to a professional code and regulated by an appropriate regulator in respect of such activities.

28. A major problem with the standard of investigation into professional legal conduct by the Law Society has been that those undertaking it (including employed solicitors) do not, in practice,47 have to exercise the same standard of professionalism as those whose professional conduct they are investigating. If the individual investigation was required to be under the responsibility and supervision of a regulated professional (who knew that they would be held professional liable for the conduct of the investigation) the standard of investigation would improve enormously.

44 Uncorrected transcript of evidence of 12.06.2006 at page 49. 45 Solicitors’ charges have to be fair and reasonable whilst bank’s do not. 46 Needless to say my firm do not draft wills for banks because the banks would require “a blind eye” to be turned to advising on the respective costs involved in the choice of executors and this is not appropriate. 47 The practice of the Law Society is that their own solicitors are immune from professional conduct investigations regardless of how bad the conduct may be. 3435523112 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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H. Rights and Privileges of Government Lawyers—Clause 144 and Government Contribution to the Cost of the Legal Services Board and the Office for Legal Complaints 29. The opportunity of finally removing the unfair advantages derived by the Government for its own lawyers. The Government’s own lawyers should pay, like everyone else (including local government lawyers for practising certificate fees) and be subject to the same rules of professional conduct in respect of reserved legal activities as everyone else. To continue with such outdated rights and privileges is inappropriate. 30. It is imperative that the Government meets a proportion of the set up and ongoing costs of the new regime. With some real incentive for there to be Treasury interest as to how much the public purse will have to pay

I. Selection and Remuneration of Legal Services Board (“LSB”) and Office for Legal Complaints (“OLC”) Office Holders and Staff 31. The patronage of appointment is not the real issue. Those who are favoured (or know how to compete successfully in so called “open competition”) will inevitably be appointed to the LSB and the OLC. There are, however, some ways of assisting in the process of getting truly committed people passionately devoted to the required work appointed. Measures that can be adopted include: (a) Limiting the remuneration to expenses or modest amounts (perhaps linked to Legal Services Commission basic advice and assistance rates for publicly funded work)48 (b) Making it a condition of appointment that the appointee does not hold any other public appointment whilst being a Board Member within the regulatory structure (other than a )49 (c) Linking staV pay structures to those paid to lawyers undertaking funded work paid for by the Legal Services Commission (with appropriate reductions for overheads) would keep control on the regulatory costs and would be fairer and perceived as fair by those being regulated by them.

J. The Role of the Judiciary 32. The judiciary should not have any role (other than advisory or consultative) regarding any regulatory matters. Ultimately as the judiciary may have to adjudicate upon matters in the courts their role should be so limited 33. There is no need for ceremonial roles such as Master of the Rolls signing admission certificates to continue. Sentiment and tradition are not suYcient or necessary reasons. 15 June 2006

Memorandum by Guy Mansfield QC (Ev 77) Introduction I was Chairman of the General Council of the Bar until the end of December last year (2005). In that capacity and as Vice-Chairman in 2004, I was intimately involved in the unfolding Clementi process. I have remained interested because I believe it to be a matter of great importance to the legal systemof this country and wider society. I write in a purely private capacity as I no longer have any role in the Bar Council. I hope that the observations that follow may assist the Committee in its deliberations on this topic. There are many aspects of the Bill on which I do not comment. My silence thereon should not be taken to be acceptance! I see no purpose in re-iterating points that others have already made. Instead I have chosen to focus on aspects of how the landscape might be aVected. My particular concern is that the DCA, having commissioned last summer (2005) substantial papers from economists and competition theorists, chose: 1. eVectively to make no reference to them in the White Paper, produced last autumn; 2. in the Regulatory Impact Assessment accompanying the Draft Bill to make little reference to the papers, and then only in the most selective terms;

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3. thereby, to ignore the very real notes of caution sounded, first about Multi Disciplinary Practices, secondly about the risks which will need to be addressed in relation to the structures of new types of firm, and, thirdly, the types of regulatory framework which will be needed. All the theoreticians’ papers broadly favoured the Clementi approach. However they identified real dangers for regulators and consumers of legal services. They make plain issues which must be addressed if the broad thrust of the reforms is to be eVected. Very few people have bothered to read the papers to which I refer. Yet they are essential to a real understanding of the changes about to be unleashed. My paper refers to them all. My references are necessarily selective, but I believe fair. Can I urge, without I hope being impertinent, that they are obtained from the DCA and digested! It is essential to bear in mind that Sir David Clementi did not have the advantage of this later material. Its understanding is critical to an assessment of how the market may behave and hence what sort of regulatory framework is necessary. I should stress that I accept that major reforms will happen. There is potential for benefit. They also carry real risks. My concern is that the reforms should do good. The DCA’s track record in the related field of the Access to Justice Act in respect of the availability and operation of CFAs, “After the Event Insurance” and “Claims Farmers”, was insouciant in 1999. It is vital now that such Panglossian optimism does not create serious risks in the future. There is a lot at stake.

Background Sir David Clementi produced his well-known report in December 2004. This paper discusses the government’s approach to implementation and possible consequences. It is a simple attempt first to summarise what the government has said it intends to do and has put into its draft Bill, and then to assess how this may impact on the profession, those who use it and the wider public. This is inevitably something of a bird’s eye view. Necessarily there will be much which I cannot address in the space available. It is helpful to begin with the key recommendations of the Clementi report and the position taken in the draft Bill50. We start fromthe position that the English legal profession is substantia l. According to the RIA,51 “the legal services market makes an important contribution to the UK economy”. It is extremely valuable, and has grown considerably in recent years (60 per cent growth between 1995 and 2003). Export values totalled £1.9 billion in 2003. There are about 97,000 solicitors, of whom75,000 are in pr ivate practice. There are about 14,500 barristers of whomabout 11,500 are in private practice. The profes sion is held in high regard throughout the world. I believe it is important to foster development and not to take undue risks with this valuable activity.

The Clementi Recommendations Sir David Clementi’s main recommendations were: — The creation of a Legal Services Board (“LSB”) to provide consistent oversight of frontline professional bodies. — The setting of statutory objectives for the LSB. — Vesting regulatory powers in the LSB with powers to devolve regulatory functions to frontline bodies, subject to satisfactory competence and governance arrangements. These were to be Front line Regulators, referred to in the Bill as “Approved Regulators” (“ARs”). — FLRs to be required to separate their regulatory and representative functions. — The establishment of a new OYce for Legal Complaints (“OLC”) as a single independent body to handle all consumer complaints. — The facilitation of new legal disciplinary practices (“LDPs”). Such practices would permit lawyers fromdi Verent frontline bodies to practice together and would permit non-lawyers to work as partners or to become owners of legal practices.

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The Draft Bill The Draft Bill sets out the scheme for implementing these reforms. We had the White Paper and now have the RIA which explain the DCA’s underlying thinking. It will nonetheless be helpful to refer in due course to the papers from economists which the DCA commissioned in 2005 prior to publishing the White Paper. These provide important clues to the reality of what may lie ahead. Examination of those papers, I suggest, indicates that the DCA has glossed over issues of real importance which the proposals will bring in their train. I shall focus on what I consider some of the more interesting aspects of the Government’s thinking and their possible implications.

Overview The government proposes to introduce Alternative Business Structures (“ABS”). These are intended to stimulate competition and innovation.52 The DCA believes they will reduce costs so that eYciencies can be passed to consumers, not least through one stop shops oVering legal and non-legal services under one roof. These, it says, will provide greater convenience for the consumer. It is important to note that the proposals in respect of ABS and in particular to encompass MDPs go beyond the recommendations of Clementi. Sir David was of the view that MDPs should come later; we should not try to run before we walk. Next, the Department hopes that tapping into external investment allowingdiVerent types of lawyers as well as lawyers and non-lawyers to work together on an equal footing will improve the infrastructures of firms and generate fresh ideas to the benefit of the consumer. Robust safeguards will, it asserts, simultaneously ensure that standards of legal practitioners remain high and consumers are protected. An attempt to define these safeguards is made in the Draft Bill.53 Although at first blush these may appear substantial much is left unsaid. Until the LSB comes into existence therefore we do not know how it is proposed to address important matters. The White Paper proposes major changes to the business entities from which lawyers will practice. The proposals for external owners and mixed ownership and management are far reaching and uncertain in eVect as all the economists’ papers make plain. The regulatory framework is critical. How eVective will it be?

Risk Based Regulation—What Does it Mean? The regulation, according to the White Paper,54 is supposed to be proportionate and based on an assessment of risk. Yet in 80 pages of primary text, the approach to the regulation of practices and what is encompassed by the so called risk based was addressed by the White Paper in one and half pages.55 In the RIA there is little serious reference to risk based assessment or to Hampton. The key reference is to a need for the LSB to act proportionately, exercising its powers consistent with the need to ensure consistent regulation.56 Nor does the Draft Bill set out in formal terms any such requirement for cost benefit or similar analysis to underlie activity. This must be a matter of concern. In the Draft Bill, the Department imposes five principles to which the LSB must have regard. These are lifted fromthe Better Regulation Executive (“BRE”) as being best practice, the r equirement that regulation should be: — Transparent. — Proportionate. — Consistent. — Accountable. — Targeted only at cases in which action is needed.

52 RIA, paragraph 4.37. 53 Clauses 59–90. 54 White Paper, paragraph 4.3. 55 White Paper at paragraphs 4.2 and 4.3. 56 RIA, paragraph 4.46. 3435523114 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Finally, the Department referred in the White Paper to four approaches to “risk based” regulation. It has taken these from one of the papers it commissioned57: — Setting standards which are applied to a whole set of regulated firms on the basis of assessments of the risks posed to society by the activities of firms of that type. — Setting standards tailored to fit the particular risks to which the conduct of particular firms give rise. — Introducing internal risk management systems within the regulatory agency. — Allocating resources, mainly inspection and enforcement resources, based on an assessment of the risk that a regulated person or entity poses to the regulator’s objectives. The four approaches to which the Department has referred are not diVerent aspects of the same thing but diVerent types of risk based approach. Indeed, as the economists make plain, the crucial thing for the eYcacy of regulation and for ensuring appropriate targeting and regulatory activity with reasonable and proportionate costs, is to choose the particular approach to risk based activity to be adopted. That is at the heart of what sort of regulator the LSB will be and how it will approach its task and conduct itself towards the ARs and practitioners regulated in diVerent activities. The Department gave no hint in the White Paper how the balance is to be struck. The Draft Bill is silent. The cost of regulation inevitably impacts on the activity regulated. Smaller enterprises are disproportionately aVected as Sir Paul Hampton noted.58 With so many small firms in the legal market this will aVect the way the reforms take eVect.

The DCA’s Approach to Regulation So when we try to ascertain the true nature of the new regulatory beast, its practical operation and impact, we are only a little wiser. We have reason to be anxious. Clementi argued for a light touch. The draft Statute creating the LSB fails to set out express priorities in the balancing exercise nor does it require the LSB in its turn to meet strict performance obligations subject to financial limits. Instead, it provides a progressive series of interventions and sanctions. Indeed, the LSB will require annual practising certificates to have its prior approval. That is direct interference with the AR’s budgets and will lead to tinkering at best, second guessing and dictation at worst. The Department has failed to meet this critical issue, how to eVect true risk based regulation. This is unfortunate both for the consumers of legal services and the profession. As presently drafted there is a substantial risk that the LSB will be heavy-handed and seek to micro-manage the ARs. The Bill sets the bar for intervention by the LSB too low. As it stands, the LSB will be duplicating the activities of the ARs. In short, there should be a requirement that in considering whether it is appropriate to take directory action, the LSB must take account of the risk to the public, the cost to the AR and to those it regulates. The LSB should only intervene in the regulatory activity of the ARs if the decision-making process has been procedurally unsound or its decisions or policy are plainly unreasonable in the context of the statutory objectives.

Alternative Business Structures The next important aspect which I address is that of the new ABS.59. I have already noted that the Department goes beyond Clementi by proposing the simultaneous introduction of MDPs, so-called “one-stop shops”. Under the new regime it will be possible for diVerent lawyers and providers of associated non-legal services to obtain a licence to establish ABS firms that combine multiple disciplines, with external financing, subject to the approval of a professional body that has been authorised by the LSB to regulate that formof ABS. If one of the activities the ABS regulator is seeking to license involves an area outside the legal profession, eg financial services, the LSB would also have to co-operate with the regulators of other regulated services, eg, the FSA, before giving its authorisation. Such firms could be entirely externally financed fromthe outset.

57 Black and Cave. 58 The Hampton Review, final report (2005), Executive Summary paragraph 3. 59 White Paper, Chapter 6; RIA, Chapter 5. 3435523114 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Important matters are: — What types of firmwill arise, in particular: — Will there be a new breed of chain shops externally owned and perhaps selling just one or a limited range of legal service? — Will we see formerly independent barristers grouping in partnerships with or without solicitors oVering litigation services? — Will we see one-stop shops oVering legal and other services such as insurance or estate agency? — What safeguards the LSB will impose on non-lawyer partners and on external owners to prevent abuses. — What will happen when the LSB and another (non-legal) Regulator are in disagreement. — How will areas such as estate agency (not subject to an external regulator) be addressed, when they are linked in a MDP. The White Paper identified potential benefits for consumers: — More choice. — Reduced prices. — Better access to justice. — Improved consumer service. — Greater convenience—one stop shops are cited. — Increased consumer confidence. These are admirable goals. The changes proposed may contribute in varying degrees to achieving them. What I find troubling, however, is the absence of any apparent appreciation of the possible downsides. As I shall demonstrate, the economists, while favouring change, point to real risks and do not regard these issues as clear cut. They emphasise the need for real care. I believe there are real dangers that if things are rushed and not properly managed we may see: — less real choice; — higher prices; — a reduction in the availability of certain legal services in socially important areas; and — abuses fromone stop shops—the impactof Greville’s Law, with bad currency driving out good. I say this because the need to address the problems upfront is critical to the success of the reforms. The bland response of the Department is dispiriting. And its track record in such matters is unhappy. It was wildly optimistic in its predictions of the impact and eVect of Conditional Fee Agreements. We were told in 1999 that after the event insurance would be widely and cheaply available. It is not readily available, save for the simplest cases; even then it is nothing like as cheap as was asserted. The Department ignored the risks of claims’ farmers for too long. The cost of smaller claims has escalated. Insurer’s costs have risen. Access to justice was not improved.

The Government’s Failure Openly to Address Serious Regulatory Issues First me let me set out what the DCA proposes. The Department intends60 that there will be a robust licensing regime for ABS firms. It proposes: — Mixed firms will have a Head of Legal Practice (HOLP) and Head of Finance and Administration (HOFA). — There will be a “fit and proper person test”. — A licence, which must specify: (a) the activities which are reserved legal activities and which the licensed body is authorised to carry on, and (b) any conditions subject to which the licence is granted.

60 White Paper, page 41. 3435523114 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— Where a company with share capital applies for a licence it must identify any non-authorised person who holds or will hold a material interest61 in the applicant. — Where any other body applies for a licence it must identify any non-authorised person who holds or will hold an interest in the applicant. — Criminal oVences for breaches of licence conditions etc. — Power for the licensing authority to refer to an appropriate Regulator or the Board any matter relating to the conduct of: (a) an employees, oYcer or manager of a licensed body; and (b) a designated HOLS or HOFA. To prevent regulatory conflict the DCA proposes that if the licensing authority and the approved regulator are unable to agree how to resolve the matter, the licensing authority must refer the matter to the Board, for the Board to determine. It is important to note that this does not, because it cannot, address the situation where there is conflict involving an external non-approved regulator (eg FSA).

Concerns About the Current Proposals Having commissioned and received a series of serious papers from economists on possible outcomes to diVerent approaches, we were entitled to expect the Department to grasp some nettles. It should have identified the dangers and stated the risks it is prepared take and those it is not. It should have set out the possible strategies for addressing them. If, as seems inevitable, we are to embark on a new type of legal services market then it is Government’s job to be honest about the risks as well as the benefits with consumers, lawyers, the judiciary and the wider public. After all, while some legal services aVect only two parties, the sale of land for example, others do not. To take two examples: — wills and probate aVect beneficiaries, tax authorities and creditors; and — litigation engages the public interest through the courts—we rightly regard a lawyer’s duty to the court as overriding that to the client. Indeed the relevance of the impact of legal services on a wider public interest was identified by Davies (2005) (p 5) as a matter of importance—see below.

The Economists’Views Let me turn to some of the economic analysis to try to assess what the future may hold and what the benefits and risks are. Grout (2005) in his paper for the Department noted (p 14) that a client who gains frombreach of procedures does not complain—so sharp practice does not come to light. Relationships between claims framers and solicitors are a case in point. I would argue that, at present, peer pressure is an important control mechanism. This risk, I acknowledge, is not high where the owner is such as the RAC, with a brand name to protect. But where the financial interest is held privately by an owner or small group with more limited perspectives the position is diVerent—see the discussion about the nature of ownership which follows. Peer pressure will be less of a force for good. The fit and proper person test will have practical limitations. As Grout shows, (p 15) there is good evidence that in other professions, behaviour is distorted by economic incentives. Further (p 19), in a company, the risk trade-oV depends on the concentration of ownership. The fewer the shareholders, the greater the risk of misbehaviour. Grout argues convincingly (p 20) that restrictions on outside ownership and management that are appropriate for a small firm would actually make the underlying problem of inappropriate incentives worse in a large firm with concentrated ownership. He asserts that the current proposals on management composition, ie Clementi’s and which the Draft Bill adopts, do not get to the heart of the problemand maygive a false sense of security, be too soft on non-lawyer owners and overly restrictive on lawyers owners.

61 Interest and material interest are defined in Section 90. For share capital the threshold is 10 per cent or any lesser amount specified by the licensing rules of the licensing authority. For bodies corporate other than companies with share capital the test is membership. For partnerships, the relevant matter is being a partner. For unincorporated bodies other than partnerships, the test is being a member. 3435523115 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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This is a worrying observation and goes to the heart of Government’s blandly optimistic approach. If, as seems inevitable, we are to have major changes in the types of structures from which lawyers practise and legal services are oVered, then we deserve better analysis of the risks and a clear statement of how these are to be addressed. Indeed Grout (p 22) says that the primary (that is financial) risk of large LDPs and MDPs needs to be separately regulated. That is because those with large returns at sake adopt risky strategies if survival is uncertain. So, Grout argues, rules are needed to prevent LDPs and MDPs getting into a position where owners benefit fromadopting risky strategies. That meanspreventing too high debt/equi ty ratios. For debt holders are external and cannot monitor the behaviour. I would add that we must also remember these organisations will have substantial trust accounts. Existing compensation fund provisions will need attention. So Grout (p 23) reasons that for large, highly concentrated LDPs and MDPs, the focus must be on financial not management structures. The core of the problem is the inability of those outside the organisation to monitor the process before the outcome of a bad event occurs. A few owners in a large firmwill be well placed to hide inappropriate action. Clementi did not identify or address this. EVective monitoring will be critical. The task is to ensure this without imposing expensive, intrusive and irrelevant interference. Grout makes it plain that identifying the appropriate financial regulation is not straightforward and will require careful consideration. Indeed, (p 25) new financial reporting will not work to achieve the regulatory objective. Finally, there is the question of share incentives for lawyer managers in new entities. Grout (p 25) points to the substantial body of evidence that these incentivise risky strategies. These are substantial points. It is a noteworthy omission that the Department does not refer to these important issues and gives no views how they may be best addressed. So a separate regulator with relevant financial expertise will be required for a proportion of firms or corporations with new financial structures. That is independent of whether the firmis also o Vering non- legal services. It also seems pretty obvious that such matters lie beyond the current expertise of the Law Society. This body has little or no experience in such matters. Nor does it seem feasible that it will readily acquire such sophisticated know-how. Past history, in the context of referral fees, claims farmers and the NUM cases, does not give cause for optimism in respect of the Law Society. Thus the future for regulation of the new entities will likely lie elsewhere. The FSA, for example, would be much better placed to approach that aspect of risk assessment. To date the Law Society has assumed that it will be the regulator for LDPs and indeed of lawyers in MDPs. I do not believe this follows at all. Indeed the provisions for licensing ABS clearly envisage new regulators for such entities. If this analysis is correct, then a new AR (or ARs) for certain models of LDP and MDPs may also suit certain of the bigger firms of solicitors whatever structure they have. In the new regime they will be free to choose their AR, provided it is appropriate for their activities. The big firms have been arguing that a “one size fits all” approach to regulation is not appropriate and that the existing regulatory model is not adapted to their very diVerent needs. This is their opportunity and I would not be surprised if some take it.

LDPs Another related and important problem for the LSB will arise with LDPs. It is known as “tying in”. Vidal, Jewitt and Leaver (2005) refer to this in their paper (p 9 and paras 3.1.1 V). They point to the experience in financial services which has highlighted the potential for various forms of miss-selling in which customers are advised on the basis of what the adviser benefits most from selling rather than what the customer needs. This can take contractual and non-contractual forms. It can mean switching costs which make it hard to switch to another supplier. The example the authors give, interestingly, (p 10), is of a failure to give advice on the choice of external advocates. This can happen by simple but deliberate omission. Some believe this already happens. As the authors state (p 11), if tying in occurs in a way that is not transparent to customers seeking to buy solicitor and advocacy services then they may opt for the cheapest solicitor notwithstanding that this ties to advocacy services. LDPs can then “cross-subsidise solicitor services” and so undercut independent solicitors 3435523115 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 using outside advocates. Non transparent tying in is thus a bad formof orga nisation which drives out the good, cited here as an example of Gresham’s law. The authors describe such eVects as “major risks of the Clementi proposals“”. They continue (p 12) that the problems will be greatest when the customers are naı¨ve, have poor access to credit are infrequent users, etc, and will be greatest where the LDPs are under sharp pressure fromcreditors . They see potential for opportunismin LDPs to drive out independent practi tioners in precisely those fields where customers most need independent advice. They say that the experience in the financial services industry suggest that these problems can be very real. They require very stringent conditions before any formof contractual tying in can be allowed. I believe it is not clear how easy it will be to address eVectively the more subtle but no less damaging problem of de facto tying in. Addressing future regulation as a whole, these authors conclude that setting up the appropriate regulatory systems to strike the balance is likely to be a task of delicate judgment. Brealey and Franks (p 32) take a similar line. They note that conflicts of interest may result in ineYciencies (as these economists so delicately put it) when consumers are not fully aware of the conflicts and their likely impact on the advice they oVer. These conflicts are likely to arise when there are potential synergies between the firm’s legal services and its other activities. This must be met by enforcing transparency and prohibiting a firmfromtaking business where it has an adverse interest. They conclude (p 33) that incremental change is more desirable than abrupt change, pointing to the limited empirical evidence of a world without ownership restrictions. Indeed, they state that almost the worse thing that could happen would be a failure of the regulatory regime to support change. Thus the regulatory regime must be fit for purpose and properly resourced.

MDPs In addition to the matters touched on above, there is the additional well known point—Grout (p 13)—that the introduction of MDPs brings a tangible risk that a number of accountancy firms will come to dominate the market. We should not be complacent about this. De-regulation saw the end of the separate brokers and jobbers and then their absorption by the investment banks which in turn have merged and become increasingly small in number. That is why there is now justified concern about the disinterested nature of analyst’s advice, not to mention the fees charged for IPOs and rights issues when the risks of failure are not commensurate. Applied to the market for legal services in complex commercial matters this suggests a lack of choice in the longer term for all but the largest international companies if MDPs come to dominate the sector. How to control the accounting and legal services firms which may emerge with enormous influence will be a real test for the competition and regulatory authorities. This move to permit MDPs is important because it brings other quite separate matters: various conflicts of interest, coupled with the need to protect client confidentiality and legal professional privilege. Dow and Lapuerta (2005) in their paper for the Department refer (p 8) to the well known problems concerning the objectivity of investment analysts employed by investment banking or of audits provided by accounting companies that also provide management consulting services. As Davies (2005) in his paper points out (p 5) there are two particular issues which make for market imperfection and which regulators will have to address in the de-regulated legal service sector. The first issue is asymmetry of information—many consumers are not equipped to judge the price or quality of their legal service. The second is one which has few counterparts outside the law: the lawyers’ obligations to “the Law”, ie responsibility to the courts and justice coupled with equality before the law. So (p 5) normal assumptions about perfect competition and the market are not appropriate for legal services. It is clear that the Department thinks that one stop shops are a good thing. Some solicitors think so too. Brealey and Franks (2005) in their paper (p 19) referred to one firmof solici tors which had discussed seeking an interest to an estate agent not just to cash out capital but to obtain synergies fromwider co-operation. However, when the same authors discuss this aspect (p 21), they draw immediate attention to the diYculties which arise when an outside owner seeks to exploit synergies, namely the improper or excessive cross-selling of services. They note the ease with which estate agents would encourage house buyers or sellers to use the conveyancing services of the law firm which is commonly owned. They point to the conflicts of interests 3435523116 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 between the auditing and consultancy wings of accounting firms. These, I interpose, were of course subject to the strictest rules about auditing. But these were insuYcient. The reason was human frailty, greed and major client power. Brealey and Franks believe (p 27) that such problems are likely to be “particularly acute” where the purchasers of legal services are infrequent buyers. They suggest (p 30) that if a law firm shares a common ownership with another firm, it may be desirable to ring fence the law firm by requiring it to be separately incorporated and not to share client information. In this way, legal services and accountancy or estate agent services could not be provided by a single entity even though there was a common owner. Indeed, they conclude that such a restriction is probably desirable albeit costly. It is frankly breathtaking that such clear statements of the hazards of one-stop shops and the desirability to prevent themin e Vect have been ignored by the Department. It is not as if there is anything counter-intuitive or obviously flawed about the economists’ reasoning. It follows common experience. Finally, Vidal, Jewitt and Leaver (2005), in their paper (paragraph 6, p 33) raise the concern whether the various professional disciplines within MDPs will be able to maintain their independence. How will the LSB and the FLRs under it co-exist and interact with the non-lawyer professionals who are regulated by outside bodies and may face diVerent legal obligations—client confidence versus the auditors’ duties of disclosure being an obvious example. This alone may mean that MDPs are in fact a long way oV.

The Office for Legal Complaints

Finally, I touch briefly on the OYce for Legal Complaints. SuYce to say that in the case of both the Law Society and the Bar Council I foresee disadvantage to the public if the OLC does not have power to delegate back to these ARs those complaints which are likely to raise both so-called service and disciplinary matters. The Department has without explanation ignored the reasoned recommendation, number 30 (paragraph 3.7.3), of Baldwin, Black and Cave (2005), that the OLC should, in cases involving conduct issues, have power to delegate the whole complaint (both conduct and service aspects) to the AR. This is an egregious error on the Department’s part and seems to be driven by dogma rather than reason.

Privilege62

This topic is vital if MDP’s are adopted. I readily endorse the analysis contained in the paper by Bankim Thanki QC attached to the Bar Council’s submissions in response to the Draft Bill.

How will the Legal Profession React—Sole Trader,Partnership or Incorporation?

I now turn to two rather diVerent questions. These relate to the future behaviour of the profession: Will solicitors opt for incorporation? What of the self employed sole trader Barrister?

Incorporation for Solicitors?

Based on experience in other fields, Dow and Lapuerta believe (p 6 V) that within the legal profession partnerships might be more eYcient than corporations in the provision of those services that are most diYcult to value, and less eYcient for services that are relatively straightforward. Thus corporations might provide conveyancing services more eYciently, while partnerships would be best for more complex, diverse and relatively infrequent transactions such as corporate takeovers. Indeed they suggest (p 9) that some legal services are ripe for commoditising, by way of example from conveyancing, through many cases of labour law, divorce and debt collection—although the latter examples are not of the same degree. Brealey and Franks consider the ability of partnerships to raise capital and the possible needs for this. They point out (p 8) that for partnerships debt capacity is relatively limited compared with corporations because the principal asset is their human capital. To date, they suggest (p 10), that limited access to the capital markets has not hindered the development of the biggest firms. They remain much less capital intensive than say investment banks.

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However, these authors point out that consultancy firms also have low capital requirements but since 1995 many have incorporated and expanded their equity by IPOs. They believe it would be open for solicitors to raise equity capital in the same way if they wished. Their discussions with law firms suggest that some will. Indeed the demand for outside funds may be higher for firms that are trying to change their position in the size league, especially if they wish to expand by acquisition.

The Bar

Dow and Lapuerta’s view of the Bar is that existing structures (sole traders) may be well suited to advocacy unless there is a radical change in the way that advocacy is used as part of the legal process. Thus, they point out that barristers do not have the same capital needs as solicitors for significant IT investment and have highly individualistic working practices. So natural market forces may, they suggest, perpetuate the existing structures even as government permits outside equity. Davies, in his paper, makes this point, if anything more forcefully. He believes (p 18) there is competition between individual barristers and as between sets of chambers. He starts with the possibility that the attractions of working conditions, independence and the range of cases which come to a sole practitioner barrister may be compelling considerations why barristers will not opt for partnership. But if that is not enough he believes there is another compelling reason why independent barristers would not wish to join large partnerships: it would clearly reduce the number of cases they could take. Advocacy involves at least two parties—two sides or more to the case. So dominant partnerships of practitioners in a specialismwould deny custom to members of such partnerships and be a disincentive to their creation.

Conclusions

A. Types of business structure

1. The very largest city firms will not rush to incorporate. 2. It is likely that at least some firms in the next lower bracket who wish to grow aggressively will try incorporation and fund raising by IPOs. The success and number of such oVerings and how the new entities and their share values then fare will influence the conduct of the big players. 3. Many firms will take non-lawyers into partnership. Some of these will be managers of the business, others will be outside investors. 4. A range of other outside investment models will emerge: — Simple investment partners in individual firms. — Outright ownership of firms, with all lawyers being employees, and indeed chains of firms—so called “Tesco law”. — Joint ventures on a wider basis of lawyers and outside investors, some incorporated, some not. — Franchising of brands, eg, by existing well established firms of solicitors or by commercial entities trading on their own existing non-legal brands or new brands altogether. 5. The new entities will not all wish to oVer services on the traditional model. Many will aim for services which can be commoditised. Thus we shall see firms or chains which only oVer one service—eg, conveyancing or personal injury litigation. 6. Lawyers and their backers will focus even further than already on the financial bottomline and drop less profitable areas of practice. 7. Such tendency to specialisation in services oVered will, I fear, be likely to lead to further diminution in the supply of less financially rewarding services such as welfare or housing law: certainly it will not solve the existing shortages. 8. There is a real risk of market abuses such as tying in, formally or otherwise, if the regulators are not suYciently astute, proactive and rigorous. 3435523116 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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9. Subject to the practical caveats above, we face the real possibility of MDPs comprising lawyers and others such as accountants or estate agents—this type of synergy is fraught with diYculties and dangers.

10. Some barristers will join LDPs as advocates.

11. A few barristers may form small partnerships, still practising on a referral basis and not undertaking litigation services.

12. Most barristers will continue to practice as independent referral practitioners fromchambersbut not in partnerships, selling their services to anyone.

B. Regulation

1. The new structures will require sophisticated frontline regulation and equally skilled oversight by the LSB.

2. The LSB will need to import skills from the field of financial regulation and be able to prevent market abuses.

3. The LSB must avoid expensive, ill-targeted and ineYcient regulation. The primary and secondary legislation must address this in suYcient detail. Costs must be kept firmly under control.

4. The requirements for mixed firms: — to have a Head of Legal Practice and Head of Administration; — to be subject to a “fit and proper person test”; and — to be subject to other controls. have a real likelihood of being insuYcient and inappropriate. More is needed.

5. So a new AR will be likely be needed to regulate the larger enterprises with outside capital investment, because of the need for sophisticated expertise in finance in approaching the debt and risk management of the new business structures.

6. The Law Society is unlikely to be equipped, or ultimately, to wish to regulate across the whole of this wide new spectrumof legal service providers.

7. The largest firms of solicitors, even if they do not opt for incorporation or outside investment may well look for their regulation to a new financially sophisticated regulator as their AR. Quite simply it will be more attractive.

8. The Law Society will regulate conventional solicitors other than the big players and the smaller or less complex models of LDPs.

9. The question how the LSB will seek to regulate MDPs involving lawyers will require great care. The LSB will have to depart from the basic Clementi model of regulation which is by type of business activity because the MDP will not simply be supplying legal services.

10. The Bar Council will continue to regulate self-employed referral barristers. It will continue to regulate employed barristers who do not work for legal firms oVering services to third parties, such as those in the CPS, Government Legal Service or General Counsel. It may take under its wing those solicitor advocates who operate on a referral basis.

11. The Bar Council has no plans to regulate barristers operating in partnership. For the moment it looks as if these will be passed to the Law Society.

In short, I see greater opportunities for lawyers and non-lawyers alike, coupled with real risks as well as benefits for the users of legal services. Coupled with this I foresee heavy and much more expensive regulation. Guy Mansfield QC 28 June 2006 3435523117 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Memorandum by Master of the Faculties (Ev 11)

EVIDENCE RELATING TO REGULATION OF NOTARIES

Introduction 1. This evidence is confined to comments on a limited number of issues in relation to the draft Legal Services Bill, because the previous response by the Master of the Faculties to the Government’s White Paper is available to the Joint Committee. 2. The notarial profession is extremely small. There are approximately 900 public notaries in practice compared with 96,757 solicitors and over 14,000 barristers (paragraphs 1.4, 1.6 and 1.8 of the Full Regulatory Impact Assessment). The principal function of a public notary is to deal with documents which are to take eVect abroad and not in England. Over the period of five years up to July 2004 a total of seven complaints about notarial fees were received and dealt with under procedures approved by the regulator, the Master of the Faculties. 3. A substantial increase in regulatory costs could have the undesirable eVect of discouraging some lawyers frombecomingnotaries, since the additional cost would be reflected in the annual practising certificate fee, and returns in practice are in many instances fairly small. Consumers would be disadvantaged if notaries were even more sparsely distributed in various parts of the country than they are at present.

4. Regulatory Objectives (Clause 1) The important word “independent” is missing from Clause (1) (e). Regulation should be aimed at reinforcing the independent standing of the legal profession and this needs to be stated expressly in the legislation.

5. Legal Services Board

(b) Funding for the LSB The Financial Analysis by Price Waterhouse Coopers foresees an increase in cost for the Court of Faculties from“eg extra processes in complainthandling, an interventionist LSB” ( p 93 of report). 6. It is not simply a question of discretionary intervention by the LSB but the requirements in the Bill, such as that in Clause 43 ie “Control of practising fees charged by approved regulators’, which will increase costs. Clause 133 (d) clearly envisages that the Board will make rules for charging fees for approval of practising fees, because sums received by the Board under this clause are to be paid to the Consolidated Fund. 7. Clause 43 (6) (a) should be drafted in terms which enable the Board to make diVerent provision for applications by diVerent approved regulators, so that the procedure and cost of approval could be adjusted to the time spent on the approval process. For the very small notarial profession the process is likely to be simple and straightforward. It would be unreasonable to lay down a complex and costly process which is the same for every regulator.

8. Office for Legal Complaints On the basis of past experience (see paragraph 2 above) the number of complaints being pursued beyond the “in-house” complaints system is likely to be minimal. Thus the prospect of an unidentified amount of levy being charged under clause 131 for Board expenditure and OLC expenditure for the regulation of notaries is a matter of considerable concern. 9. No criteria are specified in Clause 132 (6), so there is no indication as to the basis on which the Board will calculate the amount of levy to be charged to each approved regulator. The clause should be drafted so as to enable the Board to take account of the number of authorised persons under the supervision of the particular approved regulator and the scale of regulation and use of the ombudsman scheme in respect of that profession. Otherwise there would be a risk that an unreasonable amount could be demanded in respect of the notaries. Sheila Cameron CBE QC DCL Master of the Faculties on behalf of the Court of Faculties 5 June 2006 3435523118 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Memorandum by Mayer, Brown, Rowe and Maw LLP (Ev 07) We are writing to endorse all the views expressed by the CLLS in their response to the Draft Legal Services Bill. In particular we agree with the concern that the definition of “authorised person” and the Part 5 licensing regime as presently drafted is extremely diYcult to follow and implies (perhaps intentionally) that other than a conventional partnership comprising authorised persons (and it is not clear to whomsuch “authorised person” status may in fact be conferred once the transitional period is complete—although it is clear which type of entity that it cannot be conferred upon) all other entities (eg LLPs ) and any partnership or LLP (even comprising as members lawyers only—if some are overseas qualified) will be caught by the Part 5 regime and all that that entails. Whilst we understand the need for a certain amount of additional regulation for genuinely mixed discipline organisations we consider it inappropriate that the Part 5 ABS regime should apply in an organisation which happens to be an LLP or which has chosen to include within its partnership or membership structure overseas qualified lawyers or perhaps one or two non lawyer professionals as managers of a business carrying out legal services. If that is not in fact the intention of the legislation then it is incorrectly drafted and/or requires clarification. If it is the intention then we consider it misguided. Mandy Warnford-Davis Head of Professional Standards 19 June 2006

Memorandum by the Medical Protection Society (Ev 32)

Introduction 1. The Medical Protection Society is the world’s leading indemnifier of health professionals. As a not-for- profit mutual organisation, MPS oVers support to members with legal and ethical problems that arise from their professional practice. 2. MPS membership oVers peace of mind to more than 235,000 health professionals and their patients worldwide. Members commonly seek help with clinical negligence claims, complaints, medical council inquiries, legal and ethical dilemmas, disciplinary procedures, inquests and fatal accident inquiries. They have access to expert advice froma 24-hour emergencyhelpline operated by fell ow clinicians trained in medico legal matters and, where appropriate, access to legal assistance and compensation for patients who have been harmed through negligent treatment. We also run risk-management and education programmes to reduce adverse incidents and promote safer practice. 3. MPS is not an insurance company. All the benefits of membership of MPS are discretionary as set out in the Memorandum and Articles of Association. 4. As part of the legal advice and claims management services we provide to members, we have for several years employed a number of solicitors who conduct litigation and appear in court on behalf of members (“reserved legal activities” under the Bill). They do this under the provisions of the Employed Solicitors Code 1990. These solicitors are specialists in clinical negligence and healthcare regulation, several of whom previously held senior positions in private practice. Their ability to conduct litigation whilst working “in- house” is a key element of the excellent service we seek to provide to members. They also provide an element of healthy competition to the external firms of solicitors whom we also engage to conduct reserved legal activities on behalf of members.

Draft Legal Services Bill 5. MPS is concerned that the Draft Legal Services Bill does not appear to make clear provision for solicitors, employed by membership organisations or by insurers, to exercise rights of audience and conduct litigation on behalf of the members of those associations or the policy holders of those insurers. Rule 4 of the Solicitors Practice Rules 1990 provides that: Solicitors who are employees of non-solicitors shall not as part of their employment do for any person other than their employer work which is or could be done by a solicitor acting as such, save as permitted by an Employed Solicitors Code promulgated from time to time by the Council of the Law Society with the concurrence of the Master of the Rolls. 3435523119 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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6. Rule 4 is therefore the rule which currently prevents non-lawyers setting up legal practices staVed by solicitors for the purpose of oVering services, including what are referred to in the Bill as “reserved legal activities”, to the general public. 7. Rule 4 does, however, allow for some flexibility. The Employed Solicitors Code 1990 as amended provides that employees who are members of associations may act for members provided that (a) membership of the association if limited to persons concerned in a particular trade, occupation of activity or otherwise having a community of interest; (b) the association is one formed bona fide for the benefit of its members and not formed directly or indirectly for the benefit of the solicitor or primarily for securing assistance in legal proceedings; and (c) . . . in contentious matters the association shall indemnify the member in relation to the solicitor’s costs and disbursements insofar as they are not recoverable from any other source. 8. It also provides that solicitors who are employees of insurers subrogated to the rights of an insured in respect of any matter may act on behalf of the insurer in relation to that matter in the name of the insured, and may conduct certain ancillary matters. 9. The Code also provides that employed solicitors may act for entities related to their employing company and in certain circumstances for fellow employees. 10. The Law Society has also from time to time provided waivers under the Code where the particular circumstances of an employed solicitor do not fall within the letter of the Code but the work they wish to do for a person other than their employer is closely analogous to that which the Code permits. 11. Our concern is that there seems to be no specific provision within the Bill to guarantee the continuation of these rights or empower regulators such as the Law Society to grant such rights, and where necessary, waivers, in future. 12. It would appear that whilst seeking to promote competition in the provision of reserved legal activity, the Bill is designed to provide an all-encompassing regulatory framework for the delivery of such services, and in doing so constrains the rights of current regulators such as the Law Society to set the regulatory framework for those they authorise. 13. The Bill envisages that reserved legal services will be carried on by persons who are either authorised or exempt. Authorised persons may include licensable bodies or not for profit bodies, as well as individuals authorised by regulators. 14. Whilst we have not been able to find it clearly stated within the Bill, we assume that it is intended that authorised individuals may only work for themselves, in a partnership of similarly authorised individuals, or for a licensed body (including a licensed not for profit body). If this were not the case, and authorised individuals could carry on reserved legal activities whilst employed by other organisations, the regulatory framework set out in the Bill could be by-passed. If we are correct in our understanding, this will deprive our own and others’ employed solicitors of rights which have been properly and responsibly exercised for some time. 15. If the intention is that authorised regulators may continue to authorise individuals to carry on reserved legal activities whilst working for and as part of the service provided by organisations which are not themselves licensed, then it would be helpful if this could be set out expressly, perhaps by reference to the provisions of the Employed Solicitors Code 1990. Presently, some solicitors covered by the Code do appear to be expressly provided for by the Bill (for example, solicitors employed by charities, law centres and other organisations falling with the Bill’s definition of “not for profit” organisations) but others are not. 16. There are two other, less significant areas, in which we draw upon the provisions of the Employed Solicitors Code. Last year we were asked by an Australian medical mutual defence organisation to provide similar services to their members, visiting this country on a temporary basis, should the need arise. They recognised that as an organisation we could provide the mix of medico-legal advice fromfellow clinicians, and litigation advice fromlawyers, which they required. The need for our serv ices under this arrangement has not arisen to date, but we have obtained a waiver fromthe Law Society to enable u s to do so as and when it does. 17. MPS is not an insurer, the benefits of membership are discretionary. MPS does however own an insurance company, MPS Risk Solutions Limited, regulated by the FSA. Should the need arise in future our in-house solicitors employed by MPS are currently entitled to conduct litigation for the insured of MPS Risk Solutions Limited, by virtue of a waiver granted by the Law Society under the provisions of the Code. 3435523119 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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18. Although MPS is a not-for-profit organisation, we do not appear to fall within the definition of “not for profit” organisations in section 154 of the Bill. As a mutual organisation our funds have to be applied in accordance with our Memorandum and Articles rather than for “charitable or public purposes”, and we are not prohibited from distributing surplus assets to members. 19. The proposed licensing rules set out in Schedule 11 would be unsuitable for an organisation such as MPS. They appear to be aimed at organisations whose primary purpose is the provision of legal advice, including reserved legal activities, for profit. MPS’s purposes, as set out in its Memorandumand Articles are muchwider than that and reflect the medical and dental background of its membership. MPS is a company limited by guarantee, owned by its members, who are doctors or dentists, not lawyers. It would not be able to comply with any restrictions on ownership of bodies licensed under this Bill, and any requirement to notify changes in membership (being changes in a material interest) would be impractical for an organisation with so many members, including many members resident abroad. 20. We note that under section 88 regulators are permitted to relax the licensing requirements for not for profit bodies, but there appears to be no such power in relation to any other kind of organisation. 21. We are concerned that in the endeavour to promote greater competition in the provision of legal services our particular formof legal practice mayhave been overlooked. We would th erefore ask the Select Committee to explore this issue further as part of its deliberations. 22. MPS would be pleased to provide any further information on these issues if that would be helpful. 14 June 2006

Memorandum by Mercer (Ev 61)

1. This evidence is submitted to the Joint Committee on the Draft Legal Services Bill, on behalf of Mercer Human Resource Consulting (“Mercer”). I am a Principal in the Documentation and Legal Services business of this consultancy, and ama solicitor, with particular responsibility f or professional matters within the business. There are two particular points which Mercer wishes to draw to the attention ofthe Joint Committee.

Legal Work which is Not a Reserved Legal Activity 2. Clause 59(1) refers to regulating the carrying on of “reserved legal activities and other activities” by licensed bodies. It is diYcult to understand what “other activities” may be referred to here. A licensed body is defined as a body providing reserved legal services (see note 209), and it is clear that the licensing rules are intended to cover only bodies proposing to provide services which include reserved legal services (clause 66(3)(a)). The significance of this is that, at present, there are. professional restrictions on solicitors and barristers, when employees of non-solicitors, from carrying out legal work for any person other than their employer. In the case of solicitors, Rule 4 of the Solicitors Practice Rules prohibits this in relation to “work which is or could be done by a solicitor acting as such”, which is a much wider concept than “reserved legal activities”. 3. Consequently, it may well arise that a solicitor or barrister who is employed by a multidisciplinary practice (rather than being in sole practice or in the employment of a solicitor’s firm) may fmd that the work of his employer is not a reserved legal activity. In this case, the multi-disciplinary practice may be unable to become a licensed body, and so the solicitor or barrister may still be prevented fromcarrying out work of a legal nature. 4. To put this into the specific context of our business, we provide advice on pensions. The main professions involved are actuaries, investment advisers and pensions administrators. On occasion, the consultancy is asked to provide assistance of a legal nature. As work in the field of pensions law will not be a reserved legal activity (and is not currently restricted), any consultant who is not a barrister or solicitor can do this work. However, if a barrister or solicitor is asked to do such work, it is arguably work (in the case of a solicitor) “which is or could be done by a solicitor acting as such”. The lawyer will then need to ensure he carries it out for his employer, not for the employer’s clients. 5. Consequently, there is a danger that legal services may be provided to clients by those least qualified to do so, while qualified legal practitioners are prevented fromproviding the s ervices. This anomaly runs entirely counter to the intentions of the Clementi Report and the Draft Bill, and it would be a pity if the opportunity were not taken to close it at this stage. It is possible that the Law Society and the Bar Council will change their practice rules but, even if that does happen (and it is not clear it will), it is still preferable that the proposed legislation puts beyond doubt that qualified lawyers may carry out “other activities” for the clients of a multi- disciplinary practice. 3435523120 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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6. We suggest that the appropriate means of dealing with this is to permit a multi-disciplinary practice to become a licensed body, if it employs barristers and solicitors who are engaged in work of a legal nature, even if none of its work is a reserved legal activity. A provision to this eVect could be included in clauses 67 to 72 of the Draft Bill.

Reserved Instrument Activities 7. The second issue in relation to which Mercer feels the Bill should be changed relates to the definition of “reserved instrument activities” in paragraph 4 of Schedule 2, which derives fromclause 9. In note 56, it is stated that this part of clause 9 replaces Section 22 of the Solicitors Act 1974, and Section 11 of the Administration of Justice Act 1985, which made provision for those who can provide conveyancing services. It is generally believed that the existing provisions relate only to conveyancing services, but the way in which they are drafted is considered by many practitioners to be unduly obscure and, arguably, results in their covering activities outside conveyancing. 8. It is unfortunate that the ambiguous wording of the Solicitors Act is, in many respects, proposed to be repeated in the Schedule to the Legal Services Bill, and we would suggest that steps are taken at this stage to clarify the meaning and improve the drafting. 9. Particular problems arise from the words “instrument relating to real or personal estate”, in paragraph 4(1)(c) of Schedule 2. It is unclear why “personal estate” should be included, if the sole intention of this provision is to cover the conveyancing of real property. In addition, an instrument “relating to” real estate could cover many documents which are not part of a conveyancing transaction. 10. Again, it may help to provide the particular examples which concern us. In the course of carrying out work for pension schemes, we are sometimes asked if we can provide replacement trust deeds, deeds amending scheme rules, deeds of participation for new employers, deeds of appointment for new trustees, and the like. At present, there can be diYculty in answering this question. While none of these documents are ones which would normally be considered as part of a conveyancing transaction, it may happen that the pension scheme in question invests in real property, and it could then be argued that they are instruments relating to real estate. In some cases, we would not know if property investments are made. In addition, the further mention of “personal estate” in the wording raises similar issues whatever the nature of the scheme’s investments. 11. In our view, it has never been intended that this provision in the Solicitors Act should cover the sort of documents which I have mentioned, and the opportunity should now be taken to exclude them. Even if that were not the case, the occasion is right to remove the ambiguity. Our recommendation is that the words “or personal” are deleted entirely, and that it is made clear that documents which relate to the administration of trusts (and perhaps other legal entities) are not included within the reserved instrument activities merely because the trust (or other entity) happens to invest in real property. 12. If the Joint Committee would like more detailed advice on how this paragraph might be better drafted, I would be happy to provide further evidence on that point.

Conclusion 13. There are two issues which Mercer wishes to draw to the attention ofthe Joint Committee, as described above. Mercer will be happy to provide any further evidence which may be needed in support, and I am prepared to give oral evidence to the Joint Committee if it feels this would be of help. 15 June 2006

Memorandum by David T Morgan, MBE, TD (Ev 52)

A. Independence of the Profession 1. As a past President of the Federation of European Bars (FBE), I amvery con scious how concerned our colleagues throughout Europe are at the intervention of the Government into the profession’s self-regulation. In particular, appointments to the Legal Services Board lack any thorough or robust protection against political interference and, of course, it is well known that political appointments can often achieve the results sought by the appointor. 2. It may be thought that this is purely a theoretical threat which has no substance in reality. However, I would like to cite a recent example. Two year ago, I was retained by the Open Society Justice Initiative set up by George Soros to give advice to the legal professions of Kyrgyzstan, Kazakhstan and Uzbekistan. During a 3435523121 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 two week visit to Kyrgyzstan, members of the legal profession there expressed deep concern about the attempts by their Ministry of Justice, which “licenses” their lawyers, to disbar a member of the profession who had been guilty of no more than cross-examining a minister in the then Government fairly robustly. Furthermore, only under pressure of international intervention was the threat of prosecution removed. Moreover, the Ministry was seeking to impose its own Code of Ethics on the profession rather than a code more acceptable by international standards. Lastly, there were attempts to skew standards for admission to the profession so that politicians, government oYcials and members of the police enjoyed less stringent conditions for becoming a lawyer, eg by exemption from professional exams. 3. As a member of the Council of the Law Society of England and Wales, I am conversant with the thrust of the evidence which our President and Vice-President have given to your Committee and needless to say they have the full support of our Council. Some might say that the Government would never behave in the manner described in the previous paragraph, but since we cannot predicate the nature of governments that may succeed this one in the future, the aimshould be to ensure that future gover nments could not act in such a way, a view strongly expressed by one of my colleagues on the Council on Tuesday.

B. Alternative Business Structures

4. The other aspect which causes me major concern are the proposals for the licensing of alternative business structures. I have to express surprise that at a time when the Government is trying to tighten restrictions on the financial services accessible by money launderers, terrorists, etc., it should embark on permitting a new formof practice o Vering legal services, whose controls in the draft Bill are woefully inadequate. Little detail is given of any proposed vetting arrangements and furthermore, it seems that such bodies will be bound by lower standards than those current imposed on solicitors and barristers. As an example, I am duty bound, as an oYcer of the court, not to mislead the court knowingly. While the duties of advocates and litigators are loosely spelt out in clause 141 of the draft Bill, the wording will allow several forms of interpretation. 5. There also appears to be an implication that the need for competition overrides other considerations. This seems to ignore the fact that there are over 100,000 solicitors in practice, most of whom are competing with each other. As Chairman of the Solicitors Assistance Scheme, I know personally of several solicitors whose attempt to be competitive has ended up in bankruptcy as a result of their failure to assess their costs accurately in their attempt to undercut their rivals and as a result they underestimated the price of the service they were oVering. 6. There was of course a well-known case three years ago in the Netherlands when two chartered accountants attempted to challenge the Dutch Bar’s restriction on partnership, but were defeated in the courts on the basis that the protection of clients’ interests could be a reason for restricting partnership, in this case on the basis that the auditors’ duty to publicise breaches of accounts rules conflicted with the lawyers’ duty to maintain client confidentiality. In this instance, protection of clients’ interests was considered more important than allowing non-lawyers to provide legal services. There is in my view a serious danger that the more reputable and commercial non-legal newcomers would cherry-pick the more remunerative areas of legal practice, leaving other areas, particularly those important to the underprivileged, uncovered.

C. Conflict of Interest

7. Another aspect of widening the scope of providers of legal services is that no mention of or provision for the prevention of conflict of interest is mentioned in the draft Bill. Such problems are seldom recognised by the client until after the event when it may be too late. The Professional Matters Committee of the City of Westminster and Holborn Law Society, of which I am a member, has frequently revisited this issue and problems arising from client complaints continue to increase, whether or not the conflict is real or merely perceived. Indeed, I understand this has been reflected by a comparable growth in the number of claims on lawyers’ indemnity policies resulting from allegations of conflict in the United States. 8. Lastly, the extension of the right to provide legal services to other bodies could seriously jeopardise the profession’s ability to enter into foreign markets or to maintain practices overseas where high standards of professional conduct are insisted on. 15 June 2006 3435523122 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Memorandum by the Notaries Society (Ev 31)

1. Summary The Notaries Society accepts that the Bill is necessary for consumer protection, but has the following concerns: 1.1 Notaries are permitted to carry out four “Reserved Legal Activities”: — Reserved Instrument Activities; — Probate Activities; — Notarial Activities; and — The Administration of Oaths. The vast majority of the work of a Notary will be classified as “Notarial Activities” which will be for use in a foreign legal jurisdiction and therefore will probably not be governed by the laws of England and Wales. 1.2 The cost of regulation must be linked to the size of the Notarial profession. 1.3 The receiving foreign legal jurisdiction of a Notarial Activity may have concerns that the independent status of the Notary has been interfered with. 1.4 A clarification of the transitional provisions is required. 1.5 That notaries will be permitted to continue to carry out the other three Reserved Legal Activities.

2. Background 2.1 The Notary is a member of the oldest legal profession in England and Wales, notaries being appointed by the Faculty OYce of the Archbishop of Canterbury under the provisions of the Ecclesiastical Licences Act 1533. 2.2 A Faculty to practice as a Notary is granted by the Faculty OYce following the study for the Notarial Diploma and the passing of examinations, which can only be sat by those Lawyers already having a basic legal qualification, such as Solicitors or Barristers. 2.3 The Notaries Society is a voluntary body representing 697 out of the 800 or so General Notaries in England and Wales. It does not represent the 28 or so Scrivener Notaries who are represented by the Society of Scrivener Notaries. 2.4 We note the Joint Committee has available the earlier submissions of the Society made to the Department for Constitutional AVairs, which may be of assistance to the Committee. 2.5 It is essential to understand that Notarial Activities are in the main carried out by Notaries acting as Public OYcers for use in foreign legal jurisdictions, other than in England and Wales. 2.6 The Notary can carry out four Reserved Legal Activities: — Reserved Instrument Activities; — Probate Activities; — Notarial Activities; and — The Administration of Oaths. The main activity carried on by the Notary is the “Notarial Activity” but he needs to be permitted to continue to carry on the other three Reserved Legal Activities referred to above.

3. Costs 3.1 A detailed reading of the draft Legal Services Bill, Explanatory Notes and Regulatory Impact Assessment sets out the framework for the provision of the Legal Services Board and OYce for Legal Complaints and assesses the set-up and future running costs of those two bodies. 3.2 The Notes to the Bill indicate that there are approximately 130,000–140,000 legal professionals who will be aVected by the draft Legal Services Bill, but there are only approximately 800 Notaries. 3.3 There is genuine concern within the Notarial profession as to the cost of regulation. The Committee will be well aware of the history of estimates given for public works and contracts which inevitably substantially exceed those initial estimates. 3435523122 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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3.4 The Notarial profession is a very small profession. Therefore, machinery must be included within the regulatory provisions to ensure that costs of regulation are proportionate to the economies of practices and the small number of complaints against notaries.

4. Regulation 4.1 The majority of “Notarial Activities” relate to the provision of legal services for use in a foreign legal jurisdiction. This should be reflected in the regulatory objectives set out in Clause 1 of the Bill. 4.2 In addition notaries have to work within the framework of International Legislation and Conventions and within the Codes of Practice of UINL—The International Notaries Union www.uinl.org 4.3 The independence of the Notary is absolutely essential to its “Notarial Activity” being recognised in all foreign legal jurisdictions, and we would submit that a statement of this independence should specifically be included in the Bill in the same way that the Duties of Advocates and Litigators are recognised in Clause 141 of the Bill

5. Legal Services Board 5.1 The Notaries Society recognises that in order to provide for the Consumer Protection envisaged in the Bill, it will be necessary to have a Legal Services Board. 5.2 As already stated, the Notarial profession is tiny compared with the Solicitors profession and the Bar. We believe it essential that because of the unique nature of the Notarial Activities a representative of the Board should have knowledge of the Notarial profession.

6. Alternative Business Structures 6.1 The Society understands the rationale behind these proposals, but the Notary in carrying out Notarial Activities has to be totally independent. This is enshrined in the Notarial Practice Rules, in particular the 2001 Rules. A Notary is prohibited frombeing in partnership with any other prof essional other than another Notary. 6.2 Any connection with a non-Notary could well aVect the status of the Notary and the acceptance and validity of his acts in a foreign legal jurisdiction. 6.3 The same comment applies to “exempt persons” referred to in Clause 14 of the Bill. 6.4 We would submit that these sections of the Bill are not applicable to the Notarial profession.

7. Office for Legal Complaints 7.1 Our comments on this OYce are similar to our comments in respect of the Legal Services Board. This will be a large organisation to deal with the main legal professions. We accept that the OYce will have to be created, but: 7.1.1 Currently complaints from consumers are directed to the Faculty OYce, who have the power to refer themto the Notaries Society if they believe they can be dealt with b y the Society under its “Informal Complaints Procedure”. There are approximately four to six complaints per year satisfactorily dealt with under this Procedure. 7.1.2 If the complaint is of serious notarial misconduct the Faculty OYce will deal with it under their procedure, but we believe there have been no complaints for the last three years, and only four in the last 10 years. 7.2 We are concerned that the OYce will not have any knowledge of the Notarial profession.

8. Transitional Provisions We have concerns about these being included in the Bill, as we do not fully understand their purpose. 14 June 2006 3435523123 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Memorandum by Olswang (Ev 50)

Olswang is a member of the City of London Law Society, which has kindly provided us with a copy of the submission it has made on the consultation document about the draft Legal Services Bill. We endorse all their comments, with one exception. We do not share the views of the CLSS that the Government’s proposals regarding alternative business structures require more detailed thought before the Bill is enacted. We believe, that the Bill as currently drafted sets out an appropriate framework: in our view it is appropriate for the detail to be established in the licensing rules made either by the LSB or any approved Regulator. We believe that any call for secondary legislation to establish more detailed regulations is unnecessary and cumbersome. We do, however, agree that it is sensible for the FLRs to be the determinant of the details of the regime, subject to approval of their rules by the LSB, and we endorse the balance of the comments made on page 3 of CLSS’ letter concerning alternative business structures. 15 June 2006

Memorandum by the Professional Negligence Lawyers’ Association (Ev 58)

Introduction The Professional Negligence Lawyers Association (“PNLA”) was formed in August 2004 currently has 290 members and its stated objectives are: “The objects for which the Company is established (‘the Objects’) are: 3.1 to promote specialist dispute resolution skills in acting for claimants (individuals and organisations) in disputes between themand their professional advisors arising because of negligent or inadequate service. 3.2 to provide a network for the exchange of information concerning professional negligence. 3.3 to promote and encourage education and training in claimant professional dispute resolution 3.4 to develop a public voice for claimant professional negligence dispute resolution with a media profile and lobbying capacity.” A procedure designed to assist the consumer must be real eVective and simple for the consumer to use. In terms of claims/complaints there are essentially three categories: incompetence, negligence and misconduct. (a) Incompetence: it is almost contradictory in terms that the consumer would be able to determine the competence of another professional whom he in fact employed and paid for because of his own incompetence in that area. (b) Negligence: the standard of proof for such a claim in simple terms is proving on the balance of probability that a professional fell below a reasonable standard skill and care—and what they are doing is outside the scope of an ordinary persons knowledge. If for example a consumer uses a solicitor then he does so because he is not himself trained in this—an ordinary consumer, without proper assistance, is unlikely to be able to be able to formulate and successfully pursue an actionable negligence claimgiven that the defendant will usually have far greater re sources at their disposal including insurance cover to fund specialist legal and expert advice. (c) Misconduct—the standard of care is beyond reasonable doubt that there was a breach of the relevant code of conductı an ordinary consumer, without proper assistance, is unlikely to be able to produce and formulate evidence to the requisite level of standard of proof given that the professional in receipt of the complaint will usually have far greater resources at their disposal including insurance cover to fund specialist legal and expert advice.

Concerns The PNLA members represent consumers with claims for professional negligence and incompetence and complaints of misconduct against various types of professionals including members of the legal professions. This body of solicitors has not been consulted as part of the process of drafting the Legal Services Bill. Of particular concern is whether the current Bill as drafted is consistent with the principles embodied in the Human Rights Act 1998 and natural justice. 3435523124 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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It is understood that the legislation seeks to put a framework in place but even so this will need to ensure that such framework will provide a system for complaints and claims by consumers which is fair, transparent and reasonable.

Relevant Legal Principles

Article 6: Right to a fair trial 1. In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. Judgment shall be pronounced publicly but the press and public may be excluded from all or part of the trial in the interest of morals, public order or national security in a democratic society, where the interests of juveniles or the protection of the private life of the parties so require, or to the extent strictly necessary in the opinion of the court in special circumstances where publicity would prejudice the interests of justice. It is therefore essential that the framework proposed by the Legal Services Bill will ensure that a consumer is provided with what he/she is entitled to ie a fair and public hearing for determination of his civil rights and obligations in relation to the conduct of members of the legal profession.

Article 8: Right to respect for private and family life 1. Everyone has the right to respect for his private and family life, his home and his correspondence. 2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others. As a public authority within s 6(1) of the Human Rights Act 1998, the relevant complaints handling body will have a positive obligation to provide protection against interference with Article 8(1) rights, particularly since its complaints procedure may well be the only means by which a consumer can seek redress. Article 8 will not always require an investigation by the relevant complaints handling body but Article 8 will be relevant where, for example, serious and unwarranted allegations are made which have a substantial impact on the private and family life of the complainant (eg if it aVected his home or a business with a loan secured on his home) particularly if the relevant complaints handling body could act in breach of Article 8 by refusing to entertain such a complaint or claim.

Where could the Current Proposed Framework Fall Short of these Provisions? As far as the existing complaints handling procedures are concerned—ie allegations of misconduct against a professional including professional negligence potentially, complaints are often dealt with through direct communication between a consumer and the relevant body setting out, their complaint in the best possible way. The Consumers Complaints Service (“CCS”) of the Law Society, if it identifies a possible claimwhich could be pursued through the Courts, will normally refer the consumer to a solicitor on its existing panel who will provide the consumer with 1 hour of free advice. Nothing in the proposed framework will change save that there is no provision for a similar referral system as currently adopted by the CCS. It appears that there could be scope for criticismof both the current and pr oposed systems in the following respects: (1) some consumers may not be capable of coherently, completely and comprehensively stating their complaint or case without skilled and independent assistance; (2) if a determination is made that the complaint is a professional negligence claimthat could be pursued through the Courts, then the consumer will normally be advised that the complaints procedure will not apply and the consumer will be given no further assistance; and (3) in practical terms, eVective access to legal representation may be denied or become unavailable to the consumer—cf Airey-v-Ireland 1979 2 ECHR 304 24 (copy attached [Submitted but not printed]— see in particular paragraphs 24 and 26 and also cf Article 14). Many professional negligence claims 3435523124 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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and/or complaints are complex in relation to the procedure, factual and/or legal issues [submitted but not printed]. Both the current complaints handling procedures and the proposed legislation could be open to challenge in the relevant European Courts if they do not address these possible infringements.

Possible Solutions (and it Should be Noted that the Relevant ECHR Decisions Do Regard this Issue as a Matter for the Contracting State) 1. Regulation (or at the very least a greater degree of monitoring) of those providing advice and services to consumers with regard to professional negligence claims and complaints of misconduct in a similar way to those providing, for example, immigration advice and immigration services. 2. A legislative requirement that the proposed complaints handling body (currently called the OYce for Legal Complaints) adopts a similar procedure to that operated by the CCS for referrals. Such referrals to include not only possible professional negligence claims outside the scope of the proposed framework but also consumers who wish to have access to such advice to a body of legal advisers who are independent, suitably qualified and experienced. A transparently fair and reasonable procedure for appointment to this body could then be developed and adopted by the complaints handling body.

Conclusions Separation of the complaints handling function from the regulatory function in the front line regulators is a very important step. The most significant eVect may be an increase in public confidence in the legal professions on the part of consumers who receive cost eVective and eYcient redress. Nevertheless, so long as there is scope for consumers to find that they do not receive an adequate degree of assistance under the proposed new framework to recover loss incurred as a consequence of professional negligence or misconduct then this could limit the eVectiveness of the reforms to achieve their objectives and possibly open the Government to challenge. It is hoped that these comments will be found helpful. 14 June 2006 Memorandum by PricewaterhouseCoopers (Ev 46) 1. PricewaterhouseCoopers is pleased to provide brief observations on the substance of the draft Legal Services Bill (Cm6839) published on 24 May 2006. Overall, we support the th rust of the Bill. We believe that there is a need for reformof the way in which legal services are provide d in the United Kingdomin order to ensure that consumers of legal services (business and private) have full access to those services and that they are provided eYciently and eVectively. 2. As a firm, we have to declare an interest in this area. As the largest firm providing professional services in the UK, we know that our clients want a variety of services, including legal services. We work with our associated law firm, Landwell, to provide the services our clients need. 3. Whilst on many occasions it is and will remain appropriate for a client to take services froma variety of sources, including specialist legal practitioners, there are many cases where they would prefer to be able to take as many services from a “one stop shop”. We think it is entirely appropriate that legal services can be provided alongside other services: whilst there is a need to ensure that legal services are provided to the highest quality levels and in a manner that oVers protection for the consumer, this is no diVerent from other professional services. There is no reason to see legal services as needing to be provided in a totally separate manner. In short, the market should be able to decide how the services are to be provided, providing those services are provided in accordance with appropriate standards. 4. We now give some comments on the main questions posed by the Call for Evidence.

The Bill—Overall 5. As we have alluded to in our opening remarks, we think the draft Bill’s proposals are necessary. We do not see that there is an alternative route to legislation. By and large the proposals are workable; we still have slight reservations about a couple of aspects which we have noted below. 6. We oVer no comment on the Government’s estimate of costs in view of our involvement in preparing estimates of costs. 3435523125 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Regulatory Objectives

7. The regulatory objectives set out in Clause 1 of the Bill seemto us to be ap propriate. This is subject to the proviso that is implicit within the objectives as set out that they are to be carried out in the interests of consumers in a flexible and appropriate manner.

Legal Services Board

8. We think the proposed structure and powers of the proposed Legal Services Board (LSB) are sensible. We think it is important that the LSB has a good mix of members with an independent chairman: it is an interesting question as to who should appoint that chairman but we can see no alternative to himor her being appointed by the Secretary of State. To avoid any suggestions of political interference in the process, we assume that the terms of appointment will be transparent. 9. The idea of a separate consumer panel is an interesting governance idea and has a lot to commend it. There would a possible danger of conflict between the LSB, the consumer panel and the OYce for Legal Complaints, or, at a minimum, overlap between the functions. This might lead to a noticeable increase in the bureaucracy of the whole process. Provided, however, the duties of the three bodies are well defined (which they seemto be within the Bill) we think that the proposed arrangeme nt is workable and oVers useful scope for a wider group’s involvement in the general oversight of the provision of legal services. 10. Within Schedules 2 and 4 of the Bill, the restricted services are set out. There is a restriction on rights of audience before a Court, such rights of audience being reserved to persons covered by the Bill. This does raise a possible issue. Whilst the provisions of the Bill basically replicate the existing situation, we would like to be clear over the meaning of “Court”. We assume that this means the High Court and higher courts, and not the first tier of tax tribunals, namely the General Commissioners, Special Commissioners, VAT and Duties Tribunals and similar appellate bodies. We think it would be a considerably regressive step were appearances before such tribunals to be restricted to legally qualified people when the need is normally for tax expertise rather than advocacy skills.

Alternative Business Structures

11. Currently, firms such as PricewaterhouseCoopers who would normally wish to provide legal services to some extent to their clients are not able to do so. It is possible to associate with a law firm, as we have done with Landwell, but the two organisations must operate separately. In practical terms, this means artificial boundaries which are potentially against the interests of our clients. We therefore welcome the reforms that are contained within the Bill which will allow lawyers to practice in the same organisation and/or the same group as other professionals. As noted, we think this has the potential of delivering consumer benefits, both for large corporate clients and the private individual who wants to have a single organisation for providing all his or her needs in the field of legal, accounting and tax services. 12. The call for evidence raises a possible concern over a potential conflict of interest if a firmprovides multidisciplinary services. We do not see any problem here. We do not see that the provision of legal services, in addition to the other services that firms such as ours, or indeed a small practitioner, might provide will give any cause for concern over conflicts. It needs to be noted that there are already rules in place governing what services auditors can provide to their clients; legal services would be covered by such guidelines and there do not seemto be any needs to add to them. 13. Where there could be conflicts is not over the increased provision of services but the possibility of services being provided to more than one party within a transaction. That situation is covered by existing codes of practice and general arrangements over “Chinese walls” within firms such as ours and large legal partnerships—arrangements that seem to work very well in practice. 14. Nor do we see that the existence of external shareholders within a firmth at provides legal services would provide any conflict of interest. We see two major safeguards: (1) External shareholders’ main interest would be in ensuring services, legal and otherwise, are delivered to the highest standards to ensure a good return on their investments over a period. Only by ensuring high quality services will there be the potential for growth for the firmproviding the services. 3435523125 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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(2) We are talking here about qualified professionals with their own professional standards to uphold: the professionalismof the individuals will thus have a majorpart to play i n obviating conflict problems. Normal professional rules would ensure that any services provided to shareholders were done on a proper arm’s length basis. 15. The issue of legal professional privilege (LPP) is a very important one but is something that should be the subject of a separate review. There are many anomalies in the current situation: the same advice could be subject to LPP or not, depending on who has provided that advice. This is clearly unsatisfactory froma consumer’spoint of view—and also fromthe point of view of the author ities and practitioners who face an unlevel playing field. Arguably, the potential advent of multidisciplinary partnerships just brings the LPP issues into sharper focus and emphasises the need for a thoroughgoing review of this area. It does not create new issues as such.

Office For Legal Complaints 16. The test as to whether the proposed OYce for Legal Complaints (OLC) is fit for purpose is surely in terms of whether it will provide a simple and easy to understand method for someone dissatisfied with legal services to register a complaint. The OLC oVers the prospect of a consolidation of existing routes for complaints and therefore holds out the prospect of being a more transparent system. 17. We do have some concerns about the potential burdens that will be placed on practitioners by the complaints route. We do not seek in any way to deter valid complaints and indeed these need to be facilitated and helped where appropriate. We do, though, want to see a systemthat weeds out the frivolous complaint before a practitioner has to spend time and money responding to it. It seems to us that the powers within the OLC’s remit to dismiss the frivolous complaint are sensible and we would hope that the OLC operates in a way to strike a balance between the interests of both the complainant and the practitioner. A practitioner should not be made to feel guilty just because a complaint has been received. June 2006

Memorandum by Resolution (Ev 55) Executive Summary Resolution is an association of 5,000 family lawyers who are committed to a constructive approach to the resolution of family disputes. Resolution is committed to setting and enforcing standards for the better practice of family law and improvements in the operation of the family justice system. Resolution’s members are regulated by the Law Society but choose to join Resolution as a voluntary legal association which represents and works with family lawyers. We are concerned about the impact of the Legal Services Bill on the services that we provide to our members and to the public. We are also concerned that the structures the bill seeks to establish are at once both complex and vague and will not help consumers to understand the regulatory systemfor legal services. The danger is a new “r egulatory maze” will be created. Our detailed comments are as follows: — There should be a clear definition of regulatory activities on the face of the bill. The current lack of clarity between regulatory and non-regulatory activities could lead to non-regulatory activities being caught in the regulatory net. — Independence is a vital element of the legal profession. This should be set out in the regulatory objectives. — There should be no “let-out” clause for the Board or the approved regulators to not abide by the regulatory objectives set out in Clause 1. — The Consumer Panel should publish its advice; members should serve set terms and there should be mechanisms to remove them. — There should be a duty on the Board to consult with the legal associations as representative bodies of lawyers, which should be defined as having a majority of legally qualified members and enforceable quality standards. — Many of the proposed grounds for the Board using its powers are vague and in some cases circular, potentially giving the new Board wide and unrestrained powers. — There are insuYcient means for the approved regulators to challenge the grounds under which the Board decides to use its powers. 3435523126 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— Accreditation schemes for lawyers should not be part of the regulatory framework as they are voluntary schemes for solicitors; accreditation schemes should remain on a “pay-as-you-go” basis and should not be included in the list for which the practising fee can be used. — Members of the Legal Services Board should be independently appointed by the Commissioner for Public Appointments. — The provisions for approving licensed bodies are too vague. Until there is further experience of the ABS market, only professional bodies with experience of regulating professional persons should be approved as licensing bodies. — Non-lawyer partners of licensed bodies should be members of a professional body that is able to discipline them, including striking them oV. — Until there is considerably more experience of Alternative Business Structures, companies and corporate bodies should not be allowed to have any ownership stake in licensed bodies. — Lawyers should be the majority owners of any licensed body in the early stages of the introduction of ABSs. The LSB should regulate and monitor the number of lawyers in an ABS firm. — Licensed bodies should publish clearly to all clients and potential clients, who are the owners of the licensed body. — The costs of the new regulatory systemare likely to be high and will be pass ed onto legal services providers and onto clients. The start up costs should be born by government. — Legal aid practices operate on increasingly tight margins and there is no more money for publicly funded work. These firms cannot raise additional revenue so special arrangements should be made for legal aid practices to bear the increased costs of regulation.

Introduction—What is Resolution? 1. Resolution’s63 5,000 members are family lawyers committed to the non-adversarial resolution of family disputes. Resolution lawyers abide by a Code of Practice which emphasises a constructive approach to family problems and encourages solutions that take into account the needs of the whole family, and the best interests of any children in particular. 2. Resolution as an organisation is committed to developing and promoting best standards in the practice of family law amongst its members and amongst family lawyers in general. Resolution explores and promotes other means of resolving family disputes, such as mediation and collaborative law, so that couples can negotiate solutions without using the courts. Many Resolution members also practice as mediators and collaborative lawyers and many are accredited by the organisation as specialists in particular aspects of family law, such as contact cases or financial aspects of separation. 3. Resolution publishes various guides to improve standards of practice. Resolution provides training in law and in the skills and understanding that family lawyers need to help their clients face a diYcult time. We also campaign for better laws and better support and facilities for families and children undergoing family change.

Resolution’s Role in Setting Standards in Family Law Practice 4. Resolution is a voluntary legal association. Family lawyers are not required to join but choose to become members. Resolution has widespread recognition within the legal world and it is widely regarded as the voice of family solicitors. Resolution is also widely acknowledged as the primary body establishing good practice standards in family law by such people as Dame Elizabeth Butler Sloss, former President of the Family Division. 5. Resolution was established in 1982 as the Solicitors Family Law Association by a group of lawyers concerned that the practice of family law was too adversarial. As one of its first steps, the Association established a Code of Practice which it required its members to adhere to. This Code of Practice emphasizes a constructive, non-adversarial approach to resolving family disputes, in particular focusing on the best interests of the children. In 2002, the Law Society incorporated Resolution’s (then the Solicitors Family Law Association) Code of Practice into its first edition of the Family Law Protocol, which is a good practice guide that all lawyers conducting family cases are expected to abide by.

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6. Resolution pioneered the development of a specialist accreditation scheme for family lawyers. This was established in 1999 and has accredited approximately 1,200 of Resolution’s members against objective standards of specialist knowledge, tested through open book examination. The standards are set by specialist practitioners and academics and are overseen by an independent advisory board. The Government recognized the value of Resolution’s specialist accreditation scheme in 2001 when it awarded a 15 per cent fee uplift for publicly funded work undertaken by Resolution accredited specialists.

7. Resolution also plays a significant part in developing new and better ways of resolving family disputes. Resolution developed its own training programme for solicitor mediators 10 years ago. Resolution is an approved body of the UK College of Family Mediators and accredits its own (mainly but not exclusively solicitor) mediators. Resolution has also introduced the practice of family collaborative law in England and Wales. In collaborative law practice, couples undertake not to resort to the courts with their instructed collaborative lawyer, and undertake most of the negotiations relating to their disputes in face to face meetings. Resolution has trained 600 collaborative lawyers in the past two years and will be training a further 400 in the coming year.

8. Resolution is not, and would not seek to be, a regulator of legal services. We do however, maintain standards within our membership. We do this by the following means: — Applicants for membership have to be supported by existing members who must confirmthat the applicant practices family law in accordance with Resolution’s Code of Practice. — New members must attend a course on the Code of Practice within the first year of their membership. — Members must undertake a minimum of four hours continuing professional development (CPD) training in family law each year. — Resolution operates a complaints procedure, through which lawyers, clients and the other party to a dispute can complain if they believe the Resolution member has breached the Code of Practice64. Sanctions include removing people from membership of Resolution.

General Concerns About The Bill

9. We have a general concern that the proposed structure will create a very complex landscape which consumers will find as confusing as the existing regulatory framework.

10. We have a number of concerns about the lack of detail on the face of the bill. There is no definition of what constitutes regulatory activities. We believe that this is essential, as there is a lack of clarity about what constitutes regulatory activity and representation or non-regulatory activity by the current regulatory bodies. This lack of clarity may lead to a risk that some of the non-regulatory activities of bodies such as Resolution may be caught unintentionally within the regulatory framework. We have concerns about the place of Resolution and other voluntary legal associations in the future landscape of legal services and about the potential “knock-on” eVects of the bill, when enacted, on ourselves and other similar voluntary legal associations.

11. We are also concerned that the lack of detail on the face of the bill gives very wide ranging and potentially unrestrained powers to the new Legal Services Board. For example in clause 34, the Board appears to have extremely wide discretion to give an intervention direction (“that the approved regulator has failed to perform any of its regulatory functions to an adequate standard”). This clause and many similar clauses giving the Board its powers under Part 4 are very vague and there appear to be no mechanisms to challenge most of the Board’s powers or its decisions to take action. Far more definition of the Board’s powers and when it can act is needed on the face of the bill. If further and better definition is not given, there is a danger of future legal disputes between the front line regulators and the LSB. We would also be opposed to further definition being given in secondary legislation, as we believe the powers and responsibilities of the Board should be clearly spelt out in primarily legislation.

64 The Law Society does not consider complaints concerning breaches of the Family Law Protocol, in which Resolution’s Code of Practice is incorporated. Nor does the Law Society consider complaints from the other party to proceedings. 3435523127 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Specific Issues Arising from the Legal Services Bill

Clause 1

12. We welcome the regulatory objectives set out in Clause 1. However, we believe that these do not go far enough. A key regulatory objective must be to ensure a fully independent legal profession that can act in the best interests of its clients without fear or favour. The current wording “authorised persons . . . should act with independence and integrity” in clause 1(3)(a), which sets out the professional principles, does not go far enough to ensure that the regulatory regime itself promotes and protects the independence of the legal profession. The principle of an independent legal profession must be spelt out in the regulatory objectives in Clause 1(1).

Clause 3

13. We object to the proviso that the Board “must, so far as is reasonably practicable, act in a way—which is compatible with the regulatory objectives”. There should be no compromise on the Board’s obligations to uphold the regulatory principles. 14. The same principle applies to Clause 23, covering the Approved Regulator’s duty to promote the regulatory objectives.

Clause 7

15. We welcome the proposal to establish the Consumer Panel. The Bill envisages that the Panel will be appointed by the Board, however there must be a mechanism for removing members of the Consumer Panel or calling them to account. The term of members of the Consumer Panel would be expected to serve should be set out in the bill. There should also be a requirement that the Consumer Panel publishes its advice and representations to ensure there is transparency about its deliberations. 16. In addition to the establishment of the Consumer Panel, we believe that there should be a duty on the Board to consult with the legal associations as representative bodies of lawyers. 17. The Law Society is able to represent the interests of solicitors across the board, however, it is not always able to represent the interests of particular sectors of the solicitors’ profession—indeed the Society may have internal conflicts in trying to represent the interests of all solicitors. As solicitors become more specialised, encouraged by Government policy as well as by market forces, the Law Society is less able to represent the interests of particular sections of the solicitors’ profession. The growth and increasing importance of legal associations, such as Resolution, demonstrates the need for specialist sections of the professions. These groups have had an increasing role in developing and setting standards in their particular area of work. 18. Resolution would want to see a more defined and enhanced role for legal associations in the new regulatory framework. This role should be defined in statute. We would welcome a legislative provision that enables the Legal Services Board to have a process by which they recognise independent legal associations and can have a formal relationship with them. 19. We believe that this is important, as many legal associations have a role in setting standards for their members, and often by extension, for the particular branch of the profession they represent. They are also uniquely able to represent the views of their particular branch of the profession. Resolution supports the continuing representative function of the Law Society, which we see as vital in representing the interests of the profession and its clients as a whole. However, the Law Society is often not able to represent the interests of a particular section of the solicitors profession—and indeed, may have conflicts of interest between diVerent sections of the profession. 20. Therefore, while the professional bodies may have a continuing role in representing their armof the profession generically, specialist associations should be recognised as representing the part of the profession they cover. The new regulator should have a duty to consult the legal associations. These should be defined by in statute, taking into account particular criteria, such as having a majority of legally qualified members, having entrance requirements that relate to the discipline the particular legal association represents, having evidence of enforceable quality standards and having a democratic constitution. 3435523127 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Clauses 16, 43 and 138 21. One of the prime purposes of the bill is to draw a clear distinction between the regulatory and representative functions of the approved regulator. This bill fails to do that; in fact it further confuses the issue. There is a real lack of clarity about what constitutes regulatory activities and what constitutes non-regulatory and/or representational activities. We believe that there should be a definition of what constitutes regulatory activity on the face of the bill. 22. Resolution is concerned about the position of accreditation schemes under this bill. Resolution runs a well established and well respected accreditation scheme for family lawyers. Accreditation schemes are intended to help members of the public to identify accredited specialists and to set standards against which practitioners can be accredited . Other than in immigration, accreditation schemes are entirely voluntary, and must remain so, as the standards (eg five years post qualification experience, a minimum hours per annumpractising in the particular area of law) mean that many solicitors would not be eligible to apply to join. 23. It is not appropriate therefore for accreditation to come under the regulatory framework. Nor is it appropriate for accreditation to be a matter for which the approved regulators should be able to levy a mandatory practising fee. This would lead to the perverse situation where all lawyers were paying for a small proportion of their profession who were eligible to join and who choose to accredit. This would in eVect constitute a mandatory subsidy and would as such be anti-competitive. 24. Resolution believes that accreditation should remain on the existing “pay-as-you-go” basis and should not be part of either the regulatory framework or included in the practising fee. 25. We also do not believe it is appropriate for the approved bodies to regulate accreditation. These are voluntary schemes, often helping practitioners to market their practices, and therefore do not fall within the regulatory framework.

Schedule 1 26. In common with many other commentators, Resolution is concerned that the proposed arrangements for appointing the Board are too close to Government and do not guarantee suYcient independence. We believe that the Chair and members of the Board should be appointed by the Commissioner for Public Appointments and not by the Secretary of State or any other Government minister. To do otherwise would give the impression of undue government interference in the appointment of the Chair and members of the Board. These appointments must be completely independent of Government. 27. We also believe that the LSB should be a Non-Governmental Public Body, at arms length from any Government department, albeit under the general supervision of the appropriate government department, but without day to day operational interference.

Alternative Business Structures 28. Resolution welcomes the opening up of the legal services market, in particular the opportunities this could provide for legal services providers to experiment with other ways of delivering services and working in partnership with related disciplines. 29. However, the establishment of Alternative Business Structures is a new and radical departure fromthe traditional structures of legal services providers. For this reason, we believe that the approach the government takes to Alternative Business Structures should be a gradual, staged process. 30. We are concerned that the provisions for approving licensed bodies are too vague. Until there is further experience of the ABS market, only professional bodies with experience of regulating professional persons should be approved as licensing bodies. 31. Given the complexity of regulating such structures, Resolution also believes that there should be a requirement that non-lawyer partners of licensed bodies be members of a professional body that is able to discipline them, including striking them oV. 32. There is a distinction between Legal Disciplinary Partnerships and Multi-Disciplinary Partnerships and allowing external ownership or investment in a legal practice. We would be concerned that large commercial concerns might seek to take over those areas of solicitors work that are profitable, leaving less profitable areas, particularly areas such as social welfare law or publicly funded work, vulnerable, reducing access to justice and increasing the so-called advice deserts. Until there is considerably more experience of Alternative Business Structures, we believe that companies and corporate bodies should not be allowed to have any ownership stake in licensed bodies. 3435523127 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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33. Again, until there is greater experience of ABS we believe that lawyers should be the majority owners of any licensed body in the early stages of the introduction of ABSs. We also believe that the LSB should regulate and monitor the number of lawyers in an ABS firm. 34. We are concerned that consumers may not understand the ownership of licensed bodies. It should be a requirement that licensed bodies should publish clearly to all clients and potential clients, who are the owners of the licensed body. The connections between the owners of licensed bodies and other related businesses, such as estate agencies, should also be made clear to clients and prospective clients of the licensed body. 35. We would think that it is axiomatic that the proposed Head of Legal Practice should be a lawyer. 36. The Not-For-Profit (NFP) sector should fall within the regulatory scope of the LSB and ABS licensing. Where ABS licensing requirements are waived for the NFP sector, legal firms that are operating in the public interest, by for example, providing publicly funded work, should also be exempted.

Complaints handling 37. When the OLC is established there will need to be wide ranging consultation about the scope of its powers and its jurisdiction on complaints, sanctions and enforcement to avoid duplication with and confusion between the authorised bodies and the OLC.

Costs of the new regulatory system 38. We have very significant concerns about the costs of the new regulatory system. Under the current proposals, costs for the new LSB will be passed onto legal services providers and therefore onto clients. We are concerned that the this new structure will prove to be very expensive. The start up costs in particular will be a large additional expenditure. We believe that these start up costs should be born by government or at the very least shared between the government and the existing regulatory bodies. 39. Legal aid practices operate on increasingly tight margins and it has been made clear that there is little if any prospect of increased remuneration for publicly funded work, despite the fact that legal aid rates have been frozen for many years now. These firms are unable to raise additional revenue to meet those additional costs, and margins will be squeezed even further. We believe that there should be some special arrangements made for legal aid practices to bear the increased costs of regulation. June 2006

Memorandum by the RMT (Ev 78) The RMT (“the Union”) welcomes this opportunity to submit evidence to the Joint Committee on the Draft Legal Services Bill. The Union wishes to support the regulatory objectives of the Bill. However the Union is deeply concerned that although this Bill is not intentionally aimed at the legal services it provides its members, and that its own structure and legal services are already regulated, should the wording of the Act not be amended, the Union could well be swept up in an unnecessary bureaucratic nightmare dramatically restricting the service it provides it members. This Union therefore requests that trade unions are exempt from this Bill. Should this be deemed not possible, we request a firm commitment that trade unions would be considered as a “special kind of body” such as provided for the “not for profit” bodies for a waiver or modification of requirements under this Bill. This Union supports the TUC submission and does not wish to merely repeat the case as set out. However the Union felt that it was important to add its voice of concern as an independent trade union. The Legal Services Bill purports to give a distinction between “reserved legal activity” and “legal activity”. The Union uses the services of solicitors and barristers when it supports a case going to court and thereby notionally may avoid coming under “reserved activity” itself. However the Compensation Bill clearly intends to bring in “case management” companies and we do refer on to the firms of solicitors we have funding arrangements with our members who have personal injury claims. Therefore the Union believes it will be pulled in by this legislation and have to be submitted to the same level of regulation as that of any commercial legal provider. We wish to remind the Joint Committee that: — Our provision of legal services is purely discretionary. — The legal services provided are only in a limited sphere related to employment matters and personal injury. — The legal services provided are only to members (and to immediate family for personal injury). 3435523128 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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— There is an appeal process when the member is not happy with the advice or level of service. — The member can complain to the General Secretary and Council of Executives about the advice received and level of service. — The service is provided at no cost to the Member. All these points would indicate that we are in a diVerent category to that of commercial legal providers. The Union is particularly concerned that the legislation could easily request regulation for all “legal activity” which would lead to a paralysis of our ability to provide any kind of “legal” advice; our hands would be tied in red tape fromshop floor to Head O Yce. The Union cannot help but conclude that exemption of trade unions from this legislation would be a way to avoid unnecessary stress and worry for our members and requests that the Committee supports this amendment to the legislation. June 2006

Memorandum by ROCAS, Reform and Complaints Against Solicitors (Ev 13) Please see evidence fromROCAS set out below under the formatrequested in t he Call for Evidence dated 25 May 2006.

The Bill—Overall 1. Whether the draft bill’s proposals are necessary, workable and suYcient; and whether the bills proposed outcomes could be achieved by better means. ROCAS welcomes this necessary and long awaited draft Bill. There are some areas where we believe it is unworkable and insuYcient. (a) Firstly, if complainants have to go back to the lawyer complained of in the first instance, this could mean that problems resulting from the existing system will continue. By way of background, the in-house systemwith PR15 was supported by the O Yce for the Supervision of Solicitors when they were overwhelmed by the sheer number of complaints and could not meet the backlog. Those who have had experience of bringing a complaint against a solicitor or barrister would never propose continuing with this system. It is understandable that a member of the Accountancy profession might assume that what works for Financial Services would also work for Legal Services and would be cost eVective. Unfortunately, ROCAS and others maintain that having to go back to the solicitor to complain in the first instance would not speed up the process, bring satisfactory results for the complainant, or be cost eVective. If the systemis to be independent then let it be truly independent f romstart to finish. It is now widely recognised that an eVective independent complaints handling system would serve to enhance the standing of the Legal Profession. The position of solicitors in our society is unique in that solicitors are the gateway to remedies available to the citizen who has suVered a legal wrong. The responsibility that this principle entails has brought the solicitor a status and power commensurate with such responsibility. A client who brings a complaint against a solicitor is severely disadvantaged. The relationship between the client and solicitor is one of mutual confidence and trust, with the solicitor having knowledge of a client’s personal and financial circumstances. Many clients are inexperienced. The solicitor may err on the side of not informing clients suYciently and in most cases will keep better records. Solicitors may have more legal knowledge and are familiar with the courts and understand the rules and procedures. They carry insurance. They are in a position where it might be possible for them to generate evidence, for example in the form of notes. If a client has a medical or financial complaint, he can turn to a lawyer for help. Unfortunately, as experience has shown time and time again, he cannot turn to another lawyer with any hope of getting real help if he has a legal complaint. ROCAS has always spoken out strongly against complainants having to go back to the lawyer complained about in the first instance. In the twelve years we have been campaigning for independent investigation and adjudication of complaints, we have only come across one complainant who complained purely about poor service. All the other complaints have included elements of misconduct and or negligence. This overlap is now recognised. ROCAS maintains that where there is also misconduct and or negligence, having to go back to the solicitor complained of is not an option. Not only can the complainant be too afraid to go back, but it also gives the opportunity for the complaint to become complex and confused. 3435523129 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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If the aim is to solve complaints (as opposed to closing cases) in the most cost eVective way in a reasonable period of time, then ROCAS maintains it is essential to establish what the complaint is about right at the beginning. In order to do this, there needs to be an oral interview with the complainant, conducted locally by a trained lay investigator who will be able to ascertain whether there is in fact the substance of a complaint and if so to help with its presentation. It would also help to have local registrars who could adjudicate the complaint if the issue is a simple one, leaving time for the more serious complaints to be adjudicated centrally. Our thoughts on this are set out more fully in the blueprint we produced. (Please see attached) [Submitted but not printed]. In the event that complainants do use the in-house system, which we believe they should not have to do, the specified circumstances where they do not need to use the in-house systemshould be set out. (b) Secondly, Section 112 (9) fails to deal with attempts to stop a complaint frombeing investigated, or to interrupt it, for example by the solicitor suing the client. It is also seems questionable constitutionally to try and block recourse to judicial review after a complaint has been dealt with. Complainants should also be able to take action for negligence after a complaint is finalised if losses exceed £20,000. (c) Thirdly, will the draft Bill allow for outstanding complaints to be handled by the OLC once it is launched? (See 102 (5)) 2. Views on the Government’s estimate of costs contained in the Regulatory Impact Assessment Unless the correct systemis followed for investigating complaintsin the first place and dealing with as many of them locally as possible, perhaps on a regional or sub-regional basis, the costs are likely to soar. With regard to para 6.41 ROCAS maintains that having the OLC in the North of England and operating frommultiplesites could prove less expensive than having one HQ. It is important to break any link with Leamington Spa and current managers of case-workers, and not to have “case-workers” as such but trained lay investigators and registrars. Incidentally, the Law Society has already abolished the term “case-worker” and refers to Customer Complaints Executives.

Regulatory Objectives 3. These appear to be appropriate.

Legal Services Board 4. Overall, whether proposals for the regulatory body are fit for purpose. ROCAS asks that the Chairman should always be a lay person. (see Schedule 1. 2.(2). We welcome the Consumer Panel and are grateful to Which and the National Consumer Association for the work they have done in the past and for their continuing role.

Alternative Business Structures No comment.

Office for Legal Complaints Overall whether the proposed OYce for Legal Complaints (OLC) is fit for purpose: and in particular (a) The proposed structure and powers of the OLC The powers and role of OLC members do not seem to be explained. Section 105 (2) The time limits that are set must be reasonable and specified circumstances when they can be extended should be set out. Previously time limits have often been unreasonable for the complainant. Target chasing can mean that quality is impaired. Complainants need fair results and are prepared to wait if this takes time, unless urgent reasons indicate otherwise. Section 105 (5) (a) enables the OLC to make scheme rules that exclude complaints of a specified description from the jurisdiction of the ombudsman scheme, and section 105 (5) (c) enables the OLC to dismiss the whole or part of a complaint in circumstances specified in section 105 (6). What type of complaints will be excluded under section 105 (5) (a)? Under section 105 (6) how will the determination be reached that 3435523129 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 a case is frivolous or without merit or that there are other compelling reasons for not dealing with the complaint? Will this result from the in-house process or the case-worker’s handling? Section 105 (5) (e) It is important that the complainant has to give consent to the referral of a complaint to another body. Section 109 Transparency of determinations is essential. Complainants and respondents should have the right to attend determinations. The OLC procedures do not seem likely to improve complaint handling. They appear to be very similar to those followed by the discredited previous and current systems. In particular the word case-worker is discredited and should be replaced by “investigator” who really does investigate. Independence alone will not ensure that complaints are handled eVectively and fairly. The name of ombudsman for adjudicators is also misleading. It is noted that the LSO only looked at the original complaint in less than 1 per cent of cases last year. Unless the original complaint is looked at the adjudication will be meaningless. We would hope that a name other than “the ombudsman scheme” can be chosen as many complainants have had a bad experience of taking a complaint to the Legal Services Ombudsman. Few have had their complaint re-investigated. This has been unsatisfactory, particularly when the complaint has never been properly investigated in the first place. We suggest a possible name could be the Lay Adjudicator’s Scheme. We welcome the aim of the Bill for certain disputes to be resolved quickly and with the minimum of formality by an independent person. However, if complainants have to go back to the lawyer complained of first and the case-worker deals with most of the cases and the ombudsman only sees those complaints that are referred to him/her by the complainant or respondent, there is concern that this will not be able to be achieved satisfactorily. (b) Compensation arrangements and limits. Lawyers seemto be treated as a special case in this respect with far lower le vels of compensation than that for Financial Services (£48,000) and Financial Ombudsman Scheme (£100,000). The present systemallows for a reduction in costs without limit. The £20,000 limit includes any reduction of costs and is therefore more restrictive than the present system. The proposed limit will not therefore improve the system for some complainants. Complainants would like reassurance that (i) awards will be made of £20,000 where it is thought fit; so far although the limits have been raised, awards do not appear to have been raised; (ii) if the limit of £20,000 needs raising it will be raised; and (iii) taxation of costs will continue to be available. The quantity of work should be assessed by the taxation process whilst the OLC ombudsman should consider the quality of the work. A reduction of costs should be available for poor quality even after a bill is reduced by taxation. Section 113 (3) provides that if a respondent fails to comply with any other direction under section 109 the complainant may make an application to the court under this subsection. It is not clear what the fee would be for this and who would pay? It would be better to allow the OLC to make an application to the court at the request of the complainant. (c) Whether an appeals process is required. The answer is yes. Judicial Review is not an option for most complainants because it is a potentially expensive and complex legal process. An internal review system might be possible whereby diVerent oYcers of the OLC review a complaint at the request of either party. But there must besuYcient resources to enable themto re-investigate and involve the complainantand respondent . Alternatively the Legal Services Ombudsman could be retained with suYcient resources to reinvestigate complaints. (d) The conditions and level of respondent’s fees. Section 106 provides the framework but it seems the rules for conditions and levels of respondent’s fees are still to be set. It would seemfair that respondents should only have to p ay where a complaint is upheld against them. 3435523129 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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This completes our evidence. We hope it will be well received by members of the Joint Parliamentary Committee. ROCAS would be happy to provide any further clarification and explanation about our evidence. Mrs Charmian Spickernell ROCAS Coordinator 12 June 2006

Memorandum by RICS, the Royal Institute of Chartered Surveyors (Ev 53) The RICS is broadly in agreement with the approach set out in the draft Bill. However, it is concerned that in a number of key areas of interaction with the [consumer] public, there appears to be little thought given to opening up competition to properly regulated professionals outside the legal sector. The approach adopted elsewhere in implementation is to encourage open access whilst preserving standards and adequately protecting the public. We believe the approach envisaged by the draft bill does not reflect a proportionate approach in that it potentially reduces consumer choice; this should be revisited. We believe there is a lack of clarity as to what would be brought within the scope of the regulatory regime proposed in the case of a primarily non-legal business providing an ancillary legal service. There appears to be a suggestion that such an entity would fall within the legal regulatory regime which clearly would not be the appropriate regulator for non-legal activities. We believe that suitable front line regulators outside the legal regulatory sphere could and should eVectively regulatory such businesses. We would be happy to discuss these matters in greater depth if that would be helpful. 15 June 2006

Memorandum by the Society of Legal Scholars (Ev 74)

1. Introduction The Society of Legal Scholars (SLS) (formerly the SPTL—the Society of Public Teachers of Law) is a learned society whose members teach law in a university or similar institution or who are otherwise engaged in legal scholarship. It is the largest such learned society in the field of law, with over 2,700 members. Most members of the Society are legal academics, though members of the senior judiciary and members of the legal professions also participate regularly in its work. The Society was founded in 1908 and is the oldest professional association of academic lawyers in the UK. The Society’s membership is drawn fromall jurisdictions in the British Isles but also includes aYliated members typically working in other common law systems. 2. SLS is very grateful to the clerks of the Joint Committee for agreeing to receive our written evidence at this late stage. SLS has two main concerns in relation to the Bill. First, in relation to the Regulatory Objectives as defined in clause 1(1) and second with respect to the regulation of Education, Training and Admissions to the legal profession when the Bill comes into force.

3. Regulatory Objectives Clause 1(1) defines these as: (a) supporting the constitutional principle of the rule of law; (b) improving access to justice; (c) protecting and promoting the interests of consumers; (d) promoting competition in the provision of [reserved legal activities]; (e) encouraging a strong, diverse and eVective legal profession; (f) increasing public understanding of the citizens’ legal rights and duties; and (g) promoting and maintaining adherence to the professional principles. 4. The professional principles are defined in clause 1(3) as: (a) that persons who are authorised persons in relation to activities which are reserved activities should act with independence and integrity; 3435523131 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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(b) that such persons should act in the best interests of their clients; and (c) that the aVairs of clients should be kept confidential. 5. It is not immediately obvious to us why only three professional principles were endorsed as opposed to more of the core values of the legal profession. These include not merely safeguarding the client’s secrets but also the client’s property. Moreover, the duty to maintain confidentiality has now to be balanced against a duty of disclosure. Equally the duties to act in the client’s best interest and to be loyal, diligent, competent and to avoid making secret profits have to be set against the need to be independent and to observe duties to third parties, professional colleagues and to the Court. 6. Clearly the Legal Services Board is being expected to balance seven highly complex regulatory objectives against each other with no guidance fromParliament.This is an approach wh ich has not always worked well in other areas of legal regulation (for example see the very general checklist for the determination of ancillary relief applications on divorce in England and Wales—see Matrimonial Causes Act 1973, section 25). We believe that it would have been better to prioritise amongst the seven objectives eg by giving greater weight to heads (a) and (g). 7. We believe that the first clause of the bill should be redrafted to take account of the wider core values of the profession and to give a primacy to heads (a) and (g) over the other regulatory objectives. This would give a priority to safeguarding the independence of the profession.

8. Regulation of Education,Training and Admission The current Bill is drafted as if the regulatory framework for this area in relation to the two branches of the legal profession consists of the Secretary of State for Constitutional AVairs. Thus it simply replaces the Secretary of State by the Legal Services Board. 9. Unfortunately, this is a considerable oversimplification. At present the Secretary of State is assisted by the Legal Services Consultative Panel—a body of 18 consumer representatives, legal practitioners and legal academics chaired by a senior judge—established by section 35 of the Access to Justice Act 1999. The statutory duties of the Panel include: (a) assisting in the maintenance and development of standards in the education, training and conduct of persons oVering legal services and (b) providing advice to the Secretary of State about particular matters relating to any aspect of the provision of legal services, including education, training. 10. Over the last few years the Panel has been constantly active in dealing with matters relating to rights of audience, standards and conduct—eg they have had to consider and comment on a complete overhaul of the Law Society’s ethical rules and principles—and legal education. In relation to the last matter the Panel has been pursuing important measures designed to enhance diversity in the legal profession. They are likely shortly to have to consider new proposals fromthe Bar with respect to the Bar Vocati onal Course and, depending on the progress of the Bill, may yet have to consider the Law Society’s much contested Training Framework Review. 11. To this has to be added the fact that whenever the professional bodies wish to make significant alterations to the content of the university law degrees which qualify entrants for the profession, they must first negotiate these with the leading organisations and learned societies in legal academia (in particular with SLS and with the Committee of Heads of University Law Schools, CHULS). The resulting Joint Statement of the Bar and the Law Society is then referred by the Secretary of State to the Legal Services Consultative Panel for consideration. The Panel in turn is assisted in its activities concerning legal education and training by the Standing Conference on Legal Education—a body of 50 or so representatives fromthe professional bodies, providers, and funders of legal education. 12. It will be clear that the current regulatory framework in the area is a highly developed series of checks and balances with ample input from all the key stakeholders, including legal academia, which has been developed over a period of years. In general the regime has worked reasonably well, and to the benefit of consumers, the profession and the universities. Regrettably, earlier suggestions for replacing the Consultative Panel do not appear in the Bill. Indeed the Bill sweeps away the whole of the current regulatory framework and replaces it simply with the Legal Services Board, which may contain no expertise in the field of legal education and training. 13. The Society of Legal Scholars does not consider that the Bill’s proposals in this regard are workable. The regulatory vacuumwhich it will create is likely to lead to growing tension between the professional bodies and the universities. Far fromthe Board being expected to operate as a light to uch regulator, it will, on a regular basis be brought in to arbitrate between them, without the time or expertise to do so. We do not believe that it is in the consumer’s or the public’s interest for matters aVecting the diversity and training of lawyers (eg 3435523131 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 safeguarding a curriculumwhich will produce the legal aid lawyers of tomo rrow for the High Street as well as the commercial lawyers for the City, and indeed the judges of the future) to be jeopardised in this way, and for the nuanced balance of power which pertains today to be destroyed by the removal of the current robust and expert framework. We believe that the Board should be expressly enjoined to establish a successor to the Consultative Panel and the Standing Conference on Legal Education. The Committee of Heads of University Law Schools has indicated that it is in complete agreement with this submission. June 2006

Memorandum by the Solicitors Disciplinary Tribunal (Ev 69)

Preliminary Comments

The Solicitor’s Disciplinary Tribunal (“SDT”) is at present constituted under Section 46 of the Solicitor’s Act 1974 (the “Act”). The Act set up an independent statutory Tribunal for the hearing and determination of cases of professional misconduct by solicitors, a jurisdiction which has subsequently been extended to registered foreign lawyers and registered European lawyers. The SDT is essential1y a judicial body. Appeals fromits decisions go to the High Court. The SDT also has jurisdiction over employees of solicitors, that is, those who are employed or remunerated by solicitors in connection with their professional practice. This jurisdiction is however only a matter of control over the continued employment of such persons within the profession without the consent of The Law Society. The Law Society is the prosecutor in a high proportion of cases coming before the SDT but there is a continuing right of any person to bring a case of professional misconduct against a solicitor and this right is not limited in any way. The SDT is constitutionally wholly independent of The Law Society though at present its administration is funded by the Law Society. None of its members are permitted to be members of the Council of The Law Society. The panel of solicitor members and of lay members is appointed by the Master of the RoBs and as a matter of convention on the recommendation of a senior civil service commissioner. Solicitor members are at present unremunerated; lay members are remunerated from public funds. Each Tribunal hearing of two Solicitors and one lay member is chaired by one of the Solicitor members. The Clementi Report issued in 2004 recommended that appeals against decisions made by The Law Society as regulator (eg the imposition of conditions on a practising certificate) should go to the High Court rather than to the Master of the Rolls. The SDT supports this recommendation. The Law Society has sought to have such appeals heard by the SDT and it may be suggested that the Bill contain provisions to this eVect. This is opposed by the Tribunal and by the MR. The Clementi Report also recommended that “each disciplinary Tribunal should be required to review its powers and to provide a report annually to the Legal Services Board including statistical information on the number of cases dealt with and the outcome”. The SDT has produced an annual report for many years and in its most recent report for the year to 30 April 2006 it included a review of its powers. A copy of the annual report is attached. [Not submitted] Subject to these matters, the overall conclusion of the Clementi Report was that “the existing disciplinary systemworks reasonably well and should, subject to only a few changes, be l eft broadly, as it is. The White Paper published by the DcA in October: 2005 at paragraph 8.12 states: “Under the new arrangements, the Legal Services Board will . . . oversee disciplinary arrangements as with other regulatory functions. In his final report Sir David Clementi found that the existing disciplinary arrangements were broadly working well and should not be radically altered but he recommended a number of modifications to ensure consumer confidence. The Government has accepted his recommendations.” The White Paper stated “Legislation will provide that: — each Tribunal should review its powers and provide an annual report to the LSB; — the LSB or the relevant Tribunal will be able to recommend to the Secretary of State variations of its powers and procedures; and — the Secretary of State will be able to amend the powers or procedures of Tribunals by secondary legislation subject to parliamentary approval.” 3435523132 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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The Bill The draft Legal Services Bill contains at present one section only which relates to the SDT, that is to say Section 136. However, the Section itself incorporates by reference parts of Sections 25, 26 and 27 of the Bill, some modifications of paragraphs 22 to 29 of Schedule 5 and parts of Schedule 7. Parts of Sections 57 and 58 also have some application to the SDT. The proposed changes seemto the SDT to be a case of legislative overkill wit hout any significant advantage. They are cumbersome, in parts obscure and would hardly win a prize for being written in plain English. The legislative purpose, as recommended by Clementi and accepted by the Government, is that changes should achieve the three purposes stated at paragraph 8.12 of the White Paper:

1. Each Tribunal should Review its Powers and Provide an Annual Report to the LSB The SDT of course has no objection to this at all as it has been providing a detailed annual report for many years. This is given some publicity. Copies are invariably sent to The Law Society, the Master of the RoBs and the Legal Services Ombudsman and in the past copies have been sent to the Lord Chancellor’s Department and more recently to the Department of Constitutional AVairs. No comments have ever been received in living memory with regard to any of these reports. In the current year’s report the SDT has reviewed its powers and procedures which was considered by a1l Tribunal members at its annual general meeting. The Bill does not appear to provide for a statutory requirement that the annual report should be delivered to the LSB. The SDT has no objection and would of course deliver a copy of its report to the LSB whether or not required to do so by law.

2. The LSB or the Relevant Tribunal will be Able to Recommend to the Secretary of State Variations of its Powers and Procednres At present the SDT makes changes to its procedures by folJowing the requirements of Section 46 which alJows the SDT to alter its procedural rules which following approval by the Master of the Rolls, becomes a statutory instrument. The Tribunal has recently altered its rules ih order to modernise themand new rules are about to be introduced. The procedure in the Bill for adopting new rules seems to the Tribunal to be unduly cumbersome. Would it not be suYcient simply to state that the Tribunal may make new rules for the regulation of its own procedures subject to the approval of the LSB and the Master ofthe Rolls.

3. Amendment of Powers and Procedures The Tribunal’s powers were stated at paragraph 73 of the Clementi Report though with one important omission, namely that the Tribunal has power to strike a solicitor oV the RolL It also has power to remove registration froma registered foreign or European lawyer. The powers tha t the Tribunal can exercise are therefore to strike oV, to suspend indefinitely or for a period, to fine (subject to limits laid down by Parliament) and to reprimand. In theory it has power to make any other order which it may deemto be just. The Tribunal has the power to award costs in its discretion. Its power to control those employed or remunerated by solicitors is limited to requiring a solicitor not knowingly to employ a person against whoman order has been made without first obtaining the consent of The Law Society. Those who are employed by solicitors may also be members of other regulatory bodies such as the Institute of Legal Executives who have their own disciplinary rules. The SDT is not aware that it needs any other significant powers but it would not object to the conferment of such powers on it if they were sensible and workable. In its current review of powers the SDT has sought a higher level of fine but it has at present no other material changes to suggest to its powers. The Secretary of State would under the Bill be able to amend the powers or procedures of Tribunals by secondary legislation subject to parliamentary approval. It is not clear whether the White Paper contemplated that this was simply to provide the mechanism for the achievement of the second objective or whether a Secretary of State is now seeking a right to impose new powers and procedures not recommended by the LSB. In the latter event, it does seemto the SDT that the powers being sought are e xcessive unnecessarily cumbersome and bureaucratic and provide a legislative framework which is far more complicated and expensive both in time and eVort than is called for. It would result in worse not better regulation. If, as Clementi says, the SDT works reasonably well (the SDT though biased thinks that was somewhat un generous) then the need for significant change to the way in which the Tribunal’s powers and procedures are articulated needs no very great legislative eVort. If the Board is to be entitled to give Notice of an exempt 3435523133 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 alteration, it is not clear what useful financial Section 136 (2)( c) performs. It undermines the authority of the LSB and the SDT’s judicial independence. The SDT therefore proposes that in order to advance the objectives of the Clementi Report as stated in the White Paper, Section 136 should be amended as follows: 1. Delete the whole section and substitute: 136 The Solicitors Disciplinary Tribunal (i) If the Solicitors Disciplinary Tribunal (the “Tribunal”) makes an alteration of its rules under Section 46 (9)(b) of the Solicitor’s Act 1947 c 47 (“the Tribunal Rules”) the alteration does not have eVect unless it is approved for the purposes of this Act. (ii) An alteration is approved for the purposes of this Act if it is approved by the Board and the Master of the Rolls. (iii) The Board may, after consultation with the Tribunal, require the Tribunal to change its powers and procedures in accordance with a Direction (“an Exempt Direction”) which shall, subject to paragraph (iv), take eVect on and fromthe date stated in the Direction (being a date not earlier tha n the expiry of three months from the date on which the Direction is made). (iv) If the Tribunal shall submit to the Board a reasoned objection to the Direction the same shall not take eVect until the Board has obtained and considered the advice of the persons named in paragraphs 5(2) and (3) of Schedule 5 given in accordance with paragraphs 6 to 11 of that Sched ule and thereafter aYrmed the direction as an Exempt Direction. (v) References in this Section to “alteration” shall include the making or modification or revocation of rules. 22 June 2006

Memorandum by William S Taylor (Ev 16) I am a member of ROCAS and CASIA and have had experience of the legal complaints systemas a complainant. I enclose a copy of the evidence submitted by ROCAS to the Joint Committee [Printed as Ev 13]. I fully support and agree with the ROCAS evidence. In addition to supporting the ROCAS evidence there is some further evidence that I wish to present to the Joint Committee. This evidence is set out below under the issues referred to in the Call for Evidence.

The Bill—Overall

2. Views on the Government’s estimate of costs contained in the Regulatory Impact Assessment I consider that it is likely that a fair, eVective and independent complaints system will have a long term eVect of acting as a deterrent to the behaviour by the legal professions that gives rise to complaints. The present complaints system seems to have little or no deterrent eVect. A fall in the number of complaints resulting from deterrence of poor behaviour should ensure that the cost of complaints handling also falls.

Alternative Business Structures 5. The ability and desirability of the proposed new Alternative Business Structures in: (a) opening up the market for legal services; and (b) delivering consumer benefits. I welcome the proposals for Alternative Business Structures. Most organisations operate far more eVective complaints handling procedures than the legal profession. The culture of consumer care is also better in organisations outside the legal profession. It is to be hoped that the legal profession will benefit fromworking with organisations where it is regarded as normal to put the consumer first. I have only included issues where I have evidence in addition to the ROCAS evidence. However I endorse all the ROCAS evidence including the evidence on issues where I have not provided additional evidence. 3435523134 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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I hope that my evidence and the ROCAS evidence is well received by the Joint Committee. I am happy to provide further explanation and clarification regarding my evidence and the ROCAS evidence. 14 June 2006

Memorandum by the TUC (Ev 57) Introduction

The Trades Union Congress (TUC) represents 67 unions, with a total of nearly 6.5 million members. Members of TUC aYliated unions are employed in a wide range of occupations and industries in the UK and include full and part time workers. Trade unions have a vital role to play in supporting individuals at work and seeking to resolve disputes in the workplace and in promoting good industrial relations through collective bargaining. Where negotiations fail to settle disputes in the workplace, as a last resort unions will represent members in Employment Tribunals claims and in the courts in personal injury cases. The TUC welcomes the appointment of the Joint Committee to scrutinise the detail of a wide-ranging and complex piece of legislation prior to the commencement of formal Parliamentary consideration of the Bill. We welcome the opportunity to make a written submission for the Committee’s consideration.

Executive Summary

The draft Legal Services Bill seeks to introduce a new streamlined and eVective systemof regulation of legal services. It will introduce important new protections for consumers. The TUC fully supports the principle that the provision of formal legal services should be eVectively regulated. Trade unions are firmly committed to maintaining the highest standards of service and representation to members. As currently drafted, the Legal Services Bill is likely to apply to trade unions, particularly if the list of “reserved legal activities” is extended to include claim management activities as covered by the Compensation Bill. However, in our view the Legal Services Bill fails to recognise the distinctive nature of trade unions. The primary role of trade unions is to promote good industrial relations, to protect members interests and to work for improved working conditions and not the provision of legal advice or services. Where problems arise at work, unions will seek to use their collective bargaining strength and use internal workplace procedures to ensure that disputes are resolved swiftly and amicably and in a manner which preserves individuals’ employment. Unions will only resort to litigation as a matter of last resort. The TUC’s principal concern with the Legal Services Bill is that it would not simply regulate the provision of formal or reserved legal activities conducted by trade unions. The new systemof regulation could also extend to the informal advice and representation provided by union oYcials and representatives in UK workplaces. This could significantly restrict the ability of unions to represent their members’ interests and to assist in the resolution of employment disputes. It would also impose very substantial regulatory burdens on trade unions. The Bill fails to recognise that trade unions are distinctive to other organisations which provide legal services and advice: — Unlike general advice agencies or commercial law firms, unions are membership-based organisations. All legal services provided by unions are limited to union members or, in exceptional cases, for the immediate family of members. Trade unions do not oVer or provide advice or legal services to the general public. We therefore do not consider it appropriate for unions to be regulated in the same manner as general advice agencies or commercial firms. — Unions are also accountable to their members through their democratic structures, the provisions of their rule books and through the oversight of the Certification OYcer. — Trade unions are already heavily regulated by legislation in terms of their legal status and their internal organisation. It would therefore be diYcult if not impossible to extend the “alternative business structure” provisions to unions. The TUC therefore believes additional levels of regulation are unwarranted and that there is a strong case for exempting trade unions from the scope of the Bill. 3435523135 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Detailed Comments on the Draft Legal Services Bill As currently drafted, the Legal Services Bill is likely to apply to trade unions. Occasionally, qualified in-house trade union lawyers undertake “reserved legal activities’ as currently defined in clause 9(1) and Schedule 2 of the Bill, for example representing union members in court proceedings. Increasingly, however unions contract out reserved legal activities to external solicitors firms. The eVect of the Legal Services Bill will however take on much greater significance for trade unions if the Government implements its proposals to extend “reserved legal activities’ to include claim management activities, which it is proposed will be regulated by the Compensation Bill. This is currently being considered by the House of Lords. The explanatory notes accompanying the Compensation Bill state that: “It is anticipated that the regulation of claims management services would in due course be integrated into the proposed new regulatory framework for legal services set out in the Government’s White Paper The Future of Legal Services: Putting Consumers First (Cm6679). The TUC is currently pressing the Government to introduce an exemption for trade unions fromthe claim management provisions of the Compensation Bill. However, if a comprehensive exemption is not provided, most trades unions are likely in the future to covered by the new system of regulation proposed in the Legal Services Bill and required to comply with “alternative business structures” provisions contained in Part 5 of the draft Bill. The TUC takes the view that such regulation is inappropriate and unwarranted and that trade unions should be exempted from the Legal Services Bill. In particular, the TUC is concerned that the new systemof regulation would not simply cover “reserved legal activities” which have traditionally been regulated by the Law Society and Bar Council but will also cover a wide range of union advice and representative activities. Clause 9(3) states that for the purpose of the Bill “legal activity” means traditionally regulated legal activities and (b) any other activity which consists of one or both of the following: (i) the provision of legal advice or assistance in connection with the application of the law or with any formof resolution of legal disputes; (ii) the provision of representation in connection with any matter concerning the application of the law or any formof resolution of legal disputes. This definition would extend to advice and representation provided by union full time oYcers and workplace representatives relating to grievances and disciplinary matters and personal injury claims in workplaces across the UK. The TUC takes the view that it would be unjustified and disproportionate to extend a regulatory system designed for formal legal services to the informal processes through which unions provide advice and representation to members. The TUC believes that trade unions should be exempted from large portions of the draft Legal Services Bill.

The Case for a Trade Union Exemption

(a) The distinctive nature of trade unions The TUC would argue that as currently drafted, the Legal Services Bill fails to recognise the distinctive nature of trade unions. The primary role of trade unions is to promote good industrial relations, to protect members interests and to work for improved working conditions and not the provision of legal advice or services. Where problems arise at work, unions will seek to use their collective bargaining strength and use internal workplace procedures to ensure that disputes are resolved swiftly and amicably and in a manner which preserves individuals’ employment. Unions will only resort to litigation as a matter of last resort. This Government has always recognised that it is better to resolve disputes at work informally and without recourse to lawyers. Under existing rights to be accompanied in grievance and disciplinary procedures (s10 of the Employment Relations Act 1999) workers are barred from being represented by lawyers. It would not be in the interests of employers, workers or indeed the Government to formalise or legalise the means by which unions are able to give advice and to represent members in the workplace. The vast majority of union reps are volunteers and are elected by their peers to serve in a representative role. As such workplace reps are directly and uniquely accountable to the individuals to whomthey provide advice and representation. The TUC Education Service and other aYliated unions also provide extensive accredited training course for union oYcers, workplace reps, union learning reps and health and safety reps. They help 3435523135 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 to ensure that union reps can provide up-to-date advice on employment protection, learning and health and safety issues and that members receive eVective representation. Over the past year, the TUC Education Service training courses have been attended by over 40,000 union oYcials and workplace representatives. Trade unions are also distinctive fromother organisations providing leg al advice and services on the grounds that they are membership-based. All legal services provided by unions are limited to union members with a limited range of legal services being provided for the immediate family of union members. Unions also do not operate a fees service for union legal services provided to members. It is also important to note that trade unions are heavily and distinctively regulated by legislation, notably the Trade Union and Labour Relations (Consolidation) Act 1992. In common law, the legal nature of trade unions are based on an association of individuals bound together by a contract of membership which regulates the relationship between those members. However the 1992 Act imposes a complex overlay of statutory provisions which aVects unions’ legal status and how they are governed. For example, all property belonging to unions must be vested in trust for the union (TULRCA s 12). Under section 10(1) of the 1992 Act also states that unions cannot be incorporated, although the legislation then accords unions many of the attributes of incorporated bodies. Further, unions are required by law to elect their General Secretaries and members of the National executive Committees. As a result, it would be legally impossible for unions to establish themselves as “alternative business structures’ as required by Part 5 of the Legal Services Bill. It would also not be possible for unions to establish separate and distinct legal entities to provide legal services, as the advice and representation provided by workplace reps and union oYcials is intrinsic to every aspect of the how unions function.

(b) Existing effective regulation It is important to note that trade unions are also tightly regulated through their democratic structures, rule books and the oversight of the Certification OYcer. Unions are inherently democratic organisations, which are accountable to their members. Unions are governed by rules which are agreed by union members at annual or bi-annual conferences. Unions also have eVective complaints procedures, which members can use if they consider that they have not received eVective representation or advice by workplace representatives or oYcials. The Certification OYcer also has extensive powers to receive complaints from union members where unions have acted in breach of union rules, when providing advice or representation. Any addition layer of regulation is therefore unwarranted and would have the eVect of limiting the ability of unions to provide eVective representation to their members.

(c) International standards Under the European Convention on Human Rights and international human rights standards the UK is committed to enabling free trade unions to protect their members’ interests, including through eVective representation in the workplace. This point was confirmed by the European Court of Human Rights decision in the Wilson and Palmer cases. The TUC has concerns that this Bill could inadvertently inhibit the ability to represent their members in the workplace.

How Trade Unions Should Be Exempted In this section we seek to outline why we believe the legislation should not apply to trade unions. We make four main points. Firstly, the TUC recognises that the provision of legal services currently restricted to solicitors and barristers, including rights of audience and the conduct of litigation before the courts, should be eVectively regulated. However, in our view, in-house lawyers employed by trade unions should be treated in an equivalent manner to in-house company lawyers. In the same way as in-house lawyers only provide legal advice and services to their employing organisation, trade union in-house lawyers only provide legal services to the union and its members. Although the provisions of the draft Bill are not clear on this point, we are given to understand that separate regulators are expected to retain distinctive rules for employed lawyers, but that companies are not expected to established alternative business structures when retaining in-house legal departments. In our view, the same approach should be adopted for union legal departments. 3435523135 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Secondly, the TUC does not believe that there are any reasons to include Trade Unions within the scope of the Compensation Bill, which was intended to regulate commercial claims farmers, which unions are not. Equally unions should not be regulated under the Legal Services Bill for claims management activities. Unions exist to support workers or victims and do so not for commercial reasons, but to assist the claimant. Unlike Claims Management companies, their motive is not profit, but a genuine wish to assist those injured or made ill through work, or who have been mistreated by their employer. Thirdly, for reasons outlined above it is essential that the draft Legal Services Bill does not seek to regulate the advice and representation services provided by trade unions in workplaces which are currently covered by the definition of wider legal activities in Clause 9(3)(b). Fourthly, for reasons outlined above relating to distinctive legal status of trade unions and the existing legislative framework governing unions, it would not be feasible to require trade unions to establish alternative business structures. Therefore, the partial exemption provided in clause 88 of the Bill for not-for-profit organisations, or a union-specific exemption modelled on this provisions could not be applied to unions. June 2006

Memorandum by David Wolfe (Ev 37) Introduction 1. My name is David Wolfe. I have been a barrister in independent practice since 1992 and a member of Matrix since 2000. I am also a Commissioner with the Legal Services Commission (having been appointed by the Lord Chancellor in October 2005). However, I should stress that the observations I make below I make entirely in a personal capacity and certainly not on behalf of either Matrix or the LSC. 2. My written submissions to Sir David Clementi are available on his review group’s website. At his request, in the light of those submissions, I met privately with him for several hours to answer his questions. I welcomed much of his final report. 3. My comments below relate largely to those aspects of the subsequent draft Bill which deal with regulation of the professions including, most particularly, the only matter on which I would claimany particular knowledge, regulation of barristers. I have been provoked into submitting evidence to the Committee by reading the draft transcript of evidence given to the Committee by representatives of The Bar Council last week. 4. I am, in particular, concerned by what I sense (here and more generally) to be a considerable complacency on behalf of The Bar Council, coupled with its encouragement of the Committee for a “lighter touch” of frontline regulators by the LSB even than is apparent on the face of the draft Bill.

Should Existing Regulators Automatically become “Approved Regulators”? 5. My overarching concern about this part of the Bill, now heightened by reading The Bar Council’s oral evidence, is that it appears to proceed on the basis that, even if the current structures for regulation need changing (hence the reforms put in place by the Bill) the underlying nature and intensity of the regulatory activity which has been undertaken in the past remains essentially satisfactory and (more perhaps importantly) needs no specific scrutiny to be considered satisfactory. 6. My greatest specific concern is thus that the Bill deems existing regulators, including The Bar Council, automatically to be “approved regulators” (ie without them needing to go through any process of scrutiny). That sends out the strongest possible signal that those bodies can continue as at present—that all is well— without the need for scrutiny. In my view, the wrong message is being sent out and a critical opportunity is being missed. 7. Those concerns would perhaps be lesser if The Bar Council had a strong tradition of leading reformof itself and its processes (without any apparent conflict with its role as a trade union), and of promoting the highest standards of conduct by barristers and their organisations without there needing to be any external pressure to do so. 8. I amafraid, in myopinion, that is not the position. 9. Yes, the Bar Council has gradually got better. But, in my view, it has followed not led. It is good at seeing which way the wind is blowing. 3435523136 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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10. I noted with interest the answers given to Mr Kidney’s question (Q100) on whether the Bar had promoted internal reorganisation (the partial separation of regulatory and trade union functions) out of “conviction” or because it saw “the looming clouds”. The answer given correctly explained that the Bar had acted to separate the functions internally before publication of the Clementi Report. But Sir David Clementi had made it very clear through the consultation process of his early preference for such separation. I amnot aware that the Bar Council had taken any significant steps before the clouds were looming. 11. In terms of The Bar Council’s approach to the regulation of its members and their working practices, there is much focus in the oral evidence on the numbers of, and handling of, complaints as a measure of the wider public satisfaction in the service being delivered by barristers and the regulation of it by the Bar Council. Obviously, complaints must be well handled and that has got better over time; which is good. 12. However, there is much that goes on in the world of barristers of which individual clients would be ignorant and which would thus be most unlikely to feature in any complaint. That is where the regulator must be pro-active in protecting the public interest. In that respect, my concern is that a regime which simply passports the existing framework into the new regulatory world is apt to treat as satisfactory the general standards of service and leave untouched practises which are regarded as “the way it’s done” by most barristers.

Quality at the Bar 13. The Bar at its best, can provide the highest levels of service. The majority, perhaps even the overwhelming majority, of barristers provide an excellent, very good or good service. But there is a substantial rump who do not. 14. Where barristers performso badly that a client is unhappy, that client can complain. But very many clients will not realise (and why should they in the opaque world of the law and the courts) whether the service they are getting is good, bad or indiVerent; and in many instances, there may not even be an instructing solicitor present at court to question the quality of service delivered (much less a solicitor with experience and confidence suYcient to know or question whether the barrister is doing a good job). 15. That is where, in my view, regulatory activity is required: a pro-active and periodic assessment of continuing ability to provide a good service, and a meaningful requirement for continuous professional development (CPD). 16. As things stand, once qualified (say at the age of 22), absent a formal complaint against them, a barrister can practise for the rest of their lives without eVective scrutiny and without ever being subject to any positive assessment of their quality. 17. In its trade union capacity, the Bar is now launching the Bar Quality Review Board (BQRB). The BQRB is intended to provide a designedly supportive, encouraging and developmental approach for the very weakest of barristers (but without any teeth)—an entirely welcome and appropriate activity for a trade union to undertake. But that is no substitute for a mechanism for dealing with the rump of barristers who are, to put it bluntly, not very good at what they do. 18. Nor is the shortfall made good by a rigorous system of CPD. Over the last few years, the Bar Council has, very gradually, phased in requirements for all barristers to undertake a mere 12 hours of CPD per year. 19. That is a very small amount. 20. Moreover, the “training” undertaken to gain CPD hours need bear no relationship to the areas of law in which the barrister holds himor herself out to the public. 21. Moreover, CPD hours can be acquired for activities which have no obvious impact on the barrister’s ability to performtheir job for their client. Indeed, someof the activiti es accredited for CPD hours are, in truth, to improve the barrister’s ability to earn money—they are the facilities which a trade union would oVer its members. For example, I attach (as an appendix to this submission) [Submitted but not printed] the flyer for the “Bar Remuneration Conference” to be held on 8 July 2006. Four hours of accredited CPD (one-third of the requirement for a barrister for the year) can be obtained entirely for activities around the self interest of barristers in maximising their incomes. Thus, for example, the main session is called “Life After the Carter Review: What Was In It for the Bar?” and the workshop sessions include a session dealing with “Taxation and Accounting”. In my view, it is diYcult to escape the conclusion that the Bar’s CPD systemimposesthe lowest of demands on barristers. The appearance of compromise of the public interest (in meaningful and relevant CPD) by the private interest of the trade union’s members (in having as little time spent as flexibly as possible and in personal interest if possible) is obvious. 3435523136 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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22. Another facet of the “quality” issue is the regime (accepted by the Bar Council without comment) by which any barrister can hold themselves out as practising in any area of law. Thus, someone who spends all their time as a criminal lawyer (and, at best, does CPD in that field) can, out of the blue, take on a professional negligence case, or a defamation case, or a divorce case. I find that quite extraordinary. No patient would stand for their broken armbeing tended to by a kidney specialist. And yet the Bar— in its arrogance—gets away with the equivalent. It is quite extraordinary. 23. If the Bar Council is deemed to be an approved regulator without any process of scrutiny (as contemplated by the draft Bill), the clearest and best opportunity for a positive and independent assessment of whether those mechanisms are suYcient to secure universally good quality services for the public will have been missed.

“This is the Way it’s Done” 24. There are working practices of barristers and their organisations which are regarded as “how it’s always done” and in which the Bar Council acquiesces, but which in my view do not bear scrutiny. I would highlight just two: Price collusion and some of the consequences of shared “clerking”. 25. Price collusion is clearly against the interests of clients and the public but it happens all the time. In my experience, it is regarded as completely normal and acceptable at the Bar for barristers (often through their clerks) to try and find out what others involved in the same case (say, a co-defendant) are charging or, in a bidding situation, what price others propose to tender at in order to engage in anti-competitive price collusion. 26. Another practice which thrives at the Bar is a sharp manifestation of the clear potential for conflict arising from the fact that members of the same “chambers” can represent opposing parties to a dispute including in litigation. The theory is that they are wholly independent of each other. If ever that was so before, with chambers becoming ever more corporate in style and approach and with their members being at least indirectly financially linked, it is no longer the case. In my experience, the reaction of lay people, including lay clients, is to question how it is that two members of the same chambers can act against each other in the same case. That perception matters. But the real problem is not so much with how the barristers themselves behave. An example of the real problem is where opposing parties are acting for diVerent people in the same chambers but share a single “clerk” who then (for example) fixes court dates (a matter which can be highly contentious as between the parties, with an earlier or later hearing being of a tactical advantage to one or other party). Most at the Bar would regard that as acceptable and “how it’s done”. The Bar Council acquiesces. 27. Again, if the Bar Council is simply passported into becoming an approved regulator, a key opportunity to scrutinise its approach to such matters will have been missed. 28. Indeed, in a world in which appearances matter, it seems to me that there is a considerable public interest in, and public benefit to be obtained from, the Bar Council being seen to have been subject to full and proper scrutiny in the way it regulates barristers. And, if is confident of its current approach, the Bar Council should have nothing to fear by such scrutiny. Indeed, the Bar Council should be calling for it. 29. Moreover, I wonder what justification there is for scrutinising new regulators, but not the existing ones.

Alternative Business Structures 30. On a final, and separate, matter which came up in the Bar Council’s oral evidence last week, I turn to ABSs and the Bar Council’s approach to them. 31. The position may still be formally open, but my understanding is that it is most unlikely in the foreseeable future that the Bar Council would volunteer to regulate ABSs or those who work in them. Indeed, I believe that the Bar Council wishes to ever narrow its focus and regulate only those barristers doing “case presentation” and advocacy work in “independent practice” and not, for example, employed barristers whose day to day activities for their employers (and indeed their employers’ clients) may already look much more like the work traditionally by a solicitor, let alone those who choose to take part in ABSs. 32. In my view it would be against the public interest if the free market in regulators would simply allow that to happen. In particular, there remains a (quite unjustified, in my view, as it happens) snobbery about the Bar and being a barrister (over and above, say, a solicitor): the Bar trades on it and the Bar Council’s actions to date suggest that the Bar Council has little intention to dispel it. In that context, the ever sharper delineation of “barrister” fromother providers of legal services operating within LD Ps, to my mind cuts against the public interest in making it easy for those people who wish to pursue a flexible career at the Bar (perhaps for child care or other reasons) to do so. It seems clear to me that ABSs (in which barristers could do the work which they have substantively done in the past but within a partnership), could bring real equality benefits including 3435523136 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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26 June 2006 by enabling more women to pursue better careers as barristers. If an ever sharper boundary is drawn, they will ever more be forced to choose between a career as a barrister and the other pressures and pulls which may exist. In the end, not only they, but also, more importantly for these purposes, the public interest will be compromised.

Finally

33. I am grateful to you for reading my submission. I would be pleased to answer your oral questions if you wish me to do so. 15 June 2006

Memorandum by the Young Legal Aid Lawyers (Ev 60) I write as the Chair of the Young Legal Aid Lawyers (YLAL), a group formed in April 2005 to represent the views of students, barristers and solicitors of up to ten years call or qualification who are committed to a career in legal aid. The group has over 250 members and branches in London, SheYeld and Manchester. As young lawyers we have particular concerns about the development of publicly funded legal practice and access to justice for those we seek to represent, including vulnerable individuals and those who suVer fromsocial exclusion. I enclose a copy of YLAL’s response to the Department for Constitutional AVairs White Paper The Future of Legal Services: Putting Consumers First. [Submitted by not printed]. Given that the draft Legal Services Bill makes only limited amendments to the proposals contained in the White Paper, I would be grateful if the Joint Parliamentary Committee would consider this response as part of the written evidence before it [submitted but not printed]. I would in addition make the following further points: YLAL have grave concerns about the proposed changes to regulation of the legal profession, and in particular we believe that it is of vital importance that lawyers should be self-regulating. We do not consider that assurances given by Lord Falconer that the Legal Services Board will be “very light touch” are suYcient. The limitations on its powers must be clearly and firmly set out in the legislation. If this is not absolutely defined YLAL believe that there is a very significant risk of the legal profession losing its independence and an unacceptable erosion of the constitutional divide between Government and the legal system. For the reasons set out in our response to the White Paper, YLAL would not agree with the conclusion of the Bill’s regulatory impact assessment that it would not adversely aVect legal aid. We believe that the regulatory impact assessment is currently little more than a rubber-stamping exercise and we call for the regulatory impact of the Bill to be assessed by an independent body. YLAL are concerned at the high cost of the scheme to the legal profession. Legal Aid practitioners struggle to stay in business with the desperately low rates of pay for legal aid work. YLAL considers that the increased cost of practicing certificates necessary to pay the bill for the proposed systemof regulation, currently estimated at £27 million, will drive yet more practitioners out of publicly funded work. YLAL believe that the proposed Bill will have a very great impact on the future shape of the legal profession. The group are concerned that the Bill should not be rushed through Parliament and suYcient time must be provided for full consultation and debate. Finally, we are concerned at the hurried timetable currently set for the Bill. We believe that the proposed legislation would have a serious adverse impact on lawyers’ ability to provide their clients with independent and good quality advice and representation. The proposals therefore demand thorough consideration and must not be rushed into law. Members of the YLAL Committee would be very happy to meet with the Joint Committee to discuss this further. Please do not hesitate to contact me if I can be of any further assistance. Laura Janes Chair 14 June 2006 3435523138 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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Supplementary memorandum submitted by the Young Legal Aid Lawyers (Ev 60a)

1. Introduction 1.1. This is the written evidence of the Young Legal Aid Lawyers (“YLAL”) to the Joint Committee on the Draft Legal Services Bill. These submissions should be read in conjunction with our letter to the Committee of 14th June 2006. 1.2. YLAL are a group of lawyers committed to practising in areas of law that have traditionally been publicly funded. The group includes students and trainees, as well as recently qualified barristers and solicitors. YLAL members share a strong belief in good quality representation and advice to those who could not otherwise aVord it. Without access to justice, there can be no justice at all. 1.3. The Bill is in direct conflict with the values and principles held by YLAL. In isolation, it proposes reforms that are of great concern to us. When taken with the other plans for sweeping changes to the Legal Aid system such as the Fundamental Legal Aid Review (“A Fairer Deal for Legal Aid”), Community Legal Services’ Strategy Paper, Price Competitive Tendering and the Carter Review, it will have a devastating eVect on the future of Legal Aid. 1.4. YLAL fully endorse the evidence of the Legal Aid Practitioners Group (“LAPG”). In these submissions we add comments we consider to be of specific relevance to those at the beginning of a career in legal aid.

2. Independence 2.1 The proposals will result in a fundamental breach of the constitutional principle of the separation of powers. The proposed regulation of the legal profession by the Executive means that the lawmakers will control lawyers. It threatens to constrain the ability of individuals to oppose government decisions and laws through their legal representatives. 2.2 Young legal aid lawyers are often inspired to work in this field by the vital role that lawyers play in challenging the limits of government power. Young legal aid lawyers are committed to protecting the vulnerable. Independent legal advice is the most direct way for the disadvantaged to gain access to justice. Further involvement by the Executive in the regulation of the profession will deter such young people from joining the profession. (see Annex) 2.3 The foremost obligation of all lawyers is to give independent and impartial advice in the best interests of their client. The provision of legal services by unregulated commercial enterprises will compromise this duty. For example, if a lending institution were to provide legal advice services on debt, there is an obvious risk that commercial interests will damage the impartiality of this advice.

3. Regulation 3.1 YLAL consider that lawyers should continue to be self-regulating. The LAPG have observed that this right is so important that it is enshrined in the United Nations Basic Principles on the Role of Lawyers: “Lawyers shall be entitled to formand join self-governing professional a ssociations to represent their interests, promote their continuing education and training and protect their professional integrity. The executive body of the professional associations shall be elected by its members and shall exercise its functions without external interference.”65 3.2 YLAL consider it extraordinary that the profession should give up its disciplinary powers to Government, enabling it to influence which lawyers will face disciplinary proceedings. That position is clearly open to abuse. Litigation is a frequent cause of embarrassment to those in power and the regulatory control envisaged could lead to undue pressure on lawyers litigating high profile cases against the Government. 3.3 YLAL are also concerned about the eVects of regulatory changes on training. If Government regulates the legal profession it will impact on the type of training young lawyers receive. The emphasis may swing away fromareas such as public law to less contentious subjects. The proposals w ill also influence the type of people who become lawyers. At present the profession attracts those looking for independence in employment and those with an interest in social and political issues. The future of the profession as set out in the Bill could fundamentally change the profile of those entering the legal profession.

65 United Nations Basic Principles on the Role of Lawyers, Adopted by the Eighth United Nations Congress on the Prevention of Crime and the Treatment of OVenders, Havana, Cuba, 27 August to 7 September 1990. 3435523138 Page Type [O] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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4. Alternative Business Structures (“ABS”) 4.1 Young legal aid lawyers want to represent clients, not consumers. Justice is not a commercial product and commercial ownership of the legal profession is intuitively contrary to the ethos of legal aid. Legal aid, one of the pillars of the welfare state, is for the collective good. It is a separate, designated fund ensuring access to justice for all. YLAL fear that commercial ownership of legal services will expose the profession to inevitable conflicts of interest. These entities will neither be bound by the rules of conduct nor imbued with an understanding of the necessity of high quality and ethical standards required of legal professionals.

5. Starving Out 5.1 It is very common for legal aid practices to rely on some private cases to subsidise their legal aid work. YLAL consider that the proposals will starve legal aid practices out of this private work market. The Bill encourages ABS to bulk-bid for work, which will undercut existing providers causing themto lose the work on which they presently rely. This will erode the number of legal aid practitioners and increase the spread of advice deserts. As firms are starved, it will become even more diYcult for young lawyers to secure a pupillage or training contract in legal aid. 5.2 ABS firms will be attracted to work which can be profitably run by bulk methods They are unlikely to be interested in providing advice and representation in areas which might adversely aVect their public relations, such as sexual and violent oVences, immigration, mental health and family law. 5.3 These “cherry-picked” legal services oVend the notion that everyone has the right to legal representation. If a firmcannot rely on profitable work to support less profitable work, the di sadvantaged will suVer further reductions in access to justice.

6. Quality 6.1 Young legal aid lawyers want to provide good quality advice. We are concerned that the proposals promote a bulk ethos that emphasises high quantity at low cost. YLAL believe this will inevitably result in poor quality advice services. YLAL firmly believe that publicly funded clients should receive the same high quality of advice and representation as private clients. 6.2 Further, there will be reduced opportunities for career development if the majority of young lawyers’ work is in giving basic advice. This leads to the obvious risk that lawyers will not have suYcient skills to identify more complex problems and that such problems will not be resolved as expediently as possible. Lawyers will have an insuYcient range of legal expertise to deal with clusters of inter-related problems. Even where lawyers have a broader knowledge, there will be insuYcient flexibility under a systemof bulk bidding to deal with these problems. 6.3 It is clear that lawyers choose legal aid work for the practice itself and not potential remuneration. YLAL consider that graduates, motivated to train in legal aid (despite the miserable pay) because the work is more interesting, will be put oV by the prospect of providing a high turnover of basic advice. 6.4 The legal profession already operates within a competitive market based on quality of work and client care. YLAL are concerned that the principle of bulk bidding will encourage competition based on cost at the expense of quality. 6.5 The benefits of eventually becoming a qualified partner in a firm will not outweigh the crippling cost of professional training combined with low pay in early years of practice. Instead, young lawyers will choose to rise to the same position through the ABS structure without incurring the immense expense. This will make it even more diYcult for those eligible for Legal Aid to obtain good quality advice and representation.

7. Bar 7.1 The proposed changes in the Bill will impact on young barristers as well as solicitors. It is likely that there will be less work for young barristers, as more work will be done in house. This is because it will be far cheaper for firms to use their own lower paid employees. This in turn will prevent young barristers fromhaving the opportunity to “cut their teeth” on junior work. 7.2 Even fewer will be available because of the decrease in junior work. The reduction in work for the bar as a whole will mean that there is less money for chambers to fund pupillages. 3435523138 Page Type [E] 31-07-06 10:23:56 Pag Table: LOENEW PPSysB Unit: 1PAG

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8. Training 8.1 The new commercial ethos will have a significant eVect on training. It is already immensely diYcult for young lawyers to secure training contracts and pupillages to undertake publicly funded work and many young lawyers are forced to leave the field or work for years as a paralegal. 8.2 Training young lawyers to become well-rounded practitioners competent to deal with a broad range of areas will not be a priority for firms under intense commercial pressure. Firms subject to market competition may not have the stability to undertake the training of young lawyers for two years. It is likely that providers will seek to rely on the use of paralegals trained in specific areas to provide cheaper “bulk” services. Trainees, attracted to developing expertise in a broad range of areas, may well find this impossible within the new structure. This will further exacerbate the present lack of training contracts and accompanying dearth of qualified and experienced young legal aid lawyers. At present legal aid firms cannot aVord to take on trainees but desperately need qualified solicitors. The proposals can only make this situation worse. 8.3 Trainees currently enjoy the support of the Law Society, both in terms of the guaranteed minimum salary and continuing professional development and support. However, the diminished role of the Law Society under the new framework will deprive trainees of this protection.

9. Conclusion As the next generation of legal aid lawyers, who will be expected to conduct work within the new regime, we are deeply concerned by the proposals. The threat to the independence of the profession will deter young lawyers from committing to legal aid work. The green light that the Bill provides for the use of Alternative Business Structures is of equal concern: the proposals go far beyond those outlined in the Clementi report, although there has been no justification of this departure fromSir Clement i’s recommendations. Good quality representation cannot be at the mercy of commercial interests. Young legal aid lawyers are committed to providing an impartial and independent quality service for ordinary people but fear that this will not be possible within the regime envisaged in the draft Bill. June 2006

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