The
Committee consisted of the following
Members:
Chairman:
Sir
John Butterfill
Bellingham,
Mr. Henry
(North-West Norfolk)
(Con)
Brake,
Tom
(Carshalton and Wallington)
(LD)
Caborn,
Mr. Richard
(Sheffield, Central)
(Lab)
Dunne,
Mr. Philip
(Ludlow)
(Con)
Harris,
Mr. Tom
(Glasgow, South)
(Lab)
Hesford,
Stephen
(Wirral, West)
(Lab)
Heyes,
David
(Ashton-under-Lyne)
(Lab)
Hollobone,
Mr. Philip
(Kettering)
(Con)
Howarth,
David
(Cambridge)
(LD)
Jenkin,
Mr. Bernard
(North Essex)
(Con)
Lucas,
Ian
(Wrexham) (Lab)
Munn,
Meg
(Sheffield, Heeley)
(Lab/Co-op)
Prentice,
Bridget
(Parliamentary Under-Secretary of State for
Justice)
Stringer,
Graham
(Manchester, Blackley)
(Lab)
Turner,
Mr. Andrew
(Isle of Wight)
(Con)
Wright,
David
(Telford) (Lab)
Gosia
McBride, Committee Clerk
attended the Committee
First
Delegated Legislation
Committee
Monday 10
November
2008
[Sir
John Butterfill in the
Chair]
Draft Legal Services Act 2007 (Functions of a Designated Regulator) Order 2008
4.30
pm
The
Parliamentary Under-Secretary of State for Justice (Bridget
Prentice): I beg to
move,
That
the Committee has considered the draft Legal Services Act 2007
(Functions of a Designated Regulator) Order
2008.
It
is a joy to serve under your chairmanship, Sir John. [Hon.
Members: Hear, hear.] That is supported at
least from our side of the Committee. I will do my best to explain the
order as briefly as possible.
The order
amends new section 9A of the Administration of Justice Act 1985, as
inserted by schedule 16 to the Legal Services Act 2007, removing a
restriction on the types of bodies that satisfy the definition of legal
services bodies and therefore may qualify to be recognised by the Law
Society as suitable to carry out certain legal services.
When
commenced, new sections 9 and 9A of the 1985 Act will allow bodies that
satisfy a management and control condition and relevant lawyer
condition to become legal services bodies. The management and control
condition is that at least 75 per cent. of the managers, shareholders
or holders of voting rights in the body must be legally qualified. The
term legally qualified is defined to include bodies as
well as individuals, but 75 per cent. of the bodies owners and
managers must also be legally qualified individuals.
Following
discussions with the Solicitors Regulation Authority and the Law
Society, it became clear that section 9 of the 1985 Act, as currently
drafted, does not restrict recognised bodies in that way and that some
of the law firms they regulate currently have multiple tiers of
ownership. Were section 9A commenced as currently drafted, bodies with
more than two levels of ownership would be in breach of section 9A
ownership requirements and, as a result, would be forced to restructure
in order to qualify as legal services bodies and thereby fall within
the recognised regime. That restructuring would be of great expense to
those firms and would inadvertently cause an unnecessary restriction
that does not exist at present.
Firms are
currently able to structure themselves in the most effective and
efficient way for them, by allowing, for example, easier transfer of
ownership in the event of a partner leaving or retiring. Section 9A, as
currently drafted, would limit a firms ability to structure
itself to meet its business needs, so the amendment of 9A will remove
that restriction and allow firms to realise the benefits of outside
investment while maintaining the flexibility of the old
regime.
The order
seeks to ensure that the bodies with multiple tiers can continue to
operate in their current structures and be recognised as legally
qualified for the purposes of section 9A. If they then meet the
management and
control condition and relevant lawyer condition, they will satisfy the
legal services bodies definition and may be recognised
by the SRA under section 9 as suitable to carry on certain legal
services.
The order
achieves that by removing the requirement set out in section 9A(5) for
qualifying bodies to be owned by legally qualified individuals to
satisfy the relevant lawyer condition; recognising partnerships that
already exist; recognising bodies corporate that already exist; and
giving the Law Society the power to make rules expanding the category
of what it is to be legally qualified for the purposes of satisfying
the management and control condition. Those bodies must satisfy all the
conditions in section 9A in order to be legal services
bodies.
It
is vital that, in removing the two-tier limitation on corporate
ownership, we do not allow full alternative business structures to
emerge before the licensing regime set out in part 5 of the Act is
implemented. The Law Societys rules that may also permit
recognition of other bodies as legally qualified are subject to
consultation and a statutory approval process set out in
paragraph 16 of schedule 22 to the 2007 Act, which includes
approval by the Lord Chancellor. The SRA also published changes to its
code of conduct on 17 October 2008 to take into account the proposed
new provisions relating to legal services bodies. All bodies must still
satisfy the management and control condition and the relevant lawyer
condition to be legal services bodies, which may then be recognised by
the Law Society as being suitable to provide legal services.
The Ministry
of Justice published the draft order on 6 October, seeking
views from legal regulators, the profession and consumer
groups by 17 October. Schedule 22 also provides
that advice must be invited from the Office of Fair Trading and the
Lord Chief Justice. I am telling the Committee that because I know it
is important to members and to those who were involved in the Legal
Services Act 2007 that we involve and consult all those who may be
interested. By the completion of the consultation period we had
received nine responses, which all supported the order.
During the
consultation we made small changes to highlight relevant amendments to
the legislationfor example, to indicate that a copy of the
relevant pre-commencement conduct rules will be available on the
Solicitors Regulation Authority website, and to remove
qualified from the definition of legal partnership to
avoid confusion. Under paragraph 3(7) of schedule 22, if the order that
Lord Chancellor intends to make differs from that which was published,
he must publish the revised draft alongside a statement detailing the
changes. That was done on the Ministry of Justice website on 24
October, and the Law Society and the SRA gave their consent under
paragraph 2(4) of the schedule.
The order is
necessary to realise the benefits of legal disciplinary practices as
early as possible, by allowing recognised bodies to take on non-lawyer
managers if they wish. Of course, to be legal services bodies they must
still satisfy the management and control condition, and the relevant
lawyer condition that places appropriate conditions on ownership. The
order ensures that existing bodies are not forced to restructure simply
to carry on their business. I am sure the Committee will agree that
that position would have been unfair and
anti-competitive.
4.37
pm
Mr.
Henry Bellingham (North-West Norfolk) (Con): It is a
pleasure to serve under your chairmanship again, Sir John. I thank the
Minister for explaining the statutory instrument. The Minister and I
spent many hours on the Legal Services Bill, which was in Committee for
weeksI think monthsand on Report for a long time as
well. I had forgotten how delightful it is to listen, perhaps at less
length, to the Ministers sonorous and charming tones while she
is explaining complex matters. She pointed out that the Law Society
supports the SI, which is the case, and that it is needed. She did not
explain that it has come about because of a drafting error in the
original Bill that became the 2007 Act.
There was
always a danger that the Act was more of a skeleton Act upon which SIs
would be hung, and that we would have to depend upon secondary
legislation. The order is a consequence of not getting the initial
legislation right. As the Minister explained, some of the technical
wording in the Act inadvertently restricted potential opportunities by
reducing the number of corporate tiers admissible for legal services
bodies. That reduced the opportunities, particularly for some of our
leading commercial
firms.
The
Opposition support the advent of legal disciplinary practices and the
alternative business structures concept. At a time when we want the
City of London to reap the maximum opportunities in a global economy,
commercial firms need to have as few restrictions on them as
possibleafter all, London is a global legal centre. Many
corporations and Governments around the world use London to arbitrate
disputes. Many disputes in London are arbitrated in legal systems apart
from our own, but our legal procedures control those arbitrations. For
London to remain competitive, we have to look at the opportunities
provided by the legal disciplinary practices and alternative business
structures, so it is important for the Government to act quickly if any
small technical obstacles spring
up.
The
Government have acted quickly. They have listened to what the Law
Society said and have consulted on that. It is a pity that the Act was
not right in the first place, but I grant the Minister that it is a
complicated piece of legislation which was dealt with at great length
in both Houses. The Government had a huge amount of resource in terms
of civil service time and expertise advising them, but to be fair, they
cannot be expected to get every last detail right.
We are back in
Committee today to say to the Government that perhaps they should have
got the legislation right in the first instance, but they have listened
to representations received. I believe that the SI will enable
commercial law firms to move forward in the way they want. At a time of
increasing economic uncertainty, it is vital that our top legal firms
are able to move forward in a global economy and the SI will help them
to do
that.
4.41
pm
Tom
Brake (Carshalton and Wallington) (LD): It is a pleasure
to serve under your Chairmanship, Sir John. I echo the point made by
the hon. Member for North-West Norfolk. Clearly, we are here as a
result of drafting error. That reminds us that when it comes to Bills,
more often equals lesscertainly less accuracy, on
occasion.
Having taking
advice from my hon. Friend the Member for Cambridge, who leads on these
matters for the Liberal Democrats, there is no issue with the
purpose of the statutory instrument. I am therefore happy
to support
it.
Hon.
Members: Good
speech!
4.42
pm
Bridget
Prentice: Given the approbation of my hon. Friends for the
shortness of the hon. Gentlemans speech, I shall do my best to
emulate him.
I am grateful
to the hon. Members for North-West Norfolk and for Carshalton and
Wallington for supporting the SI. As he pointed out, the hon. Member
for North-West Norfolk served on the Legal Services Bill with me over
many a long day. I am grateful for his recognition that we acted
quickly once the mistake was recognised. I also welcome his support for
LDPs.
The 2007 Act
is extremely complex. We worked closely with all the legal agencies
involved, which gave us the opportunity to respond quickly to concerns
about some of the drafting. I hope that we will not have to return with
further drafting amendments. On the basis of the support from all parts
of the Committee, I commend the
order.
Question
put and agreed to.
Committee
rose at seventeen minutes to Five
oclock.