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Legal Services Bill [HL]


 

     These notes refer to the Legal Services Bill [HL] as introduced in the House of Lords on 23rd November 2006 [HL Bill 9]

LEGAL SERVICES BILL [HL]

     


     EXPLANATORY NOTES

INTRODUCTION

1.     These explanatory notes relate to the Legal Services Bill [HL] as introduced in the House of Lords on 23rd November 2006. They have been prepared by the Department for Constitutional Affairs in order to assist the reader of the Bill and have not been endorsed by Parliament.

2.     The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.

OVERVIEW OF THE BILL

     3.     This Bill has 204 clauses and 24 Schedules. The explanatory notes are divided into 9 Parts, reflecting the structure of the Bill.

     4.     An overview of the Bill is set out below. A detailed description of each Part is contained in the commentary. Terms used are defined in the text where they first appear, and Schedule 24 contains an index of defined expressions. An explanation to accompany each Schedule is contained within the clause that introduces the Schedule.

     5.     Part 1: The Regulatory Objectives sets out the seven regulatory objectives, which guide the Legal Services Board ("the Board"), the approved regulators, and the Office for Legal Complaints in exercising their functions.

     6.     Part 2: The Legal Services Board sets out the structure and functions of the Board, including its duty to act compatibly with the regulatory objectives. It also sets out the requirements for both appointment to, and membership of, the Board and the powers that the Secretary of State has in relation to these processes.

     7.     Part 3: Reserved Legal Activities lists and defines the reserved legal activities. It explains who is entitled to carry out these activities, and the penalties for those who carry out, or seek to carry out, these activities where they are not entitled. It provides for transitional arrangements for those currently allowed to carry on reserved legal activities. It also explains the process for altering the scope of the reserved legal activities. Approved regulators are the bodies that authorise and regulate persons to carry on reserved legal activities. This Part of the Bill explains what an approved regulator is, lists those bodies designated by the Bill as approved regulators, and explains how other bodies can achieve this status in the future.

8.     Part 4: Regulation of Approved Regulators prescribes the general duties of approved regulators, and the powers that the Board has to ensure that these are being properly carried out. It details how the Board can intervene when there is a problem, the procedures that it must follow, and the bodies that it must consult. The Board's powers include target-setting, censure, financial penalties, direct intervention in the approved regulator's regulation of its members, and ultimately, the power to recommend to the Secretary of State that an order be made cancelling the approved regulator's designation.

     9.     Part 5: Alternative Business Structures ("ABS") makes provision for new business structures in legal services. These will allow lawyers and non-lawyers to work together on an equal footing to deliver legal and other services. It also provides for external investment in law firms. This Part of the Bill sets out the arrangements for authorisation, by the Board, of licensing authorities and how, in the absence of an appropriate licensing authority, the Board can license ABS firms directly. It defines the methods for making rules and prescribes procedures for the regulation of alternative business structures.

     10.     Part 6: Legal Complaints establishes an independent complaints handling body called the Office for Legal Complaints ("OLC"). It removes the ability of approved regulators to provide redress to complainants and grants this power to the OLC. The OLC will handle complaints by way of an Ombudsman Scheme, the rules for which are to be determined by the OLC once it is established. This Part also makes provision for the appointment process and terms of office for members of the OLC Board, the chief ombudsman and the assistant ombudsmen. It also makes provision for the accountability of the OLC to the Board, the framework of rules by which the OLC will establish its operating procedures, and necessary changes to the regulatory arrangements of approved.

     11.     Part 7: Further Provisions Relating to the Board and the OLC makes provision as to the guidance that the Board may give. It also requires the Board to make rules providing for the payment by approved regulators of a levy, by which the Board and OLC are to be funded, clarifying when the levy is to be made payable, the amount payable, as well as the circumstances in which the levy may be waived. This section also makes provision for voluntary arrangements, outlining how these arrangements may benefit the Board, for example, in terms of advice on best regulatory practice.

     12.     Part 8: Miscellaneous Provisions about Lawyers sets out arrangements for alteration of the rules of the Solicitors Disciplinary Tribunal by the Board and defines the Board's power to give directions to the tribunal. This Part also makes provision regarding the register of trade mark attorneys and the register of patent attorneys. It covers legal professional privilege and amendments to the Immigration and Asylum Act 1999. This Part also makes provision in relation to Claims Management Services and Pro Bono costs, as well as conferring competence on the Scottish Legal Complaints Commission in respect of certain reserved matters.

     13.     Part 9: General makes provision regarding offences committed by bodies corporate and unincorporated bodies. It states how notices issued pursuant to provision made in the Bill are to be given and makes provision governing the procedure for making orders under powers in the Bill. It allows for minor and consequential amendments to other legislation to be made by order, and makes provision regarding the extent, commencement and short title of the Bill.

SUMMARY

     14.     The Legal Services Bill establishes a new framework for the regulation of legal services in England and Wales.

     15.     The Bill makes provision for:

  • A new regulatory framework that will replace the existing framework which comprises a number of oversight regulators with overlapping responsibilities and few clear objectives.

  • The establishment of the Legal Services Board: a single oversight body, independent from both Government and approved regulators (for example, the Law Society and Bar Council). It will have a duty to promote the regulatory objectives set out in Part 1.

  • The establishment of an independent Office for Legal Complaints (OLC): a body with statutory power to handle complaints about services provided by persons subject to oversight regulation by the Board, and to award redress in appropriate circumstances. It is expected to address concerns about the quality, independence, and consistency of complaints handling by the legal professions.

  • Alternative Business Structures (ABS) will enable lawyers and non-lawyers to work together on an equal footing to deliver legal and other services. External investment will be possible, and new business structures are expected to give legal providers greater flexibility to respond to market demands, within the UK and overseas. Licences will be conferred by licensing authorities and various safeguards will be in place.

  • It will be for the Board to advise the Government on any areas where it identifies problems within the legal services market, or "regulatory gaps".

BACKGROUND

     16.     In 2001 the Office of Fair Trading ("OFT") published a report 1 recommending that rules governing the legal professions should be subject to competition law and that unjustified restrictions on competition be removed. Following this, the Government carried out a consultation, and published a report into competition and regulation in the legal services market. 2

1 Office of Fair Trading, 2001, Competition in the Professions - A Report by the Director General of Fair Trading

2 Department for Constitutional Affairs, 2003, Competition and Regulation in the Legal Services Market - A Report Following the Consultation "In the Public Interest?"

     17.     In 2004 Sir David Clementi was appointed by the Government to conduct an independent review of the regulation of legal services. He found that many areas were in need of restructuring and development, and concluded that the current regulatory model was "inflexible, outdated and over-complex". 3 Sir David highlighted concerns about the current:

3 Clementi, Sir David, 2004b, Review of the Regulatory Framework for Legal Services in England and Wales - Final Report

  • regulatory framework,

  • complaints systems, and

  • restrictive nature of business structures.

     18.     In October 2005 the Government published a White Paper, The Future of Legal Services: Putting Consumers First. 4 The White Paper set an agenda for reforming the delivery of legal services. It proposed a new regulatory framework that would direct regulation to those areas where it is needed:

4 Department for Constitutional Affairs, 2005, The Future of Legal Services: Putting Consumers First

     "We will create a Legal Services Board, an Office for Legal Complaints and we will take steps to enable firms to provide services under alternative business structures to those presently available."

     19.     The draft Legal Services Bill was published in May 2006 and was subject to pre-legislative scrutiny by a Joint Committee of both Houses of Parliament. The Joint Committee reported in July 2006, and the Government published its response to this in September of the same year.

The legal services sector

     20.     Six existing forms of legal service or activity have been identified and are covered by the Bill. These are:

  • the right of audience in the courts;

  • the right to conduct litigation;

  • reserved instrument activities;

  • probate activities

  • notarial services;

  • the administration of oaths.

     21.     Provision of these services is currently regulated by legal professional bodies such as the Law Society or the Bar Council, as well as - to varying degrees - higher level regulators such as the Secretary of State for Constitutional Affairs, the Master of the Rolls and the OFT. In addition to these different regulators, there are also a range of major purchasers in the market who act as quasi-regulators, by setting their own contract terms and prices - for example, the Legal Services Commission, and commercial organisations who operate "panel" systems. This Bill will not directly affect these quasi-regulators.

     22.     There are a number of restrictions on the type of business structures through which legal services may be provided, mainly in regulators' professional rules. Some existing regulators prohibit lawyers from entering into partnership with non-lawyers. They also place restrictions on unregulated persons being formally involved in the management of these businesses, and unregulated persons having any stake in the ownership of such businesses. In many cases, these restrictions are at least partly due to the fact that legal regulators do not have the powers they need to effectively regulate practices in which non-lawyers exercise some form of control. This generally means that lawyers are limited in the extent to which they can form businesses with non-lawyers or with different types of lawyer. The Bill seeks to facilitate a regulatory framework in which different types of lawyer and non-lawyer are able to form businesses together, and in which regulators can be given effective powers to regulate such businesses.

     23.     If consumers wish to complain about any of the legal services listed above, they need to take that complaint up, in the first instance, with the person they are complaining about. If the complaint is not resolved in-house, consumers can then make a complaint to the regulatory body responsible for regulating the person providing the service (for example, the Law Society, the Bar Council). In the event that a complainant is not satisfied with the way in which a complaint has been handled by a regulatory body, they are then able to refer the complaint to the Legal Services Ombudsman. The Ombudsman will investigate the way in which the complaint was handled and the response from the professional body. However, if the Ombudsman believes that a complaint has not been investigated properly, s/he can require that the professional body look at the matter again. The Ombudsman also has powers to investigate individual complaints. In 2005, the Ombudsman exercised this power in less than 1% of cases. 5

5 Legal Services Ombudsman, 2005, Annual Report of the Legal Services Ombudsman for England and Wales 2004/2005

     SCHEDULES

24.     Explanatory notes to accompany each Schedule are contained within the notes for the clause introducing the Schedule.

     Schedule     Located in
1     The Legal Services Boardclause 2
2     The reserved legal activitiesclause 12
3     Exempt personsclause 18
4     Approved regulators (Parts 1 to 3)clause 19
5      Authorised persons (Parts 1 to 3)clause 21
6     Alteration of reserved legal activitiesclauses 23 & 25
7     Directions: procedureclause 32
8     Intervention directions: procedure (Part 1)     clause 40
     Intervention directions: procedure (Part 2)     clause 43
9     Cancellation of designation as approved regulator     clause 44
10     Designation of approved regulators as licensing authorities (Part 1)     clause 73
     Designation of approved regulators as licensing authorities (Part 2)     clause 75
11     Licensing rules (Parts 1 to 4)     clause 81
12     Entitlement to make an application for a licence to the Board     clause 82
13     Ownership of licensed bodies (Parts 1 to 5)      clause 87
14     Licensing authority's powers of intervention     clause 100
15     The Office for Legal Complaints     clause 111
16     The Law Society, solicitors, recognised bodies and foreign lawyers (Parts 1 to 3)     clause 170
17     Licensed conveyancing      clause 174
18     Immigration advice and immigration services (Parts 1 to 3)     clause 178
     19Claims management services     clause 179
     20Amendments in relation to the Legal Profession and Legal Aid (Scotland) Act 2006      clause 186
     21Minor and consequential amendments     clause 198
     22Transitional provision     clause 199
     23Repeals     clause 200
     24Index of defined expressions     clause 203

     COMMENTARY ON CLAUSES

     PART 1: THE REGULATORY OBJECTIVES

Clause 1: The regulatory objectives

25.     This clause sets out the seven regulatory objectives that the Legal Services Board, the approved regulators and the Office for Legal Complaints will be under a duty to observe when exercising their functions. It also sets out the professional principles of those authorised to carry on reserved legal activities (the promotion and maintenance of which is one of the regulatory objectives).

26.     The Bill does not rank these objectives and principles in order of importance. The Board, the Office for Legal Complaints and the approved regulators will be best placed to consider which objectives and/or principles are the most important in a particular instance. Clause 3 sets out the Board's responsibilities in relation to the regulatory objectives. Clauses 27 and 110 do the same in respect of the approved regulators and the Office for Legal Complaints.

PART 2: THE LEGAL SERVICES BOARD

27.     This Part of the Bill makes provision regarding the Board's constitution and its functions.

Background

28.     Part 3 of the Bill identifies six forms of legal services or activities, which equate to the reserved legal activities specified in the Bill.

29.     Approved regulators, such as the Law Society and The Bar Council, currently regulate practitioners carrying on these services or activities. In addition to these approved regulators, the current system involves a number of higher level regulators, including:

  • the Secretary of State for Constitutional Affairs,

  • the Master of the Rolls,

  • the higher judiciary,

  • the Legal Services Ombudsman,

  • the Legal Services Complaints Commissioner,

  • the Immigration Services Commissioner,

  • the Home Secretary,

  • the Department for Trade and Industry,

  • the Office of Fair Trading,

  • the Financial Services Authority, and

  • the Archbishop of Canterbury.

30.     In his 2004 independent review of legal services 6 Sir David Clementi referred to observations that the current regulatory arrangements resembled a "maze" and stated that he agreed with the Government's earlier statement 7 that the existing regulatory system for legal services was "outdated, inflexible, over-complex and not accountable or transparent enough". In 2005, following Sir David's report, the Department for Constitutional Affairs published a White Paper, The Future of Legal Services: Putting Consumers First. 8 The White Paper detailed proposals to reform the current system by implementing a new regulatory framework that would remove the "regulatory maze" of oversight regulators.

6 Clementi, 2004b

7 Department for Constitutional Affairs 2003

8 Department for Constitutional Affairs, 2005

31.     This Part of the Bill establishes a Legal Services Board that will act as an independent oversight regulator. It will sit at the head of the new regulatory framework. The Board will oversee the new approved regulators, and will seek to ensure that they carry out their regulatory functions to the required standards. Both the Board and the approved regulators must have regard to the regulatory objectives when exercising their functions.

32.     This Part of the Bill sets out the structure and functions of the Board. It outlines the functions that the Board will have in relation to the regulatory objectives, and the ways that it will maintain these principles. It also sets out the requirements for both appointment to and membership of the Board and the powers that the Secretary of State will have in relation to these processes.

Clause 2: The Legal Services Board

33.     This clause establishes a corporate body called the Legal Services Board to act as an independent oversight regulator.

34.     Schedule 1 is about the Board and includes:

  • the membership of the Board,

  • the terms of appointment and tenure of members,

  • staffing,

  • committees,

  • the Board's powers of delegation, and

  • borrowing and accounts rules in relation to the Board.

35.     Sub-paragraph (1) of paragraph 1 provides that the Board is to be constituted by a chairman, a Chief Executive and between seven and ten other persons. The Secretary of State will appoint all Board members other than the Chief Executive. The Board will appoint the Chief Executive.

36.     The Board must have a majority of lay persons as defined by sub-paragraph (4) of paragraph 2 of Schedule 1. "Lay persons" are persons who have never been authorised to conduct activities that are now defined as reserved legal activities under the Bill. Claims managers and Scottish and Northern Irish lawyers also fall outside the definition of "lay person."

37.     Paragraph 3 makes provision regarding criteria the Secretary of State must have regard to when appointing Board members.

38.     It is expected that, as required by the Commissioner for Public Appointments, all Ministerial appointments to the Board will be made in accordance with the Commissioners' Code of Practice. As part of the planning of the appointments process, it is expected that the Secretary of State will seek the views of all interested parties (including the Chair and other members of the Board) on issues such as selection criteria, and the diversity of skills and experience needed on the Board. In accordance with the Office of the Commissioner for Public Appointments Code of Practice, it is expected that a selection panel, including, amongst others, a representative from the public body itself and an Independent Assessor, will conduct the key stages of the appointments process. The outcome of the Panel's deliberations will form a recommendation to be made to the Minister.

39.     Terms of appointment are set out in paragraphs 4 to 9 of the Schedule. A member (other than the Chief Executive) must be appointed for a fixed period, which must not exceed five years. A person may only be re-appointed once for a further period not exceeding five years.

40.     Paragraph 7 of Schedule 1 sets out the circumstances in which the Secretary of State may remove Board members. Where the Secretary of State wishes to remove a Board member other than the chairman or the Chief Executive, he must first consult with the chairman.

41.     The chairman or other members may also resign by giving notice to the Secretary of State. These provisions do not apply to the Chief Executive, who is appointed by the Board.

42.     Paragraphs 11 to 15 make provision regarding the appointment of staff members by the Board. The Board must appoint a Chief Executive, and may appoint any other staff that it considers appropriate to assist in the performance of its functions. The Bill also provides that a member of staff may also be a member of the Board, but may not be the chairman.

43.     Paragraph 17 sets out the Board's powers to form committees and sub-committees. Paragraphs 18 and 19 enable the Board to regulate its own proceedings and those of its committees.

44.     Paragraph 20 allows the Board to authorise individual Board members, committees and sub-committees of the Board and members of the Board's staff to carry out the Board's functions on its behalf. However, the Board will retain accountability for the exercise of its statutory functions, as it may not delegate its rule-making functions under the Bill, save for any rule - making functions it has in respect of its own procedures, the procedures of its committees and sub-committees and in its capacity as an approved regulator or a licensing authority.

45.     Paragraph 21 allows the Board to borrow money, subject to the authorisation of the Secretary of State.

46.     Paragraph 22 requires the Board to keep proper financial accounts. Requirements to produce an annual report are set out in clause 6.

47.     Paragraph 23 states that the Board is not to be regarded as having the same status as the Crown. Accordingly, the Board's property is not to be regarded as property held on behalf of the Crown and staff are not to be regarded as servants or agents of the Crown or as enjoying the same status.

48.     Paragraphs 27 to 29 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. These are standard provisions which apply to many public bodies.

49.     Paragraph 30 provides that the Board, its members and its staff will not be held liable for any damages resulting from the exercise of the Board's functions, except in the cases where an act or omission is carried out in bad faith or was unlawful in accordance with section 6 subsection (1) of the Human Rights Act 1998.

 
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Prepared: 24 November 2006