Clause 102: Intervention

265.     This clause introduces Schedule 14 which makes provision about the circumstances in which a licensing authority may intervene in the practice of a licensed body, and the powers exercisable upon intervention. The intervention grounds and powers are based on those available to the Law Society and the Council for Licensed Conveyancers ("CLC") under the Solicitors Act 1974 and Administration of Justice Act 1985 as amended by Schedules 16 and 17 of this Act.

266.     Paragraph 1 of the Schedule provides that a licensing authority may intervene in a licensed body as set out in the Schedule where a licence granted to a body has expired or where one or more of the conditions set out at subparagraph (2) are satisfied.

267.     Under sub-paragraphs (5) and (6), the powers in the Schedule are exercisable in relation to a body whose licence has been suspended or revoked, or whose license has expired or ceased to have effect.

268.     Paragraph 2 provides that a licensing authority can apply to the High Court for an order to prohibit a person who is holding money on behalf of a licensed body from making any payment of that money, unless they have the leave of the High Court to do so.

269.     Under paragraph 3, certain sums of money held by or on behalf of the licensed body, and the right to recover or receive them, can be vested in the licensing authority for people who are beneficially entitled to them. The sums of money are then held on trust by the licensing authority for persons that are beneficially entitled to them, and for use in exercising its intervention powers. Sub-paragraphs (6) to (1)) set out procedure relating to such vesting, and procedure by which the licensing authority must give the licensed body, and anyone else who has money that is subject to the decision, a copy of the decision and a notice prohibiting any payments out of the money. Sub-paragraph (6) allows the body and anyone else who receives the notice to apply to the High Court to contest the licensing authority's decision. If the licensed body or other person breaches the notice, it commits an offence and is liable, on summary conviction, to a fine not exceeding level 3 on the standard scale (currently £1,000).

270.     Under paragraph 4, a licensing authority may decide that the right to recover debts of the licensed body should vest in it.

271.     Paragraph 5 requires the licensing authority to put any money that it receives by virtue of these vesting powers into a special account in either its name or the name of a nominated person. The money is held on trust for persons beneficially entitled, and for use in exercising the intervention powers. Paragraph 6 enables the licensing authority to make rules governing the treatment of such money, particularly where, despite reasonable steps by the licensing authority, beneficiaries cannot be traced.

272.     Paragraph 7 allows a licensing authority to apply to the High Court for an order requiring a person to give the licensing authority information about any money held by that person on behalf of a licensed body, and the accounts in which it is held. Licensing authorities may also require information that is relevant for tracing purposes.

273.     A licensing authority may also give notice to a licensed body requiring it to produce all the documents in its possession or under its control relating to its activities as a licensed body, or to certain trusts. Paragraph 8 sets out what the notice may require. Sub-paragraph (4) makes it an offence to refuse, neglect or otherwise fail to comply with the notice. Under sub-paragraph (6), a person found guilty is liable, on summary conviction, to a fine not exceeding level 3 on the standard scale (currently £1,000). However, it is not an offence if the licensing authority has made an application to the High Court for the production or delivery of the documents. Paragraph 9 sets out the procedure to be followed by the High Court in considering and implementing an order. Paragraph 10 sets out the procedure that a licensing authority must follow if it takes possession of documents under notice or order, as detailed in paragraph 8 and 9

274.     Under paragraph 11, a licensing authority may apply to the High Court for a communications Redirection Order for a period not exceeding 18 months, which causes mail, telephone and electronic communications to be directed to the licensing authority, or to a person appointed by the licensing authority, who may take possession or receipt of the communications. Sub-paragraph (8) allows the licensing authority to apply to the High Court to take steps in relation to a licensed body's website, for the purpose of protecting the public interest and/or the interests of any current, former or potential clients of the body. Sub-paragraph 10 prevents licensing authorities from applying for these powers where they have intervened on the grounds of undue delay.

275.     Paragraph 12 allows a licensing authority in possession of documents acquired through notices, orders, or communications redirection (paragraphs 8, 9 or 11) to apply to the High Court for an order to dispose of, or destroy, the documents. The High Court may make any order it thinks fit. Under paragraph 13 a licensing authority may take copies of, or extracts from, documents acquired through notices, orders or communications redirection.

276.     Where a licensed body, or one of its managers or employees, is the trustee of any trust, Paragraph 14 allows the licensing authority to apply to the High Court to order the appointment of a new trustee in substitution for that person.

277.     Paragraph 15 allows the powers conferred by this Schedule in relation to sums of money and documents to be exercised despite any lien on them or right to their possession. Paragraph 16 allows the licensing authority to do all things that are reasonably necessary to facilitate the exercise of its powers under this Schedule.

278.     Paragraphs 17 and 18 set out how the licensing authority may recover its intervention costs from the licensed body. Under paragraph 18, the licensing authority can apply to the High Court to recover costs from certain persons where the Court is satisfied that the conduct that led to the intervention was carried on with the consent or connivance of, or was attributable to any neglect on the part of those persons.

Clause 103: Regulatory conflict and the Board as licensing authority

279.     This clause provides that the rules about regulatory conflict in clauses 52, 54 and 68 apply to the Board in its capacity as a licensing authority.

     Clause 104: Prevention of regulatory conflict: accounts rules

280.     This clause ensures that a licensing authority's accounts rules (made under Schedule 11) apply to licensed bodies that are carrying on business through solicitors or licensed conveyancers. It does this by replacing the rules under the Solicitors Act 1974 or the Administration of Justice Act 1985 that would otherwise apply.

     Clause 105: Trade union exemptions

     Clause 106: Power to modify application of licensing rules etc to special bodies

     Clause 107: Modifications under section 106: supplementary

     Clause 108: "Low risk body"

281.     These clauses provide that certain types of body are eligible to apply for certain statutory requirements and/or licensing rules to be waived or otherwise modified in relation to them. Modifications are given effect by orders made by licensing authorities. The bodies in question are:

• trade unions - from which clause 105 removes the HoLP and HoFA requirements and the ownership provisions in Schedule 13;

• not for profit bodies, defined in clause 208 by reference to their charitable or public purpose and prohibitions on distributing income or assets to members;

• community interest companies;

• low-risk bodies - bodies in which levels of non-authorised control falls under a de minimis threshold, defined in clause 108 as bodies where fewer than 10% of the managers are non-authorised persons, and the proportion of shares and voting rights held by non-authorised persons in less than 10%; and

• other bodies of types set out in an order made by the Lord Chancellor on the Board's recommendation.

282.     In considering whether modifications are appropriate, the licensing authority must consider the legal activities the body aims to carry on, the people to whom it plans to offer services, any non-authorised persons who part-own or manage the body, and any other factors set out in the authority's licensing rules, as laid out in clause 106 (5). Some provisions cannot be modified at all; others cannot be waived but may otherwise be modified. Otherwise, licensing authorities have discretion to modify requirements in licensing rules and the application of Schedule 13 (clause 106(3)), and can make whatever modifications are appropriate, whether or not they were what the body asked for (subsection (4)). Clause 107 then sets out the circumstances in which a licensing authority can change modifications. Where the licensed body is no longer one to which clause 106 applies, the licensing authority must revoke the modification order. Otherwise, it may revoke or modify an order if the licensed body requests it or on its own motion.

Clause 109: Foreign bodies

283.     This clause allows the Lord Chancellor to adapt provisions in this Part of the Bill in their application to bodies formed under law outside of England and Wales. A company formed under the law of a foreign country might, for example, have different ownership structures for which the Part 5 provisions need to be adapted.

Clause 110: Reporting requirements relating to Part 5

284.     Clause 110 obliges the Board to include in its annual report (subsection 6) an assessment of how the activities of licensing authorities and licensed bodies have affected the regulatory objectives. The requirement is not imposed from the first annual report but instead takes effect in the first financial year in which an ABS licence is issued.

Clause 111: Interpretation of Part 5

285.     This clause defines some provisions for the purposes of Part 5.

PART 6: LEGAL COMPLAINTS

286.     This Part of the Bill establishes an independent complaints handling body called the Office for Legal Complaints ("OLC"). The OLC will operate an ombudsman scheme, the rules for which ("scheme rules") are to be determined by the OLC once it is established. The ability of approved regulators to provide redress to complainants is removed and conferred on the OLC; and the OLC is expressly prohibited from imposing any disciplinary sanction, the power to do which remains solely with the approved regulators.

287.     Provision is also made for the appointment process and necessary qualifications of the members and staff of the OLC and the Chief Ombudsman and assistant ombudsmen responsible for making determinations under the ombudsman scheme. Provision is also made for the accountability of the OLC through the Board, the framework of rules under which the OLC will establish its operating procedures and the changes to the regulatory arrangements of approved regulators which will be necessary in consequence.

288.     The OLC's membership is to be such as to bring together a wide range of expertise and backgrounds. The OLC will have a chairman and between six and eight members, reflecting a narrower remit when compared with the Board which will have a chairman, the Chief Executive of the Board and between seven and ten members. It will be chaired by a lay person and the majority of its members will also be lay persons. The OLC will set policy and rules in relation to complaints handling with a view to ensuring that best practice is promoted.

289.     The OLC will be accountable to the Board in respect of its targets and funding. OLC members will be appointed by the Board (with the Lord Chancellor's consent to appoint the chairman, and following consultation with the chairman in the case of the other members), and in order to establish the ombudsman scheme the OLC will be required to draw up draft scheme rules to be approved by the Board. The OLC itself will appoint the Chief Ombudsman, and will appoint assistant ombudsmen as necessary with the Chief Ombudsman's consent.

     Complaints Handling - present position

290.     At present each of the approved regulators maintains its own complaints handling and disciplinary arrangements. A complainant who is dissatisfied with the way in which a complaint has been handled can refer the complaint to the Legal Services Ombudsman ("LSO"), who can ask an approved regulator to reconsider a complaint.

291.     The following bodies are subject to the jurisdiction of the LSO:

• the Law Society (also subject to the jurisdiction of Legal Services Complaints Commissioner),

• the Bar Council,

• the Council for Licensed Conveyancers,

• the Institute of Legal Executives,

• the Institute of Trade Mark Attorneys, and

• the Chartered Institute of Patent Attorneys.

292.     Under the current system, anyone wishing to complain about a person regulated by any of the organisations listed must in the first instance pursue "in- house" procedures with the person complained about. If the complaint is not resolved satisfactorily in-house, the complainant can then contact the appropriate regulatory body. In the event that a complainant is not satisfied with the way in which a complaint has been handled by the appropriate regulatory body they can refer their complaint to the LSO. The LSO will investigate the way in which the complaint was handled and the response from the professional body. If the LSO believes that a complaint has not been investigated properly, they may recommend that the professional body look at the matter again. The LSO also has the power to re-investigate a complaint - in 2006 the LSO widened an investigation to look at the original complaint in less than 1% of cases. ¹⁵

¹⁵ Legal Services Ombudsman, 2005

293.     Sir David Clementi's Review of the Regulatory Framework for Legal Services in England and Wales, published in 2004, ¹⁶ observed that there were a number of issues which arise from the manner in which complaints are dealt with under the existing arrangements:

¹⁶ Clementi, 2004

• the record of complaints handling by the approved bodies - substantial delays and questionable quality in terms of outcome,

• the low level of consumer confidence in the independence of the current system,

• the inconsistency and lack of clarity for redress arrangements for consumers in respect of regulatory bodies with overlapping activities, and

• the overlaps in the current oversight regime.

294.     Sir David concluded:

     "There is a considerable concern about how complaints are dealt with. The concern arises at a number of levels: at an operating level there is an issue about the efficiency with which the systems are run; at an oversight level there is a concern about the overlapping powers of the oversight bodies; and at a level of principle, there is an issue about whether systems for complaints against lawyers, run by lawyers themselves, can achieve consumer confidence."

295.     The Government's 2005 White Paper, The Future of Legal Services: Putting Consumers First ¹⁷ proposed the creation of an independent Office for Legal Complaints ("OLC"), a single complaints handling body that would provide redress for consumers, and enhance consumer confidence in the process.

¹⁷ Department for Constitutional Affairs, 2005

Complaints Handling - the new system

296.     The OLC will have clearly defined powers. Under its ombudsman scheme it will deal with consumer complaints about advice or services provided by authorised persons - persons (including bodies) regulated by approved regulators in the provision of legal services. The ombudsman will investigate complaints, and may refer any indication or allegation of misconduct to the relevant approved regulator (which will retain power to take disciplinary action). The OLC will monitor the decisions that are made in respect of the alleged misconduct, but it will not be able to take any disciplinary action itself. If necessary, the OLC will report any concerns to the Board for its consideration.

297.     All authorised persons will be required to maintain in-house complaints handling arrangements. These will continue to be the first port of call for a consumer, and the OLC will not consider complaints that have not been considered in-house in the first instance, except in very limited circumstances. If the complaint is not resolved satisfactorily in-house, the consumer will be able to bring complaints to the OLC free of charge.

298.     The handling of complaints will be the responsibility of the ombudsmen (headed by the Chief Ombudsman), although the Bill enables functions of investigation, etc. short of determination of complaints to be delegated to members of staff who are not ombudsmen. The OLC will be responsible for making rules ("scheme rules") by which the complaints handling scheme is to operate, but the Bill generally envisages a model similar to that established for the Financial Ombudsman Service under powers in the Financial Services and Markets Act 2000, so that it is anticipated that, in the first instance, a complaint will be allocated to a case worker who will investigate and attempt to mediate the complaint.

299.     The Chief Ombudsman and assistant ombudsmen would become involved where mediation by a caseworker has not been successful, in which case, an ombudsman will be responsible for making a final determination which, if accepted by the complainant, would become binding on all parties to the complaint.

300.     The Bill also provides that should any indication or allegation of misconduct be revealed at any stage in the process of considering a complaint, the matter should be referred to the relevant approved regulator for consideration of possible disciplinary action.

301.     When determining a complaint, the ombudsman may direct the respondent to do one or more of the following:

• apologise to the complainant;

• forego all or part of the respondent's fee;

• pay the complainant a determined amount to compensate for any loss, inconvenience or distress;

• correct or redo any work responsible for any error, omission or deficiency at their own expense (with no charge to the complainant); or

• at their own expense do whatever is set out by the Chief Ombudsman or assistant ombudsman, in determining a complaint, deemed necessary in the interests of the complaint.

302.     The "total value" of the orders together cannot exceed more than £20,000 (not including any amount by way of repayment of fees, or any interest, the rates for which will be set out in scheme rules).

303.     The costs of the OLC and the ombudsman scheme are to be recouped from the legal professions by a combination of a general levy on approved regulators, and case fees payable in circumstances specified in scheme rules by individual respondents to complaints.

304.     The detail of the way in which complaints will be dealt with under the ombudsman scheme is to be provided in scheme rules (the power to make those rule is set out at clause 133). The OLC must obtain the consent of the Board before making rules.

     Clause 112: Complaints procedures of authorised persons

305.     This clause provides that each approved regulator must require each authorised person subject to its regulation to maintain in-house complaints procedures, and must make provision for the enforcement of this requirement. The provisions made by the approved regulator must satisfy any requirements specified by the Board.

     Clause 113: Overview of the scheme

306.     Subsection (1) of this clause describes the purpose of the ombudsman scheme which is to be established; namely the resolution of complaints which relate to an act or omission of a person in carrying out an activity and which are within the jurisdiction of the scheme (as defined by clause 125).

307.     Subsections (2) to (4) define the boundary between the ombudsman scheme and the regulatory arrangements of an approved regulator or the Board (in its capacity as a licensing authority). Awarding redress to a complainant is reserved to the ombudsman scheme (clause 158, subject to the possibility of delegation under clause 143), and the taking of disciplinary action is reserved to the approved regulators (or the Board when acting in that capacity).

Clause 114: The Office for Legal Complaints

308.     This clause provides for the establishment of the OLC.

309.     Schedule 15 makes provision for such structural matters as the membership of the OLC, the terms of appointment and tenure of members, staffing, committees, the delegation of functions, the OLC's status, budget and accounting requirements, and the initial location of its principal office.

310.     Paragraph 1(1) of the Schedule provides for the OLC to consist of a chairman appointed by the Board, and between six and eight other persons appointed by the Board following consultation with the chairman.

311.     Paragraph 2 provides for the OLC to have a lay chairman and a lay majority (a lay person being defined as someone who has never been an authorised person. An "authorised person" for this purpose including, by virtue of clause 162, a person authorised by the claims management regulator under Part 2 of the Compensation Act 2006 to provide regulated claims management services).

312.     Terms of appointment for OLC members are set out in paragraphs 5 to 9, and are similar to those for members of the Board. Members must be appointed for a fixed period, which must not exceed five years. A person can be re-appointed once only. A lay member of the OLC who becomes an authorised person will for that reason cease to be a member of the OLC. The chairman may be removed from their position by the Board (with the approval of the Lord Chancellor), and the Board may also remove OLC members only after consultation with the chairman. Paragraph 8(2) limits the circumstances in which the Board can remove OLC members, essentially to those indicating unfitness or inability to discharge the functions of office.

313.     Paragraphs 11 to 14 enable the OLC to appoint staff to assist in the performance of its functions, and makes provision for their terms and conditions. Paragraph 15 allows for the OLC additionally to pay for ad hoc assistance to be provided to it or to the ombudsmen.

314.     Paragraph 15 allows the OLC to make arrangements with those it considers appropriate to provide assistance to it or to the ombudsman. In doing so it may pay those persons providing assistance.

315.     Paragraphs 16 to 18 allow the OLC to establish committees and sub-committees to carry out any of its functions, and provide that a vacancy in any office or a defect in the appointment, or disqualification, of the chairman or any member is not to affect the validity of any act of the OLC.

316.     Under paragraph 19 the OLC may delegate specified functions to any member of the OLC, any staff member of the OLC or any committee or sub-committee. However, the OLC will retain accountability for the exercise of its statutory functions.

317.     Paragraph 20 sets out the arrangements for the OLC's budget, which must be approved in advance by the Board. Paragraph 22 confers restricted borrowing powers on the OLC, which is not to borrow money, without the consent of the Board or in accordance with general authorisation given by the Board. The Board requires the consent of the Lord Chancellor to consent to borrowing or give a general authorisation.

318.     By virtue of paragraph 21, the OLC must not acquire or dispose of an interest in land without the consent of the Lord Chancellor. Paragraph 21 applies for five years beginning with the day on which the first interim Chief Executive of the OLC is appointed under paragraph 10 of Schedule 22, or the first member of the OLC is appointed, whichever is first.

319.     Paragraph 23 sets out the requirements for the OLC's accounts. The OLC must keep proper accounts and proper records, and prepare an annual financial statement of accounts, with oversight by the Comptroller and Auditor General and ultimately Parliament.

320.     Paragraph 24 sets out the OLC's status. As an independent body it is not to be regarded as having the same status as the Crown. The staff appointed under paragraph 11 are not to be regarded as servants or agents of the Crown or as enjoying the same status.

321.     Paragraphs 28 to 30 make provision for amendments to the House of Commons Disqualification Act 1975, the Northern Ireland Assembly Disqualification Act 1975, the Freedom of Information Act 2000 and the Public Records Act 1958 to provide for the OLC to be a body, membership of which disqualifies the member from Parliament or the Northern Ireland Assembly, a public authority for freedom of information purposes, and any body whose records are public records.

322.     Paragraph 31 exempts the OLC, any member of the OLC, any ombudsman and any member of the OLC's staff from being liable for damages for anything done in the exercise of their functions. This exemption would not apply to anything done in bad faith or prevent an award of damages in respect of act which is unlawful as a result of section 6(1) of the Human Rights Act 1998.